Qwest waits by phone for MCI to call

Afraid of having no date for the telecom merger ball, smallest Baby Bell looks to revise its offer.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
3 min read
Qwest Communications International continues to fight for long-distance carrier MCI.

On Monday, The Wall Street Journal reported that the company is willing to revise its latest offer to purchase MCI, which has already agreed to be acquired by Verizon Communications.

Any revisions to the current offer would only be made if MCI agrees to enter talks with Qwest, the Journal article said. Under its agreement with Verizon, MCI is not able to solicit new bids, but it can respond to a third party if it could lead to a better offer.

Analysts say Qwest's willingness to revise its offer gives off an air of desperation.

"To come back one business day after its offer and say they are willing to change the terms seems a little desperate to me," said Brad Wilson, an analyst with Legg Mason.

Qwest did not return calls for comment.

Qwest submitted its third proposal to MCI's board of directors on Friday. Earlier this month, MCI accepted Verizon's $6.75 billion offer, even though it was $1 billion lower than Qwest's bid. Verizon, the largest of the Baby Bells, is considered a better buyer because it is more financially stable than Qwest.

The dollar figure of Qwest's latest bid is identical to its previous offer, but the new bid offers MCI shareholders a faster payout on the cash portion of the proposed deal as well as some downside protection on the stock portion.

"It's pretty clear that Friday's offer was just the carrot to get MCI to the negotiating table," Wilson said. "They've sweetened the deal a little to make it easier to compare to the Verizon offer. But there's definitely more room for Qwest to up the bid."

Qwest's CEO Richard Notebaert doesn't seem to be giving up without a fight. On Monday, he published an editorial in the Wall Street Journal in which he argued that the proposed mergers of AT&T and SBC and MCI and Verizon would reduce pricing competition for consumers and stifle innovation.

"If the mergers are approved, the new companies would dwarf their nearest competitors and control 79 percent of the business-government segment--one of the most lucrative in our industry," he wrote. "The reality is that this scale, pricing power and overall market clout make it extremely unlikely that any other player can grow market share. Odds are, these behemoths would not compete head-to-head in most local markets but would instead flex their muscles to squeeze out smaller competitors, emptying the playing field."

Notebaert has argued previously that a Verizon-MCI deal would face more scrutiny from regulators than a deal with Qwest. But analysts say Notebaert's claims are somewhat overblown.

"We acknowledge that on some level it would probably be harder for the government to swallow a Verizon takeover of MCI than a Qwest takeover," Legg Mason analyst Blair Levin wrote on Friday in a note to investors. "But we also continue to find the prospect of a materially quicker and easier government review of Qwest-MCI to be more speculative than likely."

MCI has not publicly commented on the new offer from Qwest, nor has it commented on the possible revision to the bid.