MCI Returns to Verizon

by Colin C. Haley

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MCI has jilted Qwest yet again.

The Ashburn, Va., long-distance and enterprise network services provider today deemed Verizon's latest $8.4 billion ($26 per share) offer superior to Qwest's $9.7 billion ($30 per share) proposal.

MCI officials listed several factors they say compensate for the $1.3 billion difference, including "the increasing need for scale and comprehensive wireless capabilities."

Verizon Wireless, co-owned by Verizon and Vodafone, is the second-largest U.S. mobile carrier with 43 million subscribers on a nationwide network. Meanwhile, Denver-based Qwest serves 767,000 through a third-party system.

A combined Verizon-MCI could bundle third-generation (define) wireless offerings with Internet connectivity, data transport and virtual private network (define) services to increase revenue from corporations and government agencies.

Other factors cited by MCI include: Qwest's overall financial picture; questions about its ability to invest in new capabilities; doubts about synergies; and feedback from current enterprise customers.

"From the standpoint of risk versus reward, Verizon's revised offer presents MCI with a stronger, superior choice," said Nicholas Katzenbach, MCI chairman, in a statement.

Verizon, a regional telecom based in New York, upped its offer by about $800 million this weekend to answer Qwest in the three-month bidding war.

Before today, Qwest had finally pulled ahead of Verizon in the competition for MCI, but the lead only lasted a week. A Qwest spokesman was not immediately available for comment, but the carrier could take its offer directly to MCI shareholders to see if they agree with their board's opinion.

Verizon has been pushing financial stability in its proposals and press releases over the sale price.

"The evolving nature of the telecommunications industry requires that effective competitors have financial strength and a full array of offerings," Ivan Seidenberg, Verizon CEO, said in a statement. "Verizon is a leading national communications provider with a stable balance sheet, a premier national wireless business, and a plan to invest in MCI."

Qwest and Verizon covet MCI because of its large IP data-service deals with government agencies and corporations. And with the pending merger of SBC and AT&T, neither wants to be left behind by the wave of industry consolidation.

The Baby Bells consider those long-term, high-margin contracts crucial to their future prosperity, as cable operators, VoIP upstarts and wireless carriers try to hone in on their traditional businesses.

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