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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
buliwyf 12/4/2012 | 10:10:58 PM
re: Notebaert Takes Out Nacchio Of all the vendors I speak to it's always seemed as if CIEN had the most realistic expectations (in terms of market outlook), at least privately.

BTW does anyone see a way where we don't have flat to negative growth in the colocation and bandwidth markets for the next year at least (as customers re-evaluate their needs)?
I Know What You Did Last Summe 12/4/2012 | 10:14:29 PM
re: Notebaert Takes Out Nacchio Your reply is noted, but all fairytales require the reader to come back to reality. Qwest will endure a painful existence for the coming years, and CIENA is quickly becoming a fad of the "bubble telecom spending years" that will soon be part of CISCO or out-of-business.
lilgatsby 12/4/2012 | 10:14:43 PM
re: Notebaert Takes Out Nacchio Last I checked there were several vendors selling to Qwest. I wouldn't blame any of them for current economic conditions. Someone a little sour...?
skeptic 12/4/2012 | 10:14:44 PM
re: Notebaert Takes Out Nacchio CIENA collected a boat load of money to help push Qwest and Nacchio to the edge of the cliff during the bubble days by selling them their fairytales.
--------------------

Qwest and nacchio were at the edge of the cliff
for their whole existance. And they sold plenty
of fairytales to wall street that had nothing
to do with Ciena. The only thing that saved
Qwest was that they bought US West with their
inflated stock before the bottom fell out.

Even if Qwest had shunned every startup and
bought only from cisco and lucent/nortel/alcatel,
their problems would still be roughly the same.

If you want to be mad at someone, take it out
on the wall street people who made huge amounts
of money off the Qwest/USwest merger. Or take
it out on the USwest board of directors and
management who sold out their shareholders and
employees.


I Know What You Did Last Summe 12/4/2012 | 10:14:45 PM
re: Notebaert Takes Out Nacchio CIENA collected a boat load of money to help push Qwest and Nacchio to the edge of the cliff during the bubble days by selling them their fairytales.
photon_mon 12/4/2012 | 10:14:53 PM
re: Notebaert Takes Out Nacchio Great thread so far. Having (sometimes) painful
firsthand experience (employment and vendor-wise -
though I am not a current employee or disgruntled
ex) with the majority of companies mentioned, I
concur with previous posters. So here goes ...

Nacchio had to go - he found out that the tar and
feathers were already on order. Living amongst
Qwesters out here in Qwest-land, he didn't have
a lot of internal fans left. In fact, both they
and the stock were conditioned to cringe every
time he opened his mouth. Suggestions for his
next career move would have to include hot-air
supplier for Steve Fosberg's (sp?) next round-the-
world ballooning attempt. Don't begrudge his
lovely parting gift$, for he will have to make it
stretch awhile with his damaged reputation.

Is Notebaert the ideal replacement? Well, his
stint with ultraconservative Tellabs does scare
me. Not exactly a visionary type of company.
Relationships with key telco decision-makers,
along with essential commodity products has
kept this company chugging along - slow and
train-like (not necessarily a bad thing,
mind you, under the right circumstances). But my,
my, the windows of opportunity that those folks
have squandered! However, in fairness to Mr. N.,
Tellabs has always been "the Mike Birck show". So
perhaps his niche is in being a valuable
figurehead! Gee, it does make me wonder if
Qwest will possibly be in the market for more
Tellabs gear in the near future. Hmmmm...

And maybe that is what Qwest needs (and was
shopping for). Someone with a bit less
"personality" than Nacchio. So my gut tells me
that Notebaert will only be as effective as his
handlers. Hopefully they will take the necessary
steps to expose and eliminate the dead wood
that's been hiding in the middle layers, and
restore hope to the disillusioned working stiffs,
customers and investors.

And of course, it could indeed be a precursor
to merger, thus completing the circle of pain ;')
with the return to monopolistic form.
Heaven forbid, if this does come to pass, I do
hope that Bell South (of the suitors mentioned)
is the lucky groom. Verizon's aggressiveness
(heck, checks and balances is what makes America
great) scares me, and I believe that the others
would be overwhelmed with the acquisition. Bell
South has a solid reputation for being well
managed. Qwest could definitely use a healthy
infusion of culture and vision from a Bell South.

Of course I could be wrong...

gea 12/4/2012 | 10:15:03 PM
re: Notebaert Takes Out Nacchio Don't believe anything you read from BobbyMax aka Harvey Mudd. That guy will pull numbers entirely out of the air and state them as fact without batting an eye. Reading his posts is a lot like having san thrown in your eyes: they cloud the issues with accusations and innuendo, making it far harder to discern the truth.
RJC 12/4/2012 | 10:15:05 PM
re: Notebaert Takes Out Nacchio Bobby wrote:
Qwest has over $24 Billion dollars in debt. Mr. Nachio has over $300 million by exercising stock options and adoptong other questionable practices. In addition he will get over $10 million as salary.



Where did you find the size of Nacchio's parting gift? I've been trying to find the exact figures of his separation package, but nobody seems to be publishing it.

hyperunner 12/4/2012 | 10:15:18 PM
re: Notebaert Takes Out Nacchio Hey Bobby...errr Harvey, whatever.

I guess you learned your spelling and grammar at Harvard, eh?

hR.
BobbyMax 12/4/2012 | 10:15:19 PM
re: Notebaert Takes Out Nacchio It is rather surprising that QWEST would select a person who was at the helm of affairs at Americitech. He was CEO at the time whan you did have to make any significant decision. Mr. Notebaert was just a nominal head.

One of the biggest gripes I have against all RBOCs is that they never hired a well educated person for any responsible positions. So if you a graduate of Harvard School of Business, do not expect to find a position with any of the RBOCs. Line men and trunkmen without any schooling have becomes VPs. RBOCs will have to change their strategy and get rid of their prejudices against educated people.

have seen Qwest and other RBOCs wasting their resources with new technologies with new technologies that do fit into their legacy environment.

Qwest became a lab for testing equipment from third grade start-up companies. The comnpany management always wanted to be in limelight. Qwest had even decided to deploy call softswitches in place of classical #5ESS switches. They also fooled with companies loke Cisco, Williams Communbications, and Global Crossing.

Qwest has over $24 Billion dollars in debt. Mr. Nachio has over $300 million by exercising stock options and adoptong other questionable practices. In addition he will get over $10 million as salary.

I hope "Dr." Notebaert has negotiated a deal similar to Nachio.

I bet Mr. Notebaert has no idea how to fix the problems at Qwest. I would expect him to release his vision and plan.

Considerung the massive debt and mismanagement, Qwest wopuld not be profiable in the next 10 years or so.

Sad story but it reflects the reality of condion at Qwest. Whosover comes and leaves QWEST steals money from the company.
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.
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.

..
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?
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.
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
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.

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.
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