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The new CEO says the telecom will spend $300 million to boost broadband speed rather than roll out a costly television service.
By Andy Vuong
Denver Post
Tuesday, December 18, 2007

New Qwest chief executive Ed Mueller on Monday unveiled his strategic plan for the company, which doesn't stray far from the path laid by his predecessor.

Shares of Denver-based Qwest dropped 29 cents, more than 4 percent, closing at $6.72 Thursday.  Since Mueller replaced Dick Notebaert as CEO on Aug. 10, the stock is down 17 percent from $8.13.

During a conference call with analysts, Mueller said the company will not launch a broad television service in 2008 because it is too costly.

Instead, Qwest will spend $300 million to boost broadband Internet speeds for its customers, about $200 million more than it is spending this year.

The move will increase capital expenditures to $1.8 billion next year, up from $1.6 billion in recent years.

The fiber rollout aimed at increasing Internet speeds will reach 1.5 million homes in the company's 10 largest markets, including Denver and Colorado Springs, and 10 other undisclosed markets by the end of next year.  Mueller said 23 percent of customers in the targeted fiber footprint already subscribe to the company's highest-speed Internet offering, spending an average of $10 more per month.

That penetration rate is projected to increase to 40 percent by 2011, and the company expects to recover its $300 million investment within five years, Mueller said.  Internet speeds will reach as high as 20 megabits per second, up from the current peak of 7 mbps.  Qwest's most widely offered speed is 1.5 mbps.

The faster speeds may allow the company to offer high-bandwidth services such as video-on-demand.

Mueller wouldn't disclose the company's revenue guidance for 2008.  Revenue has been stagnant in recent quarters as losses of phone customers to cable competitors have offset broadband growth.

"We understand the environment is competitive and it won't be easy," Mueller said.

He said there will be "more meat on the bones" in February after the company announces fourth-quarter earnings.

"He's not making any big about-face from the path that Notebaert had Qwest on," Janco Partners analyst Donna Jaegers said.  "He didn't answer questions about M&A (mergers and acquisitions), and that's an area where in order to do more on the enterprise side, he may end up doing some M&A."

The company said last week it would issue a quarterly dividend of 8 cents a share in February, its first in six years.

In late 2008, Qwest will launch an offering that will allow customers to make cellphone calls through their home Internet service, which saves calling-plan minutes and is more reliable.  Qwest resells Sprint Nextel wireless service as part of its bundle of voice, video and Internet services.

Mueller said the company is also looking at high-bandwidth mobile offerings, which may lead to new partnerships.

One possibility could be a partnership with Sprint or Clearwire on their WiMax rollout, Jaegers said.  WiMax is a wireless-broadband offering that is faster and covers more territory than traditional wireless fidelity, or Wi-Fi, networks.

Qwest's much larger peers, AT&T and Verizon, are investing billions of dollars each in video services in the face of intense competition from cable companies.  Like his predecessor, Mueller is content with reselling DirecTV satellite-TV service and plans to strengthen that relationship.

With the new strategy, Qwest will no longer pursue cable franchises statewide or at the municipal level, said spokeswoman Jennifer Barton.

The exception will be in areas where Qwest deploys fiber to the home.  Barton said, however, that Qwest will continue to support video franchise reform.

Andy Vuong: 303-954-1209 or avuong@denverpost.com

Strategic plans for 2008 laid out by chief executive Ed Mueller:

-  Spend $300 million to boost broadband Internet speeds from 7 megabits per second to 20 mbps

-  Pay a quarterly dividend of 8 cents a share in February, its first in six years

-  Increase capital expenditures to $1.8 billion

-  Examine high-bandwidth mobile partnerships

-  Postpone planned 2008 launch of broad television service

http://www.denverpost.com/search/ci_7746651