Last year, the live wires at Qwest decided the Telecommunications Act of 1996 exempted them from paying franchise fees to Portland and 87 other cities in Oregon--and simply quit sending the checks. In response, the Rogue Desk launched a "Deride the Light" campaign, asking readers to withhold their franchise fees until Qwest pungled up. Qwest finally buckled under the intense pressure of thousands (OK, dozens) of irate WW readers and forked over $8.4 million in May.
Down here at Rogue Central, we broke out the Swisher Sweets and Asti Spumante. So we are disheartened--even dismayed--to report on yet another roguish dispute between Qwest and our fair city.
A couple of years ago, fed up with big phone bills and lousy service, some Portland officials decided to roll their own network, building 75 miles of fiber-optic cable linking not only city bureaus, but also other local government offices and school classrooms. The idea was simple: Cut costs to taxpayers and improve service for kids and government workers. All it needed was a vendor who could connect the Integrated Regional Network Enterprise to the rest of the world. Qwest submitted the winning offer. The deal, finalized in December, promised to cut the city's phone bills from $3 million a year to $400,000.
On Feb. 14, the city received an unwelcome Valentine. Once again invoking the Telecom Act of '96, Qwest said it was no longer willing to provide wholesale rates to Portland--unless the city becomes a full-fledged phone company offering business or residential service.
"I was absolutely shocked," says city communications czar Nancy Jesuale. "They marketed themselves to us as a provider. They said, 'We'll be your partners.'"
"They signed a contract, and now they're trying to renege," says Marshall Runkel, aide to city Commissioner Erik Sten. "They're inventing federal law again."
Last month, Portland filed a complaint with the Oregon Public Utility Commission, claiming that Qwest was trying to wriggle out of its contract. Before the PUC could act, Qwest went to federal court, claiming its contract included an arbitration clause in the case of any dispute. Federal judge Ancer Haggerty ruled in favor of Qwest, effectively handcuffing the PUC.
The Portland City Council then agreed to go to arbitration through the local chapter of the American Arbitration Association, which offered a slate of 15 prominent Oregon lawyers as potential arbitrators. Qwest rejected the entire slate outright.
Qwest spokeswoman Mary Healy says the city has simply misread its contract, and that the Telecom Act (intended to spur competition for local telephone services) actually prohibits Qwest from offering big discounts to big customers. "We're now resolving the question through arbitration, which is standard practice," she told WW.
But city sources say Qwest's real goal is delay. "Standard practice!?" Runkel fumes. "Qwest has killed off its competitors by using the same strategies they're using now--invoking frivolous legal claims. They aren't interested in arbitrating this thing. They're interested in dragging this out. Meanwhile, the city is losing $50,000 a week."
Worse, the city has spent $5 million on equipment for IRNE--equipment that sits idle, waiting for Qwest to fill its orders.
We freely concede that the business environment in which Qwest operates has turned somewhat flinty of late. Qwest's stock has plunged from $21 a share to $2 a share since September. It is now the target of a criminal investigation by the federal Department of Justice. The Securities and Exchange Commission is digging into its accounting practices. Credit-rating agencies have downgraded its $26 billion debt to junk. Last week, the federal government said it was reviewing its contracts with the company.
Nonetheless, a deal is a deal. Qwest inked its agreement with Portland knowing full well what the city's business plan was. Qwest's actions in the IRNE dispute demonstrate the subtlety of a Tyrannosaurus rex--doomed to extinction, but dangerous if you happen to stray into its path.
TUMBLING OF A TITAN
JUNE 1999 Qwest Communications buys US West for $50 billion.
SPRING 2000 Subscribers in seven states, including Oregon, file class-action lawsuits against Qwest over delays in telephone service and repairs. Qwest pays Oregon residents $7.85 million.
SPRING 2001 Qwest withholds franchise fees from Portland and 87 other Oregon cities--although it still collects them from subscribers--and sues the cities in federal court.
DECEMBER 2001 Qwest inks deal with City of Portland to provide services for IRNE at wholesale prices.
MARCH 2002 U.S. District Magistrate John Jelderks throws Qwest's case against Oregon cities out of court. Qwest still refuses to pay franchise fees.
APRIL 2002 Regulators in Minnesota investigate whether Qwest offered sweetheart deals to competitors for access to Qwest's network in return for competitors' silence on Qwest's bid to become a long-distance player. Regulators in Oregon, Arizona, New Mexico, Utah, Colorado and Iowa launch similar probes.
APRIL 2002 In wake of the Global Crossing meltdown, Securities and Exchange Commission looks into Qwest's accounting practices. Meanwhile, WW asks readers to withhold franchise fees from their phone bills until Qwest pays the 88 Oregon cities.
MAY 2002 Qwest capitulates, agrees to pay $8.4 million to Oregon cities. (If you were withholding your franchise fees, you can stop now.) Qwest's credit ratings are cut to "junk" status by Standard & Poor's.
JUNE 2002 Qwest's chief executive officer, Joe Nacchio, leaves (it remains unclear whether he resigned or was sacked). U.S. Department of Justice launches criminal investigation into Qwest. Two possible targets: accounting practices, and $300 million worth of stocks and options sold by Nacchio. The U.S. General Services Administration announces a review of all federal contracts with Qwest.
JULY 2002. Wall Street Journal reports that Qwest may restate financial results for 2001, possibly cutting revenue by $1 billion. --Jessica Etheridge