tw telecom Demands Concessions from CenturyLink Before Qwest Acquisition

U.S. telecommunications providers keep getting bigger thanks in part to a series of mergers that the Federal Communications Commission has determined are in the public interest. 

But AT&T, Verizon and other telecommunications titans have made concessions along the way to placate the competition. In a number of orders approving the massive mergers, the FCC has adopted as enforceable certain commitments that the telecommunications providers have made. 

Now, tw telecom says its only fair that CenturyLink Inc. make similar concessions in its planned acquisition of Qwest Communications. Littleton, Colo.-based tw telecom, which is based roughly a half hour away from Qwests towering headquarters in downtown Denver, has asked the FCC to require CenturyLink to comply with three specific conditions in order to gain merger approval.

I would point out the merger conditions that we are asking the FCC to adopt are consistent with the same kinds of conditions that they have imposed” in prior mergers, tw telecom Executive Vice President and General Counsel Paul Jones said in a telephone interview last week.

tw telecom has asked the FCC to require CenturyLink to continue to offer special access services with stable rates for three years. Competitors like tw telecom rely on special access services to provide business customers such services as Business Ethernet and IP Virtual Private Networks. The telecommunications provider also is requesting that CenturyLink commit to continue to improve on service quality initiatives that Qwest has honored, including specific performance measures, while maintaining existing agreements for the exchange of Internet backbone traffic.

Jones pointed out that CenturyLink has agreed to maintain performance levels for UNEs, or unbundled network elements, that certain competitor telecommunications providers rely on. But he said CenturyLink has not made the same commitment with respect to special access services. In November, CenturyLink and Qwest reached agreements with Integra Telecom and Cox Communications over certain wholesale services that resolved some concerns over the pending merger. 

In an e-mail, CenturyLink spokeswoman Debra Peterson said tw telecoms proposed conditions are unnecessary or unreasonable.

A three-year freeze on DS1 and DS3 rates exceeds any reasonable condition and is not necessary,” she said. However, CenturyLink has agreed to a 12-month freeze on Qwest wholesale tariff offerings. In fact, the FCC currently has a special access docket open and any rate modifications should be handled in that proceeding, not this merger.”

Peterson added, CenturyLink has already made significant commitments to ensure service quality is not negatively impacted and no further action is necessary in that regard. Finally, the continuation of current Internet peering arrangements for a three-year period is excessive.”

In 2009, the FCC approved the merger of Embarq Corp. and CenturyTel after the companies made several voluntary commitments that the FCC enforced as merger conditions.

Nine months ago, Monroe, La.-based CenturyTel Inc. changed its name to CenturyLink Inc. after announcing an agreement to acquire Qwest in a stock transaction that valued Qwest at $13.33 billion as of Jan. 5, 2010.

Earlier this month, the Utah Public Service Commission and Nebraska Public Service Commission approved the pending merger between CenturyLink and Qwest. That means CenturyLink and Qwest only need regulatory approval from four more states Arizona, Minnesota, Oregon and Washington plus the FCC.  The Department of Justice, Federal Trade Commission, as well as 17 states and the District of Columbia have approved the pending merger.

Jones of tw telecom said the service-level initiatives that Qwest has honored reflect business practices that have evolved over time and are not contractual. 

tw telecom operates a network that is directly connected to roughly 11,500 commercial buildings, but the company still relies on incumbent telephone operators like Qwest to reach other businesses where their network does not extend.

As the U.S. telecommunications industry has consolidated over the last several years, telecommunications providers like tw telecom have raised concerns that bigger incumbents like AT&T and CenturyLink will have a greater incentive to squash their competition by increasing wholesale rates and degrading service quality. The FCC has recognized that possibility in orders that have approved mergers and incorporated voluntary commitments as enforceable conditions.  

COMPTEL, a Washington, D.C.-based organization that represents telecommunications providers who compete with incumbents, said the CenturyLink/Qwest merger is not small potatoes and should include merger conditions.

A merger between CenturyLink and Qwest is not just a merger between two ILECs, its a merger between the third and fourth largest telephone exchange carriers,” the group said in a filing with the FCC.

If the merger is approved, the combined company will provide communications services across 37 states. As of Sept. 30, 2010, CenturyLink and Qwest served a combined 15.7 million access lines and 5.3 million broadband customers.

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