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Qwest plays nice with Covad

The two companies agree to the first commercial line-sharing deal since the FCC said it was phasing out regulated pricing on the practice.

Qwest Communications International on Thursday announced the first commercial line-sharing agreement with a competitive DSL service provider since the Federal Communications Commission decided last summer to phase out its regulatory requirement of the practice.

Under the three-year agreement, Covad Communications will continue using Qwest's network to deliver broadband services within Qwest's local telephone region.

This is the first such agreement between an incumbent telephone company and a competitive service provider to be signed since the FCC's Triennial Review, which concluded that it would discontinue requiring the Baby Bells to share their lines with competitors.

Line sharing enables a company such as Covad to offer DSL (digital subscriber line) services over the same single home phone line that the local phone companies--BellSouth, Qwest, SBC Communications and Verizon Communications--use to provide voice service.

Before the FCC enforced the policy, most of the local phone companies required rivals to lease an entire second phone line to offer DSL service, substantially raising the overall cost of the high-speed Internet service. After years of squabbling at the federal and state levels, line sharing has been implemented in most markets throughout the United States, resulting in improved economics for companies such as Covad and the independent Internet service providers that rely on their DSL service.

Last summer, the FCC said enough competition existed from other technologies, such as cable and satellite, to phase out the line-sharing requirement. In March 2004, the U.S. Court of Appeals for the District of Columbia upheld the FCC's decision.

As a result, the Baby Bells are allowed to continue to increase rates for line sharing each year for three years, until the regulated rates for line sharing are completely eliminated. October 2004 marks the second year of the phaseout.

Covad and Qwest are the first two service providers to strike a commercial deal to replace the regulated line-sharing agreement.

"Today's agreement demonstrates that the economics of line sharing are beneficial to both parties and that commercial agreements can be negotiated for this service," Charles Hoffman, CEO of Covad, said in a statement. "We commend Qwest for its industry leadership in reaching this agreement, and we hope to achieve similar agreements that will allow Covad to continue offering line-shared DSL services throughout the country."

Financial terms of the deal weren't disclosed. However, Hoffman assured customers that the new agreement still enables Covad to aggressively compete in the Qwest region.

A Covad representative said the company hopes to strike similar deals with other regional Bell carriers.

FCC Chairman Michael Powell said Thursday that he hopes "this agreement will stimulate additional line sharing and unbundling arrangements, negotiated in the market." The remark came in a statement released by his office, in which he added, "I urge all carriers to take the necessary steps to ensure consumers...can enjoy the same benefits."