Up Close & Personal with Qwest’s Mystery Man

CEO Mueller Takes on FTTN, Out-of-Region Expansion

“[It] definitely makes me a little nervous that there is an expectation that there will be, just in a very general sense, new products and services that will help generate a return on this invested capital as opposed to a very clear and precise perspective of exactly how the return is going to be realized,” Jonathan Chaplin, an analyst for investment bank JPMorgan, told Mueller on the Oct. 30 conference call after Qwest announced the FTTN commitment.

Mueller’s now-infamous response: “Next question.”

Chaplin didn’t return requests for an interview, but his concerns weren’t unique. They highlight the need for Mueller to gain investors’ confidence as Qwest publicly shifts from a recovering company to one ready to fight for out-of-region enterprise customers.

Notebaert won notoriety by restraining capex investment as he steered Qwest’s balance sheets into the black. Wall Street loves free cash flow. However, at the beginning of 2007’s fourth quarter, investors didn’t know whether Mueller would follow suit.

All this puts Mueller in a tough position. How can he get Qwest to the next level without spending money? It looks like Mueller will loosen Qwest’s purse strings more than Notebaert, but analysts will want justification. That’s why Mueller’s brusque reply to Chaplin didn’t sit well with the analyst community.

David Barden, a Banc of America Securities analyst, told clients in an Oct. 31 research note that Qwest management “inadvertently sparked a crisis of confidence in the company” by not giving details. Further, Qwest’s valuations could go down if Qwest “embraces video capabilities,” he added.

“That’s what Wall Street’s afraid of — that once he goes down that IPTV path then we’re not just talking $200 million more, we’re talking billions and billions more,” says Jaegers. Qwest simply doesn’t have that kind of money. The company returned to profitability in 2006, although its stock prices didn’t budge much past $6.50 throughout last fall. Further, the much-anticipated dividend Notebaert hoped to give to shareholders didn’t materialize and Mueller wouldn’t say whether it would do so on his watch. So the thought of Qwest investing big in TV infrastructure as AT&T is doing through its Project Lightspeed and U-verse initiatives and as Verizon has done with FiOS wasn’t a welcome idea for some industry observers.

Share this article: Email, Slashdot, Digg, Del.icio.us, Yahoo!MyWeb, Windows Live Favorites, Furl
Add this article feed to: RSS, My Yahoo, Newsgator, Bloglines

Read Comments [1]