FCC Hails Covad, Qwest Deal

The Federal Communications Commission (FCC) yesterday praised a line-sharing agreement between Covad Communications Group Inc. (OTCBB: COVD) and Qwest Communications International Inc. (NYSE: Q) as evidence that carriers can get along without a government mandate -- a view that supports the Commission’s controversial decision last year to eliminate mandatory line sharing (see Covad, Qwest Strike Deal and FCC Rules on Regulations).

The deal is the first of its kind since the Commission’s decision. It calls for Covad to continue offering DSL service over Qwest’s phone lines in seven states for three years. Financial terms of the agreement were not disclosed.

The FCC’s Triennial Review Order, issued in August, calls for a phase-out of mandatory line sharing, relying instead on market forces to shape such arrangements. “This agreement demonstrates that even without government compulsion, commercial arrangements negotiated in the market are possible," said FCC chairman Michael Powell, in a statement issued yesterday. "We hope this agreement will stimulate additional line sharing and unbundling arrangements, negotiated in the market.”

The FCC’s decision to eliminate mandatory line sharing last year raised concerns about whether consumers would receive an adequate choice of broadband service providers. FCC officials on Wednesday used the Covad-Qwest deal to dispel such notions.

“The line-sharing agreement announced today by Qwest and Covad is another encouraging sign that commercial negotiations can produce important pro-competitive and pro-consumer outcomes,” FCC commissioner Kathleen Abernathy said in a statement (see Covad Slams UNE-P Ruling). “Such agreements also eliminate the need for continued litigation over access obligations, and thus provide increased certainty to a turbulent marketplace.”

Interestingly, Qwest and Covad have done deals before, so their agreement may not be seen as typical in the broadband arms race. In June 2003, Covad paid Qwest $3.75 million in cash for about 23,000 of its out-of-region DSL customers. This released Qwest from an earlier contract that would have forced it to buy about $8.8 million worth of Covad services.

— Justin Hibbard, Senior Editor, Light Reading

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