Baby Bell Qwest Communications (NYSE:Q) and back-from-the-dead telecom fraudster MCI announced a pact on Monday that will give the former some guaranteed revenue and the latter access to local phone lines in 14 states.
This deal likely will become the precedent for deals between the Baby Bells (Qwest, Verizon (NYSE:VZ), SBC (NYSE:SBC), and BellSouth (NYSE:BLS)) and non-Bell telecoms. And that will have a direct impact on consumers' phone bills. So while trying to understand the workings of the telecom business gives me migraines, this is significant, folks. So let's run the gauntlet of the details together.
Start with "UNE-P." You remember this one, right? The Telecom Act of 1996 set up this system that said the Bells could sell long-distance service if, in return, they agreed to lease their local phone lines to competitors such as the big long-distance telecoms (AT&T (NYSE:T), MCI, Sprint (NYSE:FON), etc.) and "competitive local exchange carriers" (CLECs) such as Talk America (NASDAQ:TALK).
Heedless of the consequences (or perhaps with malice aforethought?), the Bells agreed to these terms. State regulators then quickly saddled them with maximum wholesale rates that they could charge the lessees of their local lines. No sooner did the Bells get what they wanted -- the right to sell long distance -- than they began complaining that the wholesale rates were too low and needed to be raised.
Lawsuits quickly ensued, and while the battle seesawed back and forth, at last count the Bells were winning. The CLECs and "real" long-distance telecoms were faced with the choices of either (a) appealing the latest court verdict, (b) hoping to get bailed out by the FCC, or (c) negotiating with their adversaries for fair rates for local access.
Most of the long-distance telecoms and CLECs are currently engaged in (c), but simultaneously contemplating (a) and hoping for (b). MCI is the first company to successfully conclude an agreement through (c).
That agreement, according to the terms released on Monday, has MCI agreeing to start paying gradually higher rates to lease local lines from Qwest, starting in 2005. In only two years' time, MCI will already be paying $5 more per month, per line, than it does now.
But don't cry for MCI. They won't really be paying the extra $5. We will.
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Fool contributor Rich Smith owns shares in SBC, but not in the other companies mentioned in this article.
