Verizon's $6. 75 billion takeover of long-distance provider MCI is the latest example of how regulatory changes in Washington, D. C., are continuing to transform the telephone industry.
NEW YORK — Verizon’s $6.75 billion takeover of long-distance provider MCI is the latest example of how regulatory changes in Washington, D.C., are continuing to transform the telephone industry.
A court ruling nearly a year ago and subsequent decisions by the Federal Communications Commission were key catalysts for yesterday’s deal as well as last month’s $16 billion takeover of AT&T by SBC. Those findings effectively forced long-distance providers on the auction block by boosting their operating costs, compounding a multiyear slide in customers and revenues.
While consumer advocates expressed worry, it’s not clear the loss of AT&T and MCI as rivals will free their acquirers to boost prices for long-distance phone calls. That’s because many consumers and businesses already are taking advantage of money-saving alternatives — especially cellphones and Internet-based phone services from cable-TV companies and others.
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“If you’re willing to change the way you purchase services, there’s a lot of competition out there” beyond the local Bells, said David Willis, an industry analyst for the Meta Group in Stamford, Conn., who noted that AT&T and MCI already had stopped competing for new residential customers.
The recent spate of telecom mergers, including December’s deal by Sprint to acquire Nextel Communications for $35 billion, will reduce the industry to four dominant telephone companies: Verizon, SBC, BellSouth and Sprint Nextel. It also leaves Qwest, a Denver-based Baby Bell whose higher stock-based bid was rejected by MCI, isolated in a highly competitive market.
Verizon, the country’s largest regional phone company, declined to say what will become of the MCI brand. It is a storied name partly because of its role as the first major rival to AT&T’s national long-distance monopoly, and then as a legal opponent in the case that led U.S. Judge Harold Greene to order the breakup of the Bell System in 1984.
Recent telecom deals
Verizon & MCI: Verizon Communications agrees to buy MCI, the nation’s second- largest long-distance provider, for $6.75 billion in cash and stock. Announced yesterday. The deal could result in about 7,000 job cuts from the combined Verizon-MCI work force of about 250,000 employees.
SBC & AT&T: SBC Communications agrees to acquire former parent AT&T in a $16 billion deal, mostly in stock, that would create one of the world’s largest telecom companies. Announced Jan. 31. Expected elimination of 13,000 jobs, many through attrition, on top of existing plans at the two companies to eliminate at least 12,000 jobs before the merger is finalized more than a year from now.
Alltel & Western Wireless: Alltel, the sixth-biggest U.S. cellular carrier, agrees to buy Western Wireless, a Northwest regional carrier that owns the Cellular One brand, for about $4.4 billion in cash and stock. Announced Jan. 10. Alltel Chief Executive Scott Ford said “probably much less than 10 percent” of Western Wireless’ 4,000 workers would be subject to job cuts. Such decisions expected after deal closes.
Sprint & Nextel: Sprint agrees to acquire Nextel Communications in a $35 billion deal, mostly in stock, combining the nation’s third- and fifth-largest cellphone carriers. Announced Dec. 15. Officials have declined to discuss layoff prospects.
Cingular & AT&T Wireless Services: Cingular acquires AT&T Wireless for $41 billion in cash to form nation’s largest cellphone company. Announced last February and completed Oct. 26. Cingular plans to cut about 10 percent of its 68,000 jobs.
Source: The Associated Press
MCI was acquired in 1998 by Bernard Ebbers’ WorldCom, which after a financial scandal and a trip through bankruptcy court reorganization, re-emerged with the MCI name in 2003.
Yesterday’s transactions mark the second major sale of a company by Michael Capellas, MCI’s president and CEO. He was the head of Compaq Computer when it was taken over by Hewlett-Packard in 2002, a troubled merger that just last week helped cost HP Chief Executive Carly Fiorina her job.
For SBC and Verizon, the consumer business is a minor attraction in their purchases. Instead, they are counting on the corporate customers and national network operations that New York-based AT&T and Ashburn, Va.-based MCI bring.
The merger would jump-start Verizon’s efforts to become a national service provider for large companies, thanks to MCI’s base of 1 million business customers and an extensive fiber-optic network and local infrastructure outside of Verizon’s largely Northeastern power base.
Such attributes were an even bigger lure for San Antonio, Texas-based SBC in acquiring AT&T, which has three times as many business customers and provides substantial network assets and operations beyond SBC’s strongholds in the Southwest, the Midwest and California.
Still, AT&T and MCI also bring a big base of residential customers to whom SBC and Verizon would like to market cable-TV services they plan to begin providing over their phone lines starting later this year. Both SBC and Verizon are investing billions to upgrade their networks to deliver video and interactive services.
The Verizon-MCI deal, expected to take one year to gain government approval, will result in about 7,000 job cuts from the two companies’ combined work force of about 250,000 employees, executives said in a conference call after the announcement.
Capellas and the MCI board accepted Verizon’s bid, even though it was about a half-billion dollars below what Qwest offered. Verizon, also a top cellular player, likely won MCI’s favor because it is larger and in better financial shape than Qwest.
MCI investors were said to have reacted poorly to the prospect of being paid with shares of stock in Qwest, the local phone carrier for much of the sparsely populated Rocky Mountains and Pacific Northwest that has been marred by its own accounting scandals.
The deal values MCI’s stock at $20.75 per share — equal to Friday’s closing price. But after rising 12 percent in two weeks amid speculation fueled by the SBC-AT&T deal, MCI’s shares fell 82 cents, or 4 percent, to $19.93 yesterday.
Verizon shares fell 12 cents, or 0.3 percent, to $36.19 yesterday. Qwest shares fell 17 cents, or 4.1 percent, to $3.98.