US West, Qwest Reach Proposed Deal
By HUNTER T. GEORGE
Associated Press Writer
Monday March 6, 9:23 pm Eastern Time
OLYMPIA, Wash. (AP) -- To win approval of their merger, U S West and Qwest Communications International reached a proposed settlement with state officials that would freeze phone rates until 2004 and establish financial incentives for quality control.
The agreement announced Monday, which needs approval by Washington's three-member regulatory commission, requires the merged company to improve the state's telecommunications network and to meet certain quality standards or else pay customers as much as $20 million a year.
The settlement comes a day after Qwest acknowledged talks with Deutsche Telekom of Germany about a deal to acquire both Qwest and U S West.
Qwest, which agreed in July to acquire U S West for stock now worth $56 billion, issued a statement Sunday night confirming the discussions without naming the company, which is reportedly Germany-based Deutsche Telekom AG.
U S West, which was kept in the dark about the negotiations, threatened Friday to sue Qwest if the company backed out of its contract. The fact that Qwest was discussing a deal with another company raises questions about whether Qwest breached its agreement with U S West.
``We have recently been informed that Qwest has had conversations with a major telecommunications company,' U S West General Counsel Mark Roellig said in a statement Sunday night. ``As we indicated last week, these conversations were conducted without our approval and we do not have any knowledge of the status or substance of the conversations.'
Deutsche Telekom would not comment Monday on the developments between Qwest and U S West, nor on whether it was in talks with Qwest.
But over the weekend, chief executive Ron Sommer said in an interview with Germany's Die Welt newspaper that his company is planning a takeover soon and isn't ruling out a big acquisition. He also reiterated that the U.S. market is very important for Deutsche Telekom.
Qwest's statement Sunday said Denver billionaire Philip Anschutz, Qwest's principal shareholder, would support transactions with the major telecommunications company.
Qwest Chairman Joseph Nacchio has been quoted in recent newspaper stories saying the deal with U S West might not be completed. He has also expressed concern about U S West's conflicts with regulators in some of its 14-state territory, including Colorado where it was ordered to refund $12.77 million to phone customers for service-quality violations.
U S West has said it will fight the order.
Nacchio, though, said Sunday that the merger agreement with U S West is still in place and Qwest will not enter into any transaction with the other company ``unless U S West reaches an agreement with that company for the acquisition of U S West on terms acceptable to it.'
U S West remains committed to completing the merger with Qwest, Roellig said.
When U S West and Qwest first announced their deal in July, they promised to create a powerful communications company with customers in 14 states, and an aggressive Internet strategy.
Indeed, Nacchio wanted to acquire U S West so badly that he launched a hostile bidding war to break up a merger agreement between U S West and Global Crossing Ltd., a Bermuda-based company building an undersea fiber-optic cable network.
In a memo to employees Friday, U S West chairman, Solomon Trujillo, ``pledged to fight for the interests of employees and shareholders.'
Trujillo said last week that he would resign from the company after the merger with Qwest closed.
Shares of U S West were down 25 cents at $74.87 1/2 at 4:30 p.m. on the New York Stock Exchange, where Qwest's stock was down $4 at $60. Deutsche Telekom's shares were up 50 cents at $99.12 1/2.
U S West is Washington state's largest local telephone carrier, serving 3 million residential and business phone lines. Qwest, also based in Denver, is the nation's fourth-largest long-distance carrier.
Hearings on the settlement with Washington are set for next month around the state, after which the Washington Utilities and Transportation Commission will consider whether to approve the deal.
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