Qwest deal raises specter of change

Critics fear companies' guarantees don't go far enough to protect interests.

 

By Steve Alexander

Star Tribune

October 17, 2010

 

Decades ago, when Northwestern Bell was the telephone company in Minnesota, no one worried too much about how phone service might change. Ma Bell, aka AT&T, would take care of that.

Now one of the last of Ma Bell's offspring, the Baby Bell Qwest, is seeking to be acquired by Louisiana-based telephone company CenturyLink for $10.6 billion in stock. But Qwest's competitors and union employees are worried about what Qwest will look like in the future.

As a result, they've said they'll oppose the deal in state regulatory hearings unless they get guarantees that they won't be hurt by planned cost-cutting in the Qwest operations over the next five years. Qwest and CenturyLink are trying to head off that threat by presenting their own vision of what Minnesota's largest phone company would look like in the future. The hearings are currently in a middle phase in which testimony is being taken; regulators aren't expected to rule on whether the acquisition can take place until early next year.

The two phone companies issued a list of guarantees about what they would and wouldn't change in Qwest's Minnesota operations over the next two to three years, providing the acquisition is approved by the Minnesota Public Utilities Commission. (The acquisition also faces regulatory review in several other states; similar guarantees are being offered in some of them.)

Service concerns

In addition, the two phone companies guaranteed a minimum investment in high-speed Internet service in Minnesota, totaling $50 million over five years. One-third of the money would be spent in areas that are unserved or underserved.

The guarantees, which were negotiated privately between Qwest, CenturyLink and the Minnesota Department of Commerce, appear to be designed to mollify opponents of the acquisition.

"It is substantially less than they spent on broadband in Minnesota in the previous five years," Lipschultz said.

Broadband investment

The union is also worried about the apparently lowered level of broadband spending, because it considers high-speed Internet service a major way that Qwest can retain customers and thus keep union workers employed.

"If that $50 million were in addition to what Qwest has been spending on broadband, that would be a different story. But it's not," said Scott Rubin, a Pennsylvania attorney representing the Minnesota union employees of Qwest. "I don't consider that a commitment at all."

John Stanoch, Qwest's Minnesota president, said that he "would not dispute their statement" that $50 million represents lower broadband spending in Minnesota, but he said the guarantee of $50 million represents "a minimum investment" rather than what might actually be spent.

Nicole Garrison-Sprenger, a Commerce Department spokeswoman, said that because the state doesn't regulate broadband, any commitment is a gain.

What's unclear about the Qwest-CenturyLink guarantees is whether they represent a final offer to acquisition opponents, or just a starting point for negotiations. There are hints of both.

For example, the Qwest-CenturyLink guarantees are being offered to the Minnesota Public Utilities Commission as a take-it-or-leave-it package. If the commission alters the guarantees, Qwest and CenturyLink reserve the right to walk away from their promises.

At the same time, Qwest and CenturyLink executives don't rule out making further compromises with acquisition opponents. In an interview, they said they'd continue to have discussions with the local exchange carriers and the union.

"Qwest's performance will not erode," Stanoch said. "But if the CLECs have additional concerns, we will continue to discuss matters with them."

Steve Alexander • 612-673-4553