Qwest CEO Search Ends With Mueller

Qwest Communications International Inc.s appointment of Edward A. Mueller as its new chairman and CEO appears to be a good move, analysts say. But some wonder whether anything significant will change for the third largest Bell company if Mueller doesnt bring new and visionary ideas, especially regarding Qwests enterprise strategy.

Mueller (pronounced Miller) was named to the top post on Aug. 10. Former CEO Dick Notebaert announced in early June that he would retire. Mueller, 60, is a lowprofile Bellhead whose resume includes three years as head of retailer Williams-Sonoma Inc. He also was president and CEO of Ameritech from 2000 to 2002; vice president of SBC International Operations from 1999 to 2000; and president and CEO of Pacific Bell from 1997 to 1999. Most recently, he led the VeriSign Inc. board of directors.

Mueller was Notebaerts top recommendation to the Qwest board. Analysts expect Muellers approach to mirror Notebaerts, which they see as a plus for consistency and a minus for predictability. Nonetheless, analysts for investment bank JPMorgan wrote in an Aug. 13 research note, Mueller should be able to hit the ground running given his knowledge of the telecom industry and its players.

But Muellers similarity to Notebaert is just what concerns Eric Paulak, a managing vice president for research firm Gartner Inc. I think he continues along a lot of what has already been established. Will he bring something visionary here? I dont know, Paulak says.

It will take time to get Qwests name out there as a top contender for business services, Paulak says, and thats one of the company most critical jobs. Qwest has entered the higher-end business services market with its Ethernet and call center capabilities, and needs to capitalize on them right now, enterprises see AT&T Inc. and Verizon Communications Inc. as their only choices.

If Qwest wants to change that, [Mueller] has to change that, says Paulak. Doing so means keeping current executives and acting as the companys chief salesperson, he adds.

Mueller doesnt have much experience pushing professional services to businesses, so he should rely on Thomas Richards, head of the business markets group, to foster momentum, Paulak says.

Presumably, Muellers three years as the Williams- Sonoma CEO will only benefit Qwests marketing efforts on this front. Donna Jaegers, a telecom analyst for Colorado-based Janco Partners Inc., predicts Muellers time with the retailer will help Qwest better compete with Comcast; Qwest is losing subscribers to Comcasts triple-play.

Paulak downplays the significance of Muellers Williams-Sonoma position, though. Mueller was pushed out because Williams-Sonoma was not performing well, he says, so its not clear how much that job reflects Muellers marketing savvy.

Qwest also needs to buy a CLEC or two to bolster the business unit, adds Jaegers.

Qwest really needs more scale and more last-mile capabilities out-of-region, Jaegers says. Even though Notebaert was disciplined on the financial front, he was slow to move on M&A. Some of the names Jaegers proffers as possible targets include PAETEC Holding Corp., XO Communications and Time Warner Telecom Inc. XO and Time Warner Telecom have the last-mile access; PAETEC doesnt, but it would bring a strong business customer base to Qwest, she says.

Paulak also says Mueller, ideally, should stick around for more than five years. Mueller is contracted to serve at least three, but, at 60 years old, he could be on track to follow in most telecom execs footsteps by retiring by 65. The enterprise division needs some consistency and vision, and that will take a long time to carry out, says Paulak.

Mueller is filling some big shoes. Notebaert, who knew Mueller from Ameritech days, has earned a reputation for rebuilding Qwests balance sheets and improving the companys customer service reputation. He came to Qwest in 2002 just after the cash-strapped company fired CEO Joe Nacchio, who was under fire for accounting fraud. Notebaert was tasked with turning Qwests finances around and, despite many peoples doubts, did just that.

The Terms

Edward Muellers three-year deal will automatically renew for one-year terms unless Mueller or Qwest cancels. Mueller will be paid a base salary of $1.2 million and a bonus of up to 20 percent. Both the salary and bonus can increase annually. For the remainder of 2007, Mueller will receive $947,000.

Mueller also is able to buy 2.083 million shares of Qwest common stock for $8.37 per share; the board also granted a restricted stock award of 896,000 shares. Qwest has given Mueller other perks as well. For example, hell receive an annual flexible benefit of $75,000 in cash, which Qwest positions as a payment made in lieu of various other perks often given to executives. Qwest also will pay Muellers moving and temporary housing expenses and cover the costs of a home security system. And if Mueller isnt able to sell his current home by March 31, 2008, Qwest will buy the residence.

Mueller and Qwest also negotiated several terms in case Mueller is asked to resign before the three-year agreement comes due.