The Empire Strikes Back

US West is squeezing state legislators, but it's Colorado customers who may be gasping for breath.

Last year more than 40,000 Coloradans faced delays in getting new telephone service, and frustration with US West became front-page news all over the state. Adding fuel to the fire were revelations that US West routinely lied about installation dates -- a policy dubbed "customer not educated" -- and ranked every neighborhood in Colorado as "gold, silver, or bronze" based on income, instructing employees to give priority to the "gold" districts.

Last month the state Public Utilities Commission ordered the phone company to refund $12.8 million to customers to compensate for poor service, a penalty many believe is too small given the abysmal service record.

But the public's anger seems to have gone unnoticed at the Colorado Legislature, where a bill being considered would gut the state's authority to regulate US West and leave Coloradans at the mercy of the monopoly phone carrier. A companion bill would also effectively silence the state's lone advocate for consumers.

Taking on the big boys: Chuck Malick believes that deregulating telecommunications will hurt consumers.
David Rehor
Taking on the big boys: Chuck Malick believes that deregulating telecommunications will hurt consumers.

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Both bills have a good chance of passing, thanks to a massive lobbying campaign. A blizzard of campaign contributions to Colorado legislators from US West won't hurt the cause, either.

The bill to deregulate US West is being sponsored by Senator Ken Chlouber, a Leadville Republican. His bill would deregulate almost all telephone services in Colorado on July 1, 2003, allowing US West to set its own rates, even if there is no competition in place. The only thing still regulated would be the first line for local service into a home or business, but everything else -- including additional lines, in-state long distance, directory assistance, call waiting, call forwarding and high-speed Internet access -- would be free of all regulation. The legislation would also likely make it impossible for the PUC to fine US West as it did last year.

Since a majority of Coloradans are not expected to have an alternative to US West three years from now (since US West owns the only infrastructure currently in place), the bill would let the phone company have its way with Colorado consumers. As written, the legislation could even drive some of the companies now trying to compete with US West out of Colorado.

"This is the most devastating piece of legislation we've faced in all 21 states we operate in," says Bill Courter, vice president for public policy at McLeod USA. "Consumers should be outraged about this."

McLeod leases space on US West's Centrex system and resells it to residential and business customers. Under the bill, US West would no longer be required to lease out any of its Centrex equipment, allowing the company to force McLeod out of the Colorado market, since it would have no other infrastructure on which to sell service.

Courter says he's flabbergasted that the bill is being seriously considered. The legislation cleared the Senate's Business Affairs and Labor committee by a 7-2 vote last week and now goes to the full Senate. "Every day for the past few months, there have been complaints filed by consumers about US West's poor service," he says. "What will it be like if there's nobody with the ability to monitor their customer service?"

Several other US West competitors, including MCI Worldcom, AT&T, Next Link and ICG Communications, are meeting to plan their fight against the legislation.

"This would make it very difficult for us to compete," says Carolyn Berthelette of MCI Worldcom. "We'd be facing an unregulated monopoly. When you're trying to transition from a monopoly to a competitive environment is exactly the time when you need regulation."

US West is trying to get deregulated in almost every state it serves. Just last week the company announced it would sponsor a ballot initiative in Arizona to try to change state law. And last year it succeeded in convincing the New Mexico Legislature to endorse its deregulation plan, getting it through that state's Senate by one vote.

In New Mexico, both sides took to the airwaves, launching ad campaigns to win public support. Every newspaper in the state editorialized against the proposal, but a combination of US West political contributions and an unprecedented lobbying campaign helped get the bill passed. Following a public outcry and predictions that companies like MCI Worldcom would leave the state, New Mexico governor Gary Johnson vetoed the legislation.

Now Colorado -- US West's corporate headquarters -- will be the next battleground over the future of telecommunications.

Chlouber claims his bill will jump-start competition in Colorado telecommunications, even in places like Leadville that are usually last on the list of places where telecom companies want to invest. "We want to deregulate the industry and move toward effective competition," he says. "Everybody should be on notice that three and a half years from now, we're going to have a deregulated market. That should light a fire under everybody."

Until now, the only real competition has been in business districts along the Front Range. Companies such as AT&T and MCI Worldcom have installed their own fiber-optic networks in downtown Denver and the Denver Tech Center, allowing them to reach lucrative corporate customers. According to Chlouber, freeing US West from regulation will bring this competitive environment into the state's more remote spots.

"What I'm hopeful will come of this is that if US West is deregulated and they get their Federal Communications Commission approval to offer long distance, they'll be able to offer one-stop shopping for everything. If that occurs, then the other companies will have to expand into rural Colorado. They'd lose the long-distance service to US West if they didn't offer local service in Leadville."

But that's about as likely as somebody offering telephone service to the moon, say consumer advocates. Indeed, rural Coloradans are more likely than anyone else to be hurt by Chlouber's bill, says Chuck Malick of the Colorado Public Interest Research Group. "We already have a phone monopoly here with one of the absolute worst records for service. This bill takes away the PUC's authority over them. A lot of people will see quality of service get worse, especially in rural areas."

Today phone carriers that serve rural Colorado are required to offer many of the same services available in urban areas, but that requirement would disappear under the proposed bill.

US West insists that the current situation is unfair since the telephone company must serve most of the state while its competitors can focus on highly lucrative business centers along the Front Range. "We see it [the bill] as the best way to bring competition to all consumers," says US West spokeswoman Anna Osborn. "As we're moving into a competitive marketplace, we need to get to a place where everyone is playing by the same set of rules. Right now US West is playing by one set of rules, and everyone else plays by no rules."

As it is now, Colorado law is designed to phase in competition in the telecom industry. Because US West has had monopoly power for so long, the PUC regulates some of its rates, even when there is competition, in an effort to prevent the company from targeting its upstart competitors and slashing its rates just long enough to drive them out of business. Several companies that offer high-speed Internet access fear this could happen under the new law.

"They could do whatever they want with the pricing of their retail service," says Eric Geis, vice president of Rhythms NetConnections, a local company that provides high-speed Internet access. "After they've wiped out everybody else, they can go back to their normal state and say, 'We're the only supplier in town, and you have to buy from us.'"

However, US West believes the PUC's efforts to protect small entrants into the telephone marketplace put Colorado's longtime monopoly phone carrier at a competitive disadvantage, taking away its most lucrative customers. "Since the Federal Telecommunications Act was passed in 1996, we've spent $1.5 billion to open up our network to competition," Osborn insists.

Geis says that in a normal industry, deregulation would free up competition and benefit consumers. But in most of Colorado, US West is still the monopoly provider, and most of its competitors have no choice but to tie in to US West's network. Rhythms has to contract with US West for several different services, and Geis says that without PUC oversight, his company could easily be harmed by its far larger competitor.

"In a natural market order, deregulation would work, but when the only player in town is a monopoly, you can't remove the rules that make sure they play fair," says Geis.

Chlouber is also sponsoring a bill that would destroy the state's Office of Consumer Counsel, a small agency that is charged with representing the interests of consumers in utility cases. The OCC has been highly critical of US West's service record and is frequently quoted in news reports. Under Chlouber's legislation, the agency would be replaced with a consumer advocate who would report to the PUC and would not be allowed to publicly challenge US West.

"What I'm trying to do is change a very expensive office that could better serve the people of Colorado," claims Chlouber.

Others say Chlouber is simply trying to get rid of the one state agency willing to go after a company as powerful as US West. "The OCC takes on the big boys," says Malick. "It's not an agency set up to make them happy. The last few years, they've taken on US West. They represent consumers, and people listen to them."

If state lawmakers do decide to grease the skids for US West, it may be because the telephone company has provided the political lube that gets things done. Last summer a Colorado judge ruled unconstitutional the campaign-contribution limits state voters approved three years ago, and US West has taken advantage of the situation.

Chlouber, who is the assistant majority leader in the state Senate, is a good example of US West's generosity. In the past few months he's collected $500 from the company's political action committee; $500 from the Colorado Telecommunications Association, which counts US West as its largest member; $250 from former US West chairman Dick McCormick; $250 from US West vice president for Colorado Kevin Smith; and $200 from US West lobbyist Steve Durham. Dozens of other legislators have also received large contributions from US West or its executives and lobbyists. (The phone company also gave $10,400 to Governor Bill Owens, including $10,000 to buy a table at a December party celebrating the anniversary of Owens's inauguration and $400 at a fundraiser/birthday bash for the governor last October. So far, Owens hasn't taken a position on the two bills.)

"US West is everywhere when it comes to making big contributions to key politicians," says Pete Maysmith of Colorado Common Cause, a group that works for campaign-finance reform. "They've been incredibly active." The bills now moving through the legislature are proof of the power of those contributions, he adds. "Wealthy special interests dictate what legislation moves and what legislation doesn't move. This may well be an example of that."

McLeod is building its own independent system in Colorado Springs, but right now, it's still dependent on US West's Centrex system to provide service to its customers. And according to Courter, McLeod has faced the same frustrations in its dealings with US West as individual telephone customers all over the state.

"The US West customer reps tell us: 'We provide crappy service to our own customers. Why should we provide better service to you?'" he says.

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