Cable Tech

Qwest's Notebaert: It Can Be Fixed

In a conference call featuring new CEO Richard C. Notebaert, Qwest Communications International Inc.'s (NYSE: Q) management today hinted at plans for some quick moves to shore up business. Notebaert, the former Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) CEO, replaced Joseph Nacchio as head honcho yesterday (see Notebaert Takes Out Nacchio).

Notebaert’s optimism on this morning’s call may have prompted the continuing climb in share prices today. Qwest’s new CEO not only insisted that he has faith in the telecom industry, but also said that he thinks Qwest will survive its current financial woes.

Following the news yesterday, the company’s shares rose more than 20 percent, trading at $4.99 at closing. And today, following a conference call in which Notebaert indicated that his taking over as CEO was just the beginning of the changes at the company, Qwest’s shares jumped an additional 2.8 percent, closing at $5.14 today.

"[Notebaert] ensures a quicker return to credibility for Qwest," says James E. Ott, an analyst with Hibernia Southcoast Capital, pointing out that such issues as the Securities and Exchange Commission (SEC) investigation into the company’s accounting practices are linked closely to former CEO Nacchio. "[With him gone] it gives them a clean slate."

Most of Notebaert's comments amounted to cheerleading, with only a few business details discussed. It was clear his goal was primarily to calm nerves by assuring investors that the industry and company would recover.

"When I look at the industry, the human need to communicate is not slowing down," he said, pointing out that he himself has a T1 line into his home. "I can’t imagine going back to modem... I think we have a tremendous opportunity."

When he was asked how quickly he hoped Qwest would reach breakeven on its balance sheet, he answered, "Breakeven isn’t good enough... We’re going to move very expeditiously on this."

So what changes does Qwest have in store? In the wake of Nacchio’s official resignation on Sunday (see Qwest: Ciao Nacchio?), Notebaert wouldn’t go into details about more high-level management changes at the company. However, while he said that any such speculation would be premature, he certainly didn’t rule out the possibility of changes. "In every job I’ve gone into, there’ve been changes," he said, pointing out that both resignations and dismissals from management positions are not uncommon.

Frank Popoff, a Qwest board member and chairman of the compensation committee, who was also on this morning's call, insisted that Nacchio and the board together had reached the decision that it was time for him to leave, and that the timing had nothing to do with such events as the attempted sale of the company's yellow pages directory business. "The board and Joe reached a common decision that it was time for change," he said.

Loaded down with approximately $27 billion in debt, Qwest desperately needs the more than $8 billion it expects to get from the directory sale (see Qwest Posts Loss, Preps Asset Sales). On the call, Notebaert, who was a 30-year veteran of Ameritech before he joined Tellabs, said that the company was still in discussions with parties interested in the entire business, but that the directory unit would probably be sold in two separate transactions. This would help the company avoid any potential regulatory problems and, more importantly, accelerate the sales process.

"The process takes time," he said, pointing out that reaching a mutually agreed timeline with one or two potential buyers was his main concern.

Notebaert also stated that he and other top executives at the company would start assessing Qwest's assets outside of the U.S. in the first half of next week, and that he anticipated some modifications. He wouldn't give any further details.

In the U.S., Qwest’s new CEO indicated that the company might shift its focus more towards consumers and small and medium-sized businesses, but insisted that it wouldn’t forget about its large corporate customers either. "That is something that we would never put at risk," he said.

Speculation has it that Notebaert has been brought in to prepare all or parts of Qwest for sale, but the new boss didn't say anything to that affect. Some investors had been hoping the company would soon sell off its unprofitable long distance service and concentrate on the stable, USWest part of the business; they were probably disappointed today when Notebaert declined to distinguish between the two parts at all.

"I look at Qwest as a whole," he said. "To me that merger was two years ago… There’s only one Qwest."

— Eugénie Larson, Reporter, Light Reading
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skeptic 12/4/2012 | 10:13:41 PM
re: Qwest's Notebaert: It Can Be Fixed is this a good time to invest in Qwest? base on their access lines and the amount of debt, the company is still trading at a significant discount.. what do you guys think?

I think its a crazy time to be investing in
any of these companies. There is no sign
(overall) that we have hit bottom yet. To know
that something is undervalued, you have to have
a reference point (unvervalued as compared to

neo78_us 12/4/2012 | 10:13:42 PM
re: Qwest's Notebaert: It Can Be Fixed is this a good time to invest in Qwest? base on their access lines and the amount of debt, the company is still trading at a significant discount.. what do you guys think?
DarkHelmet 12/4/2012 | 10:14:11 PM
re: Qwest's Notebaert: It Can Be Fixed I don't understand the seemingly positive reaction the stock market has had to the arrival of Notebaert. The only thing he has shown the ability to do in the past is hack apart a company, and destroy the employee morale. The resulting companies (Ameritech/Tellabs) have been unable to attract new customers or offer new services/products essentially because these functions require personnel who have been whacked because they don't produce revenue in the short term. His cuts at Tellabs were so deep that they had to buy a company which merely implemented off-the-shelf technology which Tellabs was already intimately familiar, but unable to develop because of loss of staff.

The only people who possible benefit are the bond holders, who now have a chance to be paid. The stock holders will now see a company which languishes for years, holding onto its monopoly services, but unable to grow. Its the ultimate in pushing the ratio of risk/reward: when you cut so deep that there is no risk, but you have no potential for reward.

As a final note, its hard to imagine worse customer service than the current Qwest, but the world will now get a taste.

scooby 12/4/2012 | 10:14:41 PM
re: Qwest's Notebaert: It Can Be Fixed If Qwest had a DNR on file this fire drill would be unnecessary. We'd just let the paramedics put the defibrillator back in the van. But noooooooo.

BadExample 12/4/2012 | 10:14:50 PM
re: Qwest's Notebaert: It Can Be Fixed It would be nice if morales crept into more board rooms when it came to decision making time. I understand that the easiest way to make up for a lack of revenue/funding, is to cut operational expenses which usually translates into jobs, but I would like to think that there are some companies in existence that have found alternate means of cutting costs.

I know there's no easy solution...
BobbyMax 12/4/2012 | 10:14:50 PM
re: Qwest's Notebaert: It Can Be Fixed It should be mentioned that all seven RBOCs were like kingdoms. They had no responsibility to the shareholders except fill up their pockets. Of all seven RBOCs, "Dr." notebaert did very little to improve the operations of Ameritech. It must be mentioned that the management structure of all RBOCs has been weak because of verey stable revenue stream. The management of RBOCs was relatively uneducated and hence not well suited to adopt to changes. The situation has not changed in the last seventeen years. In fact, it has become increasingly worst. All of these RBOCs are still overstaffed at the management level.

There are very few people in these RBOCs whoo undersyand technology, marketing and competitive forces.

Qwest became world's lab for testing junky products and technologies.

There is a large inertia in all RBOCs to adopting new technology as the company does not technology expertise to evaluate products. These RBOCs chose technology partners based on personality and appearance. This is sad story neverthless very true.

All these RBOCs can chop off about 25% of management without any repurcussion. SBC is partiularly inept and is one of the worst performers.

"Dr." Notebaert does not have the necessary expertise to chop off unnecessary businnsses and alliances which Nachio built so that the necessary businesses of Qwest can be eliminated.

It is unwise for Qwest to sell its yellow page business as it is very profitable.

The board members in any RBOC cannot be trusted to make any wise decision. Most of them have no background. These members benefit by getting $45, 000 a year, plus insurance, plus stock options and other that are clearly illegal and does not exist beyond the borders of the United States.
gea 12/4/2012 | 10:14:51 PM
re: Qwest's Notebaert: It Can Be Fixed LightBulb:
I wrote that initial post knowing someone was going to make the point you made, and I don't totally disagree with you.

But the time and the place right now, I think, is a little different, particularly in the case of Notebaert.
First of all, let me say that i don't think I am calling for any kind of government-enforced regulation here. And I'm not saying companies shouldn't ever downsize: if an industry is dying or sick, then NOT cutting some employees may result in all the employees in that company losing their job.

What I AM calling for is for, once in a while, a CEO to say: "Look. I know we have shareholder value to protect. I know it's my job in normal times to keep the stock price up. But we are not only at war, our economy came under attack on 9/11, and I know among all the employees I fire right now, very few will be able to find a job. And in addition, we have $1Billion in the bank. So I am going to make the volutary decision to keep as many employees as I can afford to safely employ. In addition, this will allow me to maintain the 7100 in a state of readiness for the when the market comes back. So it's not necessarily the most profitable decision right now, but it's the morally correct decision."

In the case of Tellabs, it's also worse than this. Tellabs bought the repeater business of Coherent, which was designed and manufactured in Long Island. Righ after, they moved the manufacturing down to texas, which they then closed. After that, they moved the manufacturing to Ireland, where the repeaters are produced in large numbers to this day. Meanwhile, they filled the Long Island manufacturing facility with the 7100, which they have now closed.

Therefore, it can only be wondered: if Tellabs hadn't bought (or moved) the repeater business, would those jobs still exist in the US? Damn right they would.

Thus, Tellabs an be seen a being absolutely un-thinking when it comes to peoples lives and jobs, and Notebaert is ultimately responsible. And this is not so much an indictment of the business (though I could argue that too), but of the man.
All I am pointing out is that sometimes it is not unreasonable for someone to make a moral decision, instead of the economic one. And in the case of Tellabs, the impact on their bottom line would have been minimal had they decided to stick by their people for a while.
photon_mon 12/4/2012 | 10:14:52 PM
re: Qwest's Notebaert: It Can Be Fixed Despite downsized myself, I have to agree with
DTM and LB. One need look no further than
California in order to see the effect of
excessive government meddling in the business of
business. No surer way to accelerate the trend of
- whenever possible and applicable - farming out
work overseas.

In most cases, a company should have the right to
weed out those unproductive employees who have
proven resistant to rehabilitation attempts.
Being a free society, like anything else this
right can be subject to misuse. It's a risk
that we unfortunately have to assume.

This does not mean that the model cannot be
tweaked a bit. As an example, United Airlines
was just in the news in the category of voluntary
salary reductions for some of its personnel.
These reductions would last for one year, by
which time the airline would hopefully be on a
firm path to financial health. I for one would
have preferred this option vs. unemployment.
Loyalty begets loyalty.

Regarding employment contracts, I would be
interested in finding out how often and
effectively they are enforced. Have there been
any studies done in this area? Recently? With
the possible exception of "key" personnel (i.e. -
lead engineers, management team members, etc. ...
in other words, major cogs in the machine, not
just rank-and-file types), I suspect that these
clauses (percentage-wise, at least) are
prosecuted as often as jaywalking. Unless of
course there is a highly-visible and apparently
obvious example of intellectual espionage. I
could be wrong, though.
skeptic 12/4/2012 | 10:14:54 PM
re: Qwest's Notebaert: It Can Be Fixed I am sorry, I have to disagree with both of you even though I symphathize with the spirit. If we accept that we are a free people, one *essential* aspect of freedom is that all contracts, including employment contracts are freely entered into. Most employment contracts specify the "at will" clause - which means that either party may choose to terminate the employment freely, at any time of their choosing.

Employement contracts are one-sided documents in
nearly all cases. Few companies will negotiate
terms in them, the wording is determined by the
company and in most cases the employee has the
choice of signing one of a number of identical
contracts or simply not working.

And but for employment law, the contracts would
be even more one-sided than they already are.

And "at will" employement isn't always what
it seems given "trade secrets" and "no-compete
clases". Some people have the right to quit,
but not the right to freely seek new employment.

I would not dignify the agreements employees
sign or any document that is not negotiated
between two parties with the term "contract".

Light-bulb 12/4/2012 | 10:14:55 PM
re: Qwest's Notebaert: It Can Be Fixed I don't get it. Do we understand that the Mighty dollar is king? With efficient and intelligent changes in manning companies can stay in business, without? Crumble. Someone said that Woa to Tellabs for downsizing 1500 people who worked on the 7100. Well Sorry but 1500 people takes a lot of payroll dollars. Why dip into the bucket if you don't have to? Because its the right thing to do? Come on, A business is in the Business of making MONEY. Shareholder value is the focus of the business. You want support and loyalty don't joing a large corporation. Stay to a company who is under 50 people, where you know everyone. Just don't whine about a corporation making the right decisions at the expense of the employee who can't be justified anymore.
Greedy CxO? Their Role in the company is to keep the business in the Green and to give the Shareholders value. Yes they are given bonuses to do so, but that is their job.
If companies don't start downsizing they WILL go out of business before this Telcom Winter is over.

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