The year 2006 was a milestone for Qwest Communications, as the company was able to post its first full year of earnings per share and net income in each of the four quarters, based largely on strong sales of data and Internet services.

But despite the positive financial news, the big question remains – what is Qwest doing about IPTV? Unlike AT&T and Verizon, the incumbent is not aggressively building out a video network--but that doesn’t mean Qwest isn’t investing in its access network, Qwest Chairman and CEO Richard Notebaert told financial analysts. After the company’s recent RFPs for local loop fiber were made public, there had been speculation that Qwest was adopting a plan similar to AT&T’s, but Notebaert said the company is merely continuing its announced strategy.

“We have been very consistent in what we have said,” he said. “Our facilities, our cable does not require a complete change-out in the last mile. We have on the average and on the whole, good facilities. We will follow a path where we will continue to upgrade the speeds and you have seen the investment we have made. Currently over 25% of our customers can get 7 Meg [megabits per second]. We will continue to run fiber to the node, to the RT [remote terminal]. We are investing in increasing speeds and bandwidth. We aren’t following anybody when it comes to fiber-to-the-node. The RFPs, which were somehow made public, are part of the continuing effort to find if we can get a lower cost on the purchase of that fiber which we are and have been laying.”

By investing in its network, Qwest will be ready to deploy IPTV when the company feels the product is ready, Notebaert said.

“On IPTV, we are watching, we are learning, we are letting other people work the issue and we will benefit from their investment in future technology,” he said. “We believe that with time shift, that you can do on video and with the fact you can get content on demand – if you watch ’24,’, you can pull it down the next day, that’s all part of this.”

Qwest saw only modest gains in revenue, Notebaert said, as its growth in sales of higher value products such as service bundles, offset access line losses and transition off legacy products in the business sector, and the company was able to cut its costs.

Net income for the fourth quarter was $194 million, or 10 cents a share, compared to a loss of $528 million or 28 cents a share in the fourth quarter of 2005. The 2006 figure includes a $61 million real estate sale, while the 2005 figure includes a $430 million charge for paying off debt. For the year, net income was $593 million compared to a loss of $778 million for all of 2005. Qwest reported revenue of $3.5 billion for the fourth quarter and $13.9 billion for the year, up less than one percent from 2005.

“2006, as we look at it, as a team and as a company, was a critical year for us that proved our strategy was working,” said Richard Notebaert,. “We reduced debt, improved profitability, and got the highest customer service numbers we’ve every had from J.D. Power and other third party sources. The momentum is there for us to continue this. We are well positioned to do that.”

Leading the charge was high-speed Internet subscribership, which grew by 44%, and strong sales of business data services, which offset customer migration off legacy products. Qwest CFO Oren Shaffer said business revenues were “essentially flat,” as were wholesale revenues, where increased data sales were offset by declines in voice and long-distance.

Internet sales were boosted by Qwest’s “Price for Life” offer which enables customers to lock in the price of their high-speed Internet service, Notebaert said.

Mass market or consumer revenues grew at 2.4%, more than twice the rate of growth in 2005 based on improved penetration of service bundles, Shaffer said. Bundle penetration reached 57% and average revenue per user (ARPU) was up $3 to $51.

“We have delivered value creation through a steady focus on fundamentals which for us are providing exceptional service, operate efficiently, remain disciplined on spending, grow free cash flow and reward shareholders,” Notebaert.

For 2007, Qwest expects to return to top-line growth in its business products and continue its mass market growth, Notebaert said.

In the business realm, the company will leverage its investment in an ultra long-haul OC-768 network to deliver higher growth data and Internet products. The company will continue its transition from legacy services and expects some adverse impact from the phasing out of services such as dial, Notebaert said. “This is similar to the strategic pricing diligence we implemented in the wholesale channel ni 2004 and into 2005,” he said.