Qwest pursues deregulation as business suffers – Drop in land line customers said hurting company

Qwest, southern Idaho´s largest land line telephone service provider, is pushing for legislation this week that would clear the way for unregulated price changes in Idaho.

http://www.idahostatesman.com/Business/story.asp?ID=59995

The bill has the endorsement of Gov. Dirk Kempthorne, who felt it was important enough to mention in his State of the State speech. It is being presented this week in the House by Rep. Bill Deal of Nampa, chairman of the State Affairs Committee.

Qwest is the main provider of land line communications across the state, from the Boise valley to Idaho Falls.

The utility owns and operates the telephone wires and infrastructure, but is required by federal regulation to lease those wires to competitors.

Jim Schmit, Qwest Idaho president, said his company has about 383,000 residential accounts in the state.

Still, he said the company needs the change because it is losing land line customers, including about 30,000 over the past two years.

“Our number of land line customers are declining,” Schmit said in an interview last week.

“This will allow us to go out and compete for your business without having the government on our marketing team.”

However, the bill has some vocal detractors. Rep. Ken Robison, a Boise Democrat, is writing letters to newspaper editors railing against what he believes is a bill that will cost Qwest customers, many of them older Idaho residents, millions of dollars.

“I don´t want to see my constituents ripped off when it´s totally unjustified,” Robison said.

Qwest´s basic residential telephone service price is currently regulated by the Idaho Public Utilities Commission, a state agency, which sets that price based on a fixed “rate of return,” or profit margin.

Single-line residential service from Qwest is currently set at $17.50 a month, plus applicable surcharges, fees and taxes; which add up to about $25. Long-distance service is purchased separately.

Qwest´s rate of return, set by the Idaho Public Utilities Commission, is 9.43 percent. That means every household line earns the company about $1.65 a month profit, or about $20 a year.

Qwest is powerful but not a statewide monopoly. Some areas, especially urban zones, have competition for land lines from smaller companies.

Iowa-based McLeodUSA is the company´s largest competitor for land line service.

Under the proposed bill, Qwest and 16 much smaller services still would have to comply with service standards set by federal and state regulation.

The only substantial difference — and point of contention — is that the regulatory tether holding prices to a profit margin would be removed.

Last year, Qwest asked the commission for deregulation under an administrative process.

The company argued that cellular phone providers, whose prices are unregulated, were taking an increasing number of accounts away.

Young customers, especially, are canceling their traditional home telephone service line in favor of their mobile phones, the company said.

Qwest offered evidence from a recent Federal Communications Commission study indicating that 3 percent to 5 percent of land line customers nationwide are replacing their home service with mobile service.

But three commissioners unanimously disagreed, saying in an Oct. 20 order that “substitution rates of 3 percent to 5 percent do not demonstrate that cell phone service effectively competes with wireline services.”

The issue surfaced again in the political arena on Jan. 12, during Kempthorne´s State of the State address to the Legislature. Referring to a 2000 report from the Governor´s Task Force on Rural Development, Kempthorne called for the Legislature to change the law.

“The world of telecommunications is rapidly changing, and it´s time for our state law to align itself with the realities of the current market,” Kempthorne said.

“I ask you to consider legislation that allows telecommunications companies the choice to opt out of the current rate-of-return regulatory environment.”

Kempthorne´s mention in his speech did not include the word “deregulation.”

Robison said Qwest is now exercising a full-court political press on legislative members. Company chairman and chief executive officer Dick Notebaert is scheduled to speak at a luncheon for lawmakers Tuesday.

But Qwest, and its former incarnation, U.S. West, have been behind the political scenes in Idaho for a long time.

In the 2001-02 election cycle, Kempthorne received eight donations from Qwest´s political action committee or directly from the corporation totaling $11,168. The previous two years, when the company did business as U.S. West, the campaign received at least $2,500.

His opponent, Jerry Brady, received no Qwest donations.

Deal, the committee chairman shepherding the bill through the House, received $700 from Qwest in the last election cycle, according to filings with the Secretary of State´s office.

But Deal said flatly that he did not believe the legislation would result in price increases.

“If I thought for one minute that we were going to see an immediate increase in rates or a gradual increase in rates, I would not be sponsoring this legislation,” Deal said.

Asked whether he could confirm that the basic rate of $17.50 would remain the same, Schmit said, “I can´t guarantee what we´re going to do. This is not about raising rates.”