Verizon, MCI to link up in $6.7 billion deal

Valentine's Day betrothal will give regional titan Verizon access to MCI's worldwide long-distance and IP networks.

Verizon Communications has sealed a $6.7 billion deal with long-distance provider MCI as the telecommunications industry continues its spasm of megamergers.

On Monday, Verizon said it will pay $4.8 billion in stock and $488 million in cash for MCI. Verizon will also pay special dividends of $4.50 per share, or nearly $1.5 billion. This makes the total deal for MCI worth more than $6.7 billion.


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The acquisition of MCI comes two weeks after SBC Communications, another Baby Bell, announced it was buying the No. 1 long-distance carrier, AT&T, for $16 billion. The SBC-AT&T deal has changed the telecommunications landscape, pitting the three remaining regional telephone companies--Verizon, BellSouth and Qwest Communications International--against one another in several markets.

The absorption of the two biggest long-distance carriers is further evidence that the telecommunications market is changing in fundamental ways. Telephone companies will have to offer more than just local or long-distance voice services to compete with new rivals such as cable operators and Net-telephony providers.

Merger mania hit the wireless market first. In October, Cingular Wireless completed its acquisition of AT&T Wireless, creating the largest wireless carrier in the United States. Then, in December, Sprint announced a $35 billion merger with Nextel Communications. And in January, Alltel, an independent rural phone company, announced that it was buying regional wireless carrier Western Wireless in a deal worth $6.2 billion.

During a conference call with analysts, Verizon CEO Ivan Seidenberg said his company had been talking to MCI over the past six months or so about a possible acquisition. He added that the market's acceptance of four recent major acquisitions in the wireless and wire-line industry made the timing right.

"MCI is one of the few beachfront properties out there," Seidenberg said. "It would have been crazy for us not to talk to Michael (Capellas, CEO of MCI) about what he and his team were doing. It was a very natural thing for us to do."

What's in it for Verizon?
Verizon Communications, primarily a regional player, will use MCI's nationwide and global Internet Protocol networks to help it reach out to MCI's business customers--a group among which Verizon has had little success. Enterprise customers could also help New York-based Verizon expand its wireless business, Verizon Wireless, a venture of Verizon Communications and Vodafone Group.

The wireless market is a key market for telecommunications providers. While traditional local and long-distance services have seen a falling off of revenue and subscribers every quarter, wireless plans have been going strong. Right now, much of that growth is among consumers. But as wireless networks add new data services and as company work forces become more mobile, business customers are turning into an important market with the potential for huge growth, analysts said.

"When you talk to CIOs today, they don't want to give their wireless business to one carrier and their data to another," Michael Capellas, CEO of MCI, said during the conference call. "This is a market that will

 

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