RBOC Embarks on Qwest for New CEO

Folks used to say that the RBOCs moved in lockstep. So its interesting that just two months after Ed Whitacre announced his retirement, Qwest Communications International Inc.s Chairman and CEO Dick Notebaert has done the same.

Dick Notebaert, Qwest chairman and CEO, announced his retirement on June 11.

The head of Qwest, a long-time fixture on the RBOC scene, on June 8 told the board he would retire to spend more time with family and focus on other commitments. Qwest made the announcement on June 11.

The 59-year-old expects to leave once a successor is chosen, although no obvious candidates came to analysts minds. Typically, a CFO or operations executive would step in, says Donna Jaegers, a telecom analyst for Janco Partners Inc. in Colorado. But Oren Shaffer, vice chairman and CFO, resigned in April, and Barry Allen, executive vice president of operations, said in early June he would retire on June 29. Internally, that leaves Dan Yost, executive vice president of product, Jaegers says. Yost came to Qwest from Allegiance Telecom Inc. in 2004, so he knows the Bell and competitive carrier systems. Other than that, theres not a whole lot of other internal candidates that spring to mind, says Jaegers.

Outside of Qwest, former BellSouth and SBC Corp. executives probably will vie for Notebaerts job, Jaegers says. Whats paramount is that the next CEO must know Bell culture and systems. You dont want another mismatch in there like [Joe] Nacchio, running roughshod, Jaegers says, referring to the embattled former CEO.

Plus, Qwest, the nations third-largest Bell, needs a leader to help it increase market share in the enterprise and wholesale markets, as well as execute on an IPTV strategy.

Notebaert will leave with a plush severance package. His base salary will double, from $1.1 million to $2.2 million. Hell also receive a $4.4 million bonus, as well as a $2.2 million prorated bonus for 2007. There also is $140,000 in lifelong health benefits and an unspecified amount for an executive assistant, phone services and computer and other office equipment for the rest of his life, according to a March 29, 2007, proxy statement filed with the SEC. The overall package totals more than $14.45 million.

Notebaert came to Qwest in 2002 from equipment provider Tellabs Inc., where he had served as president and CEO for two years. Before that, he was with Ameritech Corp. for 30 years; his last position there was as chairman and CEO. He took the top post at Qwest during a turbulent time for the industry and for the carrier. The board of the cashstrapped company had just fired CEO Nacchio, who was under fire for accounting fraud. A federal jury in mid-April of this year found Nacchio guilty on 19 of 42 counts of illegal insider trading. Nacchio has since asked for a new trial.

Amidst the tumult, Qwests board appointed Notebaert as its chairman and CEO. A number of people doubted Notebaert had the chutzpah to turn Qwest around, but he has done just that. The company posted $194 million in profits for the fourth quarter of 2006 and nearly tripled its net income in the first quarter of 2007.

Notebaert departs Qwest likely feeling he has done what he set out to do, says Jaegers. Qwests balance sheets are repaired (the company in 2006 was profitable for the first time) and Standard & Poors now rates Qwest as investment-grade. I think he feels like his work in fixing up the company is complete.

Janco Partners Inc.
Qwest Communications International Inc.
Tellabs Inc.

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