The record fine the Minnesota Public Utilities Commission levied Tuesday on Qwest Communications International Inc. marks the first time the phone giant has been penalized this year for striking interconnection agreements with rivals without filing them with state regulators.
But it may not be the last penalty Qwest faces.
Several other states have opened probes looking into whether Qwest violated laws by striking the so-called secret interconnection agreements and granting at least two phone companies special terms that other competitors did not receive.
Minnesota PUC commissioners voted Tuesday to fine Qwest nearly $26 million and required it to grant competitors discounts retroactively over an 18-month period on wholesale products and services they purchased from the regional Bell operating company.
McLeodUSA Inc. and Eschelon Telecom Inc. are excluded from receiving the discounts. The two phone companies obtained special terms over other Qwest competitors, according to the Minnesota regulator.
The fine is more than four times higher than the $6 million forfeiture the Federal Communications Commission levied last year on SBC Communications Inc. for violating a condition of its merger with Ameritech. That was the highest forfeiture in the regulator’s history, according to FCC Chairman Michael K. Powell.
“We feel that that fine is very excessive,” said Qwest spokesman Bryce Hallowell. Qwest had agreed to not appeal the regulator’s decision if the commission levied a fine up to $5 million, he said.
Qwest will review the written order and determine what steps to take next, he said. The Minnesota PUC said the written order would be issued “in the coming weeks.”
Qwest officials say the company did not file the agreements with state regulators because Qwest did not believe it was a requirement.
Among the pending investigations, Arizona’s state regulator is the furthest along. The Arizona Corporation Commission has recommended Qwest pay a $15 million fine and grant its rivals three years worth of discounts for entering interconnection agreements that were not filed with the regulator.
Last month staffers of the Arizona commission and other witnesses testified before Jane Rodda, an administrative law judge. At the time Qwest spokesman Jeff Mirasola said he did not expect the judge to issue a recommendation to the Arizona commissioners for several weeks.
The staff of the commission claims Qwest offered certain rivals favorable wholesale discounts in return for them not participating in a regulatory process integral in determining whether the phone giant opened its network to rivals and should be allowed to provide long-distance services. That is known as the section 271 process, which is a part of the Telecommunications Act of 1996.
Qwest has received long-distance approval in nine states within its 14-state territory. In December the FCC approved Qwest’s application to provide long-distance service to residential and business customers in Colorado, Idaho, Iowa, Montana, Nebraska, North Dakota, Utah, Washington and Wyoming. The regulator will vote by next week on whether to grant or deny Qwest’s long-distance application in New Mexico, Oregon and South Dakota.
Qwest recently filed an application with the FCC to provide long-distance service in Minnesota. Arizona is the only state where Qwest has yet to file for long-distance approval.
The Arizona regulator is not the only commission investigating Qwest’s interconnection agreements. Here is a synopsis of activity within Qwest’s 14-state region:
In Colorado, where Qwest is based, the regulator launched its official investigation in October 2002, says a spokesman for the Colorado Public Utilities Commission. Initial comments were due Tuesday. Reply comments are due by May 8. A hearing has not been scheduled.
The North Dakota Public Service Commission has an open file regarding three amendments to a previous agreement Qwest and McLeodUSA entered in the spring of 2000, said Jerry Lein, a public utility analyst with the commission. Qwest did not file the amendments until last year, Lein said, but the regulator has neither penalized Qwest nor made a finding. “It’s still open. I don’t know if there will be further action on it or not,” the analyst said.
The South Dakota Public Utilities Commission has about 20 dockets on issues related to interconnection agreements Qwest did not file with the commission, said Pam Bonrud, the PUC’s executive director. The South Dakota PUC staff and commissioners are looking into the files, but no recommendations have been made, she said.
The Idaho Public Utilities Commission issued an order to ensure Qwest files all interconnection agreements with the regulator, but the PUC has not opened a formal investigation, said spokesman Gene Fadness. McLeodUSA does operate in the state. “It is not as big of an issue in Idaho in that we don’t have the competition that exists in other states,” Fadness said. “We have more jackrabbits up here than people.”
The Iowa Utilities Board last year found Qwest violated rules pursuant to state law and noted any future violations could result in civil penalties, said IUB spokesman Rob Hillesland. Iowa law precludes the board from levying penalties for a first offense “in a situation like that,” he said.
The staff of the Utah Division of Public Utilities plans to issue a recommendation to commissioners “no later than the early part of next week” regarding some interconnection agreements Qwest entered, said Ingo Henningsen, the regulator’s manager of telecommunications. There has been no hearing on the matter. Whether there is a hearing will depend on the regulator’s recommendation, the response parties make, and how the commissioners respond, he said.
The Nebraska Public Service Commission addressed the interconnection issue as part of Qwest’s big to enter the long-distance market. No penalties were levied. “In looking at those [agreements] the commission didn’t have concerns and supported their application subsequent to that,” said Gene Hand, director of the telecommunications department for the PSC. “I don’t think many of those agreements had much impact on Nebraska as I recall.”
The Oregon Public Utility Commission expects to recommend opening a formal investigation shortly regarding more than 50 unfiled contracts, said PUC spokesman Bob Valdez. “We will go to a public meeting and recommend a formal investigation. We expect that would hopefully occur within the next few months,” he said. If the PUC wanted to fine Qwest, it would have to turn to a court because the regulator does not have direct fining authority, he said.
The Washington Utilities and Transportation Commission is still deciding whether to launch a formal probe, said Glenn Blackmon, the regulator’s assistant director for telecommunications. “Our commissioners have it under review to look at whether or not they should start a proceeding on that,” he said. AT&T Corp. and the Office of the Attorney General have been the most vocal participants in the case, he said. The AG’s office recommended the commission initiate a probe, he said.
The Wyoming Public Service Commission granted AT&T a pre-conference hearing on the three or four “so-called unfiled agreements that were applicable to Wyoming,” said PSC rate analyst Mike Korber. AT&T argued the interconnection agreements “tainted” the 271 process. “After hearing their side and asking some questions and hearing from Qwest the commissioners determined that the 271 process in Wyoming was not at all affected or impacted by those so-called unfiled agreements,” Korber said. The Wyoming PSC granted AT&T an opportunity to pursue a formal complaint, but up to now the phone company has not done so, he said.
Officials with the New Mexico Public Regulation Commission and Montana Public Service Commission could not be reached Wednesday for comment.