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The U.S. Securities and Exchange Commission’s investigation into alleged improper accounting by bankrupt telecommunications provider Global Crossing Ltd. turned Monday to rival Qwest Communications International Inc. As part of its inquiry, the SEC issued subpoenas to Denver-based Qwest seeking documents concerning a series of long-term contracts consummated last year with long-haul broadband providers such as Bermuda-based Global Crossing, Qwest said in a statement. Neither Global Crossing nor Qwest returned phone calls for comment. Industry experts believe the focus of the investigation is on how Global Crossing and Qwest accounted for the sale of capacity on each other’s fiber-optic networks. Both companies sell and lease space on networks of fiber-optic cables that run between U.S. cities and other countries. Customers include most of the world’s largest telephone and wireless providers. The SEC, said sources, is concerned that when Global Crossing sold capacity on its fiber-optic network to a competing carrier it recorded the transaction as deferred revenue but reported the swap as a “cash” to bolster its year-end revenue results. Simultaneously, Global Crossing allegedly would purchase capacity from carriers but record the transaction as a capital expenditure, as opposed to a normal operating expense. Though critics contend that such accounting worked to inflate earnings and revenues, one Wall Street analyst countered that Global Crossing had dutifully reported all of its transactions as required under the Generally Accepted Accounting Principles, or GAAP, and that such practices have been the norm within the industry. “Everybody does it,” the analyst said. “It may be aggressive accounting, but there’s nothing illegal. They were all doing it in order to [make] their revenue lines look good.” The deals are known as IRUs, or Indefeasible Right of Use, and are common among the handful of companies that operate so-called long-haul, fiber-optic network. The practice is a low-cost way of filling in holes in their respective systems. In filings with the SEC, Global Crossing reported that it received cash commitments totaling $358 million in the second quarter and $625 million in the first quarter. Both transactions were reported as revenue. Capital expenditures for 2001 totaled about $4.9 billion. Global Crossing filed for bankruptcy Jan. 28 in the largest default ever by a telecommunications company. Last week, the Federal Bureau of Investigation reportedly launched its own inquiry into the company’s accounting practices. The FBI’s decision to enter the case may have been prompted in part by the revelation that Global Crossing chose not to disclose a letter from its former vice president of finance, Ray Olofson, charging that the company had consistently misled investors. Global Crossing’s auditor, Andersen, which also represents the bankrupt energy trader Enron Corp., said it was not informed about the letter. Copyright (c)2002 TDD, LLC. All rights reserved.

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