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Qwest:  DirecTV deal not window dressing
By Andy Vuong, Staff Writer
Denver Post
Tuesday, December 19, 2006

Qwest receives recurring revenue from its relationship with DirecTV and would continue to resell the satellite-TV service when, or if, the company launches a broad video initiative, said Qwest chief executive Dick Notebaert.

Some analysts had speculated that the DirecTV relationship provided Qwest with little or no revenue and was a tool used mostly to reduce wireline losses.

"We get an annuity," Notebaert said in an interview with The Denver Post.  "It has a positive margin.  If I can get margin on it that's positive, then this is a good thing."

He wouldn't disclose specifics.

Qwest has heavily promoted DirecTV's offerings as part of its bundle of services since May 2005.

This week, DirecTV will return the favor through a direct-mail marketing campaign pitching a dual-play of satellite TV and Qwest's high-speed Internet service.  The campaign will reach consumers throughout Qwest's 14-state territory, DirecTV spokesman Darris Gringeri said.

From the 52nd floor of the company's headquarters in downtown Denver, Notebaert reflected on a year in which Qwest posted three straight quarterly profits.  The company, which announces fourth-quarter results in February, has improved customer service, reduced debt and is on target to generate $1.35 billion to $1.5 billion in free cash flow for the year.

Notebaert hopes for much of the same in 2007.

"Our goal is to continue to improve the quality of customer service," Notebaert said.  "Our goal is to sustain profits and cash flows and margins -- and improve yet again."

He said 2007 will be a telling year for Internet Protocol Television, or IPTV, which is the technology Qwest uses to offer its own video services to a few select neighborhoods.

"I think we're going to see an acceleration of customers' acceptance of newer applications," Notebaert said.  "The whole idea of IPTV ... we'll see if that works-- if customers accept it -- next year."

He said Qwest will continue to seek video franchise agreements throughout its service territory.  The Denver-based company already has agreements in select neighborhoods in Colorado, Arizona, Nebraska and Utah.

Notebaert wouldn't disclose when, or whether, the company might launch a broader video initiative.  But he said Qwest's relationship with DirecTV would continue.

He wouldn't expand on Qwest chief financial officer Oren Shaffer's recent comments that wireline losses should decelerate "not very far from now."  Qwest's wireline losses have accelerated as competition from cable companies has intensified.

"I don't like predicting things like that," Notebaert said.  "Oren gave you his personal opinion."

Chris King, an analyst with Stifel Nicolaus, said a deceleration in access-line losses is "not out of the realm of possibility."

"I'm not necessarily sure wireless substitution will be as important a factor in access-line losses as it has been in the past," King said.  "From that perspective, they could see access-line losses stabilize a bit."

Staff writer Andy Vuong can be reached at 303-954-1209 or avuong32@yahoo.com.

http://www.denverpost.com/business/ci_4863836