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Feds OK Qwest, US West Marriage

Federal regulators have conditionally approved the $50 billion merger of Qwest Communications Inc. and regional Bell company US West Inc. Qwest will have to divest itself of its customers in the US West territory of 14 Western states.

The Federal Communications Commission gave conditional approval on a 5-0 vote.

The announcement comes after Deutsche Telekom AG abruptly ended talks to acquire the two Denver-based telecommunications companies.

The FCC said Qwest must give up about six percent of its long-distance customers, all of whom live in areas served by US West. Commissioners said they want full details of Qwest's plans to turn over those customers to another company before they finally approve the merger.

"Qwest's divestiture and the commission's approval must be completed prior to closing the merger," the FCC said in a statement.

Qwest on Thursday blamed US West for pushing away Deutsche Telekom. Although Qwest did not name Deutsche Telekom as the suitor, people familiar with the negotiations confirmed the German telephone company met with executives of both US West and Qwest to discuss a three-way deal.

CBS MarketWatch.com reports the carrier likely was seeking a much higher premium than Deutsche Telekom was willing to pay. US West also stated that it did not want to undergo yet another lengthy merger review process that would delay its marriage to Qwest. In addition, some of US West's large investors expressed concerns about becoming part of the German company.

US West's recalcitrance is clearly straining relations with Qwest, whose ardor for the Denver-based local phone company has cooled considerably since their merger was unveiled in mid-1999.

In a brief press release, Qwest Chairman Joseph Nacchio said: "We regret that US West apparently wouldn't even consider an alternative transaction involving a major telecommunications company and Qwest despite the possibility of greater value for US West shareholders."

US West, a Baby Bell, had said it would enter into an agreement with Deutsche Telekom only if it did not jeopardize or delay its merger with Qwest, and only if the new offer was equal to or better than the offer from Qwest.

FCC Chairman William Kennard, indicated earlier that federal approval of the Qwest-US West merger was imminent, provided the companies sell certain long-distance operations.

Deutsche Telekom refused to comment on what it called market rumors.

"We have several irons in the fire, but we never name names. But we are still continuing our path seeking internationalization partners. We are not under time pressure to do anything," spokesman Hans Ehnert said.

A call to a spokesman at US West was not immediately returned.

Qwest started negotiating with Deutsche Telekom weeks ago - behind the back of US West. Last week, US West executives threatened to sue Qwest if the company tried to back out of their dea.

The friction between Qwest and US West appeared to ease over the weekend after Qwest said it would agree to an offer only if it included US West.

But the hard line on negotiations with Deutsche Telekom increased the tension between US West and Qwest.

Nacchio said Friday US West's stand was "nothing short of amazing," adding that the events of the past few weeks were among "the most bizarre things that I have been through."

On the Web: Qwest's site at http://www.qwest.com; US West's site at http://www.uswest.com and Deutsche Telekom at http://www.telekom.de/americas/