The Association of U S West Retirees



Phone companies' mandated discounts for line-sharing end
By Leslie Brooks Suzukamo
St Paul Pioneer Press
Saturday, March 11, 2006

Today is the day Qwest Communications International and other large incumbent phone companies no longer have to lease all parts of their network to their competitors at government-set discount rates.

The discount rates were a key part of the government's plan 10 years ago to jump-start competition in local phone markets.  The old Ma Bell monopoly had spent a century building up a network made up of millions of lines and switches.  Regulators wanted the Baby Bells to give long-distance giants like the old AT&T and MCI as well as a host of small start-up phone companies the right to rent parts of that network.

But then the U.S. Supreme Court struck down most of the rules governing the rates and the Bells swallowed up their long-distance rivals.

So Bells like Denver-based Qwest, which is Minnesota's dominant phone company, are looking at their old telephone competitors as a new source of badly needed revenue.

Qwest, which has lost money since 2003, last year got more than $3 billion of its $13.9 billion in revenue from the wholesale part of its business, selling access to its network to other phone companies, known in telephone jargon as "Competitive Local Exchange Carriers," or CLECS.

"We don't even look at them as CLECS anymore," said Roland Thornton, executive vice president of Qwest Wholesale Global Marketing.  "We look at them as customers."

Despite Qwest's embrace, many local carriers don't want to be dependent upon incumbent phone companies.  Integra Telecom, a Portland, Ore.-based company with significant business in the Twin Cities, for instance, is spending $243 million to buy a local carrier that has a state-of-the-art fiber-optic network spread throughout several western states.  That network will reduce Integra's dependence on Qwest in the same territory.

"If we had alternatives, why wouldn't we go there?" said Carol Wirsbinski, who used to run Integra's Minnesota operations and now is head of regulatory affairs there.

On the other hand, Minneapolis-based Eschelon Telecom had no choice but to sign long-term contracts with Qwest for some of its equipment.  The company can serve 86 percent of its business customers nearly by itself, but it needs to lease Qwest's entire network for 14 percent of its 406,000 phone lines.

Eschelon CEO Richard Smith called the Qwest contract "an acceptable alternative," but not as good as the government-set wholesale prices.

In fact, disputes over pricing of the network elements, as they were called, touched off ferocious regulatory battles between Qwest and the Minnesota Public Utilities Commission.  The PUC fined Qwest a record $26 million in 2003 for violating rules that governed competition over those elements;  Qwest is appealing the fine.

The new rules still require Qwest as the incumbent to provide some of its elements such as high-speed data lines in downtown St. Paul at low government-set prices.  But in areas like downtown Minneapolis, Qwest has been freed of that requirement because there is enough competition for local phone companies to get their network equipment from someone else, said Mark Oberlander, manager of the PUC's telecommunications unit.

Leslie Brooks Suzukamo can be reached at or 651-228-5475.