MCI Takes the Low Bid

MCI Inc. on Monday announced it had done something rare for a company seeking a buyer: It chose the low bid.

The long-distance carrier’s decision to turn down a $7.3-billion offer from Qwest Communications International Inc., and instead accept one for $6.8 billion from Verizon Communications Inc., reflected MCI’s desire to be part of a global powerhouse. Qwest executives didn’t comment Monday.

Ashburn, Va.-based MCI, formerly WorldCom Inc., is betting that Verizon will be one of the survivors in the souped-up world of telecommunications -- a world that is rapidly consolidating into a handful of full-service behemoths.

The Verizon-MCI marriage, which must be approved by shareholders and antitrust regulators, is the fourth major telecom combination announced or closed in the last three months. The most recent came two weeks ago, when AT&T; Corp., the nation’s largest long-distance company, agreed to be acquired by SBC Communications Inc., the second-largest local phone company behind Verizon.

Consumer groups are worried that reassembling parts of the old AT&T; monopoly will lead to fewer choices, higher prices and less innovation by entrenched providers.

“The mergers might satisfy Wall Street, but they will hurt Main Street,” said Janee Briesemeister, senior policy analyst at Consumers Union, publisher of Consumer Reports magazine.

The major telecom companies don’t see it that way.

The agreement between Verizon and MCI is “additional confirmation that the telecommunications industry is taking the logical next step in its evolution,” said SBC Chairman Edward E. Whitacre Jr.

“Companies that want to compete coast to coast and around the world are combining to create the size, scale and product scope needed to be effective,” he said.

The so-called Baby Bells, formed in the 1984 break-up of AT&T;, say phone companies face plenty of competition from new technologies that allow cable companies and others to offer low-cost phone service and high-speed Internet access. The Bells are rolling out fiber-optic lines to deliver video programming to compete with cable.

SBC and Verizon, by buying the Baby Bells’ two biggest landline competitors, would get the global breadth to serve multinational corporations with local and long-distance service, high-speed data lines, mobile phone service and a growing portfolio of new products, like network management and Internet security.

“This requires global strength, scope and economies of scale,” Verizon Chairman Ivan G. Seidenberg said, adding that those cost savings would flow through to all businesses and consumers.

Both Seidenberg and Whitacre said that some of those new technologies would end up pushing them to compete more against each other for residential customers. Although the Bells vie for business customers, they have largely ignored each other’s residential markets.

AT&T;’s CallVantage and Verizon’s VoiceWing products can provide telephone service over any high-speed line -- or, for that matter, any high-speed wireless connection or broadband-over-power-line service.

Verizon -- the product of a 2000 merger between GTE Corp. and Bell Atlantic Corp. -- no longer will think of itself as a regional company, Seidenberg said, because it can now put together a nationwide Verizon Wireless service, a nationwide long-distance network, which also carries a hefty amount of Internet traffic, and local customers in 29 states.

Seidenberg said he and MCI Chief Executive Michael D. Capellas had been in talks since late last summer. He said the deal came together as their markets showed more interest in consolidation after the Cingular Wireless purchase of AT&T; Wireless in December and the planned combinations of Sprint Corp. and Nextel Communications Inc. and of SBC and AT&T.;

Customers, he said, want more integrated services. MCI has a global network and a corporate client list second only to AT&T;’s, and Verizon operates the highly rated Verizon Wireless network along with its local and long-distance lines and its high-speed Internet connections.

Under the terms of the agreement, MCI shareholders would receive 0.4062 share of Verizon stock for each share of MCI stock. That is worth almost $4.8 billion based on Verizon’s closing price Friday.

MCI shareholders also would receive $1.50 a share in cash, a total of about $488 million, and quarterly dividends worth nearly $1.5 billion. The total package amounts to $20.75 a share.

The acquisition, expected to close within a year, would lead to a loss of 7,000 jobs and operational efficiencies that give Verizon $1 billion in annual savings in three years.

MCI shares fell 82 cents Monday to $19.93 on Nasdaq, and Verizon fell 12 cents to $36.19 on the New York Stock Exchange.

The deals make sense for MCI and AT&T;, most analysts say, because they were effectively pushed out of the local phone market last summer by court rulings and regulatory setbacks. All they had left, basically, were stellar networks and the biggest shares of the highly competitive market for big business and government customers.

“The industry has fundamentally changed,” said analyst David Willis of the Meta Group research firm in Stamford, Conn. “You can buy a bundle of services from SBC or Verizon -- you might have sticker shock, but you’ll still save money.”

But consumers also can choose to go wireless, sign up for cable telephone service or buy phone service over high-speed lines from a plethora of providers like Vonage Holdings Corp.

“There are lots of options. You just have to be willing to buy a little differently,” Willis said. “You’ll have to switch to technologies that fit what you specifically need. But you have more choice of different services.”

Some advocates for consumers and small business aren’t buying claims that they will benefit in this industry transformation. Much of the touted competition simply isn’t available to much of the mass market, they say.

“Competitive options for residential and small-business customers are shrinking, even as state and federal regulators move toward further telecommunications deregulation,” said Mark Cooper, research director for the advocacy group Consumer Federation of America in Washington.

“That’s a costly combination for consumers,” he said.

Prices already are too high for broadband connections needed for newer phone services, he said, so those services are “not an option for the roughly 70% of households that don’t have high-speed Internet.”

Bill Hardekopf, who tracks industry pricing through his SaveOnPhone.com website, is worried about all the mergers.

“We feel like the consumer may be the big loser when all the dust settles,” he said. “Less competition usually always means higher prices for the general public.”

Smaller Bell rivals are worried too.

“The Ma Bell monopoly system was heavily regulated,” said John Sumpter, a regulatory affairs executive at Pac-West Telecomm Inc., a Stockton carrier that competes with SBC and Verizon for small-business customers.

“Now we’re putting that monopoly back together with more advanced technology and less oversight,” he said, “and I don’t think that’s a good combination.”