The curious case of Qwest Communications

Even though Qwest Communications has never displayed much in the way of TV ambitions, we like to check in on the big telco now and then, and today (Feb. 16) seems like a good time for an update, since Qwest just announced fourth quarter 2009 and year-end earnings.

Like its fellow large telcos with Baby Bell roots, Qwest has a high-profile resale partnership with satellite TV provider DirecTV, but unlike those other telcos, AT&T and Verizon Communications, Qwest's TV efforts begin and end with the DirecTV deal, Qwest ended its pioneering but ultimately isolated DSL-based Choice TV service last year, and has repeatedly said it does not want to engage in the investment required to launch an IPTV service or similar self-built, self-branded telco TV offering.

At times, this has looked like a wise choice. Focusing its capex plans on fiber-fed broadband and limiting its video build-out ambitions sounded just right as broadband TV and video viewing exploded while the economy and the financial condition of public companies wobbled. Also, Qwest, the telco for many small Big Sky markets, may have been a better fit to focus on satellite resale anyway. As other telcos are seeing their initial IPTV subscriber growth slow down, and facing the reality that IPTV itself is not a money-maker in most cases, Qwest's restraint again could be seen as a smart move. It helped the company avoid the knotty questions other telcos are now facing about the value of IPTV, and if its role as a service bundle element is really worth the initial and ongoing investment required.

Qwest doesn't have to face those questions, or the question of how to evolve an IPTV service into a hybrid TV/online viewing service.

However, Qwest's strategic decision not to become an IPTV player also leaves it more vulnerable as the traditional landline telephony business continues to disappear. Qwest reported today that it added 23,000 TV customers in Q4 via the satellite partnership with DirecTV, and that it now has 880,000 video customers overall. That's a nice big number that Qwest didn't have to spend too much money to attain, but it's far fewer video subs than AT&T or Verizon have. Also, DirecTV has said in recent months that its pipeline of new customers from telco resale partnerships is beginning to slow down.

Qwest also reported fairly large net income and revenue drops today. Wall Street has been pretty supportive of Qwest's restraint in recent years, and even some media reports on today's numbers are suggesting that the good will may continue through this year. But, it also appears Qwest is getting closer to having to answer the questions many knew it would face all along: What happens when the landline telephony market dwindles away to nothing and the satellite TV spigot slows to a trickle? In an era when other telcos are embracing identities as TV service providers, will being a broadband Internet service provider with a video angle be enough?

If it turns out that it is enough, Qwest will have the last laugh on telcos that spent billions of dollars to clear their own path in the video market, but if its not enough, Qwest could age backward, like Benjamin Button (That reference feels surprisingly dated just a year later, doesn't it?) to become just another little Big Sky ISP--though one with an interesting story or two to tell about its history. -Dan

P.S. Read MarketWatch's report for more info.