FCC Cuts Qwest Long Distance Controls, with Conditions

The FCC said Qwest “lacks classical market power” in providing interstate long distance service, meaning it “lacks the ability unilaterally to raise and maintain retail prices… above competitive levels.” But protections are needed because Qwest still has “exclusionary market power” -- the ability “to raise rivals’ costs” because it controls bottleneck local access facilities, the FCC said.

The Telecom Act’s Sec. 272 required the Bells to run their new long distance operations as separate affiliates, under reduced regulation. With that requirement’s expiration, the companies can eliminate those separate affiliates. But without regulatory change, integrating the long distance units with the rest of the companies’ operations could subject long distance to the heightened regulation imposed on a parent. Qwest and others said running the long distance operations separately was costly, but the additional regulation triggered if they combined units would delay new services.

Qwest welcomed the decision, saying it shows that competition is “thriving” in its service territory. “We applaud the FCC for freeing us from legacy requirements imposed on our long-distance service that had hindered our ability to deliver service to customers,” said Qwest Senior Vp Gary Lytle: “Consumers benefit from the robust communications marketplace where cable, wireless, VoIP and other long-distance providers compete for their business.”

The FCC decision freed Qwest “from outdated requirements imposed on our long distance service,” Lytle said: “The FCC recognized that long distance competition in Qwest’s service territory is thriving.” The action doesn’t apply to the other Bells, but AT&T and Verizon have filed “me too” petitions at the FCC. When the agency approves a forbearance petition, it agrees not to enforce a regulation but doesn’t eliminate it.

Qwest in return will have to adopt special access metrics similar to those applied to the SBC-AT&T and Verizon- MCI mergers, the FCC said: “The metrics are designed to ensure that Qwest does not engage in non-price discrimination in its provision of special access service; specifically, they address order taking, provisioning and maintenance and repair of Qwest’s DS0, DS1, DS3 and OCn services.” Qwest will have to report quarterly to the FCC on how it provides those high capacity services to competitors. Among other conditions: (1) Qwest must keep offering, for at least 2 years, 2 residential calling plans tailored to customers who make few long distance calls, must freeze the per-minute charges and offer one of them with no monthly fee. (2) Qwest must give monthly long distance usage reports to residential customers, including those who take bundled service, that outline the dates of calls, places called, durations and charges. (3) Qwest has to charge itself for access as it does rival long distance companies.

FCC Comrs. Copps and Adelstein concurred in the decision, saying they wished the FCC had acted on a broader proceeding on the question, which was pending for nearly 4 years. The “Section 272 Sunset Further Notice” also looks, in an industrywide review, at regulatory treatment of Bell long distance services at the end of the separate affiliate requirement, they said in a joint statement. Copps and Adelstein said they nevertheless voted for the forbearance petition because: (1) “The Commission must take into account the rapidly changing long distance market.” (2) “This outcome is clearly superior to allowing this petition to be granted by Commission inaction without the safeguards.” Forbearance petitions are considered approved automatically unless the FCC acts on them in a set time, in this case by Tues.

“The order acknowledges that incumbent providers like the petitioner retain the ability to raise their rivals’ costs, and [thus] maintains dominant carrier regulation for critical access services used by alternative long distance providers,” Copps and Adelstein said.

Copps and Adelstein indicated in their statement they may not be as willing to approve a similar forbearance petition by Verizon or AT&T, Stifel Nicolaus said Wed. The commissioners said Qwest’s “unique competitive position” as a smaller long distance and wireless provider lessens the likelihood of bias -- seeming “to suggest that Verizon and AT&T, which have higher long-distance market shares and large wireless operations, will have a harder time convincing the two Democrats,” the analysts said. Stifel Nicolaus said Qwest, though subject to new conditions, “should be able to streamline its operations and achieve savings by integrating its long-distance and local services free of much regulatory underbrush.”