What is Qwest’s future?

Qwest Communications International Inc. CEO Richard Notebaert has announced plans to retire from the company he has run since 2002. He will step down once a replacement can be found. Notebaert took the helmet from Joseph Nacchio, now in prison, while the company was in the middle of an accounting scandal that left it $26 billion in debt. Mr. Notebaert helped Qwest stop the bleeding enough to return profitability. But the increase in earnings has come as a result of a cost cutting strategy rather than a growing business. While the company is certainly far healthier than it was a few years ago, it relies on partners to help it in the key telco growth areas of wireless calling (offered by reselling Sprint Nextel Corp. services) and residential video (offered by reselling DirecTV Group Inc. services). So, what is Qwest’s future?

While Qwest's peers AT&T Inc. and Verizon Communications Inc. aggressively pursue their own fiber based video strategies, Qwest has taken a conservative wait-and-see approach to see what customers will end up demanding the most in the future. The company says it’s watching the IPTV pioneers and will continue to experiment with several ways of delivering video services to its customers. Let’s take a look at the four main ways that Qwest sees to reach consumers with video service.

Traditional choices
ChoiceTV is Qwest's VDSL-based TV service that passes about 500,000 homes, mostly in the Phoenix area. It's offered over a fiber-to-the-node (FTTN) network with NextLevel hardware and software. Qwest doesn't have any big expansion plans for ChoiceTV. But Qwest does note that an IPTV network is the next generation of a service like ChoiceTV. There are no plans to upgrade immediately but an upgrade would give Qwest the ability to use stronger video compression technologies and more interactive services, as well as offering its own digital video recorder (DVR) service.

Qwest's satellite star DirecTV
Throughout most of Qwest's 14-state footprint, the carrier sells an assisted triple play, a voice, video, and data bundle of services, where DirecTV's satellite TV service makes up the video part of the deal. Qwest describes this as a very successful partnership but won't comment as to whether the reseller model is really a big revenue winner for anything other than DirecTV. What it does is give Qwest something to sell to prevent subscriber move to cable. But the relationship may change in the near future, Qwest says, as it could use its DSL connection to homes to provide a video adjunct to what DirecTV beams down from satellites. That is a video on demand opportunity, which would integrate broadband with DirecTV to provide additional integrated capabilities.

Qwest's broadband video plan
After a long period, Qwest says it will launch a broadband VOD service available to its customers who have PCs running Windows XP or Windows Vista operating systems. The still nameless service will be co-branded with Microsoft Corp.'s Windows Live platform. Qwest says it will be working on deals with content providers to make free, pay-per-view, downloadable, and searchable video content available through this upcoming service.

What about IPTV?
The company says it is preparing to be a "fast follower" in the IPTV space, as soon as it sees the technology and services catch on. Qwest's FTTN expansion will be big, but it will be gradual. And, as such, the carrier isn't saying much about the scope of its plant upgrades. Qwest’s fiber network can provide 20 Mbit/s of bandwidth. Obviously FiOS (Verizon) can provide higher. The question is how much bandwidth do you need? Clearly, Qwest and AT&T both think they can satisfy what the customer demand is. There is some good judgment to the Qwest "fast follower" approach. “If you are sitting on $13.4 billion of net debt like Qwest, you don’t have the luxury of thinking about a massive FTTH deployment", says Heavy Reading senior analyst Stan Hubbard. "And that may turn out to be a good thing from a strategic point of view in the near term, as this whole battle between IPTV and Internet TV plays itself out." Definitely, more to come of this, but I think the IPTV alternative will ultimately be the winner.