Qwest deregulation request continues to dust up debate

Although the Federal Communications Commission isn’t expected to hear the case until July, Qwest Communications International Inc. forbearance request from the 1996 Telecommunications Act in multiple cities, including Phoenix, is once again pitting the old guard versus the new.

And once again, Arizona politicians are jumping to the defense of the competitive market, ultimately saying Qwest must still abide by the rules that give the Arizona Corporation Commission regulatory control over the price the state’s largest telephone company charges others to use its massive network infrastructure.

In April, Arizona state Rep. Bill Konopnicki (R-Safford) penned a letter to the FCC detailing his oppositions to Qwest’s petition. This follows a 51-page submission signed by the ACC, outlining their oppositions to losing regulatory control over the state’s independent local exchange carrier (ILEC). Qwest, Verizon Communications Inc. and the  AT&T Corp.are the only ILECs in the U.S., the remanence of the federal government’s break up of American Telephone & Telegraph, commonly known as Ma Bell.

“I urge you to let the FCC know that telephone competition is important to Phoenix and that it should deny Qwest relief from its obligations under the Telecommunications Act,” Konopnicki wrote to FCC Chairman Kevin Martin.

The Telecommunications Act of 1996 set sweeping changes to the control ILECs had over competitors who wanted to use their infrastructure network, much of which was built by government subsidies since the 1920s. The 1996 Act opened the door to competitive local exchange carriers (CLECs) by giving federal and state regulators control of the price ILECs charged CLECs for use of their networks. But using a clause in the 1996 Act gave ILECs an opportunity to ask for forbearance from this control, giving the monopolies control of their own prices.

Qwest and Verizon have both filed -and won - forbearance from this control because they showed there was enough competition to warrant deregulation in certain markets. AT&T is expected to begin filing forbearance requests next year after the company’s consent decree with the FCC expires following its $67 billion acquisition of BellSouth Corp., which included the consolidation of Cingular.

Qwest has filed forbearance requests in Denver, Seattle and Minneapolis-St. Paul. Like the ACC, regulators in those states have filed similar negative testimony asking the FCC to deny Qwests request.

A recent study by  QSI Consulting, Inc., a St. Louis-based telecommunications consultation and research firm found that deregulation in the Phoenix market would boost telephone user costs by 28 percent, amounting to $503 million a year. The study was commissioned by XO Communications Inc., which is represented by QSI in various regulatory matters. QSI also represents dozens of other CLECs around the nation.

In total, the study found that combined, all of Qwest’s forbearance request would cost customers in those markets more than $1.14 billion each year. Phoenix was at the top of the list.

“Customers in these markets rely on competitors for choice, savings and innovation. The FCC needs to do the right thing and reject these petitions.” said Heather Gold, XO senior vice president of external affairs.

In its forbearance request, Qwest claims that cable, wireless and voice-over Internet protocol (VoIP) competition has taken significant market share in Phoenix and other markets. Pat Quinn, Qwest Arizona CEO, said the 1996 Act was designed to allow CLECs to build up capital to build their own networks until they could compete with the ILECs. When regulators keep prices down, it does not give CLECs incentive to build their own networks, he said.

But while Qwest is losing thousands of customers a year to Cox Arizona Telcom, LLC, a subsidiary of Atlanta-based Cox Communications Inc., the real issue is that the business customers are not represented in the filing, said Russ Merbeth, Integra Telecom Inc. assistant general counsel based in Washington. Integra is one of a handful of CLECs in the Phoenix market, all of which are fighting Qwest’s forbearance request. He said business-class telephony providers like Integra, Level 3 Communications Inc. and XO are being grouped with residential provider Cox.

“They’re really mixing and matching,” he said. “The FCC hasn’t been all that clear on distinguishing between these two.”

Both the ACC testimony submitted in March and in Konopnicki’s letter referenced the most recent Qwest forbearance approval similar to the one they are seeking in Phoenix. In December, 2005, the FCC granted Qwest regulation relief in Ohmaha, Neb. Since then, Cox has taken over majority market share, a fact Quinn lamented, but admitted too.

But nearly all of that was residential users, not business-class users, Merbeth said. In fact, Dallas-based McCloudUSA has left the Omaha market while Integra changed its plans to start service there because Qwest priced them out. Had Nebraska state regulators controlled the pricing of the Qwest network, both companies would be there, Merbeth said.

“The Omaha, Neb. case is really illustrative of the dire consequences that can happen when forbearance, or partial forbearance is granted,” he said. “There has been a 300 percent increase in that market.”

The FCC must rule against the order by July or, due to rules of the 1996 Act, Qwest’s petition will be approved. This inclusion to the 1996 Act has angered many CLEC leaders, especially following the FCC’s non-ruling in March, 2006. The FCC did not approve Verizon’s forbearance request from broadband regulation, but the federal regulators voted 2-2, thus allowing the measure to pass. The FCC has one year to rule on forbearance requests, with one 90-day extension available. Qwest was already granted a 90-day extension, so the case must be decided by July.

Ty can be reached at ty@aztechnews.net.