Merger has Qwest's rivals worried

Qwest's local competitors rely on its network, and they want regulators to ensure that acquirer CenturyLink can manage it.

 

Star Tribune

By Steve Alexander,

August 2, 2010

 

There's always been an uneasy relationship between Minnesota telephone giant Qwest Communications and its smaller competitors, who share parts of Qwest's phone network yet often vie for the same business customers.

Now the unease has turned to acrimony as Denver-based Qwest prepares to be acquired early next year. The acquirer is a company half its size, Monroe, La.-based CenturyLink Inc., which says the merged company will cut $575 million a year from its expenses.

The competitors are questioning whether CenturyLink has the financial strength and technical expertise to run Qwest's 14-state telephone network while cutting costs at the same time.

Their concerns come down to this: Under federal rules, Qwest must provide competitors with access to its telephone network at discounted, or "wholesale" prices. If CenturyLink lacks the money or expertise to do that in a timely way, it could be disastrous for competitors.

"Our network, and that of every other telecom company in the state, connects with the Qwest network," said Dudley Slater, CEO of Integra Telecom, a Qwest competitor in Portland, Ore., with extensive Minnesota operations. "If there's a little tiny imperfection, the effect can spread across millions of people."

CenturyLink says there's nothing to worry about.

"Speculative concerns about CenturyLink's ability to integrate Qwest lack any basis in fact based on the company's track record of successfully integrating numerous acquisitions," CenturyLink said in a filing with the Federal Communications Commission (FCC).

Qwest referred all questions to CenturyLink.

Now the competitors, known as competitive local exchange carriers, or CLECs, are taking their complaints to the state regulators who must approve the deal. They are asking that special conditions be put on the deal to guarantee CenturyLink's post-merger performance.

In Minnesota, that will be up to the Public Utilities Commission, which has named Administrative Law Judge Barbara Neilson to evaluate the CLECs' complaints and make recommendations to the commission by Nov. 30.

Big mergers often result in contested case hearings, said Mark Oberlander, telecom manager at the Public Utilities Commission. "What's notable in this case is that the merger involves the largest local telephone company in Minnesota, and would have it being acquired by a smaller company."

Qwest earned $662 million on revenue of $12.3 billion last year. CenturyLink in turn earned $647.2 million on revenue of $5 billion. CenturyLink said it bought another firm in mid-2009, and if that company's full-year results had been included, revenue would have been $7.5 billion.

The CLECs promise to mount similar campaigns at public utilities commissions in other states served by Qwest. After the state regulators vote, the FCC has the final say on whether the acquisition can occur.

Protecting interests

Similar concerns were voiced and special requirements were added when BellSouth merged with AT&T in 2006 and when Qwest bought US West in 2000.

The CLECs say they're not interested in throwing up roadblocks, but in protecting Qwest's operations to safeguard their own. They want more information from CenturyLink about how it would run the Qwest network and how it would combine Qwest and CenturyLink records about billing, customers and where telephone cables run. From that the CLECs want regulators to write financial and quality of service requirements for the merged company.

CenturyLink won't say whether it will allow that.

"Because we're early in the process, it's premature to speculate," said CenturyLink spokeswoman Debra Peterson in an interview, but she added that the terms of the transaction "suggest there should be nominal or no conditions imposed."

Dan Lipschultz, a Minneapolis attorney representing a group of small CLECs, differs.

"It would appear that CenturyLink has not had anything close to the same level of experience as Qwest when it comes to providing wholesale services to CLECs," Lipschultz said. "That in itself is cause for concern. In addition, we want a commitment that, at a minimum, there will be no backsliding once the merger has closed."

Integra's Slater agreed.

"I'm not saying CenturyLink's intentions aren't good, but there's a lot at stake, and there's no down side to requiring state public utilities commissions and the FCC to be vigilant," Slater said.

Steve Alexander • 612-673-4553