Qwest

(Q)

investors weren't enjoying the view Tuesday.

A day after the telco's desperate bid for

MCI

(MCIP)

was dashed by

Verizon's

(VZ) - Get Report

latest sweetener, Qwest CEO Dick Notebaert opened an earnings conference call by noting that a clear Tuesday in Denver affords dazzling mountain views.

But Rocky Mountain majesty aside, Qwest isn't giving Wall Street much to look at right now. Its empire-building ambitions scotched, the company is left to emphasize that its operations are reaping the rewards of a more disciplined approach. Yet the company continues to shoulder a massive debt load with only modest signs of growth. Meanwhile, Qwest's competitors grow ever more cutthroat.

The first quarter looked bleak in many ways. The number of phone lines Qwest serves continued to drop. Digital subscriber line, or DSL, sales showed improvement -- but those gains looked paltry compared to the rest of the industry. And long distance service, a key growth component, flopped after the company stuck customers with a $3 monthly minimum fee.

Merrill Lynch analyst David Janazzo greeted Qwest's flying-solo party with a sell rating Tuesday, citing the company's "difficult strategic position." Qwest shares were unchanged in midday trading Tuesday.

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Its gain-assisted first quarter aside, Qwest is the only Bell that regularly operates in the red, thanks to the big costs and heavy debts inherited in a turn-of-the-century merger between US West and national fiber optic shop Qwest. The company crawled back from the brink of bankruptcy in 2002 after selling some big cash-generating units like the directory business.

Those obligations continue to weigh Qwest down. According to its first-quarter report, the company has about $15 billion in net debt. And while Qwest generated $343 million in cash from operations, that came before subtracting $313 million for capital expenses and $381 million for interest payments.

But CFO Oren Shaffer was optimistic. He told analysts on the conference call that things could improve. "There is an opportunity to grow revenue," which "coupled with cost cuts" means "we have an opportunity for margin expansion in 2005," said Shaffer.

The company has other options as well, says CEO Notebaert, who anticipates there will be some buying opportunities as the Verizon-MCI and

SBC

(SBC)

-

AT&T

(T) - Get Report

deals could require divestitures of networks and businesses.

There will be "lots of opportunities," Notebaert said. "We are looking how we can create a meaningful third leg to this."

But for now, investors are questioning the strength of the two legs Qwest currently stands on.

"I expected more of a pop in the stock today," says one short-seller who covered his position after Qwest dropped out of the running for MCI. The common strategy among arbitragers is to take a long position in the target stock while going short the acquirer. Short positions represent about 7% of Qwest's total shares trading.

"I guess the fundamental story doesn't support much buying," the former Qwest short adds.