The Association of U S West Retirees



This Knee Doesn't Jerk at Every Deal
New York Times
Saturday, May 20, 2006

Yet Richard C. Notebaert, Qwest's chief executive, has been anything but idle.  He has cut costs and debt, added broadband and wireless customers and, in the first quarter, turned a profit without relying on one-time gains.

While Mr. Notebaert has not gone after anyone the size of MCI, Qwest has sought smaller, complementary companies, including OnFiber Communications, which provides high-speed data connections for companies and the government.

Qwest also made headlines last week when its former chief executive, Joseph P. Nacchio, said that he denied a government request in 2001 to hand over customer records.  That came after USA Today reported that AT&T, Verizon and BellSouth had cooperated.  The paper also said that Mr. Notebaert continued Mr. Nacchio's policy after he took over for him in 2002.

Mr. Notebaert will not comment on national security issues.

But, in an interview last week, he did discuss other challenges facing Qwest. Following are excerpts:

Q.  You said on your most recent earnings call that Qwest had turned a corner.  What corner?

A.  We don't talk about turning the corner because I don't think you ever do.  But we had a number of milestones.  For example, revenue in 2002 was declining at nearly 8 percent and now we're positive.  We've had negative cash flow.  Last year we did $904 million of cash flow adjusted and this year we'll do $450 million to $600 million more.  Then getting all that litigation with the government squared away.  And now, to hit profitability, without any adjustments, that feels very good to everybody.

Q.  There's been consolidation in the industry, but Qwest has not really found a partner in the big dance.  Does Qwest need to do a deal?

A.  We have two filters that we run everything through.  Whether you're a buyer or a seller, you run it through the same filter.  What is the strategic complement of what you're going to do?  And then, secondly, what's your price point?

We are constantly looking at all the companies that you would think of and some you probably are not.  For example, a systems integrator or hosting companies as well as traditional people in the communications business.  We're very, very, very disciplined.  We have lots of organic growth opportunity just doing what we do.  So we don't have to knee-jerk into anything.

Q.  Might you be more of an acquisition target?

A.  If I looked at it as a consultant or an adviser, I would look at Qwest today and say most of the things that made me uncomfortable before are gone. Again, the government at every level we're O.K.  The debt load's down, profitability's up.  Everything's squared away and there's no threat of bankruptcy, which you might have thought about a few years ago.  And the company has solid performance characteristics . And it's throwing off good cash.  It's profitable.  And it's got a wonderful group of employees.  So I don't think we're unattractive.

Q.  On the wireless side, you resell Sprint.  A huge portion of the profits at Verizon come from Verizon Wireless.  Would it make sense to own your own wireless business?

A.  Well, it doesn't matter.  We don't.  You play the hand you're dealt.

Q.  There are midtier wireless operators that are increasingly national.

A.  There's a company like U.S. Cellular that's outstanding.  To go out and buy them would be challenging to say the least.

Q.  You resell DirecTV, but given what AT&T and Verizon are doing with television and the enormous capital that involves, do you see Qwest going down that road?

A.  You still have to push high bandwidth out to the customer.  The key is to do it in a very disciplined way so that your return on invested capital is there.  About 35 percent of our capital investment this year will be bandwidth improvements.

Q.  Wall Street compares you with Verizon and AT&T, which have video projects.  Do you think you're viewed negatively because you don't?

A.  There is nothing wrong with being a fast follower.  In fact, there are a lot of advantages to being a fast follower versus the bleeding edge.  Instead of generic 2.0, I'll be at 2.5.