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Verizon To Acquire MCI For $6.7 Billion
An anonymous reader submits "Even after a last minute offer from Qwest Communications, MCI board members accepted a less lucrative offer from Verizon to be bought for $6.7 billion in cash, stock and dividends. The acquisition comes after Nextel Communications and Sprint Corp. partnered up in a $35 billion deal and SBC Communications Inc. and AT&T Corp. announced a $16 billion merger plan. So, what's next for the telecom industry?"
Sprint to aquire Nextel, SBC to Aquire AT&T, Verizon to aquire MCI.
Take a freakin' breather already. All in the name of screwing the consumer over, I'd bet.
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"So, what's next for the telecom industry?"
More crappy support and dropped calls?
Crap.
Followed by the big names getting into IP telephony, and promptly turning that into crap.
From what I've seen out of qwest here in the west, verizon is a better company. Lesser of two evils I suppose.
Verizon is what used to be GTE and Bell Atlantic. With MCI in the fold, does this allow them to be a national phone company that can be a local carrier coast to coast, like Bell used to be in the 70's? I am suspecting not, but it's worth asking.
I know MCI is not a local phone company (at least they weren't when I had them as my long distance carrier), but that would make Verizon huge (even more so than they are now).
A love beyond compare...
These opponents play to people's sense of outrage at the corporate scandals that rocked the business world last year, as well as to the breathtaking extent of the $11 billion accounting fraud at WorldCom. Their main claim is that allowing MCI to exit bankruptcy would allow it to profit from its "ill-gotten gains." Both justice and deterrence, they argue, require that MCI be dismembered, if not put to death.
Such claims understandably strike an emotional chord with America's scandal-weary public. Yet those claims are wrong all the same. Simply put, MCI retains no "ill-gotten gains" from the accounting fraud. Whatever short-term advantage the company might have gained has already been lost, many times over. In his opinion on the recent litigation between the SEC and MCI, Federal district court judge Jed Rakoff placed the liquidation value of the company at less than $6 billion. This value pales in comparison with the $200 billion by which WorldCom's equity has plunged.
In the overall scheme of things, there can be little doubt but that MCI would be in stronger shape today had the fraud never occurred, than it will be if it is allowed to emerge from bankruptcy.
While MCI's liquidation would be good for its rivals, it would be bad for the consuming public. It would reduce the choices available to many consumers of telecom services, force 20 million MCI customers to find new suppliers, and leave more of the telecom market under the control of the still relatively monopolistic Baby Bell companies. Local phone competition, which has finally started to deliver major savings to consumers in recent years, would take an especially big hit. Also wrong are claims that the liquidation of MCI is a means to secure justice and promote deterrence against such misdeeds in the future. Justice is served by punishing responsible individuals. So is deterrence. Neither is served by wreaking punishment indiscriminately on such innocent people as workers, investors, creditors, and customers.
To penalize an entire corporation for the misdeeds of some of its officials is to spread the resulting loss among all participants in the corporation. If corporate misdeeds are punished at the individual level, deterrence works as it is supposed to work. But if those misdeeds are punished at the corporate level, the deterrence effect is weakened and the injustice compounded.
It would be different if all participants within WorldCom had agreed to engage in fraudulent practice. But this is clearly not what happened. A few crooked executives engaged in fraudulent activity, and the practice was halted and made public when other individuals within the company became aware of it. To punish MCI wholesale would be to punish those innocent individuals and not the guilty wrongdoers.
It is easy to see why the entrenched incumbents are so keen to bring about MCI's demise. The likes of AT&T and the Baby Bells would rather feed on WorldCom's carcass than see it rejuvenated and have to compete with it for business. The public good, however, would be far better served if MCI receives a second chance instead of an early grave
If that happens, the telcos will have screwed themselves.
Why bother with a high-price telco with crappy services when you can get Vonage or Skype or any number of IP-based carriers that will be able to provide the same service cheaper and faster than traditional telcos.
You tend to see consolidation in dying industries - POTS is becoming a dying industry. Once VOIP starts really hitting the mainstream, that line of revenue will only continue to dry up.
Right now the money is in cellular service (where there's usually at least one local/regional company competing with the big boys - or at least there has been in my experience), and in VOIP. Either the telcos adapt or die.
As we've learned from both the dinosaurs and AOL/TimeWarner, sometimes being big and complex isn't a good thing from an evolutionary standpoint.
Under-the-table payments to board members is the only plausible reason that comes to mind. Are there other explanations?
Whatever the explanation is, I have a hard time seeing how "increasing shareholder value" comes in to it...
Who modded this OT? It is, in fact, directly on-topic, and funny to boot.
And no, I am not the original poster...
You'd rather they evaporated entirely, disabling one of the internet backbones, leaving 75 government agencies and much of the Fortune 1000 without phone and internet service, putting hundreds of thousands of people out of work, and completely destroying the investments of people taken in by the accounting fraud? Maybe the assets and obligations should go to some organization capable of managing them honestly?
This isn't really the same MCI that was involved in accounting fraud, because the individuals involved in the fraud aren't there any more. Even if they were, after being bought by Verizon, they wouldn't be in charge any more. The idea that a corporation is a legal entity with rights and responsibilities is a useful fiction in making the law function at all, but it doesn't actually make sense to talk about "the same MCI" from then to now.
I'm surprised at the knee-jerk alarm about this merger. Do you people really think that this is going to lead to monopoly?
Hardly. For one thing, there are still a ton of telecom providers out there... it'll be Verizon, AT&T, BellSouth, Qwest, and two dozen smaller regional carriers. All these mergers have accomplished is the undoing of the ill-considered 1986 telecom act, which said you couldn't do both long-distance and local telephony. Now the big guys do both.
But more importantly, there's more competition than ever before in the industry because of emerging technologies and the net. Voice over IP providers --including pure-play guys like Vonage, as well as all the cable companies-- are starting to compete with the phone companies. So AT&T and Verizon are going to have to stay competitively priced in order to keep from losing customers to those services.
And have you ever heard of cell phones? The wireline carriers can't crank up costs, because they're already losing people to their mobiles.
Not that it matters, but I'm a liberal and usually object to any conglomeration of corporate power. But it's silly to instantly panic at any sort of merger and assume it's a nightmare.
All these companies are doing is trying to stay alive in the face of killer new technology. The only people screwed here are the carriers themselves.
Unless that one bill alone costs double what the five would.
Hopefully I didn't put any [] around my words.
Say what you will about capitalism, but it is almost the sole reason that the standard of living has risen so much in many countries over the last three centuries or so.
There is no finer systerm for taking a society from an agrain to a post-industrial culture. However, I think most of the ills we are suffering these days arise from capitalism. Whether it's corporate conservatism (RIAA, DMCA, etc), monopoly and consolidation (Microsoft, mergers), or the rollarcoaster ride that is our economy (How many of you went poor ->millionaire->poor in a a year or two? How many of you have houses that have inflated 400% in the last year or two, and will likely loose all that and more in the next couple?), captalism is failing us every day.
I'm sure the European Aristocracy that the cultural and industrial revolutions of 1700's replaced were congratulating themselves how much they had improved their standard of living over the old days. But they couldn't see outside the limits of their (*gasp*) class, or how their own system had become rotten and evil. It's funny how despite what High School history teachers tell you, learning history never stops us from repeating it. Life is shifty and will disguise itself. Maybe it's time to revolt again.
Comcast and Warner today operate under "gentleman's agreements" not to enter each other's territories, thus granting themselves monopolies and the ability to price-gouge where they currently are.
And no, no county does "franchises" for cable. Look at Milwaukee for a good example of how it USED to work - prior to the death of Viacom cable, there were two COMPETING cable companies in that county. The only reason no other cable company's come by since is that TW threatens to go into their existing counties and deliberately undercut their prices, running at a loss till they drive the competition out of business.
What's interesting about all of these acquisitions is that yes, in the short term, it may reduce some degree of choice we once had as consumers. But bear in mind, that just as old, crusty, entrenched companies can be laid to rest by merging with other old, crusty, entrenched companies, there is always room for new competitors. Simply put, the monopolies resulting from these acquisitions still need to stay on their toes, lest the carpet be yanked out from under them by newer, leaner, more innovative, more agile, competitors.
so, along comes MCI, emerging from bankruptcy, retaining all the capital/equipment/etc/etc that they need to run a telecom company, but without any of the debt.
Do you think this would allow them to be more competitive in telecom than the companies that are already up to their eyeballs in debt?
::Sigh::
::sigh::
Good thing we broke up MA-Bell so we wouldn't have one company monopolising the entire phone system. Thank god we were smart enough to not break them up into smaller monopolies that ran different parts of the country and could get enough to buy up each other and eventually reform Brother-Bell, and Sister-Bell, which marginally compete.
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I agree with your annalysis on a general and historical basis, however, the sustainability of capitolism is what worries me. I'm no economist, so if anyone can tell me why this line of thinking is wrong, please do...
y cle you give away with a five year service contract. They don't even pass the credit check for your home phone service. they can dial 911 and toll free numbers because the law says you have to let them, but thats it.
Once all the mergers have taken place, and all the costs have been cut there are two very different sides to the results.
1) Stock holders are happy, customers are happy. Costs go down, profits go up, services improve.
2) Employees loose jobs. Greater efficiency of a larger single organization dictates a reduction in staff to serve the previous customer base.
Result number two is NOT indefinately sustaianable as far as I can see. Historicaly large mergers send about 10-30% of the total merged workforce to the unemployment lines. With the added pressue of increasing population growth and longer lived workers the only long term result that i can see is massive unemployment and further rifts between the rich and the poor.
When you are part of the five member team operating the world's largest telecom (efficiency and cost cutting to the max to get here) you pull down a pretty good salery...or do you? Who do you sell your service too? The other 400,000,000 people who used to do your (and your four co-workers) Job(s) are unemployed, on Government support and can barly afford food, let alone the latest cellular tele-palm-vibrator-microwave-oven-tv-car-tent-bic
Sure you still have the Government buying your service, but now they've followed your lead and are down to a staff of 17 humans and an artificial intelegence budget calculator.
these are silly extremes, but there will be problems (social and political to mention just two) long before this sort theoretical insanity ensues. I feel that we are teetering awfully close to this edge already and if the governments of the world allow capitolism un-checked reign for much longer we are looking at a class War. Not a polite little small "w" war, but a big nasty guns and death and hatred big "W" War.
I work in a town where 70% (thats a REAL FIGURE) of residential property is owned by out-of state investors and the only jobs left for locals born in the area are service related. This works for now. People don't starve, and they don't live on the street, but the underlying resentment is DANGEROUSLY close to comming above the water line. and like I said, no one starves here.
Just wait untill the merger of MCI-WORLD-AT&T-VerizoPhone with EuroTel-Virgin-FranceTel puts 40% of the western world's telcom workers out of a job.
Governments are supposed to regulate things so that they don't get out of hand. there's a fine line between de-regulation and anarchy (I'm looking at all the Libertarians here...) And i think we need less of both.
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