Attachment BBIFNA-Q7-2 Page 226 of 294

Arizona

Docket No. T-OI051B-99-0497 Exhibit _(RCS-1) STF 01-011 Attachment 10 Page-Lotl_

INTERVENOR: Arizona Corporation Commission Staff

REQUEST NO: 011

Provide the bond ratings for each outstanding debt and preferred stock issuance of Qwest, Inc. and any of its subsidiaries given by Moody's and Standard and Poors.

RESPONSE:

Below is a schedule listing the current bond ratings for Qwest from Moody's and Standard and Poors.

Moody's

3/97 B2 BB-

6/98 Ba1 BE+ (upgraded)

There has been no change in Qwest's credit rating since June 1998.

Mark Evans Senior Director, corporate Finance Qwest Attachment BBIFNA-Q7-2 Page 227 of 294

Arizona No. Docket T-OIOSIB-99-0497 Exhibit_(RCS.l) STF 01-012 Attachment dQ Page _, Of.J...

INTERVENO.R ; Arizona Corporation Commission staff

REQUEST NO: 012

Provide the bond ratings for each outstanding debt and preferred stock issuance of U S WEST, Inc. and any of its subsidiaries (including USWC) given by Moody's and Standard and Poors.

RESPONSE:

U S WEST, Inc. & Subsidiary Debt Ratings Moody's and Standard & Poor's Current Rating: i: ENTITY Moody's Bond Rating S&P Bond Rating

U S WEST, Inc. (No Debt at Parent Company)

U S WEST, Inc. subsidiary Long··Term Debt Rating

Capital Funding Inc. Baal A-

U S WEST Communications, Inc. A2 A+

John Morse Manager U S WEST Attachment BBIFNA-Q7-2 Page 228 of 294

Arizona Docket No. T-01051B-99-0497 STF 05-114 Exhibit _(RC~·1) AttachmentB Page_I of-L

INTERVENOR: Arizona Corporation Commission Staff

REQUEST NO: 114

Explain in detail the procedures used by Qwest to allocate costs between intrastate and interstate operations.

RESPONSE:

Currently, Qwest is a non-regulated entity and is not required to allocate costs between intrastate and interstate operations. Accordingly, Qwest does not allocate costs between intrastate and interstate operations.

Respondent: James Kozlowski, Senior Director of Accounting and Reporting - Qwest Attachment BBIFNA-Q7-2 Page 229 of 294

Arizona Docket No. T-OI051B-99-0497 STF 05-115 Exhibit _(ReS.1) Attachment .J:J:: Page _,_ of_'

INTERVENOR: Arizona Corporation commission Staff

REQUEST NO: 115

Explain in detail the procedures used by Qwest to allocate costs between regulated and nonregulated operations.

RESPONSE:

Please see Qwest's response to Staff's data request no. 05-114. Qwest does not allocate costs between regulated and nonregulated operations.

Respondent: James Kozlowski, Senior Director of Accounting and Reporting - ,,' Qwest Attachment BBIFNA-Q7-2 Page 230 of 294

Arizona Docket No. T-OI051B-99-0497 STF 04-085 Exhibit _(Res·,) Attachment cZS3 Page _,_ of -.L

INTERVENOR: Arizona Corporation Commission Staff

REQUEST NO: 085

with respect to U S West's response to information requests STF-1-47, please specify precisely which merger costs, in U S West's opinion are "permitted by law" to be "charged to U S West customers"?

RESPONSE:

Notwithstanding the merger transaction costs permitted by law, to the extent any merger transaction costs make it onto the books of U S WEST Communications, such costs will be "below the line". In other words, such costs will be excluded from ratemaking proceedings.

Respondent: Kevin Mammel, Manager, U S WEST Attachment BBIFNA-Q7-2 Page 231 of 294

Attachment 24, page 1 of 1 is marked confidential Attachment BBIFNA-Q7-2 Page 232 of 294

Arizona Docket No. T-01051B-99-0497 Exhibit _(RCS.l) STF 02-068 Attachment -&;? Page-i..of...... L

INTERVENOR: Arizona corporation Commission Staff

REQUEST NO; 068

Provide the specific accounts and amounts used to reflect the $280 million charge against U S WEST's earnings relating to the termination of the merger between U S WEST and Global Crossing.

a. Please identify how much of such charge will be recorded by USWC and how much will be allocated to Arizona.

RESPONSE:

::: The $280 million termination fee was recorded on U S WEST, Inc.' s July 1999 books as a charge to other operating expense. The charge was excluded from U S WEST Communications books.

Respondent: Kevin Mammel, Manager, U S WEST Communications Attachment BBIFNA-Q7-2 Page 233 of 294

Attachment 26, page 1 of 1 is marked confidential Attachment BBIFNA-Q7-2 Page 234 of 294

Arizona

Docket No. T-010S1B-99-0497 Exhibit _(RCS-1) STF 04-101 Attachment ,;;[1 Page-Lof~

INTERVENOR: Arizona Corporation Commission Staff

REQUEST NO: 101

Referring to pages II-13 and II-14 of the "Chapter Two - Financial Informationfl attached to Mr. Gallant's written testimony, note 5 addresses the amortization period for goodwill resulting from the merger and indicates that:

"Qwest expects the amount of excess consideration allocated to goodwill to be amortized over 40 years. Qwest has been informed by the Office of the Chief Accountant of the SEC that it believes that the expiration of goodwill associated with a telecommunications merger could occur sooner than 40 years.

: : The SEC believes a more reasonable period would be 20 to 25 years. /I

The footnote also states that:

"The factors considered in determining the appropriate amortization period included the expected fife of the associated technology, legal and regulatory issues, future changes in technology, anticipated market demand and competition./1

Please provide the following:

a. Has Qwest received any opinion or guidance from its independent auditors concerning the appropriate amortization period for the amount of goodwill estimated to result from the merger? If so, please describe that opinion and guidance.

b. What was the expected life of the associated technology, as considerea by Qwest? Describe fully and provide quantitative details.

c. Describe in detail the legal and regulatory issues that were considered by Qwest in deriving its goodwill amortization period of 40 years.

d. Describe in detail the future changes in technology that were cons 3ered by Qwest in deriving its goodwill amortization period of 40 years.

e. Describe in detail the anticipated market demand and competition that was considered by Qwest in deriving its goodwill amortization period of 40 yearS.

RESPONSE:

Qwest and U S WEST object to this request on the ground thac it seeks highly confidential and/or proprietary information. Subject to and without waiving Attachment BBIFNA-Q7-2 Page 235 of 294 Exhibil_(RCS_1 ) Altachment:;r] Page .2::or7:F_ this objection, Qwest states: a.-e. Goodwill amortization is expensed at the parent-company level and is not allocated to U S WEST Communications, Inc. Therefore, goodwill amortization, regardless of the amortization period utilized, will not be passed on to Arizona ratepayers.

Qwest continues to believe that consideration allocated to goodwill has an indeterminate life and, accordingly, goodwill should be amortized over the maximum period of 40 years as prescribed under generally accepted accounting principles. Qwest's 40-year goodwill amortization period position is consistent with those of other companies in significant telecommunications mergers in the last two years, including AT&T/TCI, MCI/WorldCom,.GTE/Eell Atlantic and Vodaphone/AirTouch. Qwest did consult with its auditor, Arthur Andersen, as to the use of the 40-year period, and Arthur Andersen did not take exception to the use of this period.

RESPONDENT: Frank Noyes, Senior Manager, Financial Reporting, Qwest Attachment BBIFNA-Q7-2 Page 236 of 294

Arizona Docket No. T-01051B-99-0497 Exhibit _(RCS-1) Attachment~ STF 05-113 Page --L of -L

INTERVENOR: Arizona Corporation Commission Staff

REQUEST NO: 113

Explain in detail the system of accounts, including the account numbering system, used by Qwest.

RESPONSE:

Currently, Qwest is a public, non-regulated entity and follows generally accepted ac.counting principles (\\GAAPII) in systematizing its accounts. Qwest uses a logical, chart of account numbering system (i.e., assets are numbered in the 100 range, liabilities are numbered in the 200 range, etc.). ,:: Following the merger, the combined company will follow the Uniform System of Accounts, including the account numbering system, used by U S WEST for the regulated side of the business.

Respondent: James Kozlo~ski, Senior Director of Accounting and Reporting, Qwest Attachment BBIFNA-Q7-2 Page 237 of 294

Arizona Docket No. T-010S1B-99-0497 Exhibit _(RC§.-l) STF 01-017 Altachment~ Page_I of-L

INTERVENOR: Arizona Corporation Commission Staff

REQUEST NO; 017

Provide a list of new services expected to be provided under Qwest's ownership of USWC that were not expected to be offered under IT S WEST I._Inc _ 's ownership or whose introduction will be expedited under QWest's ownership of USWC_

RESPONSE:

Qwest has not yet determined the nature and extent of new services not currently available to IT S WEST customers that will be offered, or those services that will have an expedited introduction, following the consummation of the proposed merger.

Rick Weston Senior Vice President, Product Development Qwest Attachment BBIFNA-Q7-2 Page 238 of 294

Arizona Docket No. T-OIOSIB-99-0497 STF 04-090 Exhibit _(RCS·1) Attachment 3Q Page _, of _,_

INTERVENOR: Arizona Corporation Commission Staff

REQUEST NO: 090

At page 11, lines 14-16 of her testimony Ms. Arnold states that "customers throughout Arizona and elsewhere in the 14-state region should be the first beneficiaries of all of the benefits that this merger will bring."

a. Please elaborate upon any and all specific assurances that U S West and Qwest can make to the Arizona Corporation Commission that customers in Arizona will be beneficiaries of the proposed merger.

b. Please elaborate with as many specific details as possible on all tangible and quantifiable benefits that customers in Arizona will experience :: as a resul t of the merger.

RESPONSE:

a-b. Because both companies are just now beginning planning for the merged company, it is too early to quantify specific benefits. U S WEST and Qwest pro?ided as much detail as was possible at the time they filed their pre-filed testimony.

Respondent: Legal Department - U S WEST Attachment BBIFNA-Q7-2 Page 239 of 294

Arizona Docket No. T-OIOSIB-99-0497 Exhibit _(RCS-1) STF 04-105 Attachment~ Page-Lof-L

INTERVENOR: Arizona Corporation Commission Staff

REQUEST NO: 105

Refer to page 10 of the written testimony of Mr. Grate, where he states: There are no plans to reduce the level of investment in Arizona as the result of the merger." What specific assurances, if any, will U S WEST and Qwest provide to the Arizona Corporation Commission that the level of investment in Arizona will not be reduced? Provide full details on all specific assurances that U S WEST and Qwest provide to the Arizona Corporation commission in this regard.

RESPONSE:

Economic, competitive, and technological conditions dictate that U S WEST and Qwest maintain managerial discretion as to the level and direction of capital spending in the State of Arizona. Economic conditions include such factors as the level of business ~ctivity in the State, projection of line growth, demand for new services, and the overall availability of capital to invest while maintaining a strong financial profile for the post-merger Qwest. C;)mpetitive conditions include such factors .as real and tnreatened market entry by competitors and market share losses_ Technology conditions include changes in technology and changes in equipmen· prices. All of these factqrs combine to make it managerially unwise for the Companies to give the Arizona commission assurance as to a specific dollar level of capital investment, below which capital spending would not decline for an extended period of time.

Respondent: Phil Grate, Director, U S WEST Attachment BBIFNA-Q7-2 Page 240 of 294

Arizona Docket No. T-OIOSIB-99-0497 Exhibit _(RCS.1) STF 04-103S1 Attachment .:32- Page..L.or..L

INTERVENOR: Arizona Corporation Commission Staff

REQUEST NO: 103S1

Refer to page 4 of the written testimony of Mr. Grate. There, he states that: "No changes in the names of the certificated subsidiaries, no transfers of certificates of public convenience and necessity, and no assignment of assets of those certified subsidiaries are contemplated at this juncture."

a. Is U S WEST willing to commit to any specific time period (such as six months, one year, two years) after the merger during which no changes in the names of the certificated subsidiaries, no transfers of certificates of public convenience and necessity, and no assignment of assets of those ':; certified subsidiaries will be made? If not, explain fully why not.

b. When Mr. Grate states that "no assignment of assets of those certified subsidiaries are contemplated at this juncture" in his January 18, 2000 written testimony, does. this mean that U S WEST is no longer contemplating the assignment and transfer of certain assets into a "Broadband" subsidiary? If not, please explain.

c. Please specify exactly what time frame is meant by Mr. Grate's term "at this juncture."

RESPONSE:

a. The volatility of the competitive telecommunications market place prevents such a commitment.

b. Legal structure has not yet been determined. Therefore, U S WEST is unable to answer this question.

c. "At this juncture" means "at the time this testimony is being submitted./I

Respondent: Kevin Mammel, Manager, U S WEST

Supplemental Response: 02/09/00

b. The legal structure of the merged companies has not been determined, however; U S W2ST continues to move forward with the asset transfer.

Respondent: Kevin Mammel, Manager, U S WEST Attachment BBIFNA-Q7-2 Page 241 of 294

Arizona Exhibit _(RCS-1) Docket No. T-OI051B-99-0497 Attachment 23:. Page_I_Of_' STF 01-037

INTERVENOR: .Arizona Corporation Commission Staff

REQUEST NO: 037

What.will be the impact of the merger on the employment status of and employment benefits received by USWC and Qwest employees .~n Arizona.

RESPONSE:

While there is little overlap in Arizona with regard to the functions or services of Qwest and U S WEST, no decisions have been made on the combined company's staffing in }\.rizona or in any other state served by U S \'lEST. Similarly, the impact, if any, of the merger on the benefits received by USWC and Qwest employees in Arizona has not yet been decided.

Paul Gallant Senior Policy Counsel Qwest Exhjbjt_(~~'1) ",uW<11JOCKet No. OCA-99-15 OCA 05-029 Attachment BBIFNA-Q7-2 Page 242Attachment~ of 294 Page-iof...L

Iowa Docket No. OCA- 99-15 OCA 05-029

INTERVENOR: Office of Consumer Advocate

REQUEST NO: 029

Under Iowa Code sections 476.98, the Consumer Advocate is to provide to the general assembly a report and calculation of USWC's return under price regulation every two years. Please provide a pro-forma estimate of the Iowa jurisdictional revenue, expense and investment impacts anticipated to result from the merger with Qwest that will be reflected within the Company's Annual Report and other financial records in each future year for which such estimates can be provided.

:: RESPONSE:

There have been no attempts to quantify or project potential financial benefits at a state specific or service specific level resulting from the merger. Nor is there any information available at this time that could lead to such analysis.

Respondent: Ken Weis, Finance Manager

,,.., 10 1(1('1 http://interrogatory.uswest.com/RTTS !890de44J2ceJ 1(1] S S R2 ')()Rl ,OOR0,7" C)')()"0 n Tl" ., ""'" Attachment BBIFNA-Q7-2 Page 243 of 294

Arizona Exhibit _{RCS.1} Attachment~ Docket No. T-OI0SI8-99-0497 Page-Lofl STF 01-003

INTERVENOR: Arizona Corporation Commission Staff

REQUEST NO: 003

Provide an iternized list of economies which will be experienced by the Arizona jurisdiction of USWC as a result of the proposed merger. Include expenses and costs expected to be reduced and the year the reductions are expected.

RESPONSE:

Merger-'syliergy analysis has not been performed at a state level. As a 'result';' an' itemized list of potential economies which might be experienced in Arizona as a result of the proposed merger cannot be provided.

Kevin Mammel Manager U S WEST Attachment BBIFNA-Q7-2 Page 244 of 294

Exhibit _(RCS-l) Attachment~ Fate of phone service unclear in merger Page-Lof~ ,

By Roger Fillion Denver Post Business Writer

Sept 19 - Qwest Cominunications International and US West love to boast about how their impending marriage will transform. Internet communications .. But conspicuously absent from all the hype is how the $48 billion merger will affect plain-old telephone service.

That has state officials and customers in US West's 14-state region wondering just what the deal means for the 25 million clients who rely on the Baby E'ell for local calling.

u s West is under fu~ from state regulators for delayed phone hookups and other service woes in Colorado, Washington and Oregon. Its . practices are under close watch in other states sUch as Nebraska, Utah, Minnesota and Arizona. States that must approve the merger could require the new company to take steps to upgrade basic service as a condition for approval.

State officials and customers, in the meantime, want to know if the much.ballyhooed combrnation will improve local calling and customer service, as upstart Qwest brings its entrepreneurial know-how to bear on the matter.

Or will local service get relegated to second-claSs status, as the new company dips into local phone profits to peddIe high-speed Internet, data and video communications to deep-pocketed customers?

"My main concern is that bigger has not proven to be better in the local telephone business," says Roger Hamilton, a member of the Oregon Public Utility Commission. "The last thing U S West customers need is for the company to lose more focus on basic service."

Says Dian Callaghan of Colorado's Office of Consumer Counsel: "Service quality and how it will be affected by the merger is an important issue and cannot be ignored."

Qwest CEO Joseph Naccruo and his counterpart at U S West, Sol Trujillo, so far have said little about the topic. Naccruo initially suggested that criticism ofU S West's service problems was overblown. He later tempered his comments.

"Whether it's a'real problem or a perceived problem, it needs tobe addressed," Naccruo told The Denver Post in JUly. /1-/07

()'''''l''n0()~)nl ",J Attachment BBIFNA-Q7-2 Page 245 of 294 Exhibil_(RCS·1 ) The issue arises as competition has been slow to come to the nation's Attachment .3f,g, $105 billion local phone business. Companies such as AT&T and MCl Page~of..5. WorldCom have been slow to offer local dialing to consumers in particular, in part reflecting the high cost of breaking into the business. Rural residents have felt especially left out; it's costlier to serve less populated areas.

Analyst Boyd Peterson of the Boston-based Yankee Group says the customers who are most likely to benefit from the advanced services promised by the Qwest..,U S West merger are those that live in ~ig urban areas - the same people who will see competition S00ner.

"Competition is· going to roll out incrementally. In many ways it's a function of density," Peterson says.

The merger combines the No.4 long-distance carrier - which has strung together an 18,500-mile fiberoptic network - with an offshoot of the old AT&T that has supplied local phone service to western customers for m?re ~ a century.

And willIe offiCials say it's too early to ~ay how the' merger: will affect local calling once the deal is 'completed next year, U S West spokesman Dave Banks says the combined companies won't abandon local customers "and our commitment to local service."

The dearth of attenti{)n surrounding the local phone business stands in stark contrast to other aspects of the deaL Officials love to crow about the nemangled services that will flow from the combined companies, which will be named Qwest.

The new Qwest plans to plow $7.5 billion into advanced .services such as high-speed Iritemet and data services, w-ireless communications and video conferencing over five yea..rs. More than $5 billion of the money will come from the near elimination ofU S West's sizeable annual shareholder dividend, which today stands at $2.14 a share.

The U S West local phone network hasn't been publicly earmarked as receiving some of that money, although aU S West executive says the ) vast network is expected to be a beneficiary.

"Our customers will benefit from the infusion of billions of dollars from the merger. That will allow us to upgrade the network," says Anne Larsen., vice president for U S West's local netWork operations in Colorado and Wyoming.

Company officials insist the deal will benefit all customers - not just the technology junkies who want the latest and fastest in wireless, video, Internet and data communications.

For example, some of the new technology to be deployed will permit data traffic to bypass the traditional voice network, freeing space for 'A-I/O

9121/19999:01 At/. Attachment BBIFNA-Q7-2 Page 246 of 294 traditional phone traffic. EXhibit_(¥1) Attachf!J$!nt Page:::::,2 of U S West's high-speed Internet ·service travels via the company's local phone network, officials point out. They say it would make little sense for the new company to neglect that network, which snakes out among the 14 Western and Midwestern states.

"You have to remember that most everything is carried over the local neffirork," says U S West's Larsen. "We won't win in the marketp lace if we donlt keep our network healthy."

Still, Qwest and U S West have their work cut out in convincing some. state officials and disgruntled customers of the Baby"Bell, who are concerned over what the future holds.

"They're promising the sky to people. And I canlt even get basic phone

. service," says Curt Ketner, who lives in a rural area riear Berthoud.. '~'-- '--'

Among his complaints about the phone service he gets: "We can hear other people talking. We can hear other people dialing what sound like rotary phones. There will be times when therels no dial tone at all.'f

Utahls top consumer advocate also is wary of the deal, although he hasn't reached· any final conclusions. .

Roger Ball, administrative secretary for the Utah committee of consumer services, says the key question for him is whether the merger is in the interests of the residential and small business customers.

"We have seen nothing proposed by Qwest or US West that (offers) any particular benefit ... for those customers," Ball says.

But others are more optimistic.

"I'm hopeful it will be an opportunity for U SWest to improve its local service;" says Glenn Blaclanon, assistant director for telecommunications for the Washington Utilities and Transportation Commission.

Blackmon says he hopes the Qwest management team will give the company a new direction and realize that high-speed Internet and data communications" all ride on the basic telephone net\vork. If they want to be successful in selling those advanced services, they have to have a strong basic network."

Says Joan Smith, a member of the Oregon PUC: 'T believe a new service culture and Qwest interest in broadband mean good things for Oregon's telecommunications future."

Qwest CEO N accruo will get the opportunity to confront the topic when he addresses a Denver meeting of state regulators on Sept. 27. A -/ ( /

9/21/19999:01 AM Attachment BBIFNA-Q7-2 Page 247 of 294 EXhi;'it_~R.1) The informal regulatory group, known a~ the U S West Regional Altach~yl1t Oversight Committee, brings together regulators from the 14 U SWest Page..::r. Of states.

"If you look at the history ofU S West and the history of ROC, quality of service has been an ongoing issue. I would imagine that it would

continue to be an ongoing issue with the new (Qwest) as well, tI says Allan Thoms, chairman of the Iowa Utilities Board and current ROC chairman.

The companies have asked regulators in seven states, including Colorado, to approve their merger. That has raised specirlation about _whether some states may set conditions - such as improving service - for their approvaL The deal also must:win the OK of the Federal Communications Commission. .

"We could attach conditions to a merger," says Barbara Femandez, a spokeswoman for the Colorado Public Utilities Commission.

When U S West sold 45.rural Colorado' phone exchanges to the former Pacific Telec9m Inc. in 1995, the PUC approved the deal with two provisos: that the Baby Bell scrap a $28 million rate-hike request, and that PTr (now known as CenturyTel) speed the upgrade of customers to . single-party service.

In Colorado, US West is facing a formal PUC investigation that .couJ.d lead to financial penalties against the company because of delayed phone installations and repairs dating to early 1998. Regulators could order the Baby Bell to give customers a refund, or they could seek fines.

US West blames Colorado's rapid growth foi the p:::oblem and says it is taking steps to improve service. The company is investing a record $4 billion this year on "its 14-state network. Colorado's share of that amounts to $873 million. The company also is hiring more repair technicians and beefing up its customer-service staff. And it has acc;:.elerated construction on projects that will improve phone service.

US West officials also note that rivals such as AT&T and MCr W orldCom ignore residential phone customers and instead focus on luring big business customers from U S West. The resulting loss in revenues means less money to invest in the local phone business, say U S West officials.

PATH OF PROCEEDS

Qwest and US .West estimate their merger will generate $2.2 billion in savings on capital spending and $5.3 billion in redirected US West dividend. Here's a look at how the $7.5 billion in proceeds will be invested over the next five years: A - /! 2

9/21/1999 9:01 At,,· . Attachment BBIFNA-Q7-2 Page 248Exhibit of _(RCS.1)294 Attachment~ Internet applications for businesses. Page .s: of ..5..

Competitive local phone service outside U S West's 14-state region.

Out-of-region high-speed Internet access and services.

Expansion in advanced wireless communications.

Advanced video communications such as video conferencing.

Copyright 1999 The Denver Post All rights reserved. This material may not be published., broadcast, rewritten or redistributed.

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A - ( !.3

5 9/21/19999:0 I Iowa Docket No. SPU-99-27 (OCA-99-1S)OCA 11-066· Attachment BBIFNA-Q7-2Ellhibit _(RCS-1) PageAttachment 249 of 294 ?:I1. Page~ot_'_

Iowa Docket No. SPU- 99-27 (OCA-99- 15 ) OCA 11-066

INTERVENOR: Office of Consumer Advocate

REQUEST. NO: 066

At page 7 of his direct testimony, Mr. Peter Cummings states, "Upon completion of the merger, allocation of other costs will continue in the same manner as it is being done today."

A. Please identify anticipated changes in the officer group that is not subject to such allocations within U S WEST (Inc. and USWCl, indicating which Qwest officers will become subject to allocations to USWC.

B. What, is any, assurances can be provided that USWC will not become subject to larger overall allocations of officer costs as a result of the merger?

RESPONSE:

A. At this time, U S WEST and QWEST have not yet determined the new officer responsibilities of the combined U S WEST / Qwest organization. As such, no determination can yet be made as to which Qwest officers will become subject to allocations to USWC.

B. It is C0mpany'~ expectation that post merger, USWC's share of officer expenses will be the same or less given that officer expense will be spread over a greater number of lines of businesses.

Respondent: Robert Menk, Manager Exhibit (RCS-1 ) Attachment BBIFNA-Q7-2 .lUwa lJOCKet No. SPU-99-27 (OCA-99-1S) OCA 14-088 Attachment 31l. Page 250Page...Lof...L of 294

Iowa Docket No. SPU- 99-27 (OCA-99- 15 ) OCA 14-088

INTERVENOR: Office of Consumer Advocate

REQUEST NO: 088

Do the Joint Applicants believe that the merger will reduce overall capital costs incurred by U S West Communications? If affirmative, please ;provide a calculation of the anticipated capital cost reductions and explain the form and timing of all such capital cost benefits.

RESPONSE:

No. See also Mr. Cummings' testimony at pages 14-15.

Peter Cummings Director - Finance & Economic Analysis Iowa Docket No. SPU-99-27 (OCA-99-1S) OCA 14-096 Attachment BBIFNA-Q7-2EXhibit_(RCS_1) Page 251Attachment of 294 Lto Page-Lof\

Iowa Docket No. SPU- 99-27 (OCA-99- 15 ) OCA 14-096

INTERVENOR: Office of Consumer Advocate

REQUEST NO: 096

What are the present policies and objective with respect to USWC's capital ratios, equity infusions and dividends payouts upstreamed to the parent? To what extent will the$e policies and objectives change upon elimination of U S WEST, Inc. 's common dividend and upon consummation of the merger?

RESPONSE:

U S WEST Communications does not have a specific objective for capital ratios, but its policy is to maintain robust financials and a strong credit profile consistent with other industry participants in order to provide ready access to capital markets on terms and conditions that are advantageous to all the stakeholders in U S WEST.

It is USWC's policy to payout 100% of its net income to the parent company, U S WEST, Inc. and receive equity infusions as needed for equity investment.

Neither policy is dependent upon the dividend payout of U S WEST, Inc. to shareholders and neither policy will change as a result of the merger.

Peter Cummings Director - Finance and Economic Analysis

http://interrogatory.uswesLcom/RTTSQ . /cdf6fae5f41523a8882568JcOO~ncc)2c?ODennOClImcn 11/~/99 Attachment BBIFNA-Q7-2 Page 252 of 294

Arizona Docket No. T-010S1B-99-0497 STF 06-117 Exhibit _(RCS-1) Attachment~ Page-L of 4-

INTERVENOR: Arizona Corporation Commission Staff

REQUEST NO: 117

Describe in detail the present dividend policy of U S WEST Communications, Inc., Do U S WEST or Qwest have any plans to change the dividend policy of U S WEST Communications, Inc.? If so, describe fully.

RESPONSE:

The present dividend policy of U S WEST communications, Inc. is to pay 100% of USWC's net income to the parent company, U S WEST, Inc, on a quarterly basis. U S WEST Communications, Inc. receives equity infusions from U S WEST, Inc. as needed for equity investments. There are no plans to change these policies as a result of the merger.

Respondent: John Morse, Manger - U S WEST Attachment BBIFNA-Q7-2Exhlbit_{La1) .lUwa UOcKet NO. ~'pU-99-27 (OCA-99-1S) OCA 14-097 Attachment Page 253 of 294 Page -L of -l-

Iowa Docket No. SPU- 99-27 (OCA-99- 15) OCA 14-097

INTERVENOR: Office of Consumer Advocate

REQUEST NO: 097

What policies and procedures will be employed to attribute or allocate merger integration costs between Qwest and U S WEST entities/subsidiaries in future periods? To what extent will any of such costs be allocated or charged into regulated USWC income? Please provide copies of all procedures, policies and other documentation associated with your response.

RESPONSE:

Policies and procedures have not been finalized to address the treatment of merger integration costs. However, it can generally be anticipated that integration costs will be recorded on the financial records of the operations that incur the costs, as will the synergies that relate to them.

Respondent: Kevin Mamme1, Manager, U S WEST Communications

http://interrogatory.uswest.comIRITS . ./5dee20010e8J62IJ8825683e0080e92cJ?OnenDontn1('n 1') l'?,lqq Attachment BBIFNA-Q7-2 ---(.;..-'/1Page 254r of 294 Exhibit -(l~) '7 Attachment ..: 6cif \1 - \ \ Pags_' of j ORDER NO. .9,8-0'65 ENTERED JAN 2 6 1998

OF OREGON

UM867

In the Matter of an Investigation into the ) Service Quality afU S \VEST ) Communications, Inc., Pursuant to ) ORS 756.515. )

DlsposmON: STIPULA nON ADOPTED

On October 27, 1997, the Commission issued Order No. 97-411, finding U S WEST Communications, Inc. (US\VC) in violation of admin.istrative rules on service quality. The order found mat.US\VC's held order total ~..ceeds the level allowed by OAR 860-023-0055(2)(d). 1 The Commission ordered USWC to submit a wntre:u .report sho,-\Fjng why it is not 1..."'1 compliance with the rule and to present a plan for bringing its operations into compliance widl t~ rule.

OIl Novemilcr 26, 1997) USWC filed its report a1la :plan. In Ordcr No. 97-464; !he Commission adop1ed USV1C's proposal for the Commission's; Staff and the company to work in a collaborative process to fmalize details of an agreement:. The :final plan would include momhly or quarterly targets for held enders. Although not required by ju: rule, USWC als for business and Z'Csidence primary lines z.nd busfu.ess arlditionallin.es) as part of a final stipulation.

On January 21, 1998) Staff and the company submitted a stipulation !hat provides the details for USWC to bring its held order backlog into compliance with tho COm.rrjssioll rule by tho thirdqllarte:r of 1999. The stipulation includes substantial rt'parations That USWC has agree'i to pay ifit fails to meet agreed upon qua:nerly targetS. The stipulation contains no restrictions on the C!:lmmissian's ability to pursue penalties fur violation of other areas af service quality. In addition it enables the Commission to

I OAR 86Q...023-Q055(2)(d) provides: The average numbor of held access line orders shall ncn: exceed the greater of2 per wire center per month averaged over the telecommunications utility's Oregon service territory, or 4 hold orders per 1000 inward orders. 0,. A held order is a customer n:lqUt:..'lt for access line servie<: delayed beyond rhtl utility'S commitment date due co Iz1cl( of facilruc::s. Tht: commnmctlc date may be no more than five business day~ (wUQS$ 11 later date is muruaily agreed to). OAR. 860·023..Q055(l)(b) and (2)(a). I .... , r.u.J1 j;J r-;~u f I ...... " ..... _--••• ----••. - ..• Attachment BBIFNA-Q7-2 Page 255 of 294 Exhibit _(RI=S.1j . Attach~ent Lf3 ".. page¢ofllI •• ORDER NO. terminate the stipulation ifilie percentage of repairs based on customer trouble reports that are cleared within 48 hours falls below 90 percent per month. The stipulation is anached as Appendix A.

The Commission has reviewed the stipulation and finds that it should be approved. Although we would prefer a more rapid schedule, we are willing to accept the sc!ledule set forth in the stipulation because it contains reparations to insure that USWC makes regular improvements in reducing its held orders and includes a schedule for reducing the number of critical held orders.

IT IS ORDERED that

1. The stipulation attached as Appendix A between U S WEST Communications. Inc .• and the Commission Staffis adopted..

2. U S WEST Communications, Inc. has complied with the requirements of Order No. 97-411 to present a. plan for bringing its operations into compliance with OAR 860-023-0055(2Xd).

Made, entr.red., and effective /:t~ -~-+--

Rnu Elicnus Ch~i1"!!la., §t~:,!~cL CommissionCI'

. ,

2 Attachment BBIFNA-Q7-2 Page 256 of 294

Exhibit (~-1) ~ Attachment '1\ I Page-.3. of 3 5

BEFORE THE PUBLIC urrLITY COMMISSION OF OREGON

UM867

In the Matter of an Investigation into the SeMC

Quality aiU S WEST CommunicatiollS1 Inc., Pursuant to ORS 756.515 ST!PUUTION

US WEST CAmmmucations, Inc. C't..1 S WEST') and the Staff of the Public Utility

Commission of Oregon ("Staff"), by and through their respective co~ hereby enter this

Stipulation to resolve all issues raised in this docket.

RECITALS

1. In CrdexNo. 97-411 in this docket, the Commission found thatU S WEST violated OAR 860-023-0055(2)(d) (the "Held Order Rule") with respect to the lllUIlher of held

orde:s that U S WEST had as of August 31 1 1997. (As used in this Stipulation. "held orders" has the meaning provjded for "held access line service crder" in OAR 860-023-0055 (the "Rule"), which me.aning is not intended to be varied by this Stipulation.) The ~mjssion aISD orrl«erl

US WEST: (1) to file a written report showing why it is not in txlmpli!lJ:]f;C with tiw Held. Orde:

Rule; and (2) to present a plan for complying with the Held Order Rule that would ~ held order levels to be achieved. by particular date.~L 2. In Order No. 97-464 in this docket, tM Commission accepted US WEST's plan to bring its operations into compliance with the Held Order Rule by the ald of the third quarter of

APPENDIX A

1 w STIPULATION PAGE 1 OF 7 5152866128 T-447 P.DS/15 F-78D ,.,...... , Attachment BBIFNA-Q7-2 Page 257 of 294 .... Exhibit _(RI1) . " Attach")~nt • • . /pa 9::::otJ 0 S t::1

1999. The Commission also a.ccqJted U S WEST's proposal to meet with Staff to develop a ',''7

mere cmnp~ve proposal.

3. US WEST an~ Staffhavc developed a comprchcnslve proposal intended to comply with the Commission's orders issued in this docket,. and that proposal is set forth in this Stipulation and will be presented for the Commission's approval.

4. US WEST and Staffhave entered this Stipulation to resolve disputed i~ and

neither party admits or denies any fact or legal position at issue, including the validity of the

Rule. By entering this Stipulation, US WEST does not waive its right to cim11enge the Rule in any appropriate forUm or to petition the Commission to have it changed. AGREEMENT

s. Iotal He'd Orden. U S WEST agrees to achieve the fallowing levels oitotai held orders by the following datez: December 31, 1997 499

March 31, 1998 470 June 30, 1.998 410 Scptem.ber 30, 1998 375

December 31, 1998 330 Maret 31, 1999 290 June 30) 1999 240

Sep~ber30, 1999 • • Number ofhold orders allowed by the Rule.

For the purpose of determining U S WESTs ~mpliance with the targets in this paragraph and

the next paragraph, the number of outstanding held orr.iero shall be measured only as of the date

indicated, being the last day of the calendar quarter. In addition, for the purpose of counting held

orders to detamine ecrnplia:nce with this Stipulation, each orderplaad by a customcrwith U S

APPOOIX A 2 y STIPULAnON PAGE 2 OF 7 ~ -- _... , ...... -_ ...... - .... Attachment BBIFNA-Q7-2 PageExhibit_(~_1) 258 of 294 Altach'!.!!lf1t k Q 5 Page20fl , tJ .,- ,

WEST for one: location shall count as one orderno matter how many access lines arc i.c.cluded in

that ardor or how many service orders are generated by U S WEST. 6. 'critic,d Held Order:. Staff acknowledges that there is no sbndard for "critical"

or loug-term held orders in. the Rule or any other rule. Nevertheless, in order to improve the

quality of service to its Oregon customClS, US WEST a~ to achieve the lovels of"criticalfl

held orders set forth in the table at the end of this paragraph. For this PUIpose, "critical held

ordersll are defined as primary lines for both business and residenti3l customers and business

additional lines that remain as held orders for more than 30 days past the due date for service

under existing rul~ and where U S WEST is at fault in connection with the order remaIning a

held order for over 30 days. US WEST and Staffwill meet on a monthly basl~ at a time and

place to be agreed upon, to review all of the potential critical held ordm to determine whct~ or

not they should be counted as critical. In making this determination, the pa.11ies shall not

consider US WEST to be at fault if they agree the delay in providing service is dw: to a factor

such as one of the following, u.1is lk"i being intended iO be XIleJ:-ely illustrative and not inclus:iY'!: , (1) th~ customer's fi3.1lure to perfcrm an obligaticn that is a prerequisite to US WEST's providing

service, such as making a payment or constrUCtion contribution; (2) the delay or fail:trrc of a

government agency to issue a pennit or other requL~ approval after a timely request by U S

WEST; or (3) tho delay or failure to obtain ac.cess to property or all agreement, such as an

easement, from the customer or a third party after a timely req~ by U S WEST. Deamber 31,1997 150 March 31, 1998 130

June 30, 1998 90 September 30. 1998 7S December 31,1998 ."

'7

3 • STIPULATION APPENDIX A PAGE :3 OF 7 I ""'1 I • ." I' ,.. I I .... O~t-29-99 10:06am From-US WEST Attachment BBIFNA-Q7-2 11- --.. -.-- ... ~. '-".-'" •••. Page 259 of 294 Exhibit_(~;l?-1) 3 S· Attachrpent ~. t Page~a -

March 31, 1999 ...

IWlc 30, 1999 ••

"''' Targets for these dates will be detennined by November 30, 1998, by good faith negotiation between the parties in collIlection with the formal review provided in paragraph 12 of this Stipulation.

7. Be,pat1ltj()ll~, US WEST a~ to pay reparations for failing to meet any of the

quarterly targets provided in p~hs 5 and 6 aw:lrding to the sdtedulC' Set forth at the end of

this paragraph.. Any reparations due under this paragraph shall be ~ in a separate rcgula1:ory account on the books afU S WEST, and shall not be disbursed earlier than September

30, 1999, unless the Stipulation is terminated before that date. Interest: shall accrue on this

account at the cuuentlyauthorized rate ofretum on rate base. Any amount remajning in the

acco un t after Sep tcmber 30, 1999 shill be disburscl by order of the Commission after

consideration of a U S WEST proposal. It is the parties' intont that any sucll funds shall be tL<>eci

to provide benefits to U S WESTs customen;. In the event that U S WEST mc~ ~ liability

under this paragraph for missing a target for any qwuter. it may rerlucc that liability by SOOh by

meeting the target for the same measaremeot for the two calendar quarters immediately

foUctWing the quarter fur which the liability W'CJ! iocurred. US WEST may also request that the Commission relieve US WEST of the obligation to disburse any reserved amoUtIts en the basis

that there were only minor deviations from the targets during the tetm of the Stipulation and that U S \VEST substantUlIy complied with the Stipulation. The am.aunt of reparations will be computed based on the pera:ruage by whlch the actu.aI number of total held orders or critical held

ottiers e~ the applicable t.argct(s), w:eording to the following sclIedulc:

.~

APPe.DIX A 4 • STIPULATION p~ 4 OF 7 I """1 1.\1\1, ,.. I , ..... Oct-Z9-99 10:06am From-US WEST Attachment BBIFNA-Q7-2 ...... Page 260 of 294 Exhibit _(R1i1) k..t II'! Attachment '" ~ '.. Page !1.. of ...

Percentage Variation From Target AunQnntQf~p2ratlons

Greater than 0 and up to 5% $.50,000 Greater than 5% and up to 10% $100,000

Greater than 10% and up to 20% 5350,000

Greater than 20% $450,000 8. Commission Option To TermiDate.. The Commission has the option to

tenniuate this Stipulatic~ subject to the terms of this paragraph, only ifthe percentage ofrepaini based on customer troublo reports that are cleared Within 48 hours faIls below 90% per month.

Prior to terminating the Stipulation. the Commission shall give U S WEST notice of its intent to

terminate and a reasonablo opportunity to explain the deviation. IfU S VlEST does not provide a reasonablo explanation, the Commission may exercise its option to tennlnate and, thereby, make

US WEST subject to compli~ with the Held Order Rule from the date often:nina.tion. In the

./ event of snch termination, all agreements in this Stipulation shall be ofne fu:rth.e

a.nd. US WE.sT shall not be obligated by any aftbe held order targots or repaI"3tio.n scb.roul.es

established herein. except that any money that has been rese:rred by US WEST for repanuicu.a' shall remain in the reserve account

paragraph 7.

9. .ILS..WEST Qi10QD TQ Terminat~, US WEST shall have the option to tmninare

this Stipulation ifit meets the standard for held orders staU:d in the H"ld Order Rule for any of

the quarterly target dates priortc September 30, 1999. In ~ event of such early termination, ," my reparations thai ha.vc been reserved shall still be subject to disbllrSanent as provided 1lerein.

10. :rerm. This Stipula~icn shall remain in foree until Septembu 30, 1999, unless

~liet- tcirninatcd as provided herein. or unless it is c:arlic:r terminated or e:ttended by mutual

agreement of the parties.

J APPENDIX A S - STIPULATION PAGE 5 OF 7 Oc(-29-99 lO:Uoam rrom-u~ n~.1 I t - .. - •• -.-_ ...... - ••• Attachment BBIFNA-Q7-2 Page 261 of 294 . Exhibit_{~_1) .. Altach~nt Page ...I1. of

11. Formal Reyiew. U S WEST and Staff shall ~nduct a formal review ofU S WESTs progress in reducing held orders. to be completed during the month ofNovem.ber 1998.

At that lime, the parties shall evaluate whether any changes in the StipuIatio~ including the held

order targets, should be made in vie"tV of market developments, the impact of unbundled NACs., the impact of resale; the unpact of competition, the starus of universal service funding, U S WEST's status as an Eligible Telecammunications Camer and caI:rier of Last resort, the im!lact of

iruemet service providers. technicallS'Sue~ or any other factors. Such changes may be made only

by agreement ofU S WEST :wi StrUt as a?proved by the Cornrnissi~

12. M~ EnrQrtem~Dt !2f&Id O!det Rule. lhe Commission shi11nct pursue any

enforcement of the Held Order Rule for the tenn and dUI'ltion of the Stipulation. In additi~ upon approval and adoption ofthls Sor>ulation, the Commission sh.-"ill issue an order concluding

that U S WEST has fully complied with tlie ordor to show cause issued in this docket.

13. N9 PrcceGentiat Effen. The pa.'1les agree that the agreements reached in this

Stipulation will not be cited or used as indicative of a p·.·.rty's position on the issues resolved or a!:

any other type of precedent or ~denC(l irl any other case or prou-eding. III particular, the

a.greement to tho amount of reparations does not constituto an agreement or acqoi~ by any

party to the method or theories used by any party in deciding to enter this Stipul&tion., nor shall it

be used as evidence to establish the levol ofpe:nalties that the Commission may lawfully impose

under ORS 756.990.

14. ludMciy;d Cnstcmer rufh~, The agreements in this Stipulation arc not

intendb:l to create any specific rights. or remalies for any customer ofU S WEST, or to expand or

contract customers' rights in any way, and may not be enfcn:ed except by the O:1mmission. or U S

WEST. Customer remedies for individu.a1 held ordas an: those orha'wi.sce available.

15. Orb er YJolatiQDs pC th~ Rul~ Nothing in this Stipulation shall affi::ct service

standards in the Rule other than the Held Order Rule.. prevent tho Commission from so:king

'r

6 .. STIPULAnON APPS-VIX A PAGE 6 OF 7 j-44( r.IUII!l 1"-(ijU Oct-29-99 lO:07am From-US WEST 51521166128 Attachment BBIFNA-Q7-2 , .- -, .. - -.. - _..... _. Page 262 of 294 -'- v "U ~ .~ ...... '''., ' ... Exhibit 1) Attachl1)t-(tJ-lnt Page-.:::z. of I

remerues permitted by law for violations of any such other service standard . or prevent US

WEST from defending itself in any such proceeding on any ground_ 16. Inteznted DO~Dment.. The parties recommend that the Commission adopt this

StipUlation in its entirety. The parties have negotiated this StipUlation as an integrated document

Accordingly, if the Commission in any order rejects all 01' any part of this Stipulation., or adds to or changes any ofies terms, each party reserves the right to withdraw from the Stipulation upon written notice to the Commission and Staff within fifteen (15) days of receiving notice of any. such action by the Commission. In the event of such wit!:ldrawal, neither p:nty 'Will. be bound by

any provisio~ of the Stipulation, and no such term may bo cited or used against any party in

.' -.. ~:- .. ~ conneetion with any case or proceeding, or otherwise.

IT IS SO AGREED.

Commission Staff

By:

. J Name:

Title:

"

7 - STIPULATION APPENDIX A PAGE 7 OF 7 Oc(-29-99 IO:07am From-US WEST 5152866128 AttachmentT-447 P.II/15 BBIFNA-Q7-2 . F-780 Page 263 of 294

-"\V ""ibil~{R")Attachment ' .. Page 100ri ; . ORDER NO. 9.9 - 0 U 5

ENTERED JAN 0 5 1999 BEFORE THE PUBLIC UTILITY CO ~O~~n OF OREGON JAN 8 1m IU UM867

In the Matter of an Investigation into the )

Service Quality of U S WEST ) I ORDER Comnmnicatian9, Inc.:> Pursuant to ) ORS 756515. )

DIsposmON: AGREEMENT ADOPTED

In Order No. 98-035, we adopted the stipulation between U S WEST Communications, Inc. (USWC) and Staff concenring MId orders. The order required Staff to review the stipulation to establish targets for the remaitting iliree quarters addressed in the stipulation. The revieVl was to be CQo.ciucted by the end. of November 1998.

Staff and USWC met cu.ring October to revise tile targets. On November 23, 1998, USWC submitted a lener agreeing "CO the targets offered by St.a..fE Those targets are:

End of Quarter ·.larget CriticalHe]d Orden December 31,1998 60 March 31, 1999 50 June 30, f999 40

At a public meeting on December 11, 1998, Staff recommended that we approve the targets agreed to by Staff and the company. Staffs public meeting memo and the company? S November 23, 1998~ letter are attached as Appendix A to this order.

" Oct-29-99 lQ:07am From-US WEST 5152866128 T-447Attachment P.IZ/IS BBIFNA-Q7-2 F-780 v ...... ""' •• ." ...... Page 264 of 294

Exhibit_{J1) Attachl'(lent If. Page J.L 01 i - ORDER NO. ~f 9 - 0 0 ,... '--""

We have reviewed the rargers and find that they are reasonable-

IT IS ORDERED that the critical held order targets set forth above are adopted.

Made. enu:red, and effective ___JA_N_O_5_19_ C_.R __

Roll Eacbu5 Chairman Commissioner ~:!~cP_ Cmmnissioner

' ......

A party may request rehearing or reconsi deraricn of t1$ order pmsuant to ORS 756.561- A request fo:r rehearing or reconsideration must be filed with the Commission wi thin 60 days of the date of servke ofthis order. The request must comply with the requ:irements in OAR 86O.Q 14-0095. A copy of any such request must also be served on each party to the proceeding a9 provided by OAR 860-0134)070(2). A pany may appeal this order to a co!lIt pursuant to ORS 756.580 .

•

2 Attachment BBIFNA-Q7-2 PageIT.l!:MNU. 265 of 294 Exhibrt (f};-1) ,Attachment l'UBLIC UTILITY coMl\1ISSION OF OREGON 9 , 9 Page~or STAFF REFORT PUBLIC M:EETING DATE: Dettmber 11, 1998

REGULAR AG:l"'NDA -X-CONSENT AGENDA~ EFFECfIVE DATE ____

- DATE: December 7, 1998 ~ LB TI)'~ B1U Warren through Phil Ny~J jnd Lance Ball

FROM: Woody Birko ~5 ~ SUBJECT: US 'WEST Communicario21S, Inc., Critical Held Order Targets

SUMMARY RECOMMENDATION:

I recommend thatthe Commbsicn adopt US WEST Communications, Inc."'s (USWC) proposed critical held ordef targets.

DISCUSSION:

. Order 98-035, which wopted the Stipulation betWeen USWC and Staff concerning held ord~ ./ requires that a revie-w of the Stipulation be conducted to establish targets fur the remainlv.g three quarters addresseG in the Stipulation. The review was to be conducted before the end of November 1998.

Staffmet wiili USWC in October 1998 but was not able to reach an agreement. In the anached letter, dated November 23, 1998, USWC accepted therargets offQ"ed by Staff in October 1998. Although less than optimal, those targets for critical held orders are: •

December 311 1998 60 :March 31~ 1999 50 Juri.e 30, 1999 40

USWC is not requesting any other changes to the Stipulation..

STAFF RECOM1\1ENDATION:

Staff recommends that the Commission approve the critical held order targe!.s proposed by

USWC in its letter dated Novembcr 23 1 1998

Attachment

P:pmrocmoll. USWESTCritic:illkldOrderT~ett.doc

APPE~IX A f3AGE: 1 OF 3 '"' ... ~ ...... , ...... \oj 1.4111 j I VIII U.J II ~ ... j Attachment BBIFNA-Q7-2 1, __ -_ •• -.---" . __ ._... Page 266 of 294 PQr1S.:lnd. Ore;,,, ST.:CA SCO ~42-741i" 9.9 .. 005' SD:J 24,2·73J3 F.. ~~..I(;

OanK..M~ LIj.."WEST D.rc~IQt COMMUNICAnoNS @ , Ctt;s0fl Re<;;·JI5r'.J l EXhibit_(~S_1) Attachment Pageldot I

Monday, November 23, 1998

Mr. Phil Nyegaard. Admj:oistrator TelecommUllicaticns Division Oregon Public Utility CJmmissiou 550 ~itol Street N. E. Salem, Oregon 918 lO~ 1380

Dear Phil:

The Oregon P-ublic Utility Col:nlllission's Ordar 98.0351 adopting the Stipulation bet;Ween Staff a.tu:l US WEST l:e1ative to Held ~del"6l reqtri.l'es U S '?tEST and Staff to conduct a review of the Stipulation and. establish the remaining tmee . critical held. order targets before the end of November..

As you know, ~E! met last month on the subject of critical held orders. but were pot able to reach em agreement at truit t:Une. Since then, U S WEST has had an opportunity to further review the numbers, and we are willing to accept the following critical held order targets as proposed by Staff:

December 81, 1-998 60

Maxch 31. 1999 50

June 30, 1999 40 • US WEST be~es these t~etad levels will be very cbaTIenglIlg' to achieve in the current environment in which we are operatln€,.

Consistent with para~apb 11 of the Stipulation. while U S WEST is not requesting changes to the Stipulation, we do offer the following obsarvaticos relative to the current envixoI+me~t:

1) ~ competition. continues to de .... elap in Oregon, being able to serve as the "carrier of last resort)' without having held. orders be1:Omes more and mote di:ffi.cult. Historically, as the monopoly provider with the de~ted responsibilitY to Serve all cometS, a.:nticipating where pri.nlJuy lilles would be reqtrired was a rt5latively straightiarward task, although labor-intensive. However, in today's multi·pro... idcr environment, circumstances are considerably different. Consider the following:

a) Developers may choose to obtain sen-i.ce for their development from a

competitive provider. Under. these circumstances, US WEST may. choose not to

APPENDIX A PAGE 2 Of 3 Attachment1- "''''1 I.BBIFNA-Q7-2 Iv( I w I I U,", PageExhibit 267 _(RCS-1) of 294 Attachment !:i.?;. 0 5 pagel#of,+ build facilities to that d.evelopme.nt until a request for service surfaces. Since U S WEST still. has the responsibility to serve all customers. upon request, U S WEST would then either need to build facilities to this customer or seek to purchase unbundled loops (NACs) from the competitive provider, who is under no obligation to provide them. Depending on the location of the closest U S ~YEST facilities, it could take considerable time to satisfy the ordel'(s). which would remain in "heldll status.

b) In the same situation as in a) above, assume the competitive provider goes out of business- E~en assuming utilization of the competitive provider's facilities local d.istribution facilities, which is not a given, considerable time and effort could be requil'ed to construct facilities to hook up to the local facilities, We have a11;e..ady encountered this situation on a small scale with apartment complexes that were itu:tially served by PBXs and later had to be converted to single line service upon business failure of the provider.

c) The re1;iJrn of large customers to US WEST may craate unusual demands for facilities. Now that there areseveralthausand facilities-basad. com~etitiye lines in

place, primarily serving business customers7 this scenario is quite possible.

d) lillticipating the location of telecommunicaticns-inten.si~ finns, such as Internet Serviee Providers and. telemarketing firms, continues to present cb.a.1lenges to the network.

, ,/ 2) Additional businessli:nes and secox:d (an.d third.} etc.) residential lines continue ta present a forecasting challenge since itls difficult to nsee w the demand fur these coming.

Should these '~es of situations have an impact on US WEST's held order cou.nts in the futurs .• and, in particular. on the critical held orders, for which the Commission has not adopted a rule of general applicability - we expect the Commission will give consideration to circumstances that aI:! J:'!8.9onably beyond. US WESTs control in considering requests Jar waiver or for mitigation of teparatious.

Quast::io!ls relative to this item should be addressed to myself of Ron Trullin~er at 503-242-5089. -

Don Mason

cc: Ron Trullinger Cata11YIiller

APPENDIX A PAGE 3 OF 3 Attachment BBIFNA-Q7-2 Washington UT-991358 PC 03-054 Page 268 of 294Page 1 of 1 Exhibit_{J1) Attachment I.f PageLot

Washington UT-991358 PC 03-054

INTERVENOR: Public Counsel

REQUEST NO: 054

Please provide a complete calculation of the change in control costs under stock option, long term incentive plan, share growth and other employee/director benefit/compensation plans that are anticipated to be triggered by the proposed merger, indicating the accounting distribution of such change in control costs between Qwest and U S WEST and within USWC, by FCC Ac·c6unt·:"-~ ,~ .. -.

RESPONSE:

: : See Confident:ial Attachment A for the plan calculations for U S WEST employees only.

See Confidential Attachment B for the plan calculations for Qwest employees only.

Confidential Attachrnents'A and 8 are provided pursuant to the protective order issued in this docket.

Respondents: De~ Meadors, Manager - Stock Administration, U S WEST Kevin Mammel, Business Development Manager, U S WEST Steve Shoemaker, Vice President, Treasurer, Qwest

http://interrogatory.uswest.comIRITS .. .Iald 198f2.b951 Od018825683c0080c93f?OpenDocumen 12/7/99 Attachment BBIFNA-Q7-2 Page 269 of 294

Attachment 44, pages 2 through 2 is marked confidential Attachment BBIFNA-Q7-2- ge 1 of 1 wasllll1gton UT-Y91358 PC 03-056 ExhibitPage _(¥1) 270 of 294 Attachment Page.l-ot

Washington UT-991358 PC 03-056

INTERVENOR: Public Counsel

REQUEST NO: 056

Please provide a complete calculation of the U S WEST Retention Plan costs, as described at page I-33 through I-35 of the Joint Proxy statement/prospectus dated September 17, 1999, indicating the accounting distribution of such change in control costs between Qwest and U S WEST and within USWC, by FCC Account in each post merger accounting period.'·

RESPONSE:

Please note that: these are benefits that were issued after the announcement of the merger and that vest sometime after the close of the merger. The terms and conditions in At:tachment A have been summarized. All estimates assume all participants meet the criteria of the plans, and therefore, are able to receive their retention bonus(s). Please see the Joint Proxy for a complete description of the terms and conditions. of the Retention Plan.

Please see Confidential Attachment A. Confidential Attachment A is provided pursuant to the proi:ective, order in this docket.

Respondent: Kevin Mammel, Manager, U S WEST Communications

http://interrogatory.uswest.comIRITSQ .. .Idc5c9fdetfl f1 f8d8825683cQ080c941 ?OpenDocumen 1217/99 Attachment BBIFNA-Q7-2 Page 271 of 294

Attachment 45, pages 2 through 2 is marked confidential Attachment BBIFNA-Q7-2 Page 272 of 294

Attachment 46, page 1 of 1 is marked confidential Exhibit _(RCS-1)Attachment BBIFNA-Q7-2 Attachment .±J Page 273 of 294 Page L of .r:.:

Washington UT-991358 PC 05-089

INTERVENOR: Public Counsel

REQUEST NO: 089

Please provide the general headquarters prorated percentages for all USWC state jurisdictions that are effective for 1999, which may serve as a basis for allocation of USWC's share of corporate cost synergies estimated to result from the proposed merger.

RESPONSE:

Attachment A contains the prorate factors for 1999. U S WEST takes the position that it is inappropriate to apply these factors to the synergies for the following reason.

Many of the syne:cgies are projected to be the result of out-of-region initiatives (e.g., existing Qwest operations, national CLEC and DLEC operations) or part of in-region unregulated operations of Qwest or U S WEST. Synergies will be recorded on the financial records of.the operations that achieve them. It is impossible at this time to estimate how much of the synergies, if any, will be related to Washington regulated operations.

As part of its normal course of business, U S WEST Communications evaluates headquarter prorate factors and makes appropriate modifications. A determination has not been made as to what effect the merger with Qwest may have on prorate factors.

Respondent: Carl Inouye, Director, U S WEST

http://interrogatory.uswest.comIRITS .. .Ie3e85448df279ab58825683c0080cdcf70penDocumen 12/7/99 Attachment BBIFNA-Q7-2 Page 274 of 294 --- A PNB 1.00000 0.32144 0.67110 0.00747 12130/90 PC05-089 UT-991358 FACTORS NWB 1.00000 WASHINGTON NO. 0.07411 0.08618 0.18321 0.21218 0.44432 '2130/90 ATIACHMENT REGIONAL DOCKET MTB 1.00000 0.10892 0.10572 0.05230 12/30190 0.34607 0.04911 ---- 0.28462 INVESTMENT NET USW 1.00000 0.07449 0.15552 0.00173 0.01995 0.02320 0.11951 12130/90 0.02451 0.17271 0.14204 1.00000 0.07880 USW 0.00176 0.15647 0.01496 0.01159 0.04005 0.04932 0.04685 0.05712 0.05264 0.05436 0.07076 0.05276 0.20226 0.02553 0.14412 CURRENT MSGS 1.00000 0.05717 0.11594 0.00074 0.01104 0.17604 0.10793 0.04162 0.01760 0.02490 0.02610 0.17677 0.02101 0.21279 DA LISTINGS 1.00000 0.09795 0.00188 0.02193 0.01208 0.01967 0.03429 0.02502 0.08516 0.05343 0.14390 0.01448 0.00909 0.02138 0.02658 0.05326 0.04575 0.05155 0.06966 0.02677 0.03232 0.12994 LISTINGS .- .. DA 1.00000 0.05264 0.10999 0.16968 0.00061 0.01099 0.02399 0.01008 0.17961 0.04116 0.07167 0.00849 0.04990 0,01658 0.01975 0.22199 0.18255 0.12473 MESSAGE~ 0.00228 0.02464 0.01249 0.13011 0.07307 0.03185 0.06546 0.05120 0.02037 0.15145 ,0.02341 MESSAGES OSCAPrrOLL OSP 1.00000 1.00000 0.14922 0.17333 0.01849 0.00235 0.07975 0.08006 0.03939 0.03019 0.01538 0.11916 0.05906 0.06518 0.02526 0.02527 0.16829 0.13009 orr, INVESTMENT COE, 1.00000 0.00198 0.15515 0.01735 0.07566 0.12283 0.04215 0.01421 0.05886 0.06687 0.01854 0.02302 0.02247 0.05235 0.05426 CaE 0.15419 0.17027 0.15192 INVESTMEi:':IT 1.00000 0.15236 0.00177 0.08265 0.01656 0.03526 0.01447 0.01740 0.06007 0.12634 0.06391 0.02173 0.05073 0.02684 0.02712 0.16199 0.16792 THREE WEIGHTED 3 0.15748 0.00126 0.01423 0.01274 BIG 0.12412 0.03430 0.05453 p.01433 0.05037 0.01857 0.02291 0.17363 EXPENSES AxlsDIST_COPY 1.00000 1.00000 0.14787 0.00207 0.07874 0.08648 0.01892 0.01539 0.03934 0.12120 0.06082 0.05384 0.02479 An 0.17042 TPIS ADJUSTED FACTORS peOS·089 Lli:':IES 1.00000 0.15174 0.00198 0.08273 0.01652 0.01527 0.13371 0.03214 0.06486 0.01480 0.02306 0.04798 0.06578 0.06564 0.06032 0.02182 0.02899 0.02863 0.15972 0.16196 0.14927 0.17473 ACCESS 402·422-7087 PRORATE ALLOCATIONS Marsh Doug DATA CAAS\HOPR199_JANlWA EFFECTIVE S"urc.: OLM GEOGRAPHIC HEADQUARTER WA ID·P OR ND TOTAL SD NE MN UT IA NM WY 10 MT CO AZ 1999 SUMMARY USWC Attachment BBIFNA-Q7-2 Page 275 of 294 EXhibit_(¥.1l Attachrpent Page.l.- of Arizona Docket No. T-010S1B-99-0497 STF 07-132S1

INTERVENOR: Arizona Corporation Commission Staff

REQUEST NO: 132S1

USWC Arizona wire centers and DSL:

a. please identify each USWC wire center in Arizona and th~ number of lines served by it. Also, include the total number of access lines served by USWC in Arizona.

b. For each such wire center, please indicate whether uswC-provides DSL service to customers located within that wire center.

c. For each USWC Arizona wire center where DSL service is not currently being provided please describe USWC's plans and time frame for providing such service. d. please provide specific details regarding how the proposed merger with Qwest will affect the dates specified in part c, above.

RESPONSE: a. Confidential Attachment A provides the number of lines by wire center and the total number of access lines. Access line counts totals are reflected with the host switch, therefore, no totals are reflected with the remote switch. Confidential Attachment A is being provided pursuant to the terms of the Protective Agreement. b. U S WEST has deployed Rate Adaptive Digital Subscriber Lines (RADSL) in the following Arizona central offices.

Office Name Beardsley Bethany West Catalina Chandler Main Chandler South Chandler West Cortaro Craycroft Deer Valley North Flowing Wells Foothills Fort McDowell Glendale Attachment BBIFNA-Q7-2 Page 276 of 294 Exhibit_(RC~·1) Attachment !! ~ Page .2,. of"I Litchfield Park Maryvale Mesa Gilbert Mesa Main Midrivers Pecos Peoria Phoenix Cactus Phoenix East Phoenix Greenway Phoenix Main Phoenix North Phoenix Northeast Phoenix Northwest Phoenix South Phoenix Southeast Phoenix West Pinnacle Peak Rincon Scottsdale Main Scottsdale Shea' Scottsdale Thunderbird Sunnyslope Sunrise Superstition East Superstition Main Superstition West Tanque Verde Tempe Main Tempe McClintock Tolleson Tucson East Tucson Main Tucson North Tucson South

c. U S WEST objects to this data request on the basis that it seeks the production of highly confidential, proprietary, trade secret and/or competitively sensitive information. Without waiving the foregoing objection, U S WEST states that it does not have plans for the deployment of its MegaBit service for all of the remaining central offices in Arizona which do not currently have MegaBit service available. d. U S WEST objects to this data request on the basis that it seeks the production of highly confidential, proprietary, trade secret and/or competitively sensitive information. Without waiving the foregoing objection, U S WEST states that subsequent to the merger deployment of MegaBit service has not been made.

Respondents: Margie McLean, Manager - Capacity Provisioning - U S WEST Dawn Salaver, Manager - U S WEST Dick Boyer, Manager - U S WEST Attachment BBIFNA-Q7-2 Page 277 of 294

Exhibit _(J-1) Attachment Supplemental Response: 02/28/00 Page~of d. U S WEST objects to this data request on the basis that it seeks the production of highly confidential, proprietary, trade secret and/or competitively sensitive information. Without waiving the foregoing objection, U S WEST states that decisions concerning deployment of MegaBit service subsequent to the merger have not been made_

Respondent: Dick Boyer, Manager, Denver, CO Attachment BBIFNA-Q7-2 Page 278 of 294 Exhibil_(RC§-1 ) Attachment~ Pageiaf-L

Illinois Commerce Commission

SBCIAmeritech Reorganization Docket 98-0555

Summary of Conclusions Reached and Conditions Imposed .'" . The Illinois Commerce Commission ("Commission" or "ICC") has reached the following conclusions related to the merger of SSC/Ameritech.

The attached document summarizes the Commission's conclusions in key areas as well as all conditions which the Commission has agreed to impose on the merger of SSC and Ameritech as applied under section 7-204(f) of the Illinois Public Utilities Act. Section 7 -204(f) provides that the Commission, in its approval of a reorganization, may impose "such terms, conditions or requirements as, in its judgment, are necessary to protect the interests of the public utility and its customers." The conditions which the Commission has imposed are summarized below under the relevant section of the Act which governs the decisions of the Commission in this matter.

All conditions summarized below are contained in full in the Commission's Final Order. The Commission's Final Order will be made available to all parties to the proceeding in keeping with standard Commission practice. All decisions summarized below are for informational purposes only. The Commission's Final Order shall stand as the ultimate authority in this proceeding. Attachment BBIFNA-Q7-2 Page 279 of 294 Exhibit -(1f ) Attachment t Page.3::. of

Conditions Imposed under Section 7-204(f) related to Section 7-204 (b)(1)

I. Out of Service Greater than 24 Hours ("005>24") • SBC/Ameritech must pay a $15 million penalty if they miss the current 00S>24 hour standard in the last 30 days of a 180 day period to begin upon the close of the merger • For subsequent annual periods beginning one year after the end of the 180 day period mentioned above, SBC/Ameritech must pay a $30 mm penalty if they miss the current 00S>24 hour standard for subsequent annual periods • The existing $4 mm permanent rate reduction contemplated in Ameritech's Alternative Regulation Plan ("Alt Reg") remains unchanged and is imposed in addition to other penalties imposed above • Such conditions are to remain in place for five years after closing, but SBC/Ameritech may petition the Commission after three years that such conditions are no longer necessary. The Commission retains sole discretion in granting such petition

II. Network Infrastructure Investment • Renewal of Ameritech's $3 billion investment in network infrastructure in Illinois for a period of 5 years or as modified by the Commission in the upcoming review of Ameritech's "Alt Reg" plan • SBC/Ameritech must issue an annual report detailing for the Commission the areas of investment (both geographical and technological) for the five years of the investment period • Such conditions are to remain in place for five years after closing, but SBC/Ameritech may petition the Commission after three years that such conditions are no longer necessary. The Commission retains sole discretion in granting such petition

III. 911 Practices of SBC/Ameritech • All operational changes to the 911 system must receive Commission approval prior to the change being made by the companies • All changes made by SBC/Ameritech must be transparent to the system and its subscribers

IV. Best Practices of the Combined Companies • Issuance by SBC/Ameritech of an annual report detailing the best practices adopted by the companies for five years after closing • Such annual reports are to remain in place for five years after closing, but SBC/Ameritech may petition the Commission after three years that such reports are no longer necessary. The Commission retains sole discretion in granting such petition

1 Attachment BBIFNA-Q7-2 Page 280 of 294 , Exhibit _(~C-1) Attachment Page...3.. of

Conditions Imposed under Section 7-204(f) related to Section 7-204 (b)(2)

V. Updated Cost Allocation Manuals • Updated Cost Allocation Manuals under ICC rules governing telecommunications carriers in accordance with ICC Staff recommendations in order to ensure that there will be no unjustified cross-subsidization in the newly merged SBC/Ameritech. All submissions of updated Cost Allocation Manuals are to be audited by an independent third party which is to be paid for by SBC/Ameritech and determined by the Commission

Conditions Imposed under Section 7-204(f) related to Section 7-204 (b)(3)

VI. Access to Books, Accounts and Records of SBC/Ameritech • ICC Staff to have access to aI/ books, accounts, records, etc. of SBC/Ameritech in order to ensure that costs are fairly and reasonably al/ocated among the companies for ratemaking purposes. In addition, the Commission shall be reimbursed for all reasonable out of state travel expenses incurred by ICC Staff in fulfilling such condition

Conditions Imposed under Sectior. 7-204(f) related to Section 7-204 (b)(7)

VII. Updated Cost Studies • SBC/Amuitech will submit within 6 months of final regulatory approval of the merger, updated Long Run Service Incremental Cost (LRSIC) studies, Total Element Long Run Incremental Cost (TELRIC) studies, and shared and. common cost studies to the Commission. Such updated cost studies will be used in the Commission's analysis of the upcoming rate rebalancing, TELRIC investigations and review of the Company's Alternative Regulation Plan

Conclusions Reached under Section 7-204(c)

VIII. Merger Savings Allocated to Ratepayers • On a long-term basis, all merger related savings will be accounted for in the Commission's review of the Alternative Regulation Plan which governs Ameritech's retail rates • On an interim basis until the Commission completes its review of Ameritech's Alternative Regulation Plan, 50% of the actual net savings realized by SBC/Ameritech as a result of the merger shall be allocated to competing telecommunications carriers in Illinois (through reduced rates on Unbundled Attachment BBIFNA-Q7-2 Page 281 of 294 Exhibit _(R,1) Attachment Page.!:L of

Network Elements, interconnection and transport) and interexchange, wholesale and retail customers (through reduced access charges or per line credits) • "Savings" are defined as actual reductions in costs and expenses, not revenue enhancements realized by the companies as a result of the merger • SBC/Ameritech may recover costs directly associated with the utility's operations which are related to the merger. However, merger relate_d transaction costs such as legal fees, investment banking fees, etc. C?re not to be netted against savings • SBC/Ameritech must track actual merger-related savings for three years and submit such merger-related savings information to the Commission in its annual price cap filings • The Commission shall hire a third party auditor to develop accounting standards and assist the Commission in ensuring accurate tracking of merger related savings by SBC/Ameritech. SBC/Ameritech are to continue to use the Uniform System of Accounts (USOA)

Other Conditions Imposed under Section 7-204(f)

IX. Shared Transport • Adoption of SSC/Ameritech commitment to offer a "short-term" and a "long­ term" "shared transport" to CLECs in Illinois. Th!3 provision of shared transport by SSC/Ameriiech will allow CLECs to gain access to the portions of Ameritech's network which connect central phone offices to one another and allow for increased ability of competitors to provide local exchange service • SSC/Ameritech must provide the "short term" version of shared transport which SSC has offered to its competitors in Texas within 30 days of the Commission's final order or upon merger closing, whichever is sooner • SSC/Ameritech must provide the "long-term" solution within 1 year of merger closing, which will be a permanent solution and incorporate advanced technology to measure usage by CLECs for pricing purposes

X. Interconnection Agreements • Adoption of series of definitive conditions related to interconnection agreements, which govern the contractual interactions of Ameritech and CLEes competing in Illinois • Interconnection Commitment A • All negotiated interconnection agreements (Le. those not determined by state Commission arbitration) of SSC and Attachment BBIFNA-Q7-2 Page 282 of 294

Exhibit _(~-1) Attachl1)i:Pt Page_0 of

Ameritech and any subsequently acquired ILEC, entered into before or after the merger, must be made available to Illinois CLECs upon request upon the close of the merger • Only those negotiated interconnection agreements which are not technically feasible in Illinois or contrary to Illinois law or policy may be excepted from such condition. Burden is on SBC/Ameritech to demonstrate that agreement is either not technically feasible or contrary to Illinois law or policy, with a Commission decision on an expedited basis • Pricing for interconnection agreements adopted into Illinois must ultimately be Illinois specific, but until Illinois specific pricing can be determined by the Commission, existing rates from adopted interconnection agreement go into effect, with differences subject to a subsequent reconciliation • Interconnection Commitment B • Establishes collaborative workshop to compare agreements SBC/Ameritech have made available in other states which CLECs desire in Illinois, as well as process for determining technical feasibility and other determinations • Interconnection Commitment C

(I SBC/Ameritech must make available a list of all interconnection agreements from other states to the Commission prior to the close of the merger. Such agreements will be made available to CLECs for review • Interconnection Commitment D • SBC/Ameritech must make available to CLECs in Illinois UNEs or interconnection agreements obtained by the SBC/Ameritech out-of-region CLEC if such provisions are technically feasible. CLECs do not have to be "similarly situated" to SBC/Ameritech out-of-region CLEC

XI. Operations Support Systems ("OSS") • SBC/Ameritech shall improve OSS interfaces for Illinois CLECs in order that they may more effectively gain access to SBC/Ameritech's OSS. Such conditions will encourage facilities-based competition in the local exchange marketplace • Application to Application Interfaces • Deployment of commercially ready, industry standard OSS (Electronic Data Interchange/Electronic Bonding Interface) to support pre-ordering, ordering, provisioning, maintenance and repair and billing through three phase process • Phase 1: Within 3 months of the close of the merger, SBC/Ameritech must provide a "plan of record" which includes assessment of existing OSS, business Attachment BBIFNA-Q7-2 Page 283 of 294 Exhibit _(RC..$-l) Attachment Y'1 PageJLof}C

processes and rules, hardware capabilities, data networks and security issues • Phase 2: Collaborative process to begin at the conclusion of Phase 1 to last 3 months. Parties shall reach agreement on OSS interfaces, enhancements, business requirements, and change management process. A majority of CLECs may request arbitration by the Commission after one month. All disputes shall be resolved by the Commission • Phase 3: Within 12 months of completion of Phase 2 or a final arbitrated decision by the Commission, SBC/Ameritech would develop and deploy, on a phased­ in basis, system interfaces, enhancements, and business requirements consistent with the agreements reached in Phase 2. The Commission shall arbitrate any disputes related to non-compliance • Third Party Testing • Commission shall retain an independent third party to assist in the phased process with regard to technical considerations. The third party will also conduct "New York" style testing, as defined by the Commission, during Phase 3. Such third party shall be paid for by SBC/Ameritech and report to the Commission • Graphical User Interfaces (GUI) • Deployment of GUI, within a timeframe similar to that of application to application interfaces, for OSS using industry standards on a similar 3 Phase approach to application to application interfaces • Direct Access to Service Order Processing Systems • Development and deployment of direct access to SBC's SORD or Ameritech's SOAC service processing systems for resold services, individual UNEs, and combinations of UNEs within one year of request • CLEC and SBC/Ameritech must each pay 50% of the costs of development and deployment of such systems • Available for 30 months after closing

XII. Performance Measurements • Implementation of 122 of 122 performance measurements determined by the Commission within 300 days of closing • If SBC/Ameritech can demonstrate technical infeasibility on any of 122 measurements, the Commission may grant a waiver • SBC/Ameritech shall pay $30 million to CLECs and community interests if they fail to implement 122 perfQrmance measurements within 300 days (excepting those subject to technical infeasibility as Attachment BBIFNA-Q7-2 Page 284 of 294 Exhibit_(~1) Attachment page+ot

determined by the Commission). In addition, SBC/Ameritech must make an additional payment based upon the liquidated damage caps established in this proceeding. Additional fines shall not exceed $90 million • Once performance measures are implemented, SBC/Ameritech shall be subject to a $90 million annual cap on liquidated damages payable to CLECs • All performance measures must be based on comparison to performance Joint Applicants provide to their own operations. Burden of proof (preponderance of evidence) remains with Joint Applicants to demonstrate no retail analog exists and benchmark must be used os Requirement of independent audit of Joint ApplicantS-"systems, documentation and practices in order to ensure accurate and reliable compliance with such process, to be paid for by the Joint Applicants

, , XIII. Performance Monitoring Reports • Commission and Staff shall have access to Joint Applicants' performance monitoring website. SBC/Ameritech shall also issue performance monitoring reports on a quarterly basis in same fashion as commitments made to the FCC; all reportiflg, however, must detail performance relative to performance measurements on a carrier by carrier basis

XIV. Cellular Notification • SBC/Ameritech shall provide cellular customers of both companies' cellular subsidiaries with notice regarding the pending merger and sale of the cellular property. SBC/Ameritech shall afford the purchaser of the cellular property the opportunity to participate in the specifics of such notice

xv. Compliance Reporting • With respect to all reports submitted by SBC/Ameritech as a result of the Commission's decision (best practices, network infrastructure investment, performance monitoring, etc.), the veracity of each report shall be certified by the SBC/Ameritech compliance officer as tue, accurate and complete Attachment BBIFNA-Q7-2 PageExhibit 285 of _(RCS.1) 294 Attach~nt !1.1 Page.:L of .!f

Voluntary Commitments of SBCIAmeritech for Ameritech's 5 State Region

XVI. Headquarters • Commitment by SBC/Ameritech to maintain Ameritech Corporation headquarters and Ameritech Illinois state headquarters

XVII. Name • Commitment by SBC/Ameritech to use the Ameritech name in each state of the Ameritech region

XVIII. Charitable Contributions • Commitment by SBC/Ameritech to continue Ameritech Illinois' historic levels of charitable contributions and community activities

XIX. Development • Commitment by SBC/Ameritech to continue to support economic development and education in Ameritech's regions consistent with the past practices of Ameritech

XX. Employment . • SBC/Ameritech will ensure that as a result of the proposed reorganization, employment levels in Ameritech's regions will not be reduced due to the merger

Voluntary Commitments of SBCIAmeritech Related to Illinois

XXI. Community Enrichment • Commitment by SBC/Ameritech to establish a Consumer Education Fund which will receive a total of $3 million over 3 years • Commitment by SBC/Ameritech to establish a Community Technology Fund which will receive a total of $3 million over 3 years • In conjunction with the Community Technology Fund, SBC/Ameritech will provide funding of $1.45 million over 3 years for the creation and support of a Community Computer Center

XXII. ADSL Deployment • Commitment by SBC/Ameritech that in the event ADSL service is offered to residential customers in any Ameritech Illinois central office, then ADSL service will be offered to residential customers in any other Ameritech Illinois central office where ADSL is subsequently deployed

XXIII. Use of TRI to Serve Disabled Customers

7 Attachment BBIFNA-Q7-2 Page 286 of 294 Exhibit_"_1 Attach'9,.ent J Page~of

• SSC commitment to use its research and development subsidiary, TRI, to serve Illinois' disabled customers

XXIV. Section 251 of Telecommunications Act -- Compliance Efforts • Commitment by SSC/Ameritech to meet with Commission Staff within 30 days of the close of the merger to address any current issues Staff may have regarding Ameritech Illinois' compliance with Section 251. SBC/Ameritech also commit to meet with Staff on a quarterly basis thereafter to address continuing concerns

XXV. Enforcement and Compliance Monitoring • Commitment by SSC/Ameritech to appoint a corporate officer to oversee implementation of and compliance with all commitments and conditions of the Commission related to the merger • SSC/Ameritech shall file a public report with the Commission detailing its compliance with commitments and conditions • SSC/Ameritech shall engage independent auditors to issue a compliance report which will verify compliance AttachmentEXhjbjt_(~t) BBIFNA-Q7-2 PageAttachment 287 of 294 Page -.L. of

Excerpt from 9123/99 Final Order of the llIinois Commerce Commission in 98-0555 concerning Joint Application for approval of the reorganization of Dlinois Bell TelephoneCompany d/b/a Ameritech Illinois, and the reorganization of Ameritech Illinois Metro, Inc. in accordance with Section 7-204 of the Public Utilities Act and for all other appropriate relief. Page 1 of 4

2. Out of Service Greater than 24 Hours ("00S>24")

The Commission's rules for standards of service applicable to a local exchange carrier's noncompetitive telecommunications services are set forth in 83 illinois Administrative Code § 730. In particular, the Commission has established a standard for restoring intenuptions of service. As a general rule, a local exchange carrier must restore no fewer than 95 percent of service interruptions no later than 24 hours after the time such troubles are reported, except when service intenuptions are eaused by emergency situations or natural disasters affecting a large number of customers. ilib § 730.535(a». The stringent 00S>24 service standard reflects the critical role reliable telephone service plays in our daily lives and the Nation's economy and, unsurprisingly, is of considerable importance to the Commission and telephone subscribers. When telephone service is interrupted, subscribers are often unable to contact family, friends, police, and emergency personnel, among others. In addition to the inconvenience experienced caused and health and safety implicated by service intenuptions, commercial customers may suffer lost sales and revenues as their customers or potential customers are unable to reach them.

In 1994, as part of Ameritech lllinois' Alternative Regulation Plan, the Commission adopted a service quality component and incorporated it in the price index formula. Alternative Regulation Plan Order, at 58. The selvice quality component consists of eight separate measures for tracking and monitoring the company's service quality. Id. Each measure is accorded equal weight in calculating the service quality component Id. For each measure, Ameritech illinois receives an annual score of zero if it meets or exceeds the relevant benchmark and - .25% if it fails to meet the relevant benchmark. Id. A negative service quality component in one year reduces the price cap index in the following year, which in turn reduces the amount rates may be increased for services subject to the Alternative Regulation Plan. In adopting the service quality component, the Commission recognized that "one of the theoretical risks of price regulation is that [Ameritech Illinois] may, while seeking to maximize its income, reduce expenditures in certain areas in such manner as to impact service quality adversely." Id. The Commission further noted that "[t]his is especially true for residential services which are the most inelastic services and are unlikely to be exposed to competitive pressures in the near term." Id. One of the eight service quality measures, relevant here, is the percentage of service interruptions restored within 24 hours. ffii at Appendix A, at 5; Gebhardt Direct, SBC/Am. Ex. 3.0 at 6).

Staff and several intervenors express concerns regarding the proposed merger's effect on Ameritech Illinois' ability to meet the OOS>24 requirement and recommend adjusting the service quality component in the Alternative Regulation Plan to induce Ameritech lllinois to meet theOOS>24 requirement. (Staff Br. at 101-08; CUB Br. at 67; AG Br. at 46-48). Ameritech Illinois' continual failure to meet the 00S>24 standard has been the subject of great concern for the Commission. From 1995 through 1998, Ameritech Illinois' OOS>24 rate averaged 14 percent per year, nearly three times the pennitted level. (McClerren Direct, Staff Ex 8.00 at 11; Ameritech Illinois Annual Rate Filing For Non-Competitive Services Under an Alternative Form of Regulation, ICC Docket 99-0185 (filed Apr. 1, 1999) (reporting an ooS>24 rate of 13.9 percent for 1998».1 Ameritech lllinois' failure to meet the mandatory service quality standard has adversely affected literally hundreds of thousands of its customers in the most critical way-by disabling their phone service for an extended, unacceptable period of time.

The Joint Applicants acknowledge that 00S>24 is "a long recognized" problem persisting for many years, but contend that the 00S>24 problem is not a merger problem because the problem relates to past performance and thus predates the proposed merger. (JA Br. at 11, 25; JA Reply Br. at 71-72). In other words, according to the Joint Applicants, since Ameritech Illinois has repeatedly failed to meet tile 00S>24 requirement month after month, year after year before the proposed merger, the problem could not result from the merger and, therefore, is not an appropriate basis of inquiry under § 7-204(b)(1). The Commission rejects this contention. First, to the extent the Joint Applicants suggest that existing substandard service, in and of itself, falls outside the ambit of review under §

1 Pursuant to § 200.640(a) of its Rules of Practice, the Commission takes administrative notice of Ameritech Illinois' Annual Rate Filing in Docket 99-0185. Attachment BBIFNA-Q7-2 Page 288 of 294 .=xhibit (RCS-1) Attac:hlJl.ent~ Page _.1--_ of?£

Exce~t :rom 9/23/99 Final Order of the Illinois Commerce Commission in 98-0555 concerning .ioint Apphcation for approval of the reorganization of llIinois Bell TelephoneCompany d/b/a Ameritech llIinois, and the reorganization of Ameritech llIinois Metro, Inc. in accordance with Section 7-204 of the Public Utilities Act and for all other appropriate relief. Page 2 of 4

7-2~4(b)(1), the Commission rejects this suggestioIt The plain language of § 7-204(b) applies to a public utility's seIVlce and does not exclude a company's provision of substandard service from review. Indeed, a reading of § 7- 204(b) that excluded substandard service would lead to the bizarre conclusion that a company already providing inferior service could insulate such service from Commission review and likely encourage companies to begin providing inferior service in anticipation of a merger.

Second, and more basic, the Joint Applicants' contention ignores the obvious fact that existing problems can be made worse. For example, Ameritech illinois has repeatedly failed to meet the OOS>24 standard, averaging about 14 percent OOS>24 over the past four years, and the proposed merger may, in fact, worsen the company's already poor track record as outlined in the previous discussion. Third, and particularly relevant here, the merger may impede Ameritech Illinois' efforts to comply with the OOS>24 standard. Although the Joint Applicants indicate that Ameritech Illinois has taken measures to improve its OOS>24 pexfonnance, including a "complete review" of repair pexformance, "with particular emphasis on 00S>24," the Commission observes that the company nevertheless failed to meet the standard in 1998 and the proposed merger may, in fact, constrain the company's efforts to comply with the standard in the future. (See Galloway Direct, SBC/ Am. Ex. 8.0 at 6-7)?

The Commission believes that if Ameritech Illinois fails to focus sufficient attention on and devote the necessary resources to meeting th.e 00S>24 standard the merger may constrain the company's ability to meet the standard or exacerbate what is already an intolerable service problem. As the Commission noted earlier in its discussion of network infrastructure investment, supra at Section III.B.l, the Joint Applicants will need to make significant capital investments in order to successfully implement their National Local Strategy. Consequently, financial pressures, both anticipated and unanticipated, from the National Local Strategy may constrain the Joint Applicants' ability to allocate the necessary resources to meet the 00S>24 requirement or prevent further increases in the percentage of customers whose service is not restored within 24 hours.

The Commission is also concerned that the Joint Applicants have announced cost savings in the area of provisioning and maintenance of operations should the reorganization be approved, without identifYing, other than in general terms, where these cost savings would be achieved. Although the Joint Applicants indicate generally that the companies will adopt "best practices," to achieve the cost savings, the Commission cannot determine which specific "best practices," if any, will be adopted in Illinois and, consequently, cannot conclude whether those practices are in the interests of Ameritech Illinois and its customers. See infra, Section III.B.5. In addition, as the Joint Applicants have acknowledged in discussing sharing costs savings from the merger with ratepayers, Ameritech's service quality might be constrained by reducing costs to achieve profitability goals in certain instances. (See Harris Rebuttal SBc/Am. Ex. 4.1 at 47). .

Furthermore, the Commission notes that there is information in the record regarding Ameritech illinois' acquisition of Central Illinois Telephone Company's assets and the resulting level of service quality experienced by customers in Centel's former exchanges. (See McClerren Direct, Staff Ex. 8.00 at 12-13, 15; McClerren Rebuttal, Staff Ex. 8.01 at 13; Galloway Direct, SEC/Am. Ex. 8.0 at 7-10). The Commission is concerned that the Centel asset purchase, while different from the nature and scope of this transaction, further demonstrates the difficulty Ameritech illinois has in focusing upon certain facets of service quality when undertaking even a relatively small acquisition. The Commission anticipates that the Joint Applicants' proposed reorganization will require substantially greater resources to manage and integrate all areas of operation than either SBC or Ameritech alone has experienced in past acquisitions.

2 The Commission also rejects the Joint Applicants request that the 008>24 issue be addressed in other pending Commission dockets, specifically dockets 98-0252 and 98-0453. (JA Br. on Exceptions, at 11-12). Their request overlooks the Commission's statutory role under § 7-204 and, as the Commission's discussion in this section makes evident, avoids the effect of the merger on the 008>24 issue. Ameritech has a duty to comply with the Commission's standards of service rules and the company's Alternative Regulation Plan, approved under § 13-506.1 of the Act, and the proposed merger may adversely affect its ability to do so. Attachment BBIFNA-Q7-2 PageExhibit 289 -(i-1)' of 294 Attachment Page 3.- of

Exce~t ~rom 9/23/99 Final Order of the Illinois Commerce Commission in 98-0555 concerning Joint ApplIcation for approval of the reorganization of llIinois BeJJ TelephoneCompany d/b/a Ameritech IJIinois, and the reorganization of Ameritech IJIinois Metro, Inc. in accordance with Section 7-204 of the Public Utilities Act and for aU other appropriate relief. Page 3 of 4

In view of the foregoing, the Commission finds that Ameritech lllinois' continual failure to satisfy the OOS>24 standard, coupled with financial pressures from the National Local Strategy, armounced cost savings from provisioning and maintenance, sharing cost savings with customers, or in combination, may constrain the company's efforts. to. meet the OOS>24 requirement (See TerKeurst Rebuttal, GCI Ex. 2.1 at 20-21). Consequently, the ComlrusslOn concludes that the Joint Applicants must be given further incentive to focus on the OOS>24 problem. Accordingly, to ensure that the Joint Applicants continue Ameritech lllinois' efforts to meet the OOS>24, the Commission finds it necessary to impose a condition pursuant to its authority under Section 7-204(f) on the merger to protect the interests of Ameritech Illinois and its customers.

Ameritech Illinois' repeated failure to meet the OOS>24 service standard, however, suggests that the existing service quality mechanism in the Alternative Regulation Plan does not provide an adequate incentive for the company to comply with the standard_ The record indicates that Ameritech Illinois' failure to meet its service quality obligation is caused, at least in part, by its perception that it is more cost effective to reduce rates pursuant to the service quality component of the price index formula than it would be to allocate the necessary resources to satisfy the OOS>24 service standard For example, AmeritechIllinois witness Gebhardt testified on cross­ examination that $30 million was the approximate annual expenditure needed to comply with the OOS>24 standard.3 In contrast, under its Alternative Regulation Plan, the company's cost of failing to meet the OOS>24 service quality measure has been an annual rate reduction of approximately $2.5 to $ 4 million. (JA Br. on Exception, at 12; McClerren Rebuttal, Staff Ex. 8.01 at 12 (indicating a rate reduction from $2.5 to $4 million per year); Tr. 1383 (cross examination of GCI witness TerKeurst) (noting that the armual rate reduction has declined from approximately $4 to $2.5 million as noncompetitive services are classified as competitive and removed from the Alternative Regulation Plan)). Therefore, given that the proposed merger places additional pressures on the Joint Applicants' resources as discussed above, and given Ameritech Illinois' treatment of this service quality issue on a cost-benefit basis, the Commission finds that in order to protect the interests of Ameritech Illinois and its customers the Joint Applicants must, as a condition of the merger, be provided with an additional incentive for meeting the OOS>24 standard separate and apart from the service quality component incorporated in the price index formula of Ameritech Illinois' Alternative Regulation Plan. 4

The Commission finds that imposing a condition that relates to Ameritech Illinois' avoided cost of meeting its service quality obligations should eliminate the company's current cost incentive not to meet the OOS>24 standard. Accordingly, and pursuant to its authority under § 7-204(f), the Commission requires the Joint Applicants to demonstrate to the Commission, within six (6) month~ after obtaining all necessary regulatory approvals and closing the merger, that Ameritech I1linoisjs:in~compliance withtheOOS>24 service standard. The Joint Applicants shall demonstrate compliance in the same marmer currently used by the Commission and Ameritech Illinois to measure the company's compliance with the OOS>24 service standard. If, after notice and hearing, the Commission determines that the Joint Applicants have not demonstrated that Ameritech Illinois is in compliance with the OOS>24 service standard during the last month of the six month period, the Commission shall assess a $15 million penalty ($30 million x 50%), separate and apart from any annual rate reduction resulting from the service quality component of the company's Alternative Regulation Plan.

In subsequent full calendar year periods (including calendar year 2000), the Joint Applicants shall demonstrate compliance in the same manner currently used by the Commission and Ameritech Illinois to measure the company's compliance with the OOS>24 service standard or face a one-time, $30 million assessment, separate

3 :MI. Gebhardt testified on cross examination that in order to meet the 00S>24 standard under current productivity levels, the company would need to spend about $30 million (300 additional technicians at an average of $1 00,000 per year). (Tr. 817). 4 Although we decline to adopt Staff's and GCl's recommendation in this proceeding, we express no opinion here and leave open the question whether their recommendation should be adopted in docket 98-0252 as part of our five-year review of the Alternative Regulation Plan. Alternative Regulation Plan Order, Appendix A at 10. 5 The six month period begins to run in the first full calendar month following all necessary approvals and close of the merger. Thus, for example, if the Joint Applicants receive all necessary regulatory approval and close the merger on November IS, 1999, the six month period begins to nm on December 1, 1999. Attachment BBIFNA-Q7-2 Page 290 of 294 Exhibit_(~1) Attachrrl"nt Page ..:::t of

Excerpt from 9/23/99 Final Order of tbe Illinois Commerce Commission in 98-0555 concerning Joint Application for approval of tbe reorganization of Illinois Bell TelepboneCompany d/bla Ameritech Dlinois, and tbe reorganization of Ameritech Illinois Metro, Inc. in accordance with Section 7-204 of the Public Utilities Act and for all other appropriate relief. Page 4 of 4

and apart from any annual rate reduction resulting from the service quality component of the company's Alternative Regulation Plan. 6 The penalties, if assessed, are to be credited to Ameritech Illinois' customers. Ameritech illinois shall allocate the credit among customer classes (residential, small business, and large business) based on the percentage of lines 005>24 in each class. For example, suppose that in the six-month reporting period Ameritech illinois failed to restore 100,000 out of service lines within 24 hours. Suppose further that of the 100,000 lines, 50,000 were residential lines, 30,000 were small business lines, and 20,000 were large business lines. In calculating the credit, Ameritech Illinois would allocate the amount as follows: $7.5 million ($15 million x 50%) to all residential customers, $4.5 million (15 million x 30'>~) to all small business customers, and $3 million ($15 million x 20%) to all large business customers. The Commission believes that this approach is a reasonable method of apportioning the credit and does not favor one particular class over another.

The condition the Commission imposes here is designed to ensure that the Joint Applicants focus on the 005>24 problem and devote the necessary resources to meeting the standard. The Commission has attempted to craft a condition that equates Ameritech illinois' estimated costs of complying with the 005>24 standard with the company's costs in avoiding it. The Commission believes that the condition is fair, protects Ameritech illinois and its customers from risks resulting from the merger, and provides the necessary incentive to comply with the 005>24 standard. FurtheznIore, the condition shall last no longer than necessary to secure and ensure compliance and protect Ameritech illinois and its customers, and shall remain in place for each succeeding year until expressly eliminated by the Commission.

6 The Commission notes that if Ameritech Illinois fails to comply within the six month period and the full calendar year 2000, and the timeframes overlap in year 2000, the $30 million assessment Will be pro rated to avoid double counting. Attachment BBIFNA-Q7-2 Page 291 of 294 EXhibit-(17-1) r Attachment Page-Lof

THE DENVER POST US West chief hangs it up

By Andrew Backover Denver Post Business Writer

March 1 - US West chief Sol Trujillo, citing a power struggle in his company's pending $45.2 billion merger with Qwest Communications International, will quit when the merger is completed, perhaps as soon as midyear.

Trujillo, 48, one of the most powerful Hispanic executives in corporate America, is deferring to Joe Nacchio, Qwest's chainnan and chief executive, who has been tabbed the leader of the combined company.

"Joe and I have different styles, different approaches," Trujillo said Tuesday. "There's some things we don't agree on. My belief is a CEO should have his stamp on it, and a company can't have tw.o different stamps on it. I thought it would be in the best interest of our share owners and would be helpful to Joe to step aside."

Trujillo said he has not decided what he will do after the merger, although numerous opportunities await him, analysts say.

He has spent his career in the Bell system, having joined Mountain Bell as a business consultant out of the Unversity of Wyoming in 1974. He rose through the ranks, enduring the breakup of the old Ma Bell monopoly, continued along with the rise of the Internet and, [mally, the merger with Qwest. He added the title of chairma.J::l to president and chief executive in May 1999.

His tenure has been marked by great strides in moving U S West beyond being a regular phone company. But it also has been marred by criticism over the company's ability to keep up with service demands in its booming, yet widespread, 14-state territory. US West is appealing a $12.77 million customer-refund order by Colorado regulators, who penalized the company for excessive order delays and untimely repairs. The company also has had run-ins with regulators in other key states. Attachment BBIFNA-Q7-2 Page 292Exhibit of 294 _(RCS-1) Attachl'T)lmt t:;} Page _~_ ofT_

Trujillo wiil step down when the merger is complete, serving as the last leader of a telephone company that has served customers for more than a century in various forms.

Among analysts and industry observers, Trujillo's future with the merged company was uncertain, because it became increasingly clear in recent weeks that Qwest's management team would take the lead in integrating the telecommunications companies, aiming to become a global juggernaut. But the timing of the announcement took many by surprise.

After being questioned repeatedly by the media regarding his role in the new company, Trujillo broke the news while he was in New Orleans for a Cellular Telecommunications Industry Association conference. He flew back to Denver, meeting with reporters as he bestowed a technology grant to the Denver Indian Center in west Denver.

"I cannot look at people and say, "I'm not going to leave' when I made a decision to leave," Trujillo said.

Nacchio was not available for comment Tuesday.

But Qwest spokesman Tyler Gronbach said, "We knew approximately a week ago that Sol and Joe and both boards knew that he was not intending to stay on." Initially, Trujillo's decision was to be announced as part of the naming of the merged company:s top 20 executives. That decision could come this week or ne)..i week, Gronbach said.

"There was 90 to 95 percent of alignment about the strategic issues revolving around the company," Gronbach said in response to Trujillo's remarks. "Sol might have had issues with the way the structure was lining up. From our perspective, Joe Nacchio, who is going to be CEO of the new company, ultimately decides who the members of the new management team will be. "

Industry analyst Jeffrey Kagan said that the announcement was not a total surprise but a "bit startling." Calling Trujillo an "icon,"

Kagan said it was fairly certain that he would leave: but no one knew when.

"You can't have two captains on the bridge without causing confusion," said Kagan, who is based in Atlanta.

He added that the change represented an exciting time. He called it "a Rocky Mountain high. "

"It will be interesting watching Joe Nacchio take the reigns of the new company and guide all those customers and all those revenues onto his new fiber networks," Kagan said "Seems like a match made in heaven ... or Denver, at least." Even longtime U S West critic Thomas Friedberg, a former employee ofU S West who is an analyst for Janco Partners in the Denver Tech Center, gave Trujillo kudos for "making a commonsense decision to go gracefully and on his terms."

"Sol deserves a lot of credit for realizing he was left with a company that was strategically challenged," Friedberg said. "U S West shareholders should thank Sol for getting the company sold, because it had, in my opinion, a difficult future Attachment BBIFNA-Q7-2 ExhibitPage _{¥-1293 of 294J AttachrlJ1nt Page...2of

ahead if it had remained independent."

Both companies' stocks rose Tuesday. Qwest was up 25 cents to $46.25; U S West rose 75 cents to $72.63.

Qwest's maniage to U S West, announced in July, is an example of the growing trend toward consolidation in the telecommunications industry. It's no longer about providing phone service alone, but about selling customers Internet access and data services, wireless services, video programming and software rentals.

US West, despite a reputation in some circles for poor service, has made great strides in rolling out high-speed Internet access through beefed up phone lines, also known as DSL. In fact, it has more DSL customers, 110,000, than any other Bell company or DSL startup. It has 25 million customers in 14 midwestern and western states - from Iowa to Washington and south to Arizona and New Mexico.

Qwest, on the other hand, built a 25,500-mile fiber-optic network throughout North America and while becoming the fourth-largest long-distance carrier. Its technology allows for high-speed exchange of information, with a backbone built to deliver video, voice, data and other services at the speed of light.

A public company for less than three years, Qwest has experienced eX"plosive revenue gro\\'th, but it needed a partner like U S West to improve its access to customers. Following approval by the Federal Communications Commission and seven states in the territory, it plans to bundle packages of services, increasing revenues per customer.

Trujillo said Tuesday that he initiated the merger talks with Qwest last year. He said he was rebuffed at first, which prompted him to pursue a merger with Global Crossing, a Bermuda-based fiberoptic backbone company. That $37 billion merger was under way when Qwest stonned in and stole the bride with a sweeter offer.

Even though Qwest was the much younger and smaller company - with revenues of about $4 billion compared to U S West's $13 billion - it is acquiring the Baby Bell. The deal was billed as a merger of equals, but Nacchio dispelled that notion recently.

"The last time I looked, we paid a 35 percent premium, and that generally means we acquired them," he said. .

The duo has voiced differing opinions on US West's perfonnance and prospects. Nacchio has criticized U S West for being at war with its regulators and for underinvesting in its network until it could not keep up with service demands. Nacchio and others have pointed out that Trujillo inherited some of these problems from his predecessors in the late 1980s and early '90s, but he has been the lightning rod for criticism.

"If you measure on most (standards) against other Bells, it is the lowest performing Bell," Nacchio said. "You can't have the reputation, where I pick up Fortune magazine last week and I see their name U S Worst. You can't have that said about you. That's bad business." Trujillo voiced the opposite opinion Tuesday, defending U S West to the end.

"The service that U S West provides is very good," he said. "Any time you benchmark what we do against any company that operates in this part of tlle country, I will take a back seat to no one. And the data and facts support tlmt." Attachment BBIFNA-Q7-2 PageExhibit 294 of 294(RCS-1) Attach~5"i_ Page -.:i. orY THE ARIZONA REPUBLIC

Exec to leave US West

By Max Jarman The Arizona Republic March 1, 2000

US West Chairman Solomon Trujillo will step down after his company's $48.5 billion merger with Qwest Communications International is completed later this year.

Trujillo initially was to share the helm of the merged company with Qwest Chairman Joe Nacchio.

In a written statement, Trujillo cited concerns about the merger as the reason for his departure.

"Even though we have agreed on a wide range of issues, we have not found agreement on key strategic issues, including leadership appointments, the structure of the organization and the role of the office of the chair," he stated.

Qwest executives were not available for comment Tuesday on Trujillo's decision.

Jeffrey Kagan, a telecommunications industry analyst in Atlanta, called Trujillo's decision" startling," but not a complete surprise.

"It wasn't a question if Sol wilt leave, just when," he said.

Kagan said that Nacchio and Trujillo are the two strongest-willed CEOs in the business and that an attempt to share leadership could have proved detrimental to the new company ..

Annie Hill, a spokeswoman· with Communication Workers of America, said she suspected a top-level power struggle when, after three months of work, the management team of the merged company had not been named.

Trujillo, 48, spent a number of years in Phoenix as head of US West's SmallBusiness Services division and the company's directory publishing arm, US West Marketing Resources. He was named president and chief executive officer in 1998 and chairman in 1999.

Trujillo is credited with pushing US West into the Information Age with the aggressIve rollout of data services such as its MegaBit high-speed Internet access.

But detractors say the entry into Internet services came at the expense of the company's core traditional telephone customers who have increasingly complained to regulators about declining levels of service. Such complaints have prompted regulators in Arizona to consider making improved service a condition to their approving the Qwest deal.