Qwest to Expand Bandwidth 'Just in Time'

By Ritsuko Ando

Qwest Communications International Inc., the fourth largest U.S. local telephone company, said on Monday that it would expand high-speed network capacity as much as customers want, but not too much more.

Qwest's Chief Executive Richard Notebaert told Reuters in an interview that he aimed for "just in time" bandwidth expansion, referring to a popular inventory strategy to optimize the return on investment.

"We have to be very thoughtful about our return on investor capital. To do something where assets would not be fully utilized for a number of years, I think, would be suspect on our part," he said.

His comments highlight the company's focus on improving its financial health, the weakest of the four so-called "Baby Bells" and its pursuit of a different strategy to its bigger rivals such as Verizon Communications which have been investing heavily in broadband.

Qwest, he said, has so far kept up with customers' demand for high-speed Internet connections, now providing many with speeds of around 3 to 5 megabits per second, and some even 7 megabits, compared to 1.5 megabits a few years ago.

It will spend around the same or slightly higher in 2006 than last year to bolster bandwidth, he said.

Analysts have generally commended Notebaert for bringing discipline and focus to Qwest.

Based in Denver, Colorado and servicing 14 western states, Qwest last week posted a 54 percent rise in quarterly profit, helped by cost cuts and growth in high-speed Internet subscribers.

It ended the first quarter with 1.7 million high-speed subscribers, up

13 percent from the 2005 fourth quarter and up 50 percent from a year earlier.

It also ended the quarter with total debt of $15.4 billion, down $1.9 billion from a year earlier.

Qwest's improving cash position has helped Qwest's share price nearly double over the past 52 weeks. But the stock, which closed Monday up one percent at $6.82 on the New York Stock Exchange, is still far short of its 2000 peak of more than $60.

Analysts expect the improving cash position to prompt a share buyback or dividend payment soon, and Qwest has said it would make a decision on the matter later this year.

Notebaert remained coy on the decision, saying only he would listen to shareholders.

"Because they see what's happening, they have not been reticent in sharing their opinions," he said, adding that any move may depend on external factors such as interest rates.

Notebaert said he expected healthy growth in the wholesale business to continue, and that it should eventually be seen as more of a communications company than a regional telecoms company.

He also forecast an expected rise in demand for use of its optical fiber networks.

Qwest and other long distance telephone network operators during the dot-com boom expanded high speed fiber optic networks only to later find that they had overestimated demand, leading to a glut of unused optical infrastructure called "dark fiber.

"I think that eventually people will have to activate some of that dark fiber. With streaming video and all those things, traffic has to increase," he said.

Copyright 2006 Reuters Limited.

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