FCC kills Qwest's RBOC deals

By David Rohde
Network World, 09/29/98

The Federal Communications Commission late Monday killed an attempt by upstart long-distance carrier Qwest Communications to ramp up its revenue base with the help of regional Bell operating companies.

The FCC ruled illegal a pair of deals in which Ameritech and US West marketed flat-rate Qwest long-distance service at 10 cents a minute. The FCC said the two programs were tantamount to the RBOCs offering their own long-distance service, which is forbidden until they gain state and federal authority for long-distance entry.

The unanimous decision of the five FCC commissioners ends a complex legal wrangle in which Ameritech and US West went ahead and made the offers, followed by appeals to both courts and the FCC by carriers such as AT&T and MCI WorldCom. A federal court had directed the FCC to make the final decision.

Though the two RBOCs expressed dismay at the decision, the biggest blow may be to Qwest in its drive to displace the Big 3 national carriers. The two programs in question were not directed at large business users. But Qwest was hoping to use the revenue to bolster its cash flow in the face of heavy capital expenditures for its national network, which is expected to offer broadband enterprise services at cut rates. Qwest reported a second-quarter loss of $15.6 million, despite having completed an acquisition of established second-tier long-distance carrier LCI International.

The Ameritech and US West programs appeared to be very popular with consumers, with US West reporting 130,000 sign-ups in the first three weeks. US West officials said its program, called Buyer's Advantage, helped force the long-distance carrier into their current consumer stance offering rates down to a nickel a minute on weekends.

"This ruling puts in jeopardy the positive competitive pressure Buyer's Advantage was putting on the long-distance industry," says Mark Roellig, a US West executive vice president. "Without Buyer's Advantage, it's questionable how long these [weekend] prices will remain in place."

In its ruling, the FCC rejected the chief argument of Qwest and the RBOCs - that the RBOCs were merely serving as sales agents for the Qwest long-distance service and not acting as the customer's carrier of record. The FCC said the programs looked too much like classic telecom resale programs, where marketing companies buy wholesale chunks of a name-brand carrier's capacity and offer them to consumers and businesses at a slight mark-up.

The FCC said the RBOCs were performing such classic reseller roles as designing the marketing package, selecting the underlying long-distance carrier, setting terms and conditions, and serving as the customer's point of contact. In a statement, FCC Chairman William Kennard noted that consumers who still like the 10-cent deal with no monthly fees aren't out of luck. "Consumers can get the same deal directly from Qwest," he said.