Qwest Is Said to Be in Talks to Acquire MCI

MCI Inc. may be following in the footsteps of the industry’s mother ship, AT&T; Corp., which agreed Monday to be acquired by regional telephone company SBC Communications Inc.

MCI’s possible buyer, identified Thursday by people close to the situation as Qwest Communications International Inc., is seen by many as an unlikely suitor. The regional carrier is in debt and losing money. Its interest in buying MCI for $6.3 billion was first reported Thursday by the Wall Street Journal.

Verizon Communications Inc., another regional carrier, also has had discussions with MCI, a person familiar with those talks said. Several private equity firms and MCI’s biggest individual shareholder, Latin American telecom tycoon Carlos Slim, also have assessed possible bids, the Journal reported.

None of the carriers would comment on the matter Thursday.

Qwest, SBC and Verizon are among the so-called Baby Bells that were split off from the old AT&T; in 1984 to provide local phone service.

As for MCI, it started as a long-distance carrier and was acquired in 1998 by WorldCom, which four years later collapsed into Chapter 11 bankruptcy amid an $11-billion accounting fraud. The company emerged from bankruptcy last year as MCI.

Today, MCI is second only to AT&T; in serving corporate and government clients.

Combining MCI and its corporate clientele with Qwest wouldn’t be the same as putting AT&T; together with SBC, analysts said. In fact, said F. Drake Johnstone of Davenport & Co. in Richmond, Va., a Qwest-MCI marriage “does not make any sense.”

Comparing it with Verizon, he said, “Qwest is a third-rate company. Who would want to combine with them?”

For its part, Verizon may not be rushing to close any deal with MCI. Verizon Chairman Ivan G. Seidenberg said when he discussed the company’s year-end results last week that Verizon’s strategy wouldn’t be changed by the acquisition of AT&T; by SBC, as it hadn’t been by Sprint Corp.’s recent pact to buy Nextel Communications Inc.

Verizon is focused on shedding telephone lines, not adding to them. A higher priority could be to buy out the 45% stake that Britain’s Vodafone Group has in its most prized possession, Verizon Wireless.

The idea of Qwest making a bid for MCI, even at what would be pocket change to Verizon, surprised some analysts.

“Most see Qwest as a target” rather than a buyer, said Steven Titch, a senior fellow at the Heartland Institute, a Chicago research company.

Qwest, a long-distance company that acquired local phone company U.S. West in 2000, was hurt by some of the same accounting woes that plagued many of the young and growing fiber-optic network builders, including Global Crossing Ltd.

Unlike Global Crossing and most of the others, Qwest has managed to stay out of Bankruptcy Court. But its financial condition has suffered.

The Denver company has $16.5 billion in long-term debt, $652 million more in short-term debt and $1.7 billion in losses through the first nine months of last year.

Qwest is the dominant local phone company for 14 Western states; its territory includes sparsely populated expanses that are expensive to serve.

“Combined, Qwest and MCI could go in a number of directions, but still there are challenges that Qwest’s ownership of MCI won’t address -- Qwest’s geographic territory and [a lack of a] wireless operation,” Titch said. Qwest offers Sprint cellular service under its own brand name.

Titch said that Verizon would bring “more to the table” for MCI, while MCI would bring “more value to Verizon.” Verizon, he added, could use a big gain in the large-business market similar to the boost SBC would get from AT&T.;

Qwest gained 20 cents to $4.40 on the New York Stock Exchange. MCI shares gained 47 cents to $20.15 on Nasdaq.