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Employment

Notebaert Takes Out Nacchio

Call it a half-surprise. The old CEO was expected to go, but the new one wasn't expected to arrive.

The board of Qwest Communications International Inc. (NYSE: Q) has replaced CEO Joseph P. Nacchio with Richard C. Notebaert, 54, CEO of Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) (see Nacchio Leaves Qwest and Tellabs' Notebaert Quits to Join Qwest).

Plenty of experts had expected Nacchio to go (see Qwest: Ciao Nacchio?). His departure follows months of speculation that an ongoing inquiry by the U.S. Securities and Exchange Commission (SEC) and questions about Qwest's accounting practices would lead to his ouster (see and Qwest Revises, Retraces, Replies).

Notebaert's selection, on the other hand, remains surprising, yet logical. Prior to his brief tenure at Tellabs, Notebaert was a 30-year veteran of Ameritech and its CEO from 1994 to 1999. He announced his retirement at age 52 in October 1999, three days after Ameritech was sold to SBC Communications Inc. for over $70 billion.

Analysts say the news is an effort by Qwest to regain its credibility with investors and redefine itself as an RBOC -- or, in light of Notebaert's past success with a big merger -- as a possible acquisition target. And most say the transition for Tellabs may be disappointing but insignificant in the long run.

Nacchio officially resigned today from the job he'd held since April 1999. Back at Tellabs, meanwhile, cofounder and former CEO Michael J. Birck, 63, has resumed the post he ceded to Notebaert back in August 2000.

"This is positive for Qwest. Joseph Nacchio's termination goes toward restoring investor confidence and credibility," says Patrick Comack of Guzman & Company. He thinks the SEC will be pleased with Nacchio's leaving, even though Qwest may still have to restate its financials.

Meanwhile, analysts say Tellabs may initially rue the loss of its latest CEO, who appeared to have marshalled a solid strategy for the company while presiding over a well-chosen acquisition (see Tellabs Sees Ocular Upside and Tellabs Nabs Ocular). "We heard great things about [Notebaert]," says Frank Dzubeck of Communications Network Architects. "Under him, [Tellabs] was really becoming something."

In the end, though, it may not be a big loss for Tellabs. "Birck was always respected on Wall Street. He's a founder; he took the company public," says Rick Schafer of CIBC World Markets. "The way I see it, there won't be a hiccup. He never distanced himself. He was a hands-on chairman. He's been going to work every day; he's been an integral part of decisions."

But the departure leaves other questions. Sources close to the company said that Notebaert championed the acquisition of Ocular Networks and built a good relationship with former Ocular CEO Ed Kennedy -- which has provided Tellabs an injection of startup blood (see Kennedy Takes Charge at Tellabs Tellabs Sees Ocular Upside). It's unclear whether Birck has a similar rapport with Kennedy, who is now senior vice president of Tellabs' metro networking group.

More questions abound as to what today's news may mean in the long term for Qwest, considering Notebaert's background. At Ameritech, Notebaert was said to have focused on mining the local network, but was criticized for neglecting strategic opportunities in the cellular business and for failing to invest in new equipment.

"Ameritech under Notebaert didn't have a cutting-edge network," says one Wall Street financial analyst, who asked not to be named. "SBC has spent the past several years trying to get the Ameritech portion of the network up to snuff."

Notebaert's hiring speaks to a desire by Qwest's board to retreat from the brash, aggressive strategies embodied by Nacchio, the analyst says, in favor of a more conservative RBOC approach. And it's likely the carrier won't invest in any new infrastructure. What's more, Notebaert's experience with the SBC merger may stand him in good stead if all else fails.

Qwest's latest news seems to bolster the view that it's mainly focusing on mining cash flow from its existing RBOC services and jettisoning other kinds of businesses.

Last Friday, Nacchio held an analyst conference to discuss the company's filing with the U.S. Federal Communications Commission (FCC) to offer long-distance services in its five-state US West region within 90 days (see Qwest Files for Long Distance). According to Nacchio, the bid would put Qwest in line to tap a "$10 billion market opportunity." At the same time, he stressed that the carrier was in the final stages of negotiations to sell its yellow-pages business and was thinking of entertaining bids for its wireless business later this summer.

Most analysts think the pending yellow-pages sale won't be held up by the CEO change. "Qwest needs the money," says one analyst. And rumor has it the carrier is set to get more than $8 billion from the sale -- more than enough to save it from violating its credit covenants.

On the whole, the sentiment on Wall Street seems to be that Qwest's gain is Tellabs' loss -- at least in the short term. At press time, Qwest shares were trading at $4.99, up $0.84 (20.24%). Tellabs shares were trading at $8.39, down $0.19 (2.20%).

At press time, it wasn't clear whether Nacchio was due to collect twice his base salary as a result of his leavetaking (see Qwest Pays Nacchio to Stay).

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com
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gea 12/4/2012 | 10:15:29 PM
re: Notebaert Takes Out Nacchio Notebaert is an axeman, plain and simple. He swung the axe at Tellabs, and I guess they need an appearence of the grim reaper over at Quest.

As for an "infusion of startup blood", well, maybe the Ocular product is a good one, but there ain't ANY "startup blood" flowing through Tellabs. I have never encountered a more buearucratic, toss-it-over-the-wall type company in my life.

The only thing you can say about Tellabs is that by continuing to milk their old cash-cow, the 5500, they got lucky. Any other innovative product they have attempted internally is either dead, or about-to-be-dead.
rjmcmahon 12/4/2012 | 10:15:28 PM
re: Notebaert Takes Out Nacchio That gets us down (in the worst case) to
two massive RBOCs.
_________________

But the FCC will claim that the cable cos and ultra-wideband is sufficient competition to balance out two RBOCs.
rjmcmahon 12/4/2012 | 10:15:28 PM
re: Notebaert Takes Out Nacchio Gea; Interesting observation. I remember when the axeman for my IBM unit showed up. He was the calmest and nicest guy you could imagine. Nobody really understand why they brought him. And then the silent axe began doing to its work. From 1400 to 400 in 4 mos. The smart ones got out while the cafeteria was still open for business.

Slashing Qwest and selling the remains to SBC when the FCC oversight is the weakest its ever been in its history does seem like a plausible strategy these guys might act on.
skeptic 12/4/2012 | 10:15:28 PM
re: Notebaert Takes Out Nacchio Analysts say the news is an effort by Qwest to regain its credibility with investors and redefine itself as an RBOC -- or, in light of Notebaert's past success with a big merger -- as a possible acquisition target?
----------------

Who would they merge with? I can't see regulators
allowing SBC or Verizon to have Qwest. And if
they did, they would have to allow the one who
didn't get Qwest to merge with someone else as
large. That gets us down (in the worst case) to
two massive RBOCs.

As far as Notebaert, I can't think of anything
positive to say about ameritech while he was
running it. And its really sad that he was the
best they could do.

strands555 12/4/2012 | 10:15:27 PM
re: Notebaert Takes Out Nacchio Bell South?.

See pg 40 of:
http://www.telecomvisions.com/...

A snip:
Another GǣthreatGǥ often associated with Qwest is that of a take-over. Paying tribute to
the rapid progress made by Qwest the Economist warned that Qwest might Gǣbe just
too dangerous for its own long term independenceGǥ.303 Expanding upon the same
argument it raised the possibility that, GǣQwest itself will fall victim to AmericaGs
telecom-merger frenzy - perhaps to a Baby Bell in a hurry to enter the long-distance
marketGǥ.304
The long term favourite amongst the possible contenders to take over
Qwest is indeed a Baby Bell - Bell South, the only one of the original seven Baby
Bells still in its original form.305

Already Bell South has bought a 10 percent stake in
the company and has made filings with the SEC indicating a take-over interest (see
Stock market and Joint-ventures sections).

Bell SouthGs involvement with Qwest has
been increased through its links with KPN with whom it has a wireless agreement.
Of course a take-over might be seen, not as a threat, but as QwestGs ultimate strategic
ambition. The idea that the company is being fattened up ready for a trade sale has
certainly contributed to its high rating on Wall Street. AnschutzGs business history
has, after all, involved developing and then selling commercial assets. Nacchio would
not seem adverse to such a plan either, allegedly stating in private that Gǣif I havenGt
sold this company in 24 months, IGll consider it a failureGǥ.306
There are those who believe that Qwest under Nacchio has been developing itself with
the express purpose of being purchased by Bell South. Interestingly, in July 1999,
Qwest announced that it would be moving into 25 new US markets , but avoided any
overlap with Bell South. Such a strategy, it was suggested would minimise the
antitrust concerns in the event of a merger of the two companies.307
erbiumfiber 12/4/2012 | 10:15:26 PM
re: Notebaert Takes Out Nacchio I believe Dilbert referred to that type of exec. as a "bungee-cord manager" flying in on a cord and then rebounding back out just as quickly...

(Wally says "he was like a mentor to me...") And Scott Adams was a telco employee, he should know. But, wow, scary to think about even MORE consolidation/monopolization of the telecom service providers...I think you are all completely right- he's an axe-man to bring the stock price up and then sell what's left.

But they're still not rid of Nacchio (unfortunately). Lots of articles reported that he will still "consult" for Qwest for a couple of years...
owl-light 12/4/2012 | 10:15:26 PM
re: Notebaert Takes Out Nacchio Well good morning, good afternoon and good evening.

Thanks, Dick. Thanks for nothing.
deepciscothroat 12/4/2012 | 10:15:24 PM
re: Notebaert Takes Out Nacchio Qwest has been taking bribes from vendors for a long time. Wonder what Dick will do?
Two 12/4/2012 | 10:15:21 PM
re: Notebaert Takes Out Nacchio As for an "infusion of startup blood", well, maybe the Ocular product is a good one, but there ain't ANY "startup blood" flowing through Tellabs. I have never encountered a more buearucratic, toss-it-over-the-wall type company in my life.

The only thing you can say about Tellabs is that by continuing to milk their old cash-cow, the 5500, they got lucky. Any other innovative product they have attempted internally is either dead, or about-to-be-dead.


Hear hear!
As a former Tellabs employee, I heartily agree.
They have no clue how to manage a SW project and work hard to make anyone with talent and creativity run screaming for the hills.

I'm just hoping they buy Sycamore and watch it crash and burn. Desh versus Birck...that should be a nice one to be a fly on the wall for....

$10 says that they hire some dim-witted, but well-connected former Verizon exec. to be their next CEO.

..
optical_man 12/4/2012 | 10:15:20 PM
re: Notebaert Takes Out Nacchio As to Qwest, you can bet they are going to try to save the business. Is that with cool new technology? No. It's by duct taping the old circuit junk together for two more years.
What to do if you are a next gen provider of gear? (ie,redback, sonus, juniper)? It's over, your shares are gone. Move on. Tech is great (I've personally coded some of it almost two decades ago), and am not a stick in the mud preaching the old ways, but you've got to admit, the big boys are playing for survival, and this nasty bubble thing bit everyone in the butt.
Some new tech companies will be able to sell new/next gen tech into the RBOC's in a couple of years, but the big boys have spoken "we aren't ready just yet".
If you are sitting on a hoard of stock options, let me offer some well weathered advice, "consider your family, and how long you'll be around. It's 3-6 decades. This was a great ride but my management is 'vested and rested' and now just doing this to prove their egos are right.
Good companies will survive, tech next gen will not until 2005. (read some history on martin marietta and rocket components in the early 70's). If you don't learn from history you are doomed to repeat it (and I personally believe we are in the middle/beginning of something I saw a long time ago. But I thrived, and so will you.)

The last thing you want to do is tell yourself "I work for XX in MASS. and that will tell people I'm "top of my game" for too long. After a while your future employers/interviewers will tell you, "were you that blind? You seem to be lacking some basic business vision skills we need here at YY in MASS.
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