Qwest ( Q) plunged for the sixth day running Friday, as the company's plan to boost liquidity failed to solidify investor confidence.

After the market closed Thursday, Qwest told Wall Street it had drawn down its entire $4 billion bank credit line because it was unable to roll over some commercial paper obligations. The company also outlined capital spending cuts and asset sales that it said would keep it liquid until it turns cash-flow positive in the second quarter. Revenue and cash flow at Qwest, which is burdened by some $25 billion in debt, have been slowing amid a nationwide recession and an industrywide spending slowdown.

Friday all was quiet on the funding front, but the stock continued to fall in furious trading, suggesting that investors weren't altogether comforted by the company's plans. The stock slid 75 cents, or 10%, to $6.74 in midday Big Board trading. Some 36 million shares had changed hands, making the stock the NYSE's most active.

Qwest the Knife

One particular element of Qwest's actions Thursday is still reverberating through the industry: The Denver-based telco's newly reduced spending plan. Most notable was the dramatic drop in what Qwest has set as the floor for capital spending needed to maintain its network.

Under pressure on a number of fronts, including questions about liquidity, debt covenants and accounting practices, Qwest again pulled out the knife of first resort, slashing equipment spending for the third time in as many months. The new 2002 capital expenditure target is $3.7 billion -- 56% below 2001 levels. Qwest, which started as a next-generation builder of national and global networks and then acquired the cash cow U S West at the crest of the tech bubble with its then-highflying shares, says it has largely completed its network.

The cut itself, from a recent target of $4 billion to $4.2 billion, is bad enough for equipment suppliers like Ciena, Juniper, Cisco, Nortel and Lucent, all of which count on the big telcos like Qwest as primary customers. Even more troubling, however, is a reduction in the limit Qwest has set for how low spending could go.

Qwest now says $1.5 billion is the minimum it would need to spend annually to keep its network operating at current capacity. The previous so-called maintenance capital level was $2 billion. The news is distressing for the gearmakers because capital spending has been taking a beating across the industry for more than a year now, and Qwest's move seems to indicate that gravity is pulling ever more persistently on spending plans. Telecom equipment stocks fell Friday amid a broad techwide pullback.

Nothing New

Turmoil's nothing new in telecom, of course. Rumors that Qwest had been shut out of the CP market, which is used by big companies to fund short-term cash needs, helped to drive its stock down 13% in Thursday trading. Worries about accounting issues have also continued to swirl around the company, whose bookkeeping has been called aggressive by a number of investors and analysts. Qwest's numbers have come under greater scrutiny recently in the wake of the collapses of Enron and Global Crossing.

Investors are especially leery of the potential ramifications Qwest may face if regulators determine that the rash of network capacity sales and purchases involving other phone companies were possibly booked at inflated values, or without an actual exchange of assets.

Qwest has maintained that its accounting is proper, and the company said Thursday evening that it doesn't expect to have to restate any revenue figures in light of the regulatory scrutiny of Global Crossing. The company also promised to update investors weekly on its progress in slimming down and staying afloat.

But even that kind of effort is unlikely to lift the uncertainty shrouding the networking sector. Qwest has promised to review its spending levels on a weekly basis, too, and the way things are going, that can only mean more bad news for everyone in telecom.

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