What's Buffett's Telco Game Plan?

For a guy with an aversion to technology stocks, Warren Buffett is getting mighty busy in the telecom investing arena. Just two weeks after Buffett's $100 million investment in Level 3, his Berkshire Hathaway investment company is reportedly a big buyer of Qwest's bonds.

Is this another value play by Buffett, who is renowned for his eye for bargains? Or is it part of a secret plan to force Qwest into bankruptcy so Level 3 can acquire some of its assets for a song? The story in Denver Post, which is Qwest's hometown paper, openly speculates that Buffett may have an ulterior motive tied to his Level 3 connection.

Intriguing as those connections may be, I'm deeply skeptical that Berkshire's Qwest purchases are being done in cahoots with Level 3 CEO Jim Crowe. Buffett is famous for his discipline and consistency in sticking to certain kinds of investments. During the tech boom, Buffett took a lot of heat for refusing to invest in the technology sector. His rationale was simple: he invests in what he knows and understands, and he didn't feel he understood technology well enough to have confidence that his investments were wise.

That came at a cost. "We're perfectly willing to trade away a big payoff for a certain payoff," Buffett said at Berkshire's 1999 annual meeting. Three years later, history has vindicated Buffett's decision as the correct one for long-term buy-and-hold investors. Wall Street's tech euphoria proved a winning game for short-term market timers. That's not Buffett's game.

So what is his telecom strategy today? Does Buffett understand telecom well enough to commit Berkshire's money to a bottom-fishing splurge? My guess is that Buffett understands that the survivors of the telecom crash will be good investments over the long haul. He clearly believes Level 3 will survive, and has apparently decided that Qwest's odds of avoiding bankruptcy, along with the discount on its bonds, are tempting enough to take the plunge.