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Verizon Wins the MCI Bidding

May 3, 2005
Like a victorious eBay bidder, Verizon paid much more than it initially intended for MCI, something it didn't really need. Verizon will be paying about $8.4 billion for MCI, less than the $9.74 billion Qwest offered.

Verizon/MCI • Verizon Completes MCI Purchase • FCC approves AT&T, MCI Deals • Justice Dept. OKs AT&T, MCI Sell-Outs • Consumer Groups Oppose Big Telco Mergers • MCI Stockholders Approve Purchase By Verizon • Verizon Wins the MCI Bidding • Verizon Acquiing MCI

Just as on eBay, where sellers frequently reject the high bid if it comes from a bidder with a slim or negative feedback rating, MCI was dubious that debt-ridden Qwest would be able to come through with the cash.

Then there's the question of whether MCI really is the shiny fully-restored classic Verizon was hoping for, or whether it's really a rust bucket with a thin coat of cheap paint. MCI isn't exactly a low-mileage one-owner cream puff. Before its latest paint job, when it was still WorldCom Inc., it committed the biggest corporate-accounting fraud in history and has only recently rolled out of bankruptcy court.

If the deal goes through -- a big if, given all the regulatory hoops remaining -- Verizon may also be asking itself why it paid close to top dollar for a long-distance company just as VoIP and cell phones were making long distance obsolete.

Verizon hopes the answer is that the MCI brand name will enable it to snag more high-paying business customers, the kind who buy data circuits and network services in addition to long distance. MCI has about 60,000 large corporate customers in 150 countries. With SBC buying AT&T, Verizon feels it needs a leg up in the corporate market.

What does all this mean to consumers? Most consumer organizations will oppose the transaction, saying there's already been too much consolidation, leading to less and less competition and higher calling rates.

Others argue that the real competition these days is coming from cell phones and Internet phone service, including that provided by cable TV companies.

The MCI deal and SBC's acquisition of AT&T create two giant telephone companies that provide local, long distance and cell phone service. SBC-AT&T will be the largest company in revenue, with Verizon-MCI a close number two. Qwest barely registers on the chart.

Verizon also owns a big part of Verizon Wireless and SBC owns half of Cingular, which recently absorbed AT&T Wireless. Qwest doesn't have a significant presence in long distance or wireless.

Consumers who think consolidation will dampen competition don't need to take to the streets yet. The Federal Communications Commission and the Justice Department are still mulling over the SBC-AT&T deal and Sprint's acquisition of Nextel. The addition of Verizon-MCI, far from speeding up the action, is likely to bog it down ever further.

Consumer advocates might want to take a careful look at whether the supposedly feverish competition for long distance customers of the past few decades actually did much more than annoy consumers who didn't want to get sales calls at dinnertime.

Market research over the past few decades has consistently shown that consumers want to get their local, long distance and wireless service from a single carrier so they can pay for it with a single bill and have a single point of contact.

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