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US: Telecom Swap Meet

by Cynthia L.
September 25th, 2002

Surprise, surprise. Some big telecoms, just like a variety of other New Economy firms, engaged in questionable accounting practices to inflate revenues. In the case of several brand-name telecoms, the companies swapped bandwidth capacity with each other and then booked the deals as revenue. Revelations of just how far many companies took this scheme -- including allegations of verbal agreements made in tandem with written contracts -- were highlighted at a congressional hearing yesterday.

One former executive explained why the swaps existed at all: "Not meeting the numbers was absolutely unacceptable," Patrick Joggerst, Global Crossing's former head of carrier sales, told members of the House Energy and Commerce Committee's Oversight and Investigations subcommittee.

Qwest Communications was singled out for the hot seat as a conga line of witnesses told the committee how the Denver-based telecom allegedly made secret deals with partners. Flag Telecom Holdings, Global Crossing and Cable & Wireless officials testified that verbal or secret agreements were made on the side of written agreements with Qwest so that internal auditors wouldn't be tipped off. Qwest reportedly insisted on the special agreements. But Qwest's former director of strategic negotiations told Congress that she didn't take part in any verbal side contracts.

"Confronted with shrinking markets and declining business volume, executives at Global Crossing and Qwest used capacity swaps to conceal slowing growth by booking fictitious revenue," the subcommittee's chairman, Rep. James C. Greenwood (R-Pa.) said, as quoted in The Washington Post.

Qwest's former chief financial officer, Robin Szeliga, testified that she became aware of the side agreements when Qwest's comptroller expressed concerns last year. The Rocky Mountain News reported that Szeliga told company official in a memo "there will be no side letters or verbal commitments outside of the [fiber swap] agreement that conflict with the contractual upgrade language or specifically indicate that an upgrade will be agreed to."

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