Moving the Market: Wachovia to Pay $37 Million Fine, Ending SEC Case

By Carrick Mollenkamp
352 words
5 November 2004
The Wall Street Journal

Wachovia Corp. agreed to pay a $37 million fine to settle a Securities and Exchange Commission investigation into disclosures of stock purchases in its 2001 takeover by First Union Corp. and efforts to fend off a competing takeover offer by another bank.

Wachovia, based in Charlotte, N.C., and the fourth-largest U.S. bank in assets, settled the 19-month old SEC probe without admitting or denying allegations that the former Wachovia failed to properly disclose its purchase of about $500 million in First Union shares over a nearly two-month period.

The former Wachovia was being acquired by First Union, and the SEC alleged that the stock purchases essentially propped up First Union's share price, making it appear more attractive to Wachovia shareholders.

First Union rival SunTrust Banks Inc. emerged shortly after the April 2001 merger agreement with a hostile bid that initially offered shareholders a 17% premium to First Union's offer. But that premium shrank as Wachovia snapped up former First Union shares, frustrating SunTrust executives and undermining their offer.

The full scope of the stock purchases by the former Wachovia wasn't publicly disclosed until after shareholders approved the Winston-Salem, N.C., company's sale to First Union -- and more than three months after the purchases began. The former Wachovia said it had bought only $18 million of First Union stock and intended to buy additional shares from time to time.

In a statement yesterday, the SEC said the former Wachovia "should have publicly disclosed more detailed information about its purchases of First Union so that the market would be able to evaluate the effect of those trades on the movement of the price of First Union stock."

The SEC also criticized the combined company for what it described as impeding its investigation, including "incomplete and untimely document productions" and failing to "ensure comprehensive and complete responses to requests made and subpoenas issued by the SEC."

A Wachovia spokeswoman said the company was pleased to have resolved the SEC probe.

Qwest Posts Loss, in Part From Litigation Reserves

By Christine Nuzum Dow Jones Newswires
404 words
5 November 2004
The Wall Street Journal

Qwest Communications International Inc. posted a third-quarter loss, as reserves for litigation increased and fewer access lines led to a drop in revenue.

Qwest, a local and long-distance phone carrier based in Denver, posted a loss of $569 million, or 31 cents a share. The figures included expenses of $250 million, or 14 cents a share, to boost litigation reserves. A year earlier, Qwest earned $1.83 billion, or $1.05 a share, reflecting $2.52 billion in income from the sale of its directories business.

Last month, Qwest agreed to pay $250 million to settle a Securities and Exchange Commission investigation into the company's accounting practices. Qwest said it will pay the settlement's first $125 million annual installment in the fourth quarter. A Justice Department investigation continues, and the SEC is investigating several former Qwest executives.

Qwest's third-quarter revenue slipped to $3.45 billion from $3.57 billion, but rose slightly from the second quarter. Access lines fell 4.1% from the third quarter of last year, and declined 1% from the second quarter of 2004.

"Not to be doing high fives, but we do see some improvement," said Chairman and Chief Executive Richard Notebaert, commenting on the performance of the wireline division.

The company added 102,000 high-speed Internet subscribers during the quarter, bringing its total to 956,000.

Mr. Notebaert said in a conference call that the company is focusing on increasing revenue and cutting costs so it can become profitable. "We must even further accelerate cost cuts," he said.

Qwest has cut 4,000 jobs in the last year. In an interview, Mr. Notebaert de-emphasized job cuts as part of future savings, but didn't rule out the possibility.

Through its resale arrangement with Sprint Corp., Qwest plans to launch new wireless services -- Push to Talk walkie-talkie-type service and video mail -- before the holiday selling season, said Mr. Notebaert. Qwest will finish transferring its customers onto Sprint's network by early 2005, he said.

Qwest said it is testing a broadband wireless service known as WiMax that will offer customers video content and other services requiring high bandwidth.

Qwest shares were up 17 cents to $3.58 as of 4 p.m. in New York Stock Exchange composite trading.

BellSouth, SBC Plan Web Service For Yellow Pages --- Phone Concerns to Create National Online Directory As Industry Makes Changes

By Almar Latour
441 words
4 November 2004
The Wall Street Journal
 

BellSouth Corp. and SBC Communications Inc. are creating a joint, nationwide, Internet yellow-pages service, according to people familiar with the situation.

The two companies are close to an agreement to acquire YellowPages.Com Inc., an independently owned online directory publisher, for slightly less than $100 million, according to people close to the situation. BellSouth and SBC plan to announce the deal as early as tomorrow.

The new jointly owned entity will be called YellowPages.com, which the companies plan to fashion into a nationwide online directory expected to draw more than 50 million online consumer searches a month, these people add.

The move is the latest in a series that tie BellSouth and SBC, two of the nation's largest phone companies, more closely together. The pair already own Cingular Wireless Services Inc., and in February acquired AT&T Wireless Services Inc. for $41 billion to create the largest cellphone operator in the U.S. Some analysts expect all SBC and BellSouth operations to eventually merge.

The yellow-pages industry is changing rapidly, with traditional print yellow pages owned by the nation's largest phone companies increasingly coming under attack from upstart rivals such as Yellow Book USA as well as competing media such as TV, radio and the Internet.

To attract more traffic and gain market share, phone companies are increasingly investing in online directories. Verizon Communications Inc. has already revamped its online directory, named Superpages.com.

The new BellSouth-SBC venture will be based in Pasadena, Calif., and will have operations in Henderson, Nev., where YellowPages.com is based.

Yellow-page operations are important to phone companies because they have high profit margins. A number of the nation's local phone companies have sold part of their operations to raise cash. Atlanta-based BellSouth is considering an eventual sale of its print directory unit, people close to the company say.

Such a move could serve to help pay for the costly rollout of new technologies such as fiber and wireless. SBC is based in San Antonio.

Qwest Communications International Inc., which reports its quarterly earnings today, already sold off its entire directories business in order to help reduce its heavy debt load. The unit is now called Dex Media Inc. and still serves as the main yellow pages in Qwest's region. Verizon, also seeking to reduce its debt load, has sold off its Canadian directory.

Meanwhile, popular search engines such as Google Inc. are increasingly becoming a threat to traditional yellow pages.

Time Warner Sets Aside Reserves To Cover U.S. Accounting Probes

By James Bandler
571 words
4 November 2004
The Wall Street Journal
 

Time Warner Inc., still dogged by bookkeeping issues, disclosed it has set aside $500 million to cover costs relating to federal inquiries into accounting at its America Online unit and said it will restate earnings from 2000 and 2001 to include losses from AOL Europe.

Creating the reserves helped depress Time Warner's third-quarter profit, which fell 7.8% despite relatively strong results from most of the New York media company's operations. Net income was $499 million, or 11 cents a share, down from $541 million, or 12 cents a share, a year earlier.

Revenue rose 4.9% to $10 billion, driven by good results at its cable-networks and cable-systems divisions. But America Online's revenue continued to be lackluster, hurt by the defection of subscribers to high-speed Internet services.

Time Warner's decision to restate its 2000 and 2001 results is likely to reinforce doubts about how AOL was performing in 2000, the period right before the online company completed its merger with Time Warner. A two-year-long Securities and Exchange Commission investigation into accounting at America Online has focused on transactions that may have boosted America Online's results for a period that also included 2000.

The restatement could increase Time Warner's reported $4.2 billion loss for 2001 by as much as $855 million and reduce its reported $1.2 billion net income for 2000 by as much as $308 million, depending on the final accounting treatment, Time Warner said.

AOL Europe was a 50-50 joint venture between AOL and Bertelsmann AG. In early 2000, after AOL and Time Warner agreed to merge but before the deal closed, AOL and Bertelsmann negotiated a complex agreement for AOL to buy Bertelsmann's stake. The buyout wasn't completed until 2002. At that point, Time Warner began consolidating AOL Europe's results.

Time Warner said yesterday that, after an internal review and discussions with SEC staff, it has decided the venture's losses should have been consolidated from the time the agreement was negotiated.

The restatement raises fresh questions about the role Ernst & Young LLP played in auditing the accounts of both America Online before the merger and the combined company afterward. The firm is already facing questions about its oversight of AOL's overall accounting. Ernst & Young declined to comment.

The restatement is the second announced by Time Warner since Chief Executive Richard Parsons assumed his post in 2002. That year, the company restated $190 million in revenue, mostly at AOL, as a result of an internal review of ad deals at the unit.

But it doesn't resolve a high-profile disagreement between the SEC and Time Warner over accounting for an advertising transaction with Bertelsmann also relating to the AOL Europe buyout.

Time Warner said yesterday the broader SEC investigation continues. It said the $500 million reserve represented its best estimate of the cost of resolving the probes. The company hasn't set aside any reserves to settle the numerous civil lawsuits it faces.

As of 4 p.m. in composite trading on the New York Stock Exchange, Time Warner shares rose to $16.59, up 1.9%, or 31 cents.

Separately, the company extended by two years the contract of Don Logan, chairman of its media and communications group.

Holder of Patent On Global Trade By Web Sues Dell

By William M. Bulkeley
434 words
2 November 2004
The Wall Street Journal
 

A tiny company that holds a U.S. patent covering all international commerce handled by computer sued personal-computer titan Dell Inc. alleging patent infringement.

DE Technologies Inc., of Blacksburg, Va., filed the suit in U.S. District Court in Roanoke, Va. Its founder and chief executive, Ed Pool, said that ultimately DE Technologies hopes to license its patent to multinational companies in return for a small percentage of the value of their international shipments -- a sum that could collectively amount to billions of dollars.

Dell is the first company DE has sued under the patent. The Round Rock, Texas, company had no comment on the lawsuit. In the fiscal year ended Jan. 30, 36% of Dell's $41.4 billion in sales came from outside the U.S. A majority of Dell's sales to consumers and small business are handled online.

DE Technologies holds a business-method patent. Such patents cover processes and methods, rather than gadgets or chemical compounds. Companies started filing such patents rapidly following a 1998 Appeals Court ruling upholding their validity. Critics say many business-methods patents shouldn't have been awarded, because the processes they seek to protect are obvious or because they simply involve introducing computers into procedures that historically had been carried out with paper and pencil. The patent office is supposed to give patents only to inventions that are both novel and nonobvious.

The DE Technologies patent was filed in 1996 and awarded in 2002. After the Patent Office initially said it planned to issue the patent in 2000, it was cited in debates in Congress as an example of a patent-protection system run amok because of the breadth of its claims. The Patent Office then re-examined the DE Technologies patent. According to its lawsuit, the re-examination also was approved by a special patent review board and then reviewed again by a deputy commissioner, before the patent finally was issued in October 2002, almost six years after its preliminary filing.

Bruce Lagerman, a former patent lawyer who is president of DE Technologies, insisted "the patent is rock solid."

Mr. Pool, 49 years old, commissioned development of software for international commerce during the 1990s when he was importing night-vision scopes from the former Soviet Union.

Merchant & Gould, a Minneapolis intellectual-property law firm, is representing DE Technologies. Mr. Pool said the firm will be paid on a contingency basis but declined to give details. Gregg Anderson of Merchant & Gould declined to comment on fees.

 

Qualcomm Invests In TV Broadcasts Over Cellphones

By Don Clark
399 words
2 November 2004
The Wall Street Journal
 

Qualcomm Inc. said it is setting up a nationwide network to help U.S. cellular operators broadcast TV programming to cellphones.

The company, which sells chips and licenses technology to cellphone makers, said it expects to invest $800 million over the next four or five years in the network subsidiary. Some of the funds may be contributed by partners. Qualcomm already has acquired licenses to broadcast in a frequency band that has been used for television channels.

Qualcomm initially is targeting 30 U.S. cities for the new network, dubbed MediaFLO USA Inc., said Paul Jacobs, president of Qualcomm's wireless and Internet group. Qualcomm, which said it eventually may spin off the subsidiary to its investors, plans to act as an aggregator of programming for the network, striking deals with cable operators and TV stations to deliver their content to mobile users. The network is expected to begin operating in 2006.

Delivering TV signals to handsets is one of the next frontiers of the cellular world, which already is expanding quickly with game software, messaging and other options. Some users in countries such as South Korea already receive TV programs on their phones, but simultaneously delivering the same signal to many users clogs ordinary cell networks.

So Qualcomm, Texas Instruments Inc. and others are developing technologies that act more like conventional TV broadcasts. Mr. Jacobs said his company's technology -- called FLO, for forward link only -- can use higher wattage and higher broadcast towers than ordinary cell sites. That allows a city to be covered with an average of just 2.5 transmitters, a fraction of the number typically needed by cellular carriers.

"We've had very interesting conversations with broadcasters" about licensing programming, Mr. Jacobs said. While he doubts that many people will use their phones to watch complete TV shows, he expects news and short video features will become popular.

Qualcomm's path to the market isn't completely clear. In some markets, Mr. Jacobs said, TV stations are using the frequency that Qualcomm has licensed. They are expected to move eventually, under federal rules that are designed to encourage digital broadcasts, but that transition period could take time.

Bill Krenik, TI's manager for wireless advanced architecture, said he thinks Qualcomm won't have all of its channels clear until 2008 at the earliest.