Qwest Communications International Inc.’s new CEO takes the helm of a company that has weathered financial storms, been through a turn-around that included selling off its wireless network and forging a mobile virtual network operator agreement with Sprint Nextel Corp. and now needs to continue its positive trajectory in a highly competitive industry.
Edward Mueller has a background both in telecom and most recently in retail, as CEO of Williams Sonoma. In a conference call last week, he offered few specifics into his plans for the regional telecom operator, but said that he hopes to meet with analysts by the end of the year to lay out a strategy for Qwest’s path forward. In the meantime, he said that Qwest would continue to “focus on the fundamentals-exception customer growth, profitable growth, disciplined spending and ownership reward on a sustainable basis.”
That focus could come in handy for the company’s wireless business, which unlike its competitors, has become more of a bundled offering component than a growth segment for the company. Qwest counted more than 1 million wireless customers prior to selling off its mobile network assets to Verizon Wireless for $418 million in 2004, but now counts around 800,000 wireless customers through its MVNO operations with Sprint Nextel. The carrier has managed to stymie the loss of customers in recent quarters though it has also not shown much growth.
M&A not in the plans
Mueller said that the company would “look for opportunistic ways to improve” its credit profile if it could and also added that he “didn’t come in here with a big M&A list.”
He also told analysts that he would take lessons from his retail experience, such as the fact that “in the retail market there are no recurring revenues, so everything you do is today-you have to earn that.
“I think that’s a great lesson for all of us that are transitioning from the old telephone business, which I grew up with, with the new telephone businesses, that you better be quick and nimble and provide the services required,” Mueller added.
However, Qwest is in a substantially different position than most of its competitors, noted independent telecom analyst Jeff Kagan.
“[Former CEO] Dick Notebaert, with the steps he took, saved the company,” Kagan said. “But at the same time that he was saving the company . the other baby Bells were merging and getting bigger and offering more services, and the competition was changing. The cable television companies started competing for consumers, and they’re competing with the baby Bells for business customers.”
Fellow baby Bells Verizon Communications Inc. and AT&T Inc. have also been rolling out their own, new networks to provide video and converged services, Kagan noted, while Qwest has not.
“We have not heard from them of plans to move in the same direction, and until we do, we’re scratching our heads,” Kagan said.
The company resells service from DirecTV for its video play in addition to its MVNO relationship with Sprint Nextel in order to offer wireless.
Gartner analyst Tuong Nguyen said that Qwest may have an advantage of smaller size that would allow it to be more flexible and able to focus on key markets with more attention than national competitors. However, he pointed out that large competitors such as AT&T Mobility and Verizon Wireless have both recently agreed to purchase rural/suburban wireless companies, signaling increased interest in those types of markets that could up the competitive pressure on regional operators.
From the enterprise perspective, Qwest is “ahead of the others in relation to local service integration” and has done well in improving its customer service, according to Charlotte Yates, CEO and president of Telwares and COO of Vercuity. However, she noted, the company also has a weaker business bundling position than AT&T or Verizon, no direct wireless model and limited global capabilities. Qwest has been “selectively aggressive” in pursuing business, Yates added, and it has been successful when it has been more aggressive. “So it begs the question, why wouldn’t they be more aggressive across the board?” Yates said.
While companies aren’t typically willing to choose Qwest as a primary service provider, Yates said, the company “beachhead” strategy as a secondary provider likely has room for growth, but network-related challenges remain.
“Clearly, that’s going to be Mueller’s biggest challenge: how does he upgrade his network while remaining competitive? How does he fill those gaps?” Yates said. In general for Qwest, she added, “They’re going to have to do something, because they’ll continue to be a niche player otherwise. And partnerships are interesting, but they’re always harder to manage and you can’t control your partners.”
