Qwest And Verizon Vie For MCI

By W. David Gardner

With MCI's deadline looming for reviewing Qwest Communications' takeover bid, the latter firm is ready to raise the ante in hopes of derailing Verizon Communications' offer for the long distance company.
At the same time, Verizon's Chairman and CEO Ivan Seidenberg spoke out in testimony before the Senate Judiciary Committee claiming that a Verizon-MCI merger would ensure that a strong competitor to AT&T remains viable. SBC Communications is in the process of acquiring AT&T, the leading long distance and business enterprise company.

In another development, a group of small telecommunications companies has hired Gary Reback—the attorney who pushed the Justice Department to sue Microsoft for antitrust violations—to attempt to halt takeovers of AT&T and MCI. Led by XO Communications, the group said it will take its complaint to governmental regulatory agencies.

The Wall Street Journal reported that Qwest is expected late Wednesday to launch a $26-a-share offer for MCI—$1.8 billion more than Verizon's offer. MCI's board has signaled that it favors merger with Verizon, because it believes the former Baby Bell—the largest telecommunications firm in the country—is a better fit. At the same time, major MCI shareholders have been trying to drum up support for higher and higher bids.

As things stand, the MCI board has indicated that it favors the Verizon bid, but has said it would review sweetened bids from Qwest.

"There's no way Verizon is going to let MCI get away," said Pete Wilson, vice chairman of Vercuity. "They'll just reach deeper into their pockets if they have to."

Wilson said he doubted appeals to regulatory agencies could be successful, because MCI is losing money and AT&T is just marginally profitable and its profitability was reached only by initiating massive layoffs.

In his Senate testimony, Seidenberg said an MCI acquisition by Verizon would not change the dynamics of the consumer market, nor would it impact the universal service program.

"Consumers will benefit because MCI's IP network and products, combined with our deployment of fiber directly to home and businesses, will be the most advanced platform in the country," he told Senators.

"Competition from wireless, cable telephony, e-mail, instant messaging, and VoIP will continue to drive pricing, with or without this transaction. The consumer marketplace will continue to become less concentrated over time—with or without this transaction—as new platforms view for the broadband household."

Qwest CEO Richard Notebaert has argued that a Qwest-MCI combine would help create a more competitive environment in telecommunications than a Verizon-MCI entity.

Wilson, whose telecommunications expense management (TEM) firm specializes in enterprise installations, said the telecommunications industry still has significant consolidating to undergo. He expects to see the mergers and acquisitions landscape to pick up after the current spate of acquisitions—including Sprint's acquisition of Nextel—are digested.