Qwest CEO plans to fill firm's wireless 'hole'

In talk to analysts, Mueller stresses broadband growth

By Jeff Smith, Rocky Mountain News (Contact)

Published February 26, 2008 at 12:05 a.m.

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Photo by Diane Bondareff / Associated Press

Qwest CEO Ed Mueller, center, speaks to guests at an analyst meeting Monday in New York, where he said that Qwest needs a new wireless partner or a stronger partnership with Sprint.

Qwest CEO Ed Mueller touted huge opportunities Monday in selling high-speed Internet services to consumers and businesses, while acknowledging that the company needs a better wireless partnership to fill a glaring weakness.

"We see a billion-dollar (consumer) broadband opportunity in front of us," Mueller told about 180 analysts and investment bankers at the St. Regis Hotel in Manhattan. "We are going to be a share taker."

But he said that the Denver telco also has "holes" in its business, most notably in its wireless offering. He said recently that Qwest is looking for a new partner or a stronger partnership with Sprint. On Monday, he said he wants to do it "fast."

Mueller, who replaced Dick Notebaert last summer, added only a few new details to a strategy outlined late last year.

Instead, much of the event was geared toward face-to-face contact with the analysts, who hold great sway with investors. At a lunch before the meeting, Mueller worked the room, individually greeting his guests.

"They've framed it as his coming-out party, and I think that's what it is," said Jason Armstrong, a telecommunications analyst with Goldman Sachs.

Qwest shares increased 6 percent to $5.60 on Monday, but are still well below the $10 level before Notebaert announced plans last June to retire. Qwest's revenues have been flat in recent years, as the company struggles to offset losses in its traditional land line business to competition from wireless and cable.

Mueller said he believes that Qwest has the potential of increasing its broadband market share in its 14-state region from 32 percent in 2007 to 45 percent.

He didn't disclose a specific timetable for accomplishing that goal. But he announced previously that Qwest would spend an additional $300 million this year increasing Internet speeds in key markets by extending fiber to neighborhoods.

On Monday, he announced those key markets, including Denver, Colorado Springs and Fort Collins. Seven of the 23 markets are in Washington State and Oregon.

Faster Internet connections also are a precursor to possible video-on-demand offerings. He said in an interview that the timing will depend on the interest of content providers, such as a Blockbuster or Netflix.

Mueller didn't make any bones about the fact that Qwest would like to improve its wireless offering.

"We have a hole in wireless," he said. "It's sad to be up here saying this, trust me."

Executives said Qwest can't immediately offer the latest gadget because of exclusive deals between cell phone makers and Sprint. Those usually run 120 days. Qwest also can't get the volume discounts a large carrier can.

Options include restructuring the Sprint partnership, or forging a partnership with T-Mobile, AT&T Mobility or Verizon Wireless.

"We're not going to buy spectrum," Mueller said.

In general, Mueller said he wants to deepen partnerships and get more of them. "We can't go this alone."

He also stressed simplifying solutions for customers.

Mueller said there's a lot of potential upside in the business and government markets, and that company has added 250 sales people to address the markets.

He said the company especially should benefit from being selected to bid for contracts with federal agencies as part of the multibillion-dollar Networx telecommunications program. He said he expects measurable benefits from Networx in 2009.

Analysts said afterwards they didn't hear a lot that was new, but many were pleased that Qwest is addressing its wireless problem.

Jan Dawson, an industry analyst with Boston-based Ovum, said Qwest still has a challenge increasing revenues.

"And the name of the telecom game is growth," Dawson said.

Ted Chamberlin, a research director at Gartner Group, said he likes the direction Mueller is headed.

"They're finally understanding what they need to do to compete," he said.

Chamberlin noted Qwest's strategy of reselling DirecTV and wireless services is a lower risk strategy than building and owning the assets.

"But they probably won't get as much of a reward."

smithje@RockyMountainNews.com or 303-594-5155

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