Qwest, CenturyLink Merge, Create Even Bigger Marginally-Relevant USF Money Pit
from the bigger-does-not-mean-better dept
Qwest was founded in 1996 by Philip Anschutz, who at the time owned the Southern Pacific Railroad and used the opportunity to deploy fiber lines along railroad tracks. It seems like only yesterday that Qwest paid $45 billion to acquire US West in 2000, one of seven baby bells created by the antitrust breakup of AT&T in 1983. Since then, Qwest has stumbled through accounting scandals and watched its stock plummet as the carrier struggled with traditional voice defections without a wireless division to buoy revenues. Meanwhile, it almost was yesterday that CenturyTel merged with Embarq to create "CenturyLink." This morning Qwest and CenturyLink announced they in turn would be merging in a deal worth $22.4 billion (including $11.8 billion in Qwest debt).
At first glimpse it’s not entirely clear what the point of the merger is, unless the two companies were simply interested in losing landline and last-generation DSL customers to cable competitors even faster. Neither company has exactly been lighting it up on the network upgrade front — and Qwest has spent most of the last few years trying to trim debt for an acquisition instead of investing back into the network. The result is a company with aging last-mile infrastructure who (in the markets where it actually sees competition) pits slower DSL against faster alternatives like cable DOCSIS 3.0 technology or community fiber (which they have spent millions suing and fighting in Utah and Washington State).
Creating a larger company doesn’t magically spawn a wireless division, and the company is still going to need substantially more cash to upgrade all of that outdated copper if they want to stay relevant. They may be thinking that by merging they can create a "too big to fail" super-rural telco with a better shot of getting USF and stimulus funds. As we’ve long noted, the USF is a very, very broken program that funnels money to carriers with historically little to no oversight into how that money is spent (and $25 billion has been dumped into e-Rate alone since 1998). Qwest recently applied for $350 million in federal stimulus funds, and lobbyists have been pushing the FCC to expand the USF to cover residential broadband and give more of that money to bigger carriers.
So the result will be a new, massive phone company primarily serving uncompetitive, rural markets using outdated last mile connections, with consumers helped through this transition via a support infrastructure that just grew incredibly fast. All of this will be propped up by the historically-broken (but soon to be supposedly "reformed") USF system and taxpayer subsidy, guided by Qwest lobbyists and an FCC with no real interest in improving competition in the sector. Surely this will turn out well for everybody involved, right?