Qwest for recovery: ailing giant stabilizing under determined CEO.

• Author: Schley, Stewart

Richard Notebaert wants to topple prevailing telephone regulations, settle federal investigations once and for all, and get somebody at Comcast to air his ads for high-speed Internet service. But all that can wait. Right now, what's important is the blue wristband.

"Here," says Notebaert, tossing a package across a conference table. "Put this on."

The wristband is a thin strip of blue rubber, with the catch phrase "Spirit of Service" carved neatly into its surface. Inspired by an employee's suggestion, Notebaert ordered boxes of the things, and he hands them out to just about anyone who passes through his office. It's 8 a.m. on a Wednesday at Qwest's 18th Street headquarters building in Denver. While half the city is still lumbering to work, Notebaert is hustling to spread the "Spirit" message with the enthusiasm of a high-school basketball coach on a Friday night.

For the 57-year-old chairman and CEO of Qwest Communications, the "Spirit of Service" slogan is more than a corporate tag line. It's the expression of Notebaert's determination to reinvigorate the reputation and the workforce vibe of a company wracked by service woes, bruised by customer losses and tormented by one of the most notorious accounting scandals in Colorado corporate history.

If there is a more stressful corporate job in Colorado, it's hard to imagine.

When then-chairman Philip Anschutz and Qwest's board of directors hired Notebaert to succeed Joseph Nacchio in mid-2002, the communications company formed by the merger of Anschutz's Qwest and Denver-based US West was already in tatters. In June, when Nacchio was fired, Qwest was reeling from deteriorating financial results, suspicions of faulty accounting, anger over Nacchio's rich compensation package and the general implosion of the Anschutz-Nacchio "Ride the Light" vision.

Since then, Notebaert has had to juggle the job of reviving the company's operating performance with the task of dealing with Justice Department and SEC investigations, plus a collection of shareholder lawsuits tied to inflated financial statements under the Nacchio regime.

The carnage is well known: Under Notebaert, Qwest has revised two years' worth of financials, admitting it understated losses by $2.5 billion in 2000 and 2001. The company took a huge 2002 write down, reporting a net loss of $38 billion. Qwest's stock, worth $66 a share in the winter of 2000, has tumbled below $4, and a steep debt load racked up by Nacchio prompted Qwest to sell its hugely profitable Dex publishing unit and its wireless phone infrastructure, and to cut thousands of jobs.

In the meantime, the U.S. telecommunications market has gone topsy-turvy, with new technologies and competitive providers causing incumbent phone companies like Qwest to lose residential phone connections for the first time since the Great Depression.

"It's like the Toby Keith song," says Notebaert, describing the company's current financial landscape. "I wish I didn't know now what I didn't know then."

SECOND ACT

Predicting what's in store for Qwest in the near future isn't likely to be any easier. What is certain, however, is that Notebaert and a hand-picked team of senior executives have revived a company that had been on the brink of financial ruin. Since arriving in Denver in the summer of 2002, Notebaert and longtime industry colleague Oren Shaffer, Qwest's chief financial officer, have erased more than $10 billion in debt, avoiding a bankruptcy filing some thought was inevitable.

"I predicted they'd go bankrupt. I was wrong," says Scott Cleland, president of the telecommunications research firm Precursor Group in Washington, D.C. "I did not think Dick could pull a Houdini."

Notebaert may have kept Qwest out of bankruptcy court, but the question now is whether the Qwest chairman can perform a second amazing feat by remaining competitive--and independent--in a fast-changing telecommunications environment. Even as Qwest improves its balance sheet and pursues promising new communications technologies, Notebaert acknowledges that further consolidation in the telecommunications market is...