Qwest wary of mega mergers by competing telecoms

While Qwest Communications International Inc. is vying with three other telecom contenders for a piece of the federal government's multibillion Networx Universal telecommunications contract, the carrier is busy battling its challengers on another front.

Qwest, the smallest of the four Baby Bell companies, has been forcefully campaigning for federal telecom regulators to impose essential conditions on the proposed megamergers of competitors SBC Communications Inc. and AT&T Corp., and Verizon and MCI Inc.

The Denver-based carrier argues that the mergers will create a telecom duopoly that will severely restrict competition, as well as restrict comparable rates, terms and conditions for services for consumer, business and federal customers alike.

"To the extent that we have fewer competitors for all large customers, whether it's the federal government or large business, [the mergers] will impact pricing and service ?," said Steve Davis, senior vice president for Qwest's federal relations, at a press conference in Washington last week.

The Federal Communications Commission, the Justice Department and several states are reviewing the mergers to determine if they are in the public interest and if the companies must divest any of their business.

Qwest executives at the press conference put forth five conditions that regulators should adopt before approving the mergers. These are:

  • SBC and Verizon must divest AT&T and MCI facilities located in their respective regions that compete with SBC and Verizon.

  • SBC and Verizon must reduce their prices to levels consistent with future competition from AT&T and MCI.

  • SBC and Verizon must not use preferential pricing and services.

  • SBC and Verizon must not be allowed to refuse customer requests to move their services to competitors.

  • SBC and Verizon must offer stand-alone, high-speed digital subscriber lines Internet service so that other companies are able to replicate the voice over Internet protocol service previously offered by AT&T and MCI.

Earlier this year, Qwest lost out to Verizon in a tug-of-war to acquire MCI. Qwest also has complained to federal regulators about what it considers to be unfair practices by SBC.

Verizon is planning to buy MCI for $8.5 billion, while SBC has offered $16 billion for AT&T. Sprint Corp. has already completed its $35 billion acquisition of Nextel Communications Inc.

With the government's 10-year $20 billion Networx contract, Qwest is bidding against teams led by AT&T, MCI and Sprint Nextel. On Oct. 5, the four companies submitted bids for Networx Universal service, which will provide government locations with a broad range of telecom services nationwide.

Qwest must come from behind to win one of the lucrative awards for Universal service, according to some analysts and telecom industry executives.

In a recent report on the companies competing for Networx, David Barden, a telecom analyst at Banc of America Securities in New York, called Qwest "a long shot" in the race for a Universal award. With AT&T and MCI at an advantage, it's likely that Qwest and Sprint will enter a showdown for a third possible Universal spot, he said in the report.

Sprint and MCI are the incumbents on the current governmentwide telecom services contract, called FTS 2001, which will expire next year. AT&T has grabbed a good portion of federal government contracts from civilian agencies during the past several years.

The General Services Administration, which will issue awards for Networx Universal in late July 2006, said it plans to issue two or three awards, but hasn't ruled out other possibilities concerning the number of awards.

All four telecom companies also will submit bids on Oct. 24 for the Enterprise part of the contract, along with a handful of other contenders. The less lucrative Enterprise part of Networx will offer a mix of specialized Internet protocol or wireless services in specific geographical areas. The GSA said it will issue up to five Enterprise awards in September 2006.

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