Qwest repeats call for conditions in telecom mergers

Company asks U.S. government to take action

Qwest Communications International Inc. on Wednesday stepped up its push for the U.S. government to impose conditions on two mergers involving four of its telecommunications competitors.

During a Washington, D.C., press conference, Qwest repeated earlier requests for government conditions in Verizon Communication Inc.'s acquisition of MCI Inc. and SBC Communications Inc.'s acquisition of AT&T Corp. The two resulting telecom giants would create two "mega-sized monopolies," said Steve Davis, Qwest's senior vice president for public policy and deputy general counsel.

The two merged companies would dwarf other telecom companies in the U.S., with Verizon and SBC owning more than 70 percent of the residential long-distance market in many of the territories they operate, said Qwest, which lost out to Verizon in its bid for MCI. SBC's region includes the southwestern U.S. and parts of the Midwest; Verizon's territory covers the northeastern U.S.

The mergers of the two largest local telephone providers in the U.S. with the nation's two largest long distance carriers will cause the largest "fundamental reshaping of the telecom marketplace" since the U.S. government broke up the old AT&T in the mid-1980s, Davis said. Unless the U.S. government imposes some conditions, the mergers will cause price increases for a wide variety of telecom customers, he said.

The U.S. media is largely ignoring the impact of the mergers, added Gary Lytle, Qwest's senior vice president for federal relations. "We're here to say, 'wake up,'" he said. "This is the biggest thing going on."

Both Verizon and SBC have opposed conditions, saying the mergers will help them bring new services to customers and compete more effectively for a wide variety of customers, including large businesses.

An SBC spokesman called the Qwest condition requests a "rehash" of earlier complaints.

"Thirty-three states have approved our merger with AT&T without imposing conditions that Qwest continues to trot out," said spokesman Michael Balmoris. "Their arguments are going nowhere because they are meritless. Our merger is good for competition and customers."

The debate about merger conditions is intensifying as the U.S. Federal Communications Commission (FCC) and U.S. Department of Justice (DOJ) move closer to making decisions about the two mergers. Some observers in Washington believe the FCC could act on the mergers as soon as this month.

Qwest called for the FCC and DOJ to impose five conditions:

-- SBC should sell off the AT&T telecom facilities in its operating territory, and Verizon divest MCI facilities in its territory. Competitors, including Qwest, could then buy those facilities and provide competition, Davis said.

-- SBC and Verizon should offer stand-alone DSL (Digital Subscriber Line) service without requiring their customers to also buy telephone service from them. So-called "naked" DSL would allow VOIP (voice over Internet Protocol) providers to compete with the two large incumbent carriers, Qwest said. VOIP service needs a broadband connection; Verizon said last year it plans to offer naked DSL.

-- Verizon and SBC should reduce prices to levels that would have happened through future competition with MCI and AT&T.

-- SBC and Verizon should be prohibited from offering preferential pricing plans to their affiliates and to each other. The two carriers shouldn't be allowed to offer volume network discounts to each other, and they should offer the same prices to all competitors using their networks, Qwest said.

-- The two telecom giants should be prohibited from refusing customer requests to move service to a competitor. Qwest accused SBC of allowing a limited number of customer switches per month.

SBC's Balmoris didn't respond to Qwest's customer-switching complaint, but he questioned Qwest's motives for calling for SBC to sell off AT&T facilities. "People can see through Qwest's scheme of trying to acquire potential divested assets and customers at bargain basement prices," he said. "Following its failed bid for MCI, Qwest's corporate strategy of 'merger by regulatory liquidation' is one that carries no public-interest weight with policy makers."

A Verizon spokesman agreed. "Qwest is an interested commercial entity pushing for regulatory advantage, so people will be a little skeptical," said Verizon spokesman David Fish. "What really matters is that MCI shareholders, the European Commission and numerous states have already given their thumbs up. We anticipate prompt completion of the remaining approvals and are eager to share the benefits with customers."

Qwest's latest calls for merger conditions follow complaints about the mergers from a variety of other groups. At the Wednesday press conference, Qwest passed out a list of close to 80 groups, businesses and politicians that have expressed concerns over the mergers. In March, consumer advocacy group Consumers Union and think tank the American Antitrust Institute announced opposition for the mergers, saying the two deals will raise prices and squeeze out smaller competitors.

Last month, eight smaller telecom carriers, including XO Communications Inc. and Eschelon Telecom Inc., called for a number of merger conditions. The merged carriers should be forced to allow old AT&T and MCI customers to exit their contracts, and the two large carriers should be required to share network facilities with competitors at discounted rates, as they've been required to do in the past, the smaller carriers said.

Copyright © 2005 IDG Communications, Inc.

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