There are certain companies that probably cannot be turned around no matter who runs them. They tend to be in industries where macro-economic trends are against them, like the buggy whip business 150 years ago.

Investors are not likely to get much out of these firms, unless and until the trend that is hurting them is reversed

Qwest (Q) has a vexing set of problems that traps it as landline phone customers drop and cable TV continues its assault on telecoms with VoIP, broadband, and TV.

Unlike its larger brothers AT&T (T) and Verizon (VZ), it does not have a large cellular property to help drive revenue and earnings. It also does not have the capital to build out a fiber network in the hopes that it can offer super-fast broadband and TV to its residential customers.

Qwest shares have had a very sharp ride up over the last two years, besting both AT&T and Verizon, but in the last six months the tables have been turned and Qwest is the laggard.

Qwest’s revenue in 2006 was flat at $13.9 billion. Landline business dropped from $9.1 billion to $8.7 billion. Internet services rose to fill in the hole. Qwest’s revenue has been dropping fairly steadily since 2002. The company has been able to cut costs, but it is now faced with the possibility of spending a great deal of money to try to compete with cable and other rivals

From the 10-K:

"The telecommunications industry is experiencing significant technological changes, and our ability to execute our business plans and compete depends upon our ability to develop and deploy new products and services, such as broadband data, wireless, video and VoIP services. The development and deployment of new products and services could also require substantial expenditure of financial and other resources in excess of contemplated levels."

Qwest missed the cashflow numbers that some on Wall St. expected for Q4 06 and analysts are concerned that the company cannot hit its 2007 forecast.  And, beyond that, Q4 continued the trend of flat revenue at just under $3.5 billion. Expenses fell 4.8%, but the company will not be able to cut its way to success.

Morningstar has a "fair value" price on the stock of $5. The stock is currently at $8.58. The research firm’s reasoning is compelling. Qwest’s local phone business is in decline, the company has no plans to significantly upgrade its network, and the company does not have a wireless business of its own.

Tough to overcome that many obstacles.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.

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