Many investors expected the future of Next Level Communications, a maker of DSL equipment designed for delivering video, to be decided when Nacchio, chief executive at Qwest Communications International, detailed his company's plans for integrating Baby Bell local phone company US West as part of their merger.
US West, now owned by Qwest, uses Next Level's VDSL (very-high-rate digital subscriber line) technology to deliver video programming to about 50,000 customers in Phoenix, Ariz., and Omaha, Neb., using telephone lines. The deal represents about two-thirds of Next Level's revenue.
But Nacchio today said Qwest has a good relationship with Next Level and is in the process of working with the company to reduce the costs associated with launching Next Level's high-speed video gear.
"We are working very hard with Next Level. Can they drive the cost down? It's too early to declare," Nacchio said.
Nacchio wants Next Level to reduce the cost of its gear by 30 percent to 40 percent, which could significantly cut into Next Level's revenues--but probably is preferable to the alternative.
"We will be in a go-slow mode until we are sure...that we can generate the returns that a dollar in the Internet, wireless or DSL returns," he said earlier today. "For now we are maintaining all current commitments to our suppliers."
Analysts said that Qwest, with long-distance, local voice, Internet services and wireless offerings, lacks only video programming for a full suite of communications services. As such, the company may eventually need Next Level, if not as much as Next Level needs Qwest's support.
Stock in Next Level, which lost more than half its value in late August, fell nearly 3 percent today to $53.63. Shares have traded as high as $202 and as low as $39.38 in the past year.