Qwest's Mueller in a jam
By Al Lewis
Friday, November 2, 2007
When you're new on the job, one of the smartest things you can
do is keep your ears open and your mouth shut.
This sage advice, however, does not seem to be working for
Qwest's new chief executive, Ed Mueller.
Eleven weeks into the job and Mueller hasn't declared his plans
for the stagnant Denver-based phone company. He wants
another seven weeks to figure them out.
"It's in my nature to be responsible, not fast," he told me
I called Mueller after seeing the market's violent reaction to
his first earnings call Tuesday. Mueller told stock
analysts he was working hard on his "strategic review" of
Qwest's opportunities and that he would not have his plan
together until mid-December.
Analysts were hoping to hear that Mueller had decided to pay a
fat dividend. Instead, about the only concrete thing
Mueller offered was that Qwest would invest $300 million in
This signaled to investors -- accurately or not -- that Mueller
was more interested in investing Qwest's cash flow in new
equipment than giving it to investors.
"The ongoing management team hinted fairly strongly that a
dividend was on the way," JPMorgan analyst Jonathan Chaplin said
on the call. "And we obviously didn't get a dividend."
"On the dividend, we're not going to say any more," Mueller
responded. "We're completing our strategic review."
So in this vacuum of information, analysts gave Mueller their
own strategic review, and Qwest stock fell to a 52-week low of
$6.88 on Wednesday.
This put Qwest stock down about 20 percent during Mueller's
brief watch. Qwest stock rebounded Thursday to $7.07.
When he took the job in mid-August, Qwest stock was more than
$8.50. It reached as high as $9.50 in early October.
A classic CEO struggle
Perhaps it's just a temporary setback. Mueller told me he
felt the analysts misunderstood him. The $300 million
capital expenditure he mentioned was just what was needed to
keep Qwest's data lines running quickly.
"It was just an acceleration of something we are already doing,"
he said. "But that got (interpreted) to be a precursor of
wild cap-ex (spending)."
Cap-ex vs. dividend is not really an either/or proposition.
"There's plenty of room for both," Mueller told me.
Mueller is facing a classic CEO struggle. The market wants
him to declare a strategy, but he wants time to choose the best
strategy. And it's not like he's asking for a lot of time.
In fact, he just moved into his new Denver home last weekend.
In his first 11 weeks, Mueller has been meeting with employees,
customers, investors and regulators. He's trying to learn
all he can about this complicated mess before making his move.
Qwest's last CEO, Dick Notebaert, spent five years yanking the
company from the clutches of bankruptcy and cutting its debts
and its expenditures to achieve positive cash flow. Now,
Mueller has to decide what he's going to do with that cash flow.
But how long can he last against the throngs of investors
demanding to know whether he's going to spend it on improvements
or hand it out in a dividend?
"I'm not the judge of how long I can last," he said. "I'm
going to keep doing what I think is responsible."
William Silver, senior associate dean and chief operating
officer of the Daniels College of Business at the
teaches MBA students that they'd better have a 90-day plan in
place if they are ever named CEO.
"And that's not 90 days to figure it out," he said.
"That's 90 days to execute."
Mueller's 18-week strategic review is bucking that advice by 36
days. But then, Qwest's situation is complicated.
The company has essentially been frozen since 2002 amid
accounting-fraud allegations. And in the time it has taken
Qwest to simply avert bankruptcy, its competitors have grown
Qwest, by contrast, seems to lack scale and capital needed to do
anything significant in the industry. And nobody has a
bright idea about what to do with Qwest, except cut its costs
and debts until it's an attractive takeover target.
"He is wise in not declaring until he's ready," said Silver.
But what's Mueller going to declare once he is ready?
This had better be good.
Al Lewis' column appears Sundays, Tuesdays and Fridays.
Respond to him at
denverpostbloghouse.com/lewis, 303-954-1967 or