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Qwest-watchers wait for vision
No details yet, Mueller says, but here are some things to expect. 
By Andy Vuong
Denver Post
Sunday, November 25, 2007

By year's end, Qwest chief executive Ed Mueller will unveil his grand vision for the Denver-based telecommunications company he took over in mid-August.

Don't expect drastic change.

Though specifics are still in the works, Mueller shed light on some moves Qwest will or will not make during a recent interview with The Denver Post:

-  The company is not looking to buy a cellphone company, even though the wireless business is generating plenty of cash for its much larger peers, AT&T and Verizon Communications.  "We don't have wireless assets, and we're not going to go acquire wireless assets," Mueller said.

-  Qwest is not going to pursue a broad video play, either.  "We're not committing to a Verizon or AT&T whole video rollout," Mueller said.  "We're not becoming a TV provider."

-  Qwest will detail its expected returns for the additional $200 million the company plans to spend next year to boost broadband speeds.  Those details may include which markets will see the investments, with denser cities likely to be at the top of the list.

-  Down the road, Qwest may look to partner with third-party companies to offer high-bandwidth applications and content, such as video-on-demand, to leverage the faster speeds.

"We're just taking the whole company and looking at every part of it," Mueller said of his strategic review.  "A lot of it is just getting me up to speed."

For some, the review is taking longer than expected.

"What are you attempting to bring to the table that's so significant that it's worth taking this six-month period of not talking to the market and going into a review mode and really reassessing everything that the business is doing?" Bank of America analyst David Barden said during Qwest's third-quarter earnings call in October, according to a transcript.

Since Dick Notebaert announced his retirement as Qwest's CEO in June, the company's future plans have been murky.

Qwest operates a nationwide fiber-optic communications network and is the primary local phone service provider in 14 states, including Colorado.  It is facing heated competition for residential customers from cable operators, such as Comcast.

Analysts pressed Mueller for more details during the call in October, as Qwest's landlines continued their ongoing decline to 8.9 million, down 7 percent from a year ago.

Barden noted that Mueller is the only member of top management who is new to Qwest.

Mueller held firm, saying it was "prudent" for him to take until the end of the year to establish a plan.

The market hasn't reacted kindly to that approach.  Qwest shares are trading at 52-week lows amid the uncertainty about the company's direction.  The stock closed Friday at $6.58, up 12 cents.

Todd Rosenbluth, an analyst with Standard & Poor's, defended Mueller's decision.

"You've got a new CEO who has a different energy and a different philosophy on how to run a business than his predecessor," Rosenbluth said in an interview.  "We never expected quick decisions when he came in."

It was widely viewed that Notebaert, during his five-year tenure, tried to dress Qwest up for a sale, or as one analyst put it, "put lipstick on a pig."  Without any buyers, Mueller's job is to take the lipstick off and get the pig to perform.

And while the charismatic Notebaert is a salesman by nature, Mueller appears to be a numbers-crunching executive.

Driven by statistics

He is a champion of the so-called multivariable testing, which uses statistical analyses and quantitative models to gauge the effectiveness of ideas and plans.  It is a tool he used as head of San Francisco retailer Williams-Sonoma and Chicago phone company Ameritech.

Though not directly tied to the strategic review, Mueller has implemented multivariable testing into some divisions at Qwest.

"It's very disciplined," said Stephanie Comfort, whom Mueller promoted from an investor relations position to the top strategy role in September.  "It's very statistically based, so people in the organization can measure and see the effectiveness of their ideas in black and white."

Analysts aren't expecting a groundbreaking plan when it's finally announced.  The company will continue to resell Sprint Nextel wireless service and DirecTV satellite service as part of its residential bundle, which limits revenue growth.

"We don't expect much on the revenue side, and we don't expect much more on the cost side," Rosenbluth said.

Qwest returned to profitability under Notebaert's direction, mostly through cost cuts and high-speed Internet growth.

"What I expect is for him to paint the broad outlines of a strategy," said Donna Jaegers, an analyst with Janco Partners.  "But probably not to announce an acquisition right away."

Though Mueller said a cellular acquisition is not in the works, he didn't completely shoot down the possibility of purchasing a company to boost the enterprise business.  The only acquisition Qwest has made recently is its roughly $100 million deal last year for OnFiber, a metro fiber company.

Jaegers said it could "make a lot of sense for Qwest" to purchase a regional license when the Federal Communications Commission auctions in January the 700-megahertz airwave spectrum considered to be prime real estate for wireless applications.

She said Qwest could use the license for WiMax, a ubiquitous wireless-broadband technology that offers faster download speeds than traditional wireless fidelity, or WiFi, networks.

Though Mueller declined to comment about the auction, it is clear high-speed Internet will be a key part of the company's future.

Qwest plans to spend up to an additional $200 million on top of the $70 million to $100 million it had already earmarked for its fiber-to-the-node deployment, where the company runs fiber-optic cables to a neighborhood and uses copper loops to link homes to the node.

The project, which will cover about 1.5 million homes, will give customers speeds of up to 20 megabits per second.  Mueller said some homes may hit 40 mbps through parabonding, where the company runs two copper loops instead of one to double the speed.

Qwest's high-speed Internet speeds currently range from 1.5 mbps to about 7 mbps.

The company is reviewing which markets it will target with the fiber project.

Mueller said whether the company has a cable-TV franchise in a certain market, such as Portland, will not factor into the decision.  The company will look at deploying into areas where it can also reach businesses.

"We'll obviously look at density, where we can get the most bang for our dollar," Mueller said.

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

http://www.denverpost.com/business/ci_7545089