CenturyLink, Qwest lower rates to placate federal customers

CenturyLink's (NYSE: CTL) plan to acquire Qwest (NYSE: Q) may have passed some early tests with nine state PUC approvals and antitrust approval, but now it wants the blessing of Qwest's largest customer base: the federal government.

To get regulatory approval for the merger and head off any protests from agencies, Qwest and CenturyLink will cap rates they charge to federal government customers in their regions. The two service providers filed a settlement with the Utah Public Service Commission to give a three-year rate cap for all of its federal agency customers, including the Department of Defense (DoD). CenturyLink and Qwest plan to file similar rate settlements in Colorado and Arizona.

This latest rate proposal comes after the DoD and Federal Executive Agencies (FEA) filed testimony with the PUCs in Arizona, Colorado, Utah and Washington state where a number of large military bases and various civilian agency operations currently reside.

Reaction to the rate decrease, not surprisingly, has been divided.

Charles King, a Washington, D.C.-based economic consultant that's been representing the DoD and federal agencies, said the rate decrease allays fears that the merger costs would increase the rates agencies pay for service.

"We needed that cap because the company is going to be spending a fortune on implementing this merger and paying back a huge amount of debt," King said. "We were worried they would capture those costs with rate increases."

On the other hand, competitive provider Integra Telecom, which purchases wholesale services on Qwest's optical and copper lines, is  concerned that the caps don't properly address service quality issues. While not directly citing any specific examples, the integration of Verizon's (NYSE: VZ) former New England lines into FairPoint's fold caused various outages and customer billing issues for not only consumer and businesses, but also wholesale customers is a well documented cautionary tale for any service provider making a large acquisition.   

"When we look at recent (similar) mergers, the systems integration was very difficult," said Jeff Oxley, general counsel of Integra. "It has caused massive problems for consumers and for companies like ours."

For more:
- The Denver Post has this article

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