Qwest courts analysts in N.Y. amid skepticism
By Kimberly S. Johnson
Denver Post
Sunday, February 24, 2008

Qwest chief executive Ed Mueller's trip to New York to meet with analysts Monday is an important step in convincing analysts that he has a solid, long-term plan for the company.

The last time Qwest held an "Analyst Day" was in December 2001 here in Denver, its hometown.  This year's event will be at the St. Regis Hotel in Manhattan.  About 200 people are expected to attend.

While Qwest is rolling out the red carpet, some analysts have voiced skepticism about the meeting and Mueller's pending remarks.

"I don't know what they're going to say.  I don't anticipate too much coming out of the meeting," said Tim Horan, CIBC World Markets analyst.  "You're looking at a company with flat (cash flow) and revenues.  There's not a lot (Mueller) can say or do with the network . I don't think they have a lot of options."

Shares of Denver-based Qwest closed Friday at $5.29.  That's down 35 percent from when Mueller took over Aug. 10 from former CEO Dick Notebaert.  The company remains saddled with $14 billion in debt.

So far, close to the vest

Since coming on board, Mueller has undertaken a strategic review of the company.  In December, he announced the company would spend just under $300 million to enhance its broadband network, but not pursue a widescale television program.

Mueller hasn't gone into specifics about his five-point plan to keep Qwest moving, and he was reticent about elaborating on the strategy during the company's fourth-quarter earnings call earlier this month.

He hinted that the company is seeking to change its wireless strategy — it buys minutes wholesale from Sprint — in an effort to raise revenues.  Qwest's contract ends in 2009.  Yet, those comments could be a bluff in an attempt to "increase their leverage with Sprint," according to a report by Denver-based Janco Partners analyst Donna Jaegers.

"So far he's been so close to the vest with everything," Jaegers said.  "If he doesn't flesh out a little bit more what his thinking is — such as his video strategy long-term — people are going to leave disappointed."

Qwest says it won't disappoint.

"It's an opportunity to more fully discuss our strategic direction and the rationale behind it to an important audience," said Qwest spokesman Bob Toevs.

With cable and VoIP companies such as Vonage cutting into Qwest's consumer base, analysts are looking for a deeper understanding of how Mueller is planning to grow Qwest in the coming years.

"We need to get more clarity as to the direction of the company and how they're going to offset the competitive pressure they're facing," said Todd Rosenbluth, equity analyst for Standard & Poor's equity research.  "They're headed in the right direction in terms of increasing speed with modest capital investment."

While he applauded the company's stability and payment of a shareholder dividend for the first time in many years, Rosenbluth said that Qwest's $300 million broadband investment is a minor one compared with the cash that telco giants Verizon and AT&T are investing.

"Qwest has a challenge in that they're smaller; their balance sheet is not as strong as AT&T's and Verizon's," Rosenbluth said.  "It's harder for them to take risks and put more cash to work."

"You can't stand still"

Notebaert received kudos from analysts and investors for strengthening Qwest in the years after taking over the nearly bankrupt company in 2002.

"But during that time, the other Baby Bells have grown and changed," said telecom analyst Jeff Kagan.  "This is a fast-moving industry, and Qwest is not moving very fast.  You can't stand still when the industry around you is moving very fast."

Kagan, who will be watching a webcast of the analysts meeting, isn't optimistic.

"The average investor or analyst has to be scratching their head wondering what's going on with Qwest," he said.  "I'm not overly enthusiastic, because we've been disappointed so far during every call.  He's got to have a great plan and be emotional about it.  He has to get everyone pumped up on Qwest."

Kimberly S. Johnson: 303-954-1088 or kjohnson@denverpost.com

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