Qwest Won’t Quit; Verizon Swipes Back

UPDATED: If Qwest’s quest for MCI fails, it won’t be for lack of effort.

The Denver regional telecom is willing to recast its $8 billion bid a
second time, provided MCI comes to the negotiating table, according to a
report in today’s Wall Street Journal. There is no deadline attached
to the offer to restructure the bid, the paper said.

The goal is to convince the Ashburn, Va., long-distance and network services
provider to abandon Verizon’s $6.7 billion proposal — which the board of
directors has already accepted.

Qwest spokesman Steve Hammack declined comment on today’s report, but
reiterated the company’s case as an MCI merger partner.

“We’d create an important new communications company, of which MCI would be
a meaningful part,” Hammack said. “The new entity would have a strong
market position of approximately 20 percent of the addressable market.

In addition, Qwest’s offer is superior to Verizon’s because it delivers cash
at both merger approval and at closing, and it eliminates the downside risk
of stock price movement, Hammack said.

To date, MCI has been unresponsive to Qwest’s requests, although some
shareholders have been urging management to at least sit down with Qwest.

In a statement Thursday, MCI has said only that its board received a revised
bid and “will conduct a thorough review of the Qwest offer, as it has with
all previous offers.”

Further details of Qwest’s latest efforts to displace Verizon could come
tomorrow morning, when Chairman and CEO Richard Notebaert will give a
briefing for analysts and investors.

“[Notebaert] will update investors on our strategic plans for this year, and
is likely to answer some questions that are posed about MCI,” Hammack said.

In a rapidly consolidating industry marked by the pending merger of SBC and AT&T , Qwest is concerned about being marginalized. The company has 15.5 million access lines, 1 million DSL lines and 4.6 million long-distance customers, mostly in the Midwestern and Western United States.

In a recent research note, Bryan Van Dussen, an analyst with Yankee Group,
said Qwest has limited options to grow by acquisition if it can’t sway MCI.

Meanwhile, Verizon is hitting back. A senior executive with the New York
carrier told telecom leaders at the Emerging Issues Policy Forum in Florida
today that a Verizon-MCI merger would be better for corporations, government
agencies, consumers and shareholders.

“We announced our plans to invest substantially in MCI’s network and systems
to continually upgrade those assets,” Tom Tauke, a Verizon executive vice
president, said in a statement. “Qwest has made no such commitments.”

Tauke went so far as to say Qwest could close MCI’s Internet backbone and
long-distance network, “something that would result in less competition,
more concentration and fewer choices.”

Verizon also raised the specter of national security, noting
that MCI provides network services for the Department of Defense and
Department of Homeland Security.

Finally, Tauke disputed Qwest’s claim that a Qwest-MCI merger would clear
regulatory process any sooner than a Verizon-MCI teaming. Verizon believes
regulatory approval will be complete in approximately one year.