Audio "Painful, costly, complicated" deregulation keeps telecom industry in the spotlight (story audio) Photos Fredd: "Coop-etition" rules Garvey is a former head of the Public Utilities Commission Standing out from the crowd... Your Voice Join the conversation with other MPR listeners in the News Forum.

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"Painful, costly, complicated" deregulation keeps telecom industry in the spotlight
by Jeff Horwich, Minnesota Public Radio
August 25, 2003

In a crowded field of telecom companies, USLink hopes to increase visibility with a fleet of PT Cruisers. Sales Director Marjorie Fredd describes the company as "conservative" when it comes to pushing for new market share. (MPR Photo/Jeff Horwich)

Since 1996, the number of local telephone companies in Minnesota has gone from just a few to nearly 150. Deregulation created an industry with cutthroat competition, and also one of the most complicated business climates around. Local and long-distance companies must work together at the same time as they fight tooth-and-nail to steal customers from one another. Even seven years later, the fallout from deregulation continues to foster the image of an industry that can't seem to stay out of trouble.

St. Paul, Minn. — Ed Garvey oversees a part of the state economy that would test the intellect and patience of just about anyone. Garvey is deputy commissioner for telecommunications and energy at the Minnesota Department of Commerce.

He says deregulation has been a messy process for consumers, regulators, and the companies themselves.

	Garvey is a former head of the Public Utilities Commission

"That transition is not at all like flipping a switch. It's a very painful, complicated, costly, fits-and-starts oriented transition. But that's what's going on," Garvey says.

According to the state Department of Employment and Economic Development, there are about 15,000 telecom jobs in Minnesota, only about 400 more than in 1990. But instead of Qwest and a few rural phone companies like Frontier and Citizens, there are now almost 150 local phone companies doing business in the state, along with hundreds of long-distance options.

Consumers and businesses, especially in urban areas, have seen lower prices. But they also feel the heat of fierce competition.

This includes practices like "slamming" -- switching people's phone service without their permission. Governor Pawlenty's telecom troubles began with his role as a director of NewTel, a company accused of slamming in other states. Cory Jackson follows telecoms as an analyst at Piper Jaffray, and says these sort of "on the edge" business practices are common.

"These companies are going to try to find every nook and cranny allowed to them within the regulatory infrastructure to make money, and there's the fact that telecommunications is a finite customer base," Jackson says. "It's going to be competitive, to win as many customers as they can."

At the same time, all these competing companies have to work together. Unlike many products, no one makes or owns a phone call. Companies need to pass the call around, obeying a web of contracts with one another, to get it where it needs to go.

Long-distance giant MCI, for example, uses the fiber network of Minneapolis-based Onvoy to handle calls, even sending them into Canada and back to save money. Onvoy made headlines in July when an ex-employee accused the companies of using these complicated paths to bill the calls to a third company, AT&T.

	Fredd: "Coop-etition" rules

Marjorie Fredd has a word for the conflicted relationships that govern the industry: "Coop-etition."

Fredd is director of sales for USLink, a local, long-distance and Internet company headquartered in Pequot Lakes. To provide local phone service in many places and compete with Qwest, USLink pays a fee to piggyback onto Qwest's network. The former Baby Bell still owns almost half the phone lines in Minnesota. Fredd says it costs about $1 million to set up shop in one of Qwest's dozens of central offices statewide.

Fredd says these uncomfortable "coop-etition" arrangements are actively policed by the state.

"Minnesota is very pro-consumer," she says. "It's one of our claims to fame, I think...There's a lot of scrutiny and a lot of oversight, a lot of concern on regulators' part. They do spend a lot of time."

Lately they've spent a lot of time with Qwest. In order to sell long-distance here, Qwest had to convince the FCC and Public Utilities Commission it was not playing favorites among the new local phone companies grafting onto its network.

As a constant presence before state regulators, Qwest's political connections are closely watched. Attorney General Mike Hatch and the DFL party took heat this summer over $125,000 in contributions from Qwest's largest union. A former Hatch aide is also now Qwest's top official in Minnesota.

It's inevitable that Qwest is tied up with many telecom issues, simply because of it's dominance as a former Baby Bell. But deputy commerce commissioner Garvey says that era is ending, as other companies gain market share.

"Up until recently it was always (that) the focus was on Qwest, and asking regulators to constrain Qwest," Garvey says. "I think you're starting to see now all the gloves come off and they're all sort of going after each other."

Garvey says the next seven years may be more volatile than the last, as competition shifts from deregulation of old-fashioned copper telephone wire to the oversight of new technologies. To the state's top regulator, the long-awaited explosion of cable, wireless, and broadband communications fortells a whole new set of telecom battles.

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