Qwest Treads Cautiously in Race to Provide Television Service

By Crayton Harrison

AT&T is spending $5.1 billion over five years to upgrade its network to provide television service. Verizon Communications has earmarked $23 billion over seven years. At Qwest Communications International, the chief executive is waiting for proof that people want TV from their phone company. “Is it possible that our model is O.K.?” the chief executive, Richard Notebaert, said. “We don’t have to knee-jerk. The only reason you think I should spend more is because someone else is spending more.”

Notebaert joined Qwest in 2002 after the company spent $18 billion on network upgrades in a premature bet on Internet traffic by its former chief executive, Joseph Nacchio. He is a holdout among his peers in the telecommunications industry. Notebaert said Qwest shareholders did not want him to commit to a major spending project until demand for video services became clear.

“The owners, the people who own the company, they look at it and say, ‘You’re doing exactly what we want,’ ” he said.

While rival phone companies start major TV operations, Qwest plans to keep selling satellite video with its partner, DirecTV Group, and operating a small television network in parts of Denver and Phoenix. Notebaert has not forecast spending on network enhancements beyond this year.

Qwest’s network spending under Nacchio gave the company capacity to transmit large amounts of corporate data across the country. The company has been slower to accelerate home connections to broadband speed, a project Notebaert pushed to the forefront.

Investors say Notebaert can hold off on video as he focuses on lowering costs and improving service. Building a new television service is risky, and it is worth waiting to see whether the investment pays off for AT&T and Verizon, they said.

“There’s no need to be the aggressive leader in the space,” said Reed Deupree, an analyst with Legg Mason Capital Management, Qwest’s second-largest investor after Philip Anschutz. “They have an option on video if AT&T gets it to work.”

On Tuesday, Qwest said first-quarter profit almost tripled after it cut retiree benefits and the costs of routine installations.

Cable-television companies are luring customers with a package of TV, phone and Internet service. Cox Communications had more than two million phone subscribers at the end of 2006.

Verizon and AT&T announced TV projects three years ago. By the end of March, Verizon had made TV service available to 3.1 million homes. About 348,000 customers subscribed. The company also had about 618,000 satellite TV customers.

AT&T, which got a later start on its TV service because of software problems, had 20,000 TV subscribers via phone lines as of April 24. It had 1.7 million satellite users in March.

Qwest has recruited 506,000 video subscribers through DirectTV and small TV operations, but it will need more to compete with cable companies selling television, phone and Internet service, said John Hodulik, an analyst with UBS. “Considering the impact cable’s having on the voice market, I don’t think you can not have a comparable product for the next three to five years,” Hodulik said.

By then, Notebaert said, customers may not want the kind of TV service cable and the other phone companies sell. Viewers may download entertainment from a library instead of watching shows when they are broadcast, he said.

That old TV model, “in my mind, is dead,” Notebaert said. “It’s just a matter of when does the customer get there. And that’s just something we’ll have to debate as we watch AT&T.”

Notebaert’s theory will be tested when Qwest begins to offer video downloads through a service with Windows Live over the next few months.

(c) 2007 International Herald Tribune. Provided by ProQuest Information and Learning. All rights Reserved.