Qwest's 'Cumbersome' Spin-off

WASHINGTON (04/22/2000) - Behind the scenes of Qwest Communications International Inc.'s pending merger with US West Inc., Qwest officials are expecting big operational and marketing headaches when they spin off their long-distance business in the US West territory.

A plan filed earlier this month with regulators explains how Qwest will unload part of its long-distance network. The carrier acknowledges that once the US West merger closes, it "will be at a significant disadvantage to other carriers that can offer service on a nationwide basis."

And in an ominous note for users buying Qwest Internet services, the company also says its plan to hand off Internet backbone traffic in the US West region to a third carrier will be "cumbersome" and create "major operational inefficiencies for Qwest by comparison with any other Tier 1 ISP."

Qwest submitted the 111-page divestiture plan to the Federal Communications Commission on April 14 after announcing this past month it is turning over its long-distance network in the US West region to emerging carrier Touch America.

The FCC has ordered Qwest not to carry any long-distance voice, data or Internet traffic in the US West territory after the merger because US West still has no long-distance authority for any of its 14 states.

Qwest said it will comply, but submitted a plan that some analysts say skates along the edge of the FCC's demands. For example, the FCC ordered Qwest to explain how it could keep its own Internet backbone operating "without originating any Internet traffic in the 14-state US West region" and demanded to know how Qwest "will dispose of Internet addresses and Web-hosting servers for their Internet customers."

But the Qwest plan says the carrier will retain all its Web-hosting services nationally - including two data centers to be built in the US West region with IBM Corp. - and instead instruct its routers to hand traffic off to Touch America until Qwest exits the region.

And in language strikingly at odds with initial statements by Qwest officials extolling Touch America's capabilities, the divestiture plan reveals a range of support services that Touch America will have to subcontract from Qwest for the first six to 12 months.

For example, Qwest will provide order-entry service to Touch America, including "manually entering handwritten data from sales forms into computer systems to set up new accounts." Qwest also will segregate a group of customer-service agents for large business customers in its own call center to answer the phones for Touch America.

Those provisions gave several analysts pause about the transition. "It says to me that they're certainly not ready to do it," says Dick Kuehn, president of RAK Associates, a Cleveland firm that assists users negotiating carrier contracts. "[Touch America] should have their own customer-care call center at this point. It's no great trick to expand the number of stations."

Qwest officials last week stood by their written statements. Until US West gains long-distance authority, "it's a situation in which we have in essence two-stop shopping," says Steve Davis, senior vice president of government affairs. He says Qwest told the FCC about the negative impact of the divestiture to show how the merger gives US West increased motivation to gain long-distance authority so Qwest can carry traffic nationally again.

Yet the divestiture plan reveals that even if US West does start gaining long-distance approvals, current Qwest customers will be unable to go back to Qwest for three years because of a noncompete agreement with Touch America.

"That's really ugly," Kuehn says. "Let's say I wanted to stay with Qwest all along, they get back into long-distance and I still have no choice at that point. That's nuts."

Some industry observers charge that the FCC's questions asking whether Qwest will get rid of Web servers and access in the US West territory are unfair because Bells without a long-distance owner offer some of these services. "That could be a deal-killer right there," says Alan Pearce, president of Information Age Economics, a Washington, D.C. consulting firm. If Qwest has to give up any Web hosting, "I would counsel them to take a walk on the deal because it's simply not worth it."

But Qwest users are bracing for a rocky ride. "I've got to change all my billing and see how much of a nightmare that is," says Dennis Romero, until recently a network manager and now a consultant for CQG in Denver, a financial information provider to trading firms with locations in and out of the US West region.

Lisa Pierce, an analyst with Giga Information Group, cautions that customers forced to split traffic between Qwest and another carrier may cross a network-to-network interconnection, and "service-level agreements [SLA] never extend beyond an NNI." A Qwest spokesman says the company is implementing a joint SLA with Touch America for existing services and is negotiating them with other carriers. But Pierce says complaints to regulators that the network split is cumbersome are "crocodile tears" because Qwest always knew it would have to make a divestiture to satisfy them.

"They're the ones who wanted this all along," she says. "So what's the problem?"

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