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Qwest Violated Law, PUC Says

Oct 22, 2002 | Pioneer Press

The Minnesota Public Utilities Commission on Monday unanimously found that Qwest Communications International Inc. illegally entered secret agreements with competitors that may have stifled competition in the state's local phone market.

Qwest denied any wrongdoing. But for the next four weeks, the PUC will consider some of the severest sanctions possible for Minnesota's dominant phone company.

PUC Chairman Gregory Scott said he believed the wide array of possible penalties against Qwest opens up a unique opportunity for the regulatory body to shake loose more competition for local and long-distance phone service in Minnesota by restructuring the company or even forcing it to sell to new owners.

"This is a watershed moment for Minnesota telecommunications," Scott said.

During Monday's hearing, Scott also angrily lectured Qwest on its continued attempts to deny wrongdoing, saying to its chief Washington, D.C.-based attorney, Peter Spivack: "Tell me why this isn't an attempt by a good lawyer to put spin on bad facts? I would have so much more respected you if you had said, 'We screwed up.' "

The PUC's 4-0 decision accepted the report of an administrative law judge who in September said Qwest had violated certain provisions of the 1996 Telecommunications Act that are meant to stimulate competition on both the local and long-distance scenes.

Qwest, the judge said, illegally kept secret certain agreements with some local phone companies. These agreements gave discounts of up to 10 percent on the rates Qwest charged to use its lines. Some also gave competitors special access to top Qwest officials.

Qwest should have filed these agreements with the PUC so all potential competitors could see them and ask for similar deals, the judge said.

The penalties the PUC will consider could include a fine of up to $195 million or splitting the company into two parts, a move tried unsuccessfully twice before by the Legislature.

Under a possible split, Qwest would sell its wholesale local phone service to rival phone companies, as mandated by federal law, and those companies would use Qwest's own lines to compete for customers. The other side of a bifurcated Qwest would continue to provide local phone service to some 2 million residential and business customers throughout the state.

But in exchange for going along with a split, Qwest could even receive something it dearly wants an endorsement from the state when it applies for permission from the Federal Communications Commission to enter the long-distance market. That's a market that could be worth a badly needed $1.5 billion to $2 billion a year in revenue that would make up what Qwest would lose to competition on its local service.

Denver-based Qwest had to give up its long-distance business in its 14-state service region when it bought Baby Bell US West in 2000.

Qwest has applied for long- distance permission in nine of its 14 states, but it probably won't do so in Minnesota until early next year.

Tony Mendoza, deputy commissioner of the Department of Commerce, said he could possibly go along with endorsing Qwest's long-distance desires if it were split, but his department isn't ready to make a recommendation.

"It is the brass ring for this company," he told the commissioners. The PUC hearing on setting penalties is set for Nov. 19.

Qwest says it has "serious concerns" about being divided, even with permission to go after long-distance customers, a spokesman said, adding it could have "severe negative consequences" for its customers, its 5,900 Minnesota employees and thousands of retirees living on Qwest benefits.

"We were disappointed by the decision, however, we understand the commission's position — we heard them loud and clear," spokesman Bryce Hallowell said.

Qwest attorneys continued to argue Monday that the law was fuzzy on what needed to be filed, so it asked the FCC to for clarification. Meanwhile, it has complied with Commerce Department demands to file its agreements, Spivack said.

The company has not decided whether to appeal the commission's decision to state or federal courts. It had been in negotiations last week with the Minnesota Department of Commerce, which brought the complaint about Qwest's behavior to the PUC earlier this year, and with the state attorney general, but no settlement was reached before Monday's hearing.

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