Dec. 17 (Bloomberg) -- Qwest Communications International Inc., the local-phone provider in 14 U.S. states, will limit capital spending to network upgrades next year after deciding that building a television service would be too costly.

Qwest will spend as much as $1.8 billion in 2008, Chief Executive Officer Edward Mueller said on a conference call today. That compares with $1.6 billion planned for this year. The capital budget includes $300 million for faster home Internet connections.

The decision comes after a four-month review of Qwest's operations, begun when Mueller took over in August. Sales growth has stagnated for six straight quarters as Qwest lost customers to Comcast Corp. and other cable companies offering packages of phone, TV and Internet service. Improving Internet speeds may encourage customers to spend more, Mueller said.

``There's a lot of skepticism, with the competitive issues being what they are, that that might not be sufficient,'' said Thomas P. McIntyre, president of McIntyre Freedman & Flynn, which manages $85 million in investments. ``That's why the stock isn't really reacting.''

Qwest fell 29 cents, or 4.1 percent, to $6.72 at 4:01 p.m. in New York Stock Exchange composite trading, the most in a month. The shares have dropped 20 percent this year.

McIntyre, who sold Qwest shares in October, said he'll decide whether to buy the stock again after hearing fourth- quarter results and the details from Qwest's meeting with analysts on Feb. 25.

Internet Growth

Qwest signed up 111,000 home Internet subscribers last quarter, down from 175,000 the year before. Profit missed analysts' estimates in the period as Qwest struggled to sell more Internet service and data hosting to corporate clients.

The Denver-based company won't invest in television over phone lines because it would cost too much, Mueller said.

Qwest, which sells Sprint Nextel Corp.'s wireless service under its own brand, also plans to offer a product late next year that would link a mobile device to a home Internet connection, he said. The company is exploring ways to offer faster mobile Internet connections, possibly through partners, he said.

Mueller is looking for ways to fuel sales growth while still returning cash to shareholders. The board approved Qwest's first dividend in six years last week.

Faster Speeds

The new spending will help Qwest install more fiber-optic lines in neighborhoods, raising the rate at which customers can download music and video. Speeds will climb to as much as 20 megabits per second, more than twice what Comcast offers in many cities. Qwest now offers top speeds of about 7 megabits.

The speeds will reach 1.5 million homes in 20 cities by the end of next year, Mueller said. They should help Qwest sell Internet service to about 40 percent of the households where it's available by 2011, up from 23 percent this year in the markets where it plans to invest, he said.

Qwest began installing fiber lines this year in Colorado cities such as Denver and Colorado Springs. Clients in those cities were twice as likely to sign up for faster speeds, and those that did spent about $10 more a month, Mueller said. If those trends hold, next year's $300 million investment will pay off in about five years, he said.

Qwest spokesman Bob Toevs declined to disclose how many homes the company reaches with its fiber-based network.

Mueller, 60, took over from Richard Notebaert, who retired after cutting debt by almost half, selling the phone-book unit and eliminating jobs in his five-year tenure. Notebaert also snubbed investments in technology to sell TV over phone lines while larger phone companies AT&T Inc. and Verizon Communications Inc. made multibillion-dollar video investments.

``It is reassuring to hear more continuity than change,'' said Christopher Watts, an analyst at Atlantic Equities LLP in London. He recommends buying the shares.

To contact the reporter on this story: Crayton Harrison in Dallas at tharrison5@bloomberg.net

Last Updated: December 17, 2007 16:12 EST