$300 million on fiber

Expanding high-speed Internet one of Qwest's top goals, CEO Mueller says

By Jeff Smith, Rocky Mountain News (Contact)

Published December 18, 2007 at 12:05 a.m.

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Photo by Dennis Schroeder / The Rocky

New Qwest CEO Ed Mueller said Monday that Qwest doesn't yet intend to deploy Internet TV services similar to AT&T's.

New Qwest CEO Ed Mueller outlined a strategy Monday calling for modest increases in capital investments, particularly to broaden its high-speed Internet coverage in 20 key markets.

He elaborated on past comments that the Denver telco plans to spend $300 million next year on expanding fiber to neighborhoods, with the goal of reaching 1.5 million more homes.

But Mueller said Qwest doesn't yet intend to deploy Internet TV services similar to AT&T's. He said Qwest doesn't have the scale to support its own IPTV product and will stick to reselling DirecTV satellite services.

Mueller, who replaced retiring Dick Notebaert in August, made the comments in an analyst conference call outlining his long-awaited strategic plan.

"We are very positive about Qwest's future," Mueller said, adding that the telco understands it's in a tough environment. He declined to comment about possible acquisitions or give specific revenue growth targets. Mueller said more details would come in February after Qwest finishes its year.

Mueller also said he wants to balance investments with shareholder rewards. He noted that Qwest last week announced a quarterly dividend of 8 cents a share, payable in February, the company's first dividend in six years.

On a day the market was weak, Qwest shares slipped 4 percent to $6.72 on average trading volume.

Christopher Larsen, an analyst with Credit Suisse in New York, said in a research note that Mueller "seems to be deploying a strategy very much in keeping with the previous management team - no big network spending initiatives, returning cash to shareholders."

Notebaert last year announced a $2 billion share-buyback program to reward stockholders.

Donna Jaegers, a telecommunications analyst with Janco Partners in Greenwood Village, said she thinks Mueller wanted to provide "some certainty" so investors wouldn't be so panicked. Qwest shares have dropped about 30 percent since Notebaert announced his retirement last June.

While Qwest is increasing capital spending overall by $200 million to $1.8 billion next year, "he's not going to do IPTV right away," Jaegers noted, so investors don't have to worry too much about Qwest overextending itself.

"He didn't give us much more detail than that," Jaegers said. But she said she expects Mueller to provide a lot more detail after Qwest sees how the "housing market cave-in" affects the company's year-end numbers.

While Mueller is seen as similar to Notebaert in strategy, he comes across as having a consumer bent. On Monday, that was illustrated when he talked about gaming as a possible driver for Internet revenue growth.

He said by expanding fiber to neighborhoods, Qwest plans to increase its high-speed Internet market penetration from 23 percent to 40 percent by 2011. He said management anticipates the broadband expansion will cost $175 per home but have a five-year payback based on a modest $10 increase in average monthly revenue per subscriber.

Mueller said the high-speed Internet expansion would be done in Qwest's 10 largest markets and 10 other markets.

"We will finish this project in '08 and decide where we will go with it" in 2009, Mueller said.

Jaegers said she wasn't surprised Qwest shares dropped, given that revenue guidance is still to come.

She also said Mueller, while "very smart," has yet to prove he's as smooth at handling Wall Street investors as Notebaert was. But she said she's giving Mueller the benefit of the doubt.

"I'd rather have someone execute a good strategy than just articulate one," Jaegers said.

Mueller alluded to a fixed wireless product that would launch in late 2008, and mentioned wireless partnerships in the plural.

Qwest resells Sprint wireless service. Jaegers wondered if Qwest was working on additional wireless partnerships, such as talking to Sprint and Clearwire about helping with their buildout of WiMAX, a potentially high-speed wireless service. Qwest tested WiMAX in Mead last year, but the test produced so-so results.

smithje@RockyMountainNews.com or 303-954-5155

Mueller's five key areas of focus

* Simplify customer solutions

* Deepen partnerships and create new ones

* Increase broadband speeds

* Improve productivity

* Balance investments with shareholder rewards

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