Qwest wary of competitors' mega mergers

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 has been campaigning to get federal telecom regulators to impose conditions on the proposed mergers of competitors SBC Communications Inc. and AT&T Corp., and Verizon and MCI Inc.

The Denver carrier argues that the mergers will create a telecom duopoly that will severely restrict competition, as well as limit 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 Washington press conference Oct. 12.

The Federal Communications Commission, Justice Department and several state public utilities commissions are reviewing the mergers to determine if they are in the public interest and if the companies must divest certain assets. FCC is expected to make a decision soon about the mergers.

Qwest executives suggested five conditions:

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

  • SBC and Verizon must reduce 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 standalone, high-speed digital subscriber line Internet service so that other companies are able to replicate the Voice over IP service previously offered by AT&T and MCI.

Other telecom mergers have had to make divestitures. When WorldCom Inc. merged with MCI, FCC required WorldCom to divest its Internet backbone assets. In the 2000 merger of Bell Atlantic Corp. and GTE that formed Verizon, FCC required GTE Corp. to divest its Internet backbone.

Warren Suss, president of Suss Consulting Inc., a federal telecom networks and IT consultancy in Jenkintown, Pa., said that when these mergers took place, there was less concern about forcing the companies to sell off assets. With exploding competition in the long-distance and local markets, competitors had fewer worries about the mergers creating monopolies.

"[But] the pendulum is swinging the other way, and already many of the competitive local-exchange carriers have gone belly-up, as well as some of the long-distance carriers," Suss said.

Earlier this year, Qwest lost a tug of war with Verizon 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 completed its $35 billion acquisition of Nextel Communications Inc.

In the competition for 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 sites with a broad range of telecom services nationwide.

Staff Writer Roseanne Gerin can be reached at rgerin@postnewsweektech.com.

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