February 11, 2005 9:31 AM PST
Report: Talks progress between Verizon, MCI
CNET News.com examines
the mad rush to create
the few multifaceted
telcos meant to dominate
in the new century.
Talks between the two companies heated up during the past week, in the wake of SBC Communications' proposed $16 billion acquisition of AT&T. Reports leaked out on Thursday that Verizon had made an informal bid for the company.
Verizon isn't the only company interested in MCI. Last week, Qwest Communications International offered to buy the carrier for $6.3 billion, according to reports.
This is not the first time Verizon has explored acquiring MCI; the Bell considered buying MCI four years ago, when it was called WorldCom. According to testimony this week at the fraud trial of former WorldCom CEO Bernard Ebbers, Verizon proposed a merger back in 2001, but the deal was abandoned because WorldCom executives feared that Verizon would uncover the ongoing fraud.
Like AT&T, MCI's long-distance business has been declining for the past couple of years, but Verizon could still benefit from the company's long list of corporate customers. Verizon could also use MCI's national and international Internet Protocol networks to reduce costs in its existing business.
Today, Verizon and the other Bells must pay connection fees to long-distance carriers such as MCI and AT&T to carry traffic between their own geographically dispersed regional networks. But if Verizon owned MCI's network, it wouldn't have to pay these fees. In addition, Verizon could eliminate operational redundancies in areas where the two companies' networks overlap.
The rapidly consolidating telecommunications market could result in a new type of phone company.
Traditionally, phone companies sold voice services and little else. But the telecommunications provider of the future will need to offer a broad suite of services that includes voice, video and data over both wired and wireless infrastructures. Analysts believe that pairing local and long-distance phone companies will help these carriers reduce expenses so they can focus on developing new networks to carry these services.
Reuters contributed to this report.