Qwest CEO outlines strategic plans going foward, but most are contingent on partners

Qwest Communications is in need of new strategy for its wireless business, but the answer will not come from a physical investment, Qwest CEO Ed Mueller told investors today. In what its first strategic update meeting in the past six years, the Denver-based telco informed attendees that it’s looking into ways to plug the hole that its current partnership reselling Sprint Nextel services has left in its wireless business.

Mueller admitted that it may actually be something worse than a hole and, as a result, the telco needs a partnership that is “wildly different” than what it has today. The company, which has seen a decline in traditional phone line sales, currently lacks a wireless division, a move that has hurt them against competitors like AT&T and Verizon.

“We are on an MVNO agreement today,” he said. “I don’t think a better MVNO agreement gets us to where we want to go. We need a new partner. We bring a lot to the party, and people will see that.”

Specifically, Mueller said that Qwest has a track record of being a good partner and that it could offer a carrier a lot of customers that it would be interested in. Yet, with only 6% of its households now equipped with a wireless phone, Qwest needs a partner to make all of its services stickier, not just wireless. Having a presence in the home through wireless, video, broadband and traditional voice services would reduce its churn to less than 1%, Mueller said. Currently, the carrier only has 1.6 connections per home. While he would not offer specifics, he indicated that the company has seen interest in teaming up and that, although wireless won’t be a cash cow for Qwest, the bundle is what will prove beneficial for both the telco and its eventual partner.

“It is stickiness,” he said. “We are not going to make a ton of money on wireless. Our results have brackets around it; it’s not a good thing…It’s a big deal to go from churn of 3% in the total bundle to less than 1%. Think of the total ARPU in a household, whether you provide a landline or not. I think it will help us. The data products on the backend of this are huge. We’ve got to play on that.”

Mueller had little to say about specific plans going forward. He said he doesn’t know the answers as to the particulars of how a wireless partnership will work yet, but the timetable is fast. The company has studied the implications of the 700 MHz auction extensively and as it plays out, forming a partnership will only be a matter of getting a wireless carrier behind the company as quickly as possible.

Mueller compared what it hopes to do with a wireless partner to its current partnership with DirecTV for broadcast TV, in which it has a branded product to go to market with. Back in December of last year, Mueller told the investment community that Qwest would invest an extra $300 million in capital to build fiber-to-the-node networks to reach 1.5 million homes in 20 markets but is not planning to deliver IPTV service over those networks. Mueller has also indicated that a service that duplicates today’s satellite or cable content was not in the plans either. At today’s conference, he defended the FTTN strategy, saying that he likes Qwest’s position and the economics around how it is building this out using FTTN to augment DirecTV’s broadcast TV channels.

Based on FTTN trials that Qwest conducted in Colorado Springs where the consumer take rate of high-speed Internet services grew from 21 to 60%, Mueller sees the consumer broadband market as a “billion dollar broadband opportunity.” His goal is to increase Qwest’s broadband market share in its 14-state geography from 32% in 2007 to 45% this year by focusing on increasing Internet speeds. He announced 23 key markets that Qwest will target this year with investments to increase Internet speeds.

While today’s investors conference set the record straight on where Qwest has been and where they are now, today’s analyst day did little to answer the looming question of where it is going, telecom analyst Jeff Kagan said in a email blast. Echoing his sentiments after Qwest’s brief investors call in December, Kagan still wants to know more. The company seems to be waiting for a partner to come knocking on its door with a solution, he said. That makes sense if it happens, but that is still a big if at this point.

“I did not hear anything wrong, I just did not hear much about solid plans and partners going forward,” he said. “They talked about wishes and are hoping to hear from wireless and broadband and television companies to bring solutions to them. I am not sure that will happen. If it was going to happen, why hasn't it happened already?”