Telco Mergers May Pain Users

WASHINGTON (03/20/2000) - Someday telecom mergers may achieve the long-elusive goal of one-stop shopping, but all they seem to be doing now is forcing users to deal with more carriers, not less.

Prior to completing its merger with US West Inc., Qwest Communications International Inc. last week announced it is selling its voice, private-line and fast-packet services in that RBOC's territory to regional carrier Touch America.

And Network World has learned that GTE has sent letters to thousands of voice and data customers in the Northeast - home of its merger partner, Bell Atlantic - ordering them to find a new long-distance carrier by next week.

The reason for both moves: Federal regulations declare that once a carrier merges with a regional Bell operating company, it becomes an RBOC itself and can no longer carry traffic across local calling boundaries.

As a result, Qwest not only cannot merge, say, its frame relay service with US West's, but the company also has to find a third party to handle the frame traffic in US West's region. The same holds for GTE in Bell Atlantic's region.

Analysts have long expected Qwest and GTE to hunt for a carrier to take over their business in the RBOC partners' territories. But they expressed alarm at the speed at which both companies seem to be forcing the change on users.

Qwest is giving customers about three months to transition because its merger is expected to close late in the second quarter. GTE is operating on an even tighter time frame. In a March 1 filing with the Federal Communications Commission, GTE's long-distance unit said it has asked 166,000 residential and business customers to find a new long-distance carrier this month and told business users it will discontinue ATM, frame relay and private line services in Bell Atlantic's territory March 30.

That timing may work for residential long-distance, says Steven Taylor, president of Distributed Networking Associates in Greensboro, N.C. But for revising corporate-network term contracts, "It's a much more complex task than filling out that card that comes in the mail to get frequent-flyer miles by changing long-distance carriers," he says.

Users will have to stay on their toes, adds Ellen Block, a Washington, D.C. attorney: "Qwest until recently was going after business they knew they would have to divest if the [US West] merger went through."

Carrier executives didn't try to gloss over the blow to one-stop shopping.

"It's taking one step back to take two or three steps forward," says Alan Ciamporcero, vice president of regulatory affairs at GTE. "We're giving away customer relationships we've worked very hard to gain." But GTE needs the Bell Atlantic tie because GTE's local territories are largely rural and it wants a stronger competitive position, he says.

Conducting a divestiture with one carrier can be a necessary evil to gain a merger with another carrier, says Stephen Jacobsen, Qwest's executive vice president for business markets.

"It isn't as elegant as it is when you do it yourselves," Jacobsen says. "But I haven't seen a merger yet that solves everything and looks elegant."

Both carriers are laying transition plans they say will help. In the US West region, Qwest is selling its Lucent ATM/frame relay switches and leasing its Nortel Networks central-office telephony switches to Touch America. Account teams will be split between the firms, but Qwest is contracting its billing services to Touch America so customers can receive a dual-branded, unified bill.

In GTE's case, officials note that most of the long-distance frame, ATM and private-line business is actually resold by GTE via other carriers' facilities, especially Sprint. GTE told the FCC it is "aggressively" seeking a specific carrier to offer users as an alternative. Turning over the business to Sprint is "definitely a possible solution," Ciamporcero says.

Unlike Qwest, GTE operates some local fast-packet data networks - in parts of Pennsylvania and Virginia where Bell Atlantic is not the local carrier - and it will keep those. On the voice services, GTE told the FCC that customers who don't choose another carrier would automatically go to Sprint.

But GTE's story gets even more complex: It has also agreed to spin off its Internet unit, GTE Internetworking, into yet another independent entity (see story, page 41). By contrast, Qwest is hanging on to its Internet business.

Officials claim the company's dedicated 'Net access service is local in nature and its Web-hosting facilities don't inherently involve transport, though Touch America may take over transport for IP virtual private nets.

The FCC, which earlier this month approved the Qwest/US West merger, must still approve the terms of the Touch America sale. Qwest also needs the approval of six more states in US West's 14-state territory before the merger is a done deal.

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