Qwest, regulators in standoff as deadline looms

ST. PAUL (AP) -- The Minnesota Public Utilities Commission and Qwest are in a standoff as the deadline looms for regulators to issue a recommendation on the telephone company's application to offer long-distance telephone service in Minnesota.

Qwest's application is pending before the Federal Communications Commission and the PUC has until Thursday to decide whether to endorse that application, a nonbinding recommendation that some analysts believe is crucial to gaining FCC approval.

But gaining endorsement may hinge on whether Qwest pays fines and penalties of more than $26 million ordered by the PUC or appeals the regulatory agency's order in court.

Qwest already has received FCC approval to serve the long-distance market in nine of the 14 states where it provides local phone service. The total market is estimated at $10 billion annually.

The FCC will be plowing new ground if it considers Qwest's request for Minnesota without endorsement by the PUC.

"We have never had a case where there was no state recommendation," in favor of granting the local company entry into long distance, said Michael Balmoris, spokesman for the FCC in Washington.

Balmoris said the law isn't clear on whether state opposition is enough to sink a company's long-distance request. The law says only that the FCC "shall consult state public utilities commissions," he said.

Jack Quealy, vice president of Adventis, a telecom strategy consultancy in Boston said Qwest is likely to withdraw its request to enter Minnesota's long-distance market if the company thinks the FCC might reject the application for lack of state PUC support.

But Qwest is still hoping that the PUC will endorse the request.

"We remain hopeful that the (Minnesota) commission, either as a whole or as individual commissioners, will provide a positive recommendation" to the FCC, said John Stanoch, Qwest state president for Minnesota.

At a hearing Tuesday, the PUC affirmed its $26 million financial penalty and some commissioners indicated that a majority of the four members voting on the Qwest long-distance application might withhold support unless the company paid the penalties.

The PUC also has ordered Qwest to offer 18 months of discounts to local telephone competitors who were hurt when Qwest made favorable secret deals with two other competitors.

Stanoch has maintained that the PUC fine is excessive and claimed the PUC overstepped its authority in ordering some of the discounts.

The FCC is unlikely to approve the Qwest application without state endorsement, said David Willis, a telecommunications analyst with the Meta Group of Stamford, Conn.

"This is a Republican FCC, and it wants more power relegated to the state level," Willis said. "The FCC is going to rubber-stamp whatever the local public utilities commission says."