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Maryland Could Be Hit By Job Cuts From Verizon, MCI Merger

Posted on: Tuesday, 15 February 2005, 21:00 CST

Feb. 15--Verizon Communications Inc. said yesterday that it will buy MCI Corp. for roughly $6.7 billion, mating the nation's largest local telephone company and No. 2 long-distance provider in a deal demonstrating the depth of change in what was once a staid, regulated industry.

In accepting Verizon's bid, the Ashburn, Va.-based MCI rejected a $7.3 billion offer from Qwest Communications International Inc., the dominant local phone provider in the Western U.S. but a firm hampered by its high debt load.

"It's the right deal at the right time," said Ivan Seidenberg, Verizon's chairman and chief executive officer.

The new giant -- set up now to compete with SBC Communications and AT&T, which announced their merger last month -- will resemble more of a national integrated services provider than a regional phone company, able to deliver wireless communications, a strong Internet backbone and improved high-speed data transmission.

Some consumer advocates said the deal could lead to higher prices and fewer competitive options for basic phone services as the old "Ma Bell" regional phone companies reassemble their monopolistic parts. Others in the industry said it will let the top companies offer convenient multi-service packages that buyers of technology services have been demanding for a decade.

The two companies said they would eliminate about 7,000 jobs in the merger, which could have broad implications for Maryland. Verizon says more than 10,000 of its more than 200,000 employees work in Maryland. The company has made Laurel the U.S. headquarters for its wireless-services unit, one of its fastest-growing businesses. And MCI has approximately 1,000 people working in Maryland, including 350 at a Hunt Valley call center and another 400 in a facility in Beltsville.

Spokespersons for both companies yesterday declined to speculate on how job cuts, or other cost-reduction measures, will be felt locally.

The deal require approvals from several federal agencies and numerous state regulators, as well as MCI shareholders. Verizon officials said they expect the process will take about a year.

"We really don't see any regulatory need to divest any of our assets --- either Verizon's or MCI's --- as a result of this transaction," said Harry Mitchell, a Verizon spokesman. "From our perspective, we don't see that there will be a need to do that."

The widely expected linkup comes as new technologies have diminished the importance for phone companies of leading in local service, long-distance, or even in both. Their growth is in new opportunities such as wireless communications, super-high-speed broadband Internet access and even cable television services -- services that years ago would never have been linked to a telephone company.

While companies such as Verizon may use their new high-speed fiber-optics networks to offer cable TV, a business that remains the central focus of such firms as Comcast Corp., those same networks are enabling Comcast and other cable-TV firms to push their way into the voice and data business.

"We don't just have one way of communication anymore, there are a whole bunch of possibilities," said Anthony T. Clark, vice chairman of the Telecommunications Committee within the National Association of Regulatory Utility Commissioners. "So much of this is driven by the technology itself."

Phone and cable companies alike will push to offer broad menus of new products and services, typically bundled together on a single bill.

This "is called the triple play: Voice, video and Internet," Tom Scholl, a former telecommunications-industry executive who is now a partner with Novak Biddle Venture Partners, a Bethesda-based venture-capital firm.

MCI, founded 1968, essentially created long-distance phone competition in the United States by successfully suing AT&T, forcing Ma Bell to make its phone switches available to rivals and leading to the breakup of the Bell system in 1984. Among the so-called Baby Bells created in the breakup were Bell Atlantic and Nynex, which eventually combined with each other and GTE to form Verizon.

British Telecommunications PLC bought 20 percent of MCI in 1991, and five years later offered to buy the rest of the company. But it was trumped by a larger bid from Mississippi-based WorldCom Inc. -- which completed the $35 billion deal in 1998.

WorldCom went on to go bankrupt in the biggest accounting scandal in U.S. corporate history. The reorganized company emerged from bankruptcy under new management and the MCI name, but with its long-distance business declining rapidly due to bruising price battles and competition from wireless carriers offering free long-distance.

Still, MCI retained a strong corporate business and a 98,000-mile Internet traffic network that spans the globe, an asset it has by virtue of its ownership of UUNet, an early Internet service provider. By acquiring MCI, Verizon gets access to that network, which also opens the door to opportunities such as Internet telephony, both Seidenberg and MCI chief execuutive Michael D. Capellas said yesterday.

Comcast last month said it will be offering digital phone service to 15 million households sometime this year, a move that plants it squarely on Verizon's turf.

Although MCI's network is believed to need significant upgrades, it would take years and cost countless billions for Verizon to construct one from scratch. MCI's network jumps Verizon ahead by several years, analysts said yesterday.

The agreement calls for Verizon to acquire MCI for $4.8 billion in stock and $488 million in cash. Additionally, MCI will pay its shareholders quarterly and special dividends of $4.50 per share, adding another $1.46 billion to the deal and pushing its total value up to $6.75 billion.

Verizon's bid values MCI at $20.75 per share_right where the target company's stock closed Friday, when speculation about a bidding war were starting to surge. MCI's shares fell 82 cents each, or 3.95 percent, yesterday to close at $19.93.

Verizon shares closed at $36.19 each, down 12 cents.

Although some industry experts have been pushing for a Verizon-MCI linkup since last year, speculation intensified after SBC made a $16 billion bid for AT&T in late January.

In conference calls with analysts and journalists yesterday, both Verizon CEO Seidenberg and MCI's Capellas both said the merger talks started either late last summer or in early fall, and said the SBC/AT&T alliance did not spark their discussions.

But analysts said Verizon had to buy MCI or risk being marginalized.

"Verizon faced higher risks by doing nothing than [virtually any risks faced] by going after MCI," said Victor Schnee, president of Probe Financial Associates Inc., an Ironia, N.J., firm that conducts specalized research for institutions.

"That's not to say the MCI deal is without risk, since here are some questions...but they could have looked very bad had they not done this--especially if they let someone else get MCI."

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Source: The Baltimore Sun, Maryland

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