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Qwest faces $26 million fine
State regulators have ordered Qwest Communications to give competitors discounts or pay a fine of $26 million. The Minnesota Public Utilities Commission action stems from illegal secret deals in which Qwest gave some competitors preferential rates for the use of its phone lines. Qwest officials say the PUC overstepped its authority, but the company's critics hailed the decision.

St. Paul, Minn. — The PUC decision came after an all-day hearing and was something of a surprise. In its prior meeting, the same group of commissioners was unable to agree on a penalty and ordered Qwest to propose its own punishment.

Qwest expanded a prior plan, offering provisions aimed at competitors and consumers, including doubling the number of communities where it would add high-speed DSL service.

During Tuesday's hearing, Qwest officials said their plan offered very significant concessions. But competitors like Tom Pelto of AT&T blasted Qwest's plan.

"It's nine parts pork barrel, PR gimmickry and self-serving retail service initiatives for every one part penalty," Pelto said. "Qwest's proposal looks to me more like something that could be the basis for a new lobbying program or a new marketing campaign than a punishment."

Pelto argued many of Qwests proposals did not address the company's transgressions. The commission found Qwest discriminated against some competitors by giving certain others preferential deals on the use of its phone lines. In exchange, the competitors would not oppose Qwest's efforts to win clearance to sell long distance services.

Several competitors at the hearing complained Qwest's penalty proposals would actually reward Qwest and help the company compete more effectively against them.

Those arguments appeared to sway commissioner Leroy Koppendrayer, who was recently appointed chair. Koppendrayer acknowledged Qwest's proposals to add jobs and provide DSL service in new areas are valuable to the state, but his view of their merits as penalties changed.

"It seems rather strange to say we're going to basically -- as a penalty -- order you to do something that enhances your ability to compete with the people that are alleged to be aggrieved here. It doesn't quite wash with me any more." Koppendrayer said.

After a lengthy discussion of how to craft a penalty, the commission settled on requiring Qwest to give competitors the benefit of the preferential deals, retroactively for two years, and for the two yearsto come. The key provision is a 10 percent discount on services.

John Stanoch, president of Qwest's Minnesota operations, says that would cost Qwest millions of dollars, but it's too soon to be more precise. If Qwest does not comply, it faces a $26 million fine. Stanoch says the company will probably ask the PUC to reconsider.

"The biggest legal issue in the case is that the commission ordered money damages. And we believe that that component of their order exceeds their authority in this case and in this docket. So that's something that we'll be taking a close look at, and will probably be one of the centerpieces of our motion for reconsideration," said Stanoch.

Qwest's critics praised the decision. The state Commerce Department originally brought the complaint against Qwest. Spokesman Bruce Gordon says the penalty was fair and reasonable. But he says it's not clear how much money competitors might get.

"Everybody is asking that question, and I don't think that anybody has an estimate," Gordon said. "It's just too difficult to calculate, especially looking forward, because we don't know to what extent (the competitors) would be interested in participating in any of these benefits that are currently on the table."

Officials at ATT, one of Qwest's most dogged critics, were hailing the ruling even before crunching the numbers. Spokeswoman Deb Osgood says the best part is the prospect of a 10 percent discount on charges to use Qwest's phone lines over two years. She says that gives AT&T an incentive to enter the market and compete for customers.

"We think that what the commission did is stand on the side of competition and consumers," said Osgood. "Assuming Qwest follows through and does the right thing, the winners are consumers, competition and businesses across Minnesota."

Once the commission's plan is formalized in an order, Qwest has 20 days to seek reconsideration.

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