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Qwest "Can't Be All Things to Everybody"

Richard C. Notebaert said it took him all of a "nanosecond" to accept the job as chairman and chief executive of Qwest Communications International (Q), the troubled telecom giant. In fact, Notebaert was so quick to accept the position that he didn't consult his wife before doing so, even though the new job would likely involve moving the couple's home from Chicago to Denver, Qwest's headquarters. "In hindsight, it would have been wiser to ask her," Notebaert says.

Wall Street, too, had a quick response to Notebaert's June 17 hiring and the simultaneous resignation of his predecessor, Joseph P. Nacchio: Qwest's stock jumped 20% that day. But fixing Qwest won't be as simple as bringing in a new CEO. Bluntly put, Qwest is a mess. The company is groaning under the weight of $26 billion in debt. It has $3.4 billion of that coming due next May, an amount the company will not be able to cover from its operations.

Two major credit-rating agencies think the prospect of bankruptcy is likely enough that they downgraded the company to junk bond status in May. "It's a precarious situation," says Catherine Cosentino, a telecom analyst at rating agency Standard & Poor's, which, like BusinessWeek, is a division of The McGraw-Hill Companies.

CUTTING DOWN ON FIBER. Notebaert is beginning to articulate his plan for putting Qwest on more solid footing. In an interview with BusinessWeek, the 54-year-old telecom veteran suggested he will accelerate previously announced asset sales to generate the cash necessary to pay off the debt coming due. More surprising are his plans for Qwest's money-losing fiber network.

Pundits have speculated that Notebaert, who was chief executive of local-phone giant Ameritech before selling it to SBC Communications (SBC) in 1999, would abandon Nacchio's cherished fiber network to focus on the local-phone business that Qwest acquired in its purchase of US West. But Notebaert says he may simply narrow the operation's focus, concentrating on smaller companies in key cities rather than the multinational corporations that Nacchio targeted. "We can't be all things to everybody," says Notebaert. "I really believe there's an opportunity in small- to medium-size businesses."

Improving Qwest's balance sheet is his most urgent task. An auction for the company's Yellow Pages business has been hung up by certain state regulators who argue that local-phone customers are entitled to some of the proceeds. Notebaert says he will accelerate that sale -- which may bring in more than $8 billion -- possibly by selling the business in parts, starting with the states in which there's no regulatory opposition. Notebaert also indicated more strenuously than Nacchio that he'll likely sell the company's wireless phone business, which could bring in $1.5 billion more.

He has no time to waste. The loan covenants on Qwest's bank debt tighten at the end of the year, and if it doesn't close the Yellow Pages sale by December, it probably will be in violation of the new terms. Qwest will have to renegotiate with its banks or risk being in default.

"LESS SHOTGUN...MORE RIFLE." Of longer-term concern to Wall Street is the fate of Qwest's 190,000 miles of fiber-optic lines, once the centerpiece of the company's strategy to offer high-end voice and data services to large companies. That network, which is losing more than $500 million a year by some estimates, is considered a liability that some outsiders believe Qwest would do better to sell or spin off. Instead, Notebaert says he is considering exiting international markets, focusing on a few domestic cities, and targeting niche markets. "Our approach should be less shotgun and more rifle," he says.

There are doubters. "I'm not sure Qwest's network will ever have the scale to compete against AT&T (T), WorldCom (WCOM), and Sprint (FON)," says Blaik Kirby, a telecom analyst at the consulting firm Adventis. "There has to be some consolidation in the future."

Although Notebaert sold Ameritech, he says he plans on running Qwest for a while. He says that his wife, Peggy, has already found two houses in Denver that she likes. Now, if only he can keep Qwest shareholders as happy. By Christopher Palmeri in New York

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