Qwest in a (network) sharing mood

Thu, 04/15/2004 - 8:00pm

Copyright 2004 Inc., All Rights Reserved

CBS MarketWatch

April 15, 2004 Thursday 5:26 AM

From Lexis Nexis

Qwest Communications agreed Thursday to let a small rival sell high-speed Internet access over its network, a first-of-its-kind deal that's drawn praise from the industry's chief regulator.

In a related move, Qwest agreed to negotiate with an independent mediator over the terms by which MCI would be able to lease access to its local network, according to MCI.

MCI, the nation's second-largest long-distance carrier, said it has also asked BellSouth, Verizon and SBC Communications to join the mediated negotiations.

"It is in the interest of all companies and consumers to put our positions on the table, in full view of fair and impartial mediators and to attempt to reach agreement as quickly as we can," MCI general counsel Stasia Kelly said.

Earlier this month, the Federal Communications Commission appealed to phone-industry executives to craft their own network-access rules after a federal appeals court struck down for the third time the agency's newly refashioned guidelines.

If successful, the move by MCI and Qwest could pave the way for greater cooperation among the nation's phone companies, which typically rely on armies of lawyers to conduct lengthy and costly legal wars in the courts.

Under a three-year "line-sharing" pact, Covad Communications will be allowed to sell high-speed DSL in the seven states of Qwest's service area where Covad (COVD) now offers the service. Qwest is the main local phone provider for 25 million customers in 14 western states.

Line splitting refers to the way in which high-speed Internet access is sent over phone lines. Ordinary voice calls are transmitted via a lower frequency on the copper wire, while DSL is sent over a higher frequency. That allows customers with DSL to surf the 'Net and talk on the phone at the same time.

The FCC now obligates large local phone companies such as Qwest, Verizon Communications and BellSouth to offer line sharing to rivals, but the requirement will be phased out later this year. That decision was the result of a bitterly contested 3–2 FCC vote in February 2003.

Without line sharing, rivals of the Baby Bells say they'll be unable to offer affordable high-speed access, thereby dampening competition and leading to higher prices for consumers.

The Qwest deal, however, might put pressure on other Bells to offer line sharing. Qwest also has taken the lead by announcing recently that it will offer "naked" DSL — the ability of customers to buy just the company's high-speed service without having to subscribe to a local-phone plan as well. Other Bells make that a requirement.

Covad's shares got a boost from the Qwest deal, adding 4 cents to trade at $2.18. Qwest eased 6 cents to $4.06.

The Qwest-Covad deal drew the approval of FCC Chairman Michael Powell, who has urged phone carriers to negotiate network-access deals in an effort to end years of costly litigation.

"This agreement demonstrates that even without government compulsion, commercial arrangements negotiated in the market are possible," Powell said. "We hope this agreement will stimulate additional line sharing and unbundling arrangements, negotiated in the market."

To buy the industry some time, the FCC has received a 45-day delay in the latest ruling by the federal appeals court. So far, the Bells have expressed a willingness to negotiate, but at the same time they are petitioning for an immediate increase in wholesale leasing rates.


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