Qwest's Behind-the-Scenes Merger Maneuver

FRAMINGHAM (05/01/2000) - Ever since Qwest Communications International Inc. won a bidding war against Global Crossing Ltd. last July to buy US West Inc., Qwest officials have boasted that this is a different kind of telecom merger.

They've claimed their deal presents none of the anticompetitive potential of SBC Communications Inc. buying Ameritech Corp. or MCI WorldCom Inc. buying Sprint Corp., happily spinning out reports of state governments and shareholders falling in line with quick approvals.

Now documents have come to light showing that behind the scenes, the Qwest/US West merger has been a messy business in which Qwest officials have been deeply worried about the impact on their customer base. The documents also show why the merger isn't ready to close and even runs an outside risk of falling apart despite the U.S. Federal Communications Commission's "conditional approval" granted in March.

Of all the recent mergers, Qwest/US West is the first that combines an almost pure long-distance carrier with a pure local Bell - US West still hasn't filed a federal long-distance application for any of its 14 states. And the FCC absolutely, positively forbids unauthorized Bells from carrying long-distance traffic within their regions - no matter how many times they buy or sell another carrier, take on partners, change their names, make their beds, take out the garbage or eat their broccoli.

Publicly, Qwest officials say they know all that. But privately, someone there has been seeking a way to avoid cutting a hole the size of US West in their network and forcing enterprise network managers to deal with two different carriers.

On Feb. 9, Qwest officials met with McLeodUSA, a regional carrier thinking of participating in a Qwest divestiture. Sworn affidavits from McLeod employees charge that at the meeting, officials "disclosed Qwest's desire to sell the [western long-distance] assets to a friendly buyer, so the assets could be reacquired in the future."

On Feb. 11, McLeod officials marched into the FCC to relate this story, just as Netscape rat-finked on Microsoft to the Department of Justice. FCC officials demanded that Qwest tell them what the heck was going on.

On Feb. 17, a Qwest lawyer wrote back saying the senior Qwest official at the Feb. 9 meeting was only "speculating," attaching an affidavit from that official's boss saying the "friendly buyer" remarks were "uninformed and unauthorized."

Since then, Qwest has decided to sell the western long-distance business to another carrier with no right of reacquisition, but the FCC still has to rule on the details of that sale. In what some analysts are taking as a fit of pique by the FCC, the agency has demanded to know what Qwest will do with its Internet addresses and Web-hosting centers in the US West region, as well as its long-distance traffic.

Qwest says it won't give those up, and it has a point. No Bell has been told it can't even originate Internet traffic, as opposed to carrying it across local boundaries. But if the FCC presses the issue, this merger could yet founder.

Rohde is a Network World senior editor. He can be reached at drohde@nww.com.

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