To: Editors, News Directors

Date: April 22, 2004

For: Immediate Release

Qwest Hit with $20.7 Million in Fines,
Penalties & Credits to Competitors
Decision Ends 3 Investigations, Qwest Agrees Not to Appeal

PHOENIX – Following through on their promise to hold Qwest accountable for what an administrative law judge determined were "willful and intentional violations" of regulations designed to create a level playing field for telephone competition, Arizona Corporation Commissioners sanctioned Qwest for a total of $20 million.

The Commission decision finds that Qwest willfully and intentionally violated state and federal regulations requiring state approval of interconnection agreements between owners of a phone network and companies that intend to lease those phone lines. Qwest entered into agreements with Eschelon and McLeod but did not file those agreements with the Commission. In addition, Qwest gave these two competitors favorable terms that were not made available to other similarly situated companies. State and federal regulations require that other companies be allowed to "opt in" to provisions of other agreements.

Specific terms of the Eschelon and McLeod agreements also prohibited Qwest’s competitors from fully and openly participating in the Commission’s investigation into whether Qwest should be allowed to offer long-distance service in Arizona.

Qwest last week submitted a new proposed settlement with its competitors. Part of that agreement was declared confidential. The Commissioners did not rule on that settlement, opting instead to adopt only the calculations of credits to competitors.

Commissioner Kristin Mayes questioned Qwest attorneys and executives about the confidential portions of the new April 2004 proposal.

"I find it totally inappropriate to have an agreement that’s shrouded in secrecy when secrecy was the root of the problem to begin with," Mayes said.

Qwest attorneys have since tried to secure the release of the information if the competitors will permit the disclosure of the data.

A separate Commission investigation launched in 2002 dealt with Qwest’s delay in implementing new, lower wholesale telephone rates. These are the specific prices that competitors are charged if they use parts of the network that Qwest owns and maintains.

The Commission learned some six months later that competitors were still being charged the old rates. Qwest contended that there were simply too many individual pricing elements to implement the Commission’s 2002 "immediately," as required by the Commission order. Qwest never indicated to the Commission or Qwest’s competitors that there would be such a long implementation delay.

"The Commission’s actions have brought justice to everyone involved. Qwest locked its competitors out of the Arizona market by thumbing its nose at the Commission’s order to lower rates. Competitors overcharged by Qwest are now being compensated," Commissioner Jeff Hatch-Miller explained.

All five Commissioners agreed that major management changes at Qwest have led to important, positive changes in the company’s relationships with regulators and consumers. This enforcement action contains several conditions that Qwest will have to meet to ensure that the company is complying with the principles of fairness and openness.

The Commission adopted a slightly lower fine after Qwest’s Arizona President, Patrick Quinn, agreed not to appeal the decision.

Commissioner Bill Mundell said, "Because Qwest’s actions were anti-competitive, anti-consumer and made a mockery of the rule of law, a finding that Qwest willfully and intentionally violated the law was necessary to restore integrity to the process."

"It comes down to this: $9 million in the bank is worth more than $11 million on appeal for the next two decades," Commission Chairman Marc Spitzer said. "The state would spend valuable staff time on court filings instead of protecting the interests of consumers and Qwest’s competitors would be forced to ratchet up high legal bills. This gives the appropriate finality to the entire matter."

The Commission ordered the following in credits to competitors, fines and penalties:

• $11,650,000 in payments or credits to eligible CLECs (competitive local exchange carriers). A list of eligible CLECs and the credit or payment amounts will be submitted to the Commission’s staff for review and verification.
• $8,767,000 in administrative penalties "on account of its intentional and willful violation of Section 252 of the 1996 [Federal Telecommunications] Act," and various Arizona laws and rules. The payments must be made to the state general fund within 30 days of the effective date of the Commission’s order.
• $47,000 for failing to file numerous other interconnection agreements for Commission review as required by state and federal regulations;
• $189,000 for delaying the implementation of the new, lower wholesale telephone rates as ordered by Commission decision 64922 (June 12, 2002).

This is believed to be the highest fine and penalty ever handed down by the Arizona Corporation Commission.

The final order will be posted on the Commission’s website under Hot Topics/Qwest Enforcement Docket (www.cc.state.az.us) once all of the amendments have been incorporated and after all of the Commissioners can sign the official copy. The order should be posted on the website by early May.