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An administrative law judge in Minnesota began hearings April 26 to decide whether regional Baby Bell Qwest Communications International Inc. failed to disclose contracts with competitors that offered favorable terms to companies supporting its petitions before public utility commissions in its 14-state Western region. The states of Arizona, Utah and New Mexico have launched formal investigations into contracts Qwest signed with competitive local exchange carriers, or CLECs. Oregon and Colorado have begun informal inquiries, and in Washington state, the attorney general’s office is also looking into the issue. The states are investigating whether Qwest arranged for more attractive connection rates for CLECs that supported the Denver-based telecom’s efforts to win regulatory approval to enter the potentially lucrative long-distance market. Behind the various investigations is a cut-throat battle between the nation’s incumbent long-distance wireline providers, AT&T Corp. and WorldCom Corp., and the former Baby Bells. For the past year, the Bells have begun to win approval from various states to sell long-distance service along with their traditional local offerings. At the same time, AT&T and WorldCom joined with some CLECs to argue that the Bells should not be given entry into the long-distance market. Together, they charge that the Bells have failed to adequately open their local networks to competitors as stipulated by the Telecommunications Act of 1996. Qwest, meanwhile, maintains that AT&T, which handles about half of the nation’s long-distance wireline telephone calls, is using the state investigations to oppose Qwest’s entry into the long-distance market. Russ Glover, an AT&T spokesman based in Denver, counters that while the company has indeed opposed Qwest’s petition to sell long-distance, the inquiry into allegedly discriminatory contracts was initiated by the Minnesota Department of Commerce. “Qwest wants to say this is just AT&T making noise,” he said. “But the real issue here is whether the local markets are open, and our position is they aren’t but that they should be.” While all parties await a ruling by the U.S. Federal Communications Commission on the sanctity of the contracts, Blair Levin, a telecom analyst at Legg Mason Inc., said that ultimately Qwest would receive regulatory approval to sell long-distance. Levin, a former FCC chief of staff, added that while there is nothing wrong with striking an interconnection deal with a CLEC that results in a CLEC changing its view on a regulatory issue, those contracts must be made public and must be non-discriminatory. Last spring, officials at the Minnesota DOC began to hear word of supposed “secret agreements” between Qwest and some of its erstwhile local telephone competitors. In March, the department issued a formal complaint to the Minnesota Public Utility Commission alleging that Qwest had engaged in potentially “discriminatory” contracts, offering some CLECs better terms than others. Furthermore, the DOC said, these agreements should be made public so that others might obtain similar contract terms. Earlier this month, Qwest agreed to release the contracts, although the company also filed a petition last week asking the FCC to rule on whether the contracts did indeed have to be made public. The Wall Street Journal first reported the petition’s filing Monday. An administrative law judge with the Minnesota Public Utility Commission began hearings on 11 contracts Qwest made public following the department’s petition. Qwest said it plans to complete those filings by the end of June Qwest could be fined as much as $200 million if the PUC finds that state laws were violated, but the company stands to lose a far greater amount of money and prestige if Minnesota or any one of five other Western states exploring similar allegations delays or even turns down the company’s petition to sell long-distance service. “To resolve this matter, it would be impossible to ignore it during proceedings around Qwest’s petition for long-distance,” said Bruce Gordon, a spokesman for the Minnesota. “Our allegations are that these are violations of state and federal law and should be subject to penalties.” On Monday, Qwest said the state investigations would not delay its efforts to win approval to offer long-distance service in the 14-state western region where it is the dominant local telephone service provider. “This issue has nothing to do with the 271 process and will not affect our long-distance re-entry filing schedule,” said Steve Davis, Qwest senior vice president, who asserted in a press release that the contracts should not have to be filed with the state public utility commissions. The “271 process” refers to the section in the 1996 Telecommunications Act that requires the Bells to open access to their local networks — the many millions of lines that link businesses and residences with the national grid — in exchange for offering long-distance service. �Copyright 2002, The Deal, LLC. All Rights Reserved.

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