Verizon Sees National Security Concerns in Qwest MCI Bid
Verizon came out swinging Mon. against Qwest, its rival to acquire MCI, alleging that “cash-strapped” Qwest’s possible ownership of MCI’s Internet backbone has bad implications for national security. Meanwhile, the war of words between the rival suitors also escalated on the other side, as Qwest CEO Dick Notebaert questioned whether Verizon’s buying MCI would hurt telecom competition.
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Verizon Exec. Vp Tom Tauke had Verizon’s first substantial comments on Qwest’s offer in remarks to the Emerging Issues Policy Forum in Fla. The event is closed to the press, but Verizon released a news release containing his comments. Sources said Verizon doesn’t plan to engage on a continuing fight with Qwest, especially since at this point it is MCI’s designated partner.
Qwest officials hope to negotiate with MCI and are ready to further sweeten their offer, The Wall Street Journal reported Mon. Qwest has also argued that the merger would be relatively easy to get past regulators, saying that’s why it and not Verizon should be the merger partner (CD Feb 22 p 4).
Verizon has committed $3 billion to invest in MCI, mainly in the company’s Internet backbone, Tauke noted. He questioned whether Qwest can make that same level of investment.
“We announced our plans to invest substantially in MCI’s network and systems to continually upgrade those assets,” Tauke said. “Qwest has made no such commitments. They may even close MCI’s Internet backbone and long-distance network, something that would result in less competition, more concentration and fewer choices.”
Tauke argued that the net effect is potentially dangerous. “We don’t believe any of this can be good for consumers or MCI’s govt. or national security-related customers,” he said. “In our view, a Qwest-MCI combination is not in the public interest or the interest of ordinary shareholders and bondholders concerned about creating value over the long-term.”
Tauke also directly challenged Qwest’s claims that a Qwest-MCI merger would get faster regulatory approval. “Qwest will need approvals from essentially the same number of regulators” as Verizon,” he said. Verizon said it filed its first state application Fri., with N.Y.
Qwest officials scheduled a conference call today (Tues.) to discuss earnings with the financial community and the merger is expected to be a topic of questions.
Notebaert’s comments came in an editorial commentary in the Journal, in which he raised concerns about both Verizon’s bid for MCI and the SBC-AT&T merger. “If the mergers are approved, the new companies would dwarf their nearest competitors and control 79% 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.”