Picking up the pieces

New Mexico Business Journal, Nov, 2000 by Ralph Odenwald

New Mexico's new telecom companies, Qwest and Valor, have ruefully discovered that their predecessors left them a big mess. They've pledged major improvements.

Technology continues to drive rapid changes on New Mexico's telecommunications scene, but the big telecom news in 2000 came from the industry's business side. Qwest and Valor Telecom replaced US West and GTE, the 800 - and 400-pound gorillas of New Mexico telecommunications (once known as phone companies) firms. After receiving FCC approval, Qwest merged with US West and took over its entire 14-state operation on June 30 of this year. Valor, a new company which numbers among its primary investors several prominent New Mexico businessmen and civic leaders, purchased all of GTE's New Mexico local telephone operations, along with lines in Texas and Oklahoma, and officially began serving New Mexico customers on September 1.

Qwest, of course, will continue to serve the lion's share of the state's customers, including the greater Albuquerque area, Santa Fe, and Las Cruces. Valor's customers lie in three primary clusters: the southeast area including Hobbs, Carlsbad, and Lovington; south central which includes Truth or Consequences and Ruidoso; and the area from Espanola north to the Colorado border. The rest of the state's telephone services are supplied by small independent companies, some co-ops and some privately owned.

Qwest and Valor inherit a legacy of customer complaints and hostile relations with state regulators, and shedding that legacy is the top priority for both companies. The two companies have also discovered that they have inherited seriously substandard infrastructures in dire need of upgrade and repair, a fact which comes as no surprise to their customers and competitors; both Qwest and Valor say that they have already taken the first steps in what will be enormously expensive projects to bring that infrastructure up to date.

The 2000 Legislature passed and Governor Johnson signed into law House Bill 400 , which provided for alternative forms of regulation (AFOR) for US West and GTE. The legislation did not affect the regulatory practice for other telecommunications companies. Previously rates of return for the two large providers were based upon their investments in the state. US West had long sought an end to the rate-of-return formula, which had led to a rate reduction in 1999 based on $26 million in excess earnings and a rate reduction in 2000 based on another $29 million in excess earnings after bitter legal battles. Qwest inherited another even larger rate case against US West, as well as a dozen other cases in various stages of the appeal process, which are still pending.

The new law directs the Public Regulation Commission to institute a plan by April of 2001 to eliminate this structure, according to Bill Pope, chairman of the PRC. The new law also directs the commission to promulgate rules for customer protection, investment in New Mexico by the incumbents, and rules of connection for competitors.

In Some Areas Not Even a Dialtone

Duffy Swann, vice president in charge of Valor's New Mexico operations, says the company has found that only 14 of their 37 exchanges were equipped with advanced services such as call waiting, three-way calling, and caller ID. One of Valor's first orders of business is to get all offices equipped to provide those services, and the company has already begun deployment. In addition, they have identified three other major gaps in service. First, there are customers in remote areas--primarily in the Espanola area-who lack basic dialtone service, and Valor is trying to determine what it would take to serve these people.

Second, a number of offices around the state have either fiber or radio routes that are at full capacity. The company has already undertaken work to add capacity to those routes. Finally, under the terms of their AFOR agreement with state regulators which takes effect April 1, 2001, Valor has committed to provide DSL service to those exchanges with 5,000 or more access lines-Hobbs, Carlsbad, Lovington, Ruidoso, T or C and Espanola-within the next 24 months. In addition, it has agreed to do a feasibility study within 90 days of identification of any aggregation of 75 lines seeking DSL broadband service and to provide the service within 18 months, if justified by the study.

"The AFOR plan that we agreed to and the PRC approved this year is our guiding document in New Mexico for the next five years," says Swann. "We have committed to invest certain amounts of money over that time. We have committed to deploy call centers, and we have committed in writing to a rigorous set of service and consumer protection standards that are among the highest in the nation. If we don't meet those investments, those quality of service standards, the deployment of new services, we pay certain penalties--credits back to customers."

Valor has already established two new company-wide call centers, one in Carlsbad and one in Espanola, adding another 150 New Mexico employees to the 85 the company inherited from GTE. Swann says, "We are creating a new culture in our organization that focuses on the employee. We think that if we do the right thing for our employees, they in turn will do the right thing for our customers."