Verizon to buy MCI, merging industry giants

Top local phone company joins No. 2 in long distance

$6.7 billion cash and stock deal

Consumer impact unclear

Md. jobs likely affected

February 15, 2005|By William Patalon III | William Patalon III,SUN STAFF

Verizon Communications Inc. said yesterday that it will buy MCI Inc. for roughly $6.7 billion, mating the nation's largest local telephone company and No. 2 long-distance provider in a deal demonstrating the depth of change in what was once a staid, regulated industry.

Some consumer advocates said the deal could lead to higher prices and fewer competitive options for basic phone services as the old "Ma Bell" regional phone companies reassemble their monopolistic parts.

Others in the industry said it will let the top companies offer convenient multiservice packages that buyers of technology services have been demanding for a decade.

In accepting Verizon's bid, the Ashburn, Va.-based MCI rejected a $7.3 billion offer from Qwest Communications International Inc., the dominant local phone provider in the western United States but a firm hampered by its high debt load.

"It's the right deal at the right time," said Ivan Seidenberg, Verizon's chairman and chief executive officer.

The new giant - set up now to compete with SBC Communications and AT&T, which announced their merger last month - will resemble more of a national integrated services provider than a regional phone company, able to deliver wireless communications, a strong Internet backbone and improved high-speed data transmission.

The two companies said they would eliminate about 7,000 jobs in the merger, which could have broad implications for Maryland. Verizon says more than 10,000 of its more than 200,000 employees work in Maryland. The company has made Laurel the U.S. headquarters for its wireless-services unit, one of its fastest-growing businesses. And MCI has about 1,000 workers in Maryland, including 350 at a Hunt Valley call center and 400 in a facility in Beltsville.

Spokesmen for both companies declined yesterday to speculate on how job cuts or other cost-reduction measures will be felt locally.

Lengthy process

The deal requires approvals from several federal agencies and numerous state regulators, as well as MCI shareholders. Verizon officials said they expect the process to take about a year.

"We really don't see any regulatory need to divest any of our assets - either Verizon's or MCI's - as a result of this transaction," said Harry Mitchell, a Verizon spokesman. "From our perspective, we don't see that there will be a need to do that."

The widely expected linkup comes as new technologies have diminished the importance for phone companies of leading in local service, long distance or even in both. Their growth is in new opportunities such as wireless communications, super-high-speed broadband Internet access and even cable television - services that years ago would never have been linked to a telephone company.

While companies such as Verizon might use their new high-speed fiber-optics networks to offer cable TV, a business that remains the central focus of such firms as Comcast Corp., those same networks are enabling Comcast and other cable-TV firms to push their way into the voice and data business.

"We don't just have one way of communication anymore; there are a whole bunch of possibilities," said Anthony T. Clark, vice chairman of the Telecommunications Committee within the National Association of Regulatory Utility Commissioners. "So much of this is driven by the technology itself."

Bundled services

Phone and cable companies alike will push to offer broad menus of new products and services, typically bundled together on a single bill.

This "is called the triple play: voice, video and Internet," said Tom Scholl, a former telecommunications-industry executive who is now a partner with Novak Biddle Venture Partners, a Bethesda-based venture-capital firm.

MCI, founded in 1968, essentially created long-distance phone competition in the United States by successfully suing AT&T, forcing Ma Bell to make its phone switches available to rivals and leading to the breakup of the Bell system in 1984. Among the so-called Baby Bells created in the breakup were Bell Atlantic and Nynex, which eventually combined with each other and GTE to form Verizon.

British Telecommunications PLC bought 20 percent of MCI in 1991, and five years later it offered to buy the rest of the company. But it was trumped by a larger bid from Mississippi-based WorldCom Inc. - which completed the $35 billion deal in 1998.

WorldCom went on to go bankrupt in the biggest accounting scandal in U.S. corporate history. The reorganized company emerged from bankruptcy under new management and the MCI name, but with its long-distance business declining rapidly due to bruising price battles and competition from wireless carriers offering free long distance.

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