Qwest beats out Global Crossing for US West

DENVER - Qwest last week got in a long line of merger-approval applicants at the Federal Communications Commission, after beating rival bidder Global Crossing for regional Bell operating company US West.

Not only may Qwest and US West have a long wait for merger approval, the companies have a particularly thorny problem to work out with the FCC. The fact that US West does not have the authority to carry long-distance traffic may force Qwest to sell its long-distance voice and data operations in US West's territory when the merger closes. That could mean users would face the typical headaches of dealing with two merging companies' platforms, as well as conceivably having some of their traffic shunted off to yet a third carrier.

Qwest officials vow they would not wait until US West gains long-distance approval before closing the merger. In fact, they claim they will attempt to move up in line at the FCC, arguing that their merger does not raise the same anticompetitive concerns as the pending SBC/ Ameritech and Bell Atlantic/ GTE deals.

US West is unlikely to get long-distance authority in the next year, considering it has not yet even applied to the FCC for long-distance in any of its 14 states under the Telecommunications Act of 1996. Plus, the FCC has taken a hard line against letting RBOCs sneak around this restriction via mergers or other deals with long-distance carriers.

Qwest beat out Global Crossing for US West by agreeing to pay $69 per share, or about $35 billion, for US West's stock. The US West board switched its choice from rival bidder Global Crossing to Qwest after Qwest sweetened its offer and agreed to let US West control half the board seats in the combined company. US West had also come under community pressure to strike a deal with its Denver neighbor, Qwest, rather than sell out to Global Crossing, which is based in Bermuda.

After winning the bidding war, Qwest CEO Joe Nacchio and US West CEO Solomon Trujillo flew to Washington, D.C., lobbying for merger approval with FCC Chairman William Kennard and other agency officials.

Reliable sources told Network World that the two CEOs reportedly broached the idea of letting a third party take over the customer sites in US West territory if necessary - but the third party would have to retain platforms such as Qwest's Ascend-based frame/ATM network, Cisco-based IP network and Nortel-based circuit-switched network. That way users wouldn't have to actually migrate their Qwest network ports to a new platform, even though they would technically be dealing with a different carrier for these western states.

"This is a humongous quagmire," says Berge Ayvazian, executive vice president of The Yankee Group in Boston. Ayvazian suggests Qwest may try to get its European partner, the Dutch phone company KPN, to obtain a U.S. telecom license and then take over Qwest's operations in the US West territory.

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