QWEST WILL FORM NEW SUBSIDIARY TO EASE FCC'S SEC. 271 CONCERNS

Notebaert said in investors’ conference call that company didn’t know about problem until about 10 days before deadline for FCC to act on first of 2 applications. Qwest could have fixed subsidiary problem without withdrawing applications, he said, but such action would have required FCC to start over again in its review, so it made sense just to stop process. “We got caught by surprise,” Notebaert said. He said he found FCC’s news release announcing Qwest’s action to be “very positive,” giving him idea that agency would view new applications favorably. FCC Chmn. Powell said in news release that Qwest’s applications were “razor close to approval.” Notebaert said new applications would be filed very soon and he hoped for FCC approval by Christmas.

As he has done since he joined Qwest, Notebaert emphasized his Bell and Midwestern roots, saying company’s new corporate culture included “zero tolerance for anything that gets near the gray zone,” which he said was reinforced by former Ameritech executives he had been brought on board. At one point, he said he was being conservative in stating financial issues, true to his “Midwest background.” Qwest values its unions, he said at least twice. “We've changed things in the company,” said CFO Oren Shaffer, one of the former Ameritech executives. “It’s a more healthy atmosphere to work in,” he said. “Everyone understands what they are supposed to be doing.” Notebaert was CEO of Ameritech before it merged with SBC.

On financial issues, he said financial stabilization was at top of his priority list. He said company was “taking a hard look” at value of every business line and had “walked away from some business opportunities because we thought they were not profitable.” Carrier is fully funded through 2005 and is focusing on reducing its cash burn, Notebaert told investors: “We want to restrain how much cash goes out the door.” He also pledged that company would be as open as possible in disclosing information investors wanted. Notebaert and Shaffer said company viewed its long-haul network as one of its most valuable assets. “What we have is the envy of the industry,” Notebaert said. He said Qwest would target its acquisition strategy to leverage network. Shaffer said: “The national network should be the growth engine.”

“UNE-P [unbundled network element platform] is something we have to live with, a Reed Hundt legacy,” Notebaert said, referring to former chairman of FCC. He acknowledged view of some that Qwest was “less susceptible” to UNE-P competitive entry and said “the best defense is serving customers well.” Notebaert said company would “cultivate an annuity-based revenue stream” with customer loyalty gained through good service and bundled offerings. Combining wireline service with others such as wireless and DSL offers “more stickiness… people tend not to [change carriers] once they get comfortable” with service packages, he said. Notebaert also pledged to improve customer service because customers “don’t feel the smile in the voice” at other end of service call.

Asked about his past comments about being willing to sell Qwest’s wireless business, Notebaert said that still was case. It would offer wireless service to its customers through “relationships” with other wireless companies, using Qwest’s “good distribution channel, its business office, to distribute their product” in return for some sort of payment, he said. “There are a couple of people out there that would be very good partners,” Notebaert said. Asked whether Qwest had any plans to sell access lines, he said there were “no active discussions.”