Qwest Communications and LCI International took an aggressive growth step last week, announcing a $4.4 billion merger. The deal creates the fourth-largest long-distance company in the U.S., with 5800 employees, combined 1997 revenues of $2.3 billion and current market capitalization of $11 billion, according to the principals.

Although the new company will operate under the Qwest name, officials didn't describe the deal as a buyout but rather as a mutually beneficial relationship.

For example, LCI has established sales and customer support channels for long-distance services. Qwest had begun to form a sales and support force of its own, but merging with LCI gives it immediate access to a large, experienced staff.

LCI, on the other hand, gains access to the nationwide, high-capacity network Qwest is building and has held up as the key element in its business plan for high-speed data services and Internet protocol (IP) telephony.

"It's a unique combination," said Brian Thompson, LCI's chairman and CEO. "It's a rare case where you get the kind of hand-in-glove situation you find here."

The combined company's savings on "duplicate capital expenditures" should be about $300 million in the first year alone, and the merger gives each company's growth plans a significant boost, said Joe Nacchio, Qwest's president and CEO.

"We're accelerating the same vision we had-with different business plans-by probably three years," he said.

The transition to integrated operations will not be immediate, however. A steering committee will orchestrate the transfer of LCI's traffic onto Qwest's network. The new company also must develop a plan to incorporate Qwest's data services into LCI's marketing channels.

"When this merger takes place, it's all our network," Thompson said. "The question is, 'How do we optimize this?'"

The network must support the portfolio of fiber leases that LCI already has, and Thompson is confident that will not be a problem.

"We have a heck of a lot of capacity," Thompson said. "We're going to have fairly well-documented currency in our network for the next three to four years."

The merger may elevate concerns about Qwest's ability to straddle the line between being an IXC wholesaler and competitor.

But attracting business from competitors should be no problem, Nacchio said. "If you provide services the carriers want, they'll use them," he said. "We still represent less than 1% of the [long-distance] market."

While the companies believe all the internal issues are covered, Jeff Pulver, IP telephony proponent and president of Pulver.com, warned that the actual merger, expected to be completed in June, may not go as smoothly as it appears on paper.

"It looks good," Pulver said "but culturally, I don't know how it's going to work out. I'm long on the opportunity but cautious on the results."

Pulver also expressed concern about the possibility of IP telephony companies being brought under the regulatory umbrella and forced to pay access charges to support universal service, saying that access charges could hurt Qwest's stock value.

But Nacchio downplayed the importance of that issue and said he and Thompson agree that there should be access reform.

If the deal goes through, the merged company should bear a strong imprint from LCI. The lack of overlapping business units should mean very few layoffs, and Thompson will become a full-time vice chairman, Nacchio said. "It's not the value at merger, it's the value we create after the merger that's important," he said. "Chemistry and professionalism are going to make this a successful deal."