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Qwest's Secret Dealings Slammed

Sep 21, 2002 | St. Paul Pioneer Press Qwest Communications, Minnesota's dominant local phone service provider, may have cost consumers millions of dollars by not disclosing secret business agreements it made with competing phone companies, an administrative law judge found Friday.

Those agreements should have been made public to allow all competitors access to special deals that could have driven down the price of local phone service, according to the judge's findings.

Some state regulators have argued Qwest should face fines as high as $200 million for its conduct, and the judge's decision could bolster the drive to make the company pay.

Qwest, in a statement Friday, said the findings are wrong and asked the Public Utilities Commission, which oversees phone competition, to reject them. No action is expected until at least the end of October.

"This is a very unsettled area of federal law, which will ultimately be decided by the Federal Communications Commission," said Charles Ward, Qwest vice president of policy and law.

The company now offers only local phone service in Minnesota, but wants to tap into the lucrative long-distance market. In an effort to win approval to do that, it has had to open access to its lines to competing local phone companies. That requires the company to offer fair rates to competitors to use its lines and to make those rates public. Ideally, such a give-and-take arrangement would increase competition and improve service on both the local and long-distance levels.

But Qwest, which serves about 2 million Minnesotans, has been locked in a bitter battle with long-distance competitors, primarily AT&T and MCI, which want to enter the local phone market. The three phone companies have been fighting for years about ground rules for competition in the local phone business.

The ruling by Administrative Law Judge Allan W. Klein on Friday found that Qwest did not play fair when it struck 12 secret deals that waived millions in fees. The confidential agreements were part of an effort to keep the long-distance companies out of the local market, the state Department of Commerce charged in a complaint to the PUC last spring.

Those deals should have been filed with the PUC so other companies could see them and request similar deals that could have driven down the cost of providing phone service, the PUC argues.

Further, the department charged that Qwest cut special deals with Eschelon Telecom and McLeodUSA that required those companies to remain neutral as Qwest sought regulatory approval to enter the long-distance market.

After the complaint, Qwest filed the agreements with the PUC, but complained that it didn't think it was required. It also asked the FCC to step in, saying it should provide guidance on these matters.

Klein backed the Commerce Department's charges on all counts. Qwest's rivals lauded the findings.

"We can now fit this into Qwest's pervasive pattern of misconduct," said Tom Pelto, vice president of law and government affairs for AT&T.

In his decision, Klein that the exact amount lost to the competing phone companies could not be calculated, "but it is certain that damages would amount to several million dollars for Minnesota alone."

"The judge saw the big picture here," said Tony Mendoza, deputy commerce commissioner in charge of watching over the telecom industry.

Mendoza said the judge's findings captured Qwest's "lack of respect" for the regulatory process.

If it accepts the judge's decision as it stands, the state Public Utilities Commission could fine Qwest between $50 million and $200 million.

But in an unusual move, the judge added that the PUC has a "unique opportunity … to be creative" and come up with a nonmonetary punishment that would help Minnesota ratepayers and telephone users in the future. That could include a restructuring of the company.

Mendoza said the Commerce Department will consider asking the PUC to separate Qwest's operations: One side would sell residential and business phone service and the other would act almost like a separate company and sell access to Qwest phone lines to competing phone companies — including Qwest.

Qwest and other companies involved have 10 days to file a response to the PUC, which expects to schedule a hearing on the matter, probably toward the end of October, said Mark Oberlander, supervisor of the PUC's telecom division.

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