Qwest's CEO criticizes MCI management on ignoring of bid

Notebaert makes appeal to company's shareholders

March 02, 2005|By Jon Van | Jon Van,CHICAGO TRIBUNE

Pitching a Qwest-MCI combination as a cost-saving bonanza, Qwest Communications International Inc.'s chief executive officer lashed out yesterday at MCI management, which is ignoring his company's bid for the nation's No. 2 long-distance carrier.

Frustrated that his $8 billion offer hasn't evoked even a courtesy response from MCI's management, Richard C. Notebaert stepped up his campaign on Wall Street by appealing directly to MCI shareholders.

Notebaert said Qwest's plan for MCI would generate cost savings exceeding $10 billion, resulting from the elimination of 15,000 jobs. He raised the possibility of improving Qwest's offer if MCI would agree to talk.

He repeated that Qwest's bid was more than $1 billion higher than the one from Verizon Communications Inc.

"We have a superior bid, and even if you don't think it's superior, there's clearly potential for a superior bid," he told the shareholders during the presentation. "You have something worth discussing."

Even if Notebaert forces MCI's board to discuss his bid, few analysts expect him to wrest the company away from Verizon, which won over MCI with a $6.7 billion offer in stock and cash.

"What MCI's investors hope is that Qwest's persistence will make Verizon sweeten its bid," said Ben Silverman, an analyst with FindProfit.com.

Notebaert has started to snipe at colleagues in the one-time gentlemen's club of regional Bell phone executives.

"I support consolidation in our industry, but I worry about concentration," Notebaert told the Chicago Tribune yesterday. "If two firms have 80 percent of the market, everyone else becomes a niche player. You want at least three players to have competition."

In an editorial published Monday in The Wall Street Journal, Notebaert suggested that a combination of SBC Communications Inc. with AT&T Corp., followed by a takeover of MCI by Verizon, would suppress competition and stifle innovation.

A Verizon executive shot back Monday that Qwest's bid for MCI isn't in the public interest and might threaten national security.

Such harsh words uttered publicly underscore the shift in the telecommunications landscape that the pending mergers of the two largest local carriers with the two biggest long-distance companies illustrates.

"It was always the hope among regulators that the Bells would compete head-to-head with each other," said Terry Barnich, a Chicago telecommunications consultant. "For years, they maintained this gentlemen's club, never stepping on each other's toes. But now market forces are moving them into competition. So you get this public sniping."

Notebaert argues that regulators will give the SBC-AT&T and Verizon-MCI deals close scrutiny because of fears that a duopoly would dominate the industry.

Public officials have started asking that question, said Shane Greenstein, a professor at Northwestern University's Kellogg School of Management.

"There are two competing views," Greenstein said. "One is that every company is going to jump into all markets and compete, in which case these big mergers don't matter that much. But the other is the concern it will be the two big players who divide up markets to the detriment of everyone else, and that's what Notebaert is articulating."

Notebaert said that if he fails to take over MCI, as most expect, Qwest will seek to build its network by buying pieces of AT&T and MCI that regulators are likely to require to be sold before they approve the mergers.

AT&T and MCI own local networks that serve business customers in Chicago, New York, Los Angeles and other markets that compete directly with SBC and Verizon in their home territories. It is unlikely that regulators would allow those competitive facilities to be absorbed by dominant local carriers.

"Significant divestitures will be required," Notebaert said. "It'll be a chance to pick up customers and facilities. It's very challenging, a tougher path than buying MCI, but we've proven at Qwest we can execute, and we'll do it if necessary."

Notebaert's backup plan makes sense, said Raul Katz, president and chief executive of Adventis, a Boston consultancy.

"It is viable," he said. "A lot of properties will be divested. It will definitely be an opportunity. There is a potential Plan B for Qwest in that."

The Chicago Tribune is a Tribune Publishing newspaper.

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