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Qwest walking a high-speed tightwire
By Jeff Smith
Rocky Mountain News
Friday, February 10, 2006

Qwest Communications is trying to walk the fine line between pleasing Wall Street by controlling spending while still reinvesting enough in its network to fend off rivals and satisfy city officials in its major markets.  This week, two top executives were in Portland, Ore., making the case that Qwest can provide all the high-speed services residents there need and that the city shouldn't waste money building its own $470 million fiber network.

Some city commissioners don't think Qwest's plan is aggressive enough and want to continue to explore building a super-fast network on their own or with another partner.

Donna Jaegers, a telecommunications analyst at Janco Partners in Greenwood Village, indicated that the Portland example illustrates the difficult spot Qwest is in.  She noted the company's recent story to Wall Street has been one of financial discipline to generate cash -- perhaps to pay down debt, perhaps to pay a dividend to stockholders, and with an eye toward turning a small profit.

But Qwest also must defend itself against Comcast and others, which are turning up the heat with bundled offerings of cable TV, high-speed Internet service and digital voice in many of Qwest's largest markets.  Now, even municipalities, such as Portland, are eying the possibility of building super-fast networks.

Qwest is "looking at all big markets, trying to think of how they're going to defend themselves," Jaegers said.  "It makes it harder to tell a consistent story to Wall Street, but I think Qwest needs to" aggressively reinvest.

Otherwise, she said, Comcast and others may walk all over Qwest.

Qwest is expected to shed more light on its capital-investment plans when it announces its 2005 year-end results Tuesday.

The company appears to be trying to finesse the situation.  It has continued to keep firm control on expenses while gradually expanding the availability of high-speed Internet services and touting new video services to come in places such as Salt Lake City and metro Denver.

But it hasn't set any timetables for launching cable-TV-like services, instead saying its big video play remains through satellite-TV partner DirecTV.

Just talking about new services might be enough to keep customers from switching to other providers, Jaegers said.  On the other hand, customers have long memories, and Qwest's service problems under previous management didn't engender loyalty, she said.

Also, many customers complain they still can't get high-speed Internet service in their neighborhoods.  Qwest says DSL Internet service is available in about 80 percent of Denver-area households.

What happens in cities such as Portland may force Qwest's hand earlier than it would like.

Steve Davis, Qwest senior vice president of public policy, and Balan Nair, chief technology officer, traveled to Portland this week in part to discourage the city from building its own half-billion-dollar network.

Davis said in a telephone interview Thursday afternoon that the meeting with city commissioners was nothing unusual, noting "many cities want to know what the prospects are for higher bandwidth and cable-TV competition."

His message:  It's not yet economic to build fiber to the home except in new subdivisions, and Qwest has an ongoing "fiber-to-the-neighborhood" investment plan that will enable it to offer video and higher-speed Internet services over copper wires in the future.

Davis said technological advances could put speeds over copper wire beyond 10 megabits to 15 megabits a second by 2007, which he believes is plenty for the foreseeable future.

Brendan Finn, interim chief of staff for Portland City Commissioner Dan Saltzman, who is in charge of the city's cable bureau, came away skeptical.  Finn said some of the area's most prominent technology businesses say they need an even faster fiber network to support their work.  Fiber to the home would bring speeds of about 100 megabits a second.

"We were kind of sitting here, waiting to see what they would do," Finn said of Qwest.  "Obviously, they would be a perfect partner."

Now, he said, the city plans to continue exploring its options.

Qwest Communications
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