Colorado Misses the Call

For Sol Trujillo, these are the best of times.

Granted, he's now out of a job. But with unemployment benefits like these, losing your job is even better than winning the lottery: Two weeks ago, Trujillo filed notice of his intent to sell 354,740 shares of US West stock, which had been trading at more than $89 a share. That means Trujillo, the former chairman and CEO of the company, pocketed more than $31.5 million before he even cleared out his desk.

Under the terms of his contract with US West, Trujillo will be entitled to millions more now that the company's merger with Denver's Qwest Communications International has closed. Trujillo could bag as much as $100 million as a result of lump-sum payments, bonuses, additional stock options, and a smorgasbord of other benefits that make the Colorado Lottery jackpot look like servant's rations.

Of course, service is a delicate topic at US West headquarters. While the telephone company's executives can look forward to warm days on the golf links, its customers have had to endure some of the worst service in the country. Thousands of Coloradans have experienced long delays in getting telephone lines, and the company has faced intense criticism in every state it operates in. From Oregon to Iowa, the company is often mocked as "US Worst."

So while Trujillo was busy counting his stock options, US West officials were pacing the floors over the last few months, anxiously waiting for regulatory bodies in eight of US West's fourteen states to approve the merger with Qwest. In hearing rooms in places like Olympia, Washington, and St. Paul, Minnesota, US West was forced to prove what benefit the merger would offer to local consumers. In return for signing off on the deal, seven of these states demanded that the two companies provide guarantees of better service, with substantial penalties if the new company (to be known as Qwest) fails to deliver.

Before the deal closed on Friday, all seven received binding commitments from US West/Qwest to turn things around.

For instance, Arizona -- which on June 23 became the last state to approve the merger -- won a promise of $400 million in annual investments in that state's telephone network, with 12 percent of that devoted to rural areas.

But in Colorado -- the center of operations for both companies -- the story was different. Here, a stony-faced Raymond Gifford, chairman of the Public Utilities Commission (PUC), scoffed at the idea that the state should make any demands at all on the merging companies. And to the disappointment of many, in his ruling on the matter in January, Gifford described the notion of attaching conditions to the merger as a "shakedown."

A Republican who was appointed to the commission by Governor Bill Owens last year, Gifford insisted that Colorado place no conditions on US West/Qwest, which, despite fledgling attempts by other providers to compete, will continue to be the monopoly telephone provider for the large majority of Coloradans. He was supported by one of the other two commissioners, and the decision was approved 2-1.

"The most spectacular instance of complete regulatory caprice is when mergers happen," Gifford says. "It strikes me as a bad way to regulate."

There's a reason why so many of the states served by US West took a tough stance on approving the merger. US West customers have complained bitterly about the company for years, and regulators have often felt helpless in trying to pressure the company to change.

Colorado's experience is typical. As the state's population began to rapidly climb in the mid-'90s, US West fell further and further behind in wiring the new subdivisions that sprang up from Colorado Springs to Fort Collins. Thousands of homeowners had to wait months for a new line, and complaints about US West became common fare in newspapers, on television and at PUC hearings.

Many people were perplexed by the company's consistent failure to meet service goals. Since US West was a regulated utility with profits guaranteed by the PUC, it seemed like there should be abundant funds available for the telephone network.

Their questions about where the money had gone were answered last year, however, when the merger announcement was made. US West had apparently diverted much of that cash into the creation of high-speed Internet lines in urban areas, as well as other high-tech ventures, in order to make itself a more attractive merger partner ("Bells Are Ringing," August 12, 1999). By doing this, US West was able to recast its image from dowdy, old-economy utility to hip, new-economy Internet provider. The strategy paid off for US West shareholders when Qwest signed off on the $47 billion merger last summer.

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Stuart Steers
Contact: Stuart Steers