For

Qwest

(Q)

, it's out of the frying pan and into the Dutch oven.

Struggling Denver telco Qwest said Wednesday it faces another big charge related to its stake in its teetering European joint network venture,

KPNQwest

(KQIP)

. The charge would be the company's second this year on the struggling venture.

KPNQwest warned Wednesday that without new cash to sustain operations, its shares and bonds could have little or no value. Qwest and Dutch telco

KPN

(KPN)

each hold 40% stakes in the European data service venture.

Qwest says it has no obligation to fund KPNQwest and that the potential collapse of the venture won't materially hurt Qwest's revenue or customer service; KPNQwest represents only about $10 million in quarterly revenue for Qwest. One debt analyst says he doesn't expect any charge to put Qwest in hot water with its banks.

Still, the Denver telco potentially faces a charge of as much as $706 million if KPNQwest falls into insolvency. Moreover, the straits of the once-promising European venture give already anxious Qwest investors something else to worry about. Qwest shares, off more than 80% over the past year, were down 9 cents to $5.41 in early afternoon trading Wednesday.

Swinging

Many Qwest investors have been keeping their eye on the company's financing picture in recent weeks. That situation, at least, isn't likely to be affected by any KPNQwest writedown, observers say.

"Our read of the bank documents is that it has no effect on compliance with the important debt/EBITDA covenant," says CreditSights analyst Glenn Reynolds. "They still need to work on both debt and EBITDA, but KPNQwest is the undercard on a major prize fight."

Qwest shares have plunged over the past year as the telecom industry swung decisively in investors' eyes from a fast-running growth engine to a debt-saddled, deteriorating cash incinerator. As business has slowed, debt costs have become backbreaking, prompting debt downgrades and stock selloffs.

In a recent attempt to appease creditors, Qwest has hired a top merger expert to help sell some of the company's assets -- and potentially all of the company, analysts say. Qwest's role in network capacity swaps with other cash-strapped telcos, which prompted a

Securities and Exchange Commission

inquiry, also looms over the company. Qwest has said its accounting was proper.

That's not all. Qwest, formed in a 2000 merger with regional Bell US West, has said it would consider writing down the value of goodwill and intangible assets -- primarily incurred in the merger -- by $20 billion to $30 billion. As of March 31, Qwest carried $34.5 billion in goodwill and intangibles on its books.

A company representative said the charges and writedowns will have "absolutely" no effect on the credit terms and covenants it has agreed to with its bankers.

Head Winds

The KPNQwest situation has been coming to a head for some time. Last quarter, Qwest took a charge of $462 million when it wrote down the carrying value of its investment in KPNQwest to reflect the $3.30 share price at the end of March. KPNQwest shares have since dropped to 35 cents Wednesday on news that it was close to bankruptcy. Qwest says it expects an additional writedown to be significant.

KPNQwest, like many upstart network builders, was spawned in an era of high expectations for runaway Internet traffic growth. But heavy debts and a surplus of companies offering similar communications services led to woefully disappointing sales reports and the attendant investor flight.

For telecom investors, that story seems unending.