Aug. 13 (Bloomberg) -- Qwest Communications International Inc. named Edward Mueller chief executive officer to replace Richard Notebaert, who decided two months ago to retire from the telephone company.

Mueller, 60, was once an executive at SBC Communications Inc. and CEO at Williams-Sonoma Inc., Denver-based Qwest said today in a statement. Notebaert leaves the company on Aug. 15.

At Qwest, the fourth-largest U.S. phone company, Mueller will seek to halt customer defections after sales have been little changed for five straight quarters. Notebaert, who rescued Qwest from the brink of bankruptcy in his five-year tenure, used discounts on packages of Internet and phone service to win clients.

``With any new manager coming in, he's going to have to prove himself,'' Argus Research Corp. analyst Joseph Bonner said in an interview. ``Dick Notebaert did an incredible job turning that company around in the last few years and the question now is, how sustainable is that recovery and will the new manager be able to sustain it?''

Mueller's arrival may signal Qwest is seeking more acquisitions, said New York-based Bonner, who rates the shares ``hold'' and doesn't own any. Mueller ran Ameritech Corp., SBC International Operations, Pacific Bell and Southwestern Bell Telephone in his tenure at SBC. Mueller was named CEO of Williams-Sonoma, the owner of Pottery Barn and gourmet-cookware stores, in 2003.

The executive will start with a salary of $1.2 million and a minimum bonus of $947,000 and stock-based incentives, Qwest said today in a regulatory filing. Notebaert earned $1.1 million last year, plus a $4.1 million bonus.

Stock Performance

Shares of Qwest gained 18 cents, or 2.2 percent, to $8.55 at 11:54 a.m. in New York Stock Exchange composite trading. Before today, the stock had fallen 11 percent since Notebaert announced he would retire on June 11.

Mueller's hiring ``removes an overhang'' from the stock, J.P. Morgan Securities Inc. analyst Jonathan Chaplin said in a report today.

``The uncertainty surrounding who would take over as the new CEO has pressured the stock recently,'' said New York-based Chaplin, who rates the shares ``overweight.'' ``The company succeeded in finding a leader with a strong background.''

The stock has more than doubled since Notebaert won the CEO job in 2002, when Qwest's debt had bulged to $26 billion under predecessor Joseph Nacchio. Notebaert, 60, cut debt by almost half by selling the phone-book unit and eliminating jobs, including 400 positions in the latest quarter.

Qwest's Operations

Qwest operates residential phone lines in 14 western U.S. states and has an international network that routes voice and data traffic for companies. Cable TV companies such as Comcast Corp. have lured away Qwest customers by offering digital phone service.

``The residential side, which continues to be the vast majority of their revenue, continues to be challenged,'' said Dennis Saputo, an analyst at Moody's Investors Service in New York. ``That is the issue that will need to be addressed.''

Mueller said today that he likes Qwest's strategy for video sales to consumers. Bigger phone companies such as AT&T Inc. and Verizon Communications Inc. have spent billions of dollars to upgrade networks to carry TV signals, while Qwest sells DirecTV Group Inc.'s satellite TV service to phone customers.

``I don't come in with a mandate to do something different,'' he said in a conference call. ``Something has to be going right here to have the performance they've had.''

Examining Dividend

Qwest said on Aug. 1 its second-quarter profit doubled on lower repair and installation costs. Second-quarter net income climbed to $246 million, or 13 cents a share. Sales fell less than 1 percent to $3.46 billion, missing the average estimate of analysts surveyed by Bloomberg.

Qwest's board is examining whether to use cash for stock repurchases or a dividend. Mueller will consider those options ``quickly,'' he said. He didn't signal any changes to the company's strategy and said he'd meet with analysts later this year to discuss his plans.

``Investors are going to want to see Mueller keep a steady hand on the tiller and continue with what Dick was doing,'' said Christopher Larsen, an analyst at Credit Suisse in New York. Mueller should be ``returning cash to shareholders and not dramatically changing the capital investment in the business,'' said Larsen, who rates Qwest shares ``neutral.''

To contact the reporter on this story: Crayton Harrison in Dallas at tharrison5@bloomberg.net; Amy Thomson in New York at athomson6@bloomberg.net

Last Updated: August 13, 2007 12:08 EDT