February 29, 2000 12:55 PM PST

US West CEO Trujillo to resign

Citing differences in vision with Qwest Communications chief executive Joe Nacchio, US West CEO Sol Trujillo said today he will step down after the two companies have merged.

In a letter to employees today, Trujillo said he would resign his position in order to smooth the transition into the new company.

"We are now at a critical point in the merger," Trujillo wrote. "Even though we have agreed on a wide range of issues, we have not found agreement on key strategic issues."

"When the merger of US West and Qwest closes later this year, I will be stepping down from my leadership position," Trujillo added. "I will not be joining the new Qwest."

Trujillo's departure is emblematic of the difficulties in joining an old-guard "Baby Bell" local telephone firm with one of the new breed of fast-moving, unregulated fiber-optics players. Following the announcement of Qwest's purchase of US West, that company's stock plummeted as the market tried to figure out how the two could work together.

The stock has largely recovered as Wall Street has seen benefits in joining US West's local network and high-speed Internet business with Qwest's long-distance fiber-optic networks, however. US West shares have gone up consistently since the merger announcement.

Trujillo had been slated to take on a co-chairman role in the new company, but had made it clear that the organizational buck would stop with Nacchio. Analysts had long said this would be an unstable position unless Trujillo was a clear No. 2--and that Trujillo likely wouldn't be happy in that role for long.

"The dual CEO role has not been successful in many companies. You eventually have to have one leader, and one direction," Banc of America Securities analyst Rex Mitchell said. "That's what this will do."

Trujillo had been instrumental in turning US West from the smallest major local phone network into a company focused considerably more on high-speed Internet access and innovative technology such as video over phone lines.

Critics have said this focus has come at the expense of the company's basic phone business, however. US West has consistently been the source of complaints from consumers and some rivals about slow network installation times and poor network quality in many of its outlying areas.

Trujillo is also credited with the bold step of opening merger talks between the old-guard US West and the new Net-focused companies, taking the consolidation drive farther than had his other Baby Bell peers.

US West went on the merger warpath as far back as late 1998, ultimately settling on Global Crossing as a partner. But Qwest broke that deal up by kicking off a last minute bidding war, and Trujillo ultimately accepted Nacchio's offer.

The deal won't leave Trujillo empty-handed, however. According to statements filed with the U.S. Securities and Exchange Commission, he will have immediate access to $17.5 million in previously unvested stock after the mergers. He will leave 3 million options in the new company on the table, however.

His departure will leave Nacchio tasked with fitting US West's highly regulated local telephone business into the new company's business model.

US West is still barred by federal law from offering long-distance telephone service inside its 14-state home market. That restriction will carry over to Qwest, unless it can prove that it has opened US West's home markets fully to competition by other companies offering local phone service.

Yesterday, the Supreme Court knocked down the companies' bid to revive a two-year-old marketing arrangement under which US West would resell Qwest's long-distance service.

Trujillo isn't likely to fade gracefully from the Internet scene that he's spent so much time focusing on, however. The chief executives of DSL providers Covad Communications and Rhythms NetConnetions are each former US West executives, and analysts say Trujillo is likely to follow suit.

"I think we could see him in Silicon Valley," Mitchell said. "Because of his data reputation, I'm sure a start-up would love to see him join up."

 

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