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States give Qwest "flexibility"
By Andy Vuong, Staff Writer Denver Post 

Monday, September 4, 2006

Ten of the 14 states in Qwest's service territory, including Colorado, have reduced regulatory oversight of the company's phone business, giving the carrier more leeway to change prices and package services.


The regulatory changes are critical for Denver-based Qwest, which continues to lose phone customers to unregulated cable, wireless and Internet phone competitors.


Most of those 10 states, including Colorado, still fully regulate Qwest's basic residential and small business service. But the company is free to change prices on upgraded phone service features, such as call waiting and caller ID. Also, Qwest no longer has to notify competitors or regulators 30 days in advance when it wants to change prices or bundle its phone service with wireless, Internet and TV offerings.


"What we've been pursuing is a level playing field," Qwest chief executive Richard Notebaert said of the company's efforts on the regulatory front. "People recognize the number of choices. You're almost obligated to treat everybody the same."


In the face of growing competition, Qwest has lost roughly 2 million land-line customers over the past 2 1/2 years.


During that time, eight states, including Colorado, have eased oversight on portions of Qwest's phone business, said Steve Davis, the company's executive vice president for public policy.


"We've made so much progress over the last several years," Davis said. "The progress has been caused by substantial competition."


For years, Colorado and other states have required Qwest and other dominant carriers to conduct time-consuming studies whenever it wanted to raise prices or change offerings. The companies also had to notify state officials and competitors of planned changes 30 days in advance.


Analysts remain wary about Qwest's ability to grow revenue amid the decline in land-line customers.


But the regulatory changes have helped the company boost the amount of money it makes per customer through bundles - a package of phone, high-speed Internet, satellite-TV provided by DirecTV and wireless service provided by Sprint.


In the second quarter, the company's average revenue per user increased 6.5 percent to $49 from $46 a year ago. The company's bundle penetration increased to 54 percent from 48 percent.


"It's real important longer term to get more flexibility with the regulators, because otherwise it's a vicious cycle downward," said Donna Jaegers, an analyst with Janco Partners in Denver. "When you're fighting against nonregulated competitors, you're fighting with one hand tied behind your back."


But Qwest is facing stiff opposition from four states - New Mexico, Oregon, Montana and Wyoming - that say there isn't enough competition yet to warrant less regulation.


"Qwest is still the Big Kahuna here," said Jason Marks, a commissioner with the New Mexico Public Regulation Commission. "There has to be actual effective competition and alternatives before you treat (Qwest and other incumbent carriers) like anybody else."


New Mexico regulators are expected to rule in the next couple of months on Qwest's proposal that only basic residential and business phone services should be regulated, Marks said. The state is still working on a settlement with Qwest over a $220 million shortfall in capital investments that the company was supposed to make in the state as part of a regulatory agreement in 2000.


In July, Oregon rejected the company's efforts to deregulate all telecommunications services it offers to businesses.


"We weren't convinced about the competition being as prevalent as they alluded to in their argument," said Bob Valdez, a spokesman for the Oregon Public Utility Commission.


Oregon maintains full regulation on basic phone service and has less regulation on extra features.


Wyoming, Montana and New Mexico have full regulation over Qwest's phone business.


"The basic reason that we want to maintain regulation over Qwest in Montana is that they control most of the backbone of the public switch network so almost every phone call in Montana one way or another winds up going through Qwest," said Bob Raney, a commissioner with the Montana Public Service Commission.


Steve Oxley, secretary and chief counsel for the Wyoming Public Service Commission, said Qwest has tried to ease regulation by going through the state legislature, but has been unsuccessful thus far.


Some consumer advocates in Colorado voiced concerns when the state made its regulatory changes last year.


But no consumer complaints have been filed with regulators since the changes were enacted, said Terry Bote, a spokesman for the Colorado Public Utilities Commission.


Staff writer Andy Vuong can be reached at 303-954-1209 or