September 11, 2002, 10:01 AM — Qwest Communications International Inc., already the target of a government probe into its accounting practices, was hit by another setback on Tuesday when it said it would withdraw applications filed earlier this year with the U.S. Federal Communications Commission (FCC) to enter the long-distance market in nine U.S. states.
Qwest announced in a press release Tuesday the withdrawal of its applications to provide long-distance services in Colorado, Washington, Utah, Idaho, Iowa, Nebraska, North Dakota, Montana and Wyoming. The company plans to refile applications for all nine states by the end of the month, the release said.
The FCC said in a statement that it could not approve applications that do not satisfy all the requirements of the Telecommunications Act of 1996. According to the statement, questions arose over Qwest's compliance with a section of the law that governs how a long-distance affiliate of a regional Bell operating company (RBOC) operates.
Qwest's applications were "razor-close" to being approved, FCC Chairman Michael Powell said in the FCC statement. Powell also is quoted as saying he is confident Qwest will resolve the issues that prevented approval.
"Ultimately, the outstanding issues were very narrow, but nonetheless important," Powell was quoted as saying.
Specifically, these issues are tied to the company's accounting practices, a subject in which the government has taken greater interest in the wake of scandals involving Enron Corp. and WorldCom Inc., both of which are being investigated for accounting irregularities.
The FCC raised questions about Qwest's plans to restate some of its financial statements, according to Qwest's release. Section 272 of the 1996 Act requires a local phone company's long-distance affiliate to maintain its books "in the manner prescribed by the commission," and the FCC has chosen to prescribe generally accepted accounting principles (GAAP) as the appropriate way of maintaining such books, records and accounts, Qwest said.
Qwest's new application will address those concerns and demonstrate full compliance with the 1996 Act, Steve Davis, Qwest senior vice president of policy and law, said in the statement.
Qwest is the only RBOC yet to win any long-distance approval from the FCC. It faces a probe by the U.S. Securities and Exchange Commission (SEC) into whether it misleadingly inflated revenue in 2000 and 2001. The company also is under suspicion of striking secret deals with competitors that agreed not to oppose Qwest's rapid expansion.
In August, Qwest declined to confirm a report that it had entered settlement talks with the SEC.