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Telecom Is Getting Another Behemoth

Verizon-MCI Union Is Industry's Latest

By Yuki Noguchi
Washington Post Staff Writer
Tuesday, February 15, 2005; Page A01

A series of mergers has transformed the communications marketplace in the space of five months, producing a handful of giants capable of delivering an all-in-one package of phone and Internet services to businesses and consumers alike.

The latest example is Verizon Communications Inc., which yesterday announced a $6.75 billion deal to buy MCI Inc., the Ashburn-based company that pioneered long-distance phone competition and helped build the region's telecommunications sector.

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_____On the Web_____
Press Release: Verizon to Acquire MCI for $5.3 Billion in Equity and Cash
Video Verizon Communications Inc. has agreed to acquire MCI Corp. for more than $6.7 billion in a deal represents the third big telephone industry merger in two months.

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The deal follows a string of other corporate marriages, including the $16 billion acquisition of AT&T Corp. by regional phone giant SBC Communications Inc. and the $35 billion merger of Sprint Corp. and Nextel Communications Inc.

The flurry of activity comes as the telephone industry faces new competition from cable television companies such as Comcast Corp. -- which recently announced plans to offer phone service -- and a constellation of upstarts selling service over the Internet.

"There is no question this makes us a stronger competitor," especially among business and government customers, many of whom already operate in Verizon's northeastern and mid-Atlantic regions, said MCI's president and chief executive, Michael D. Capellas.

Analysts said the deals, which require regulatory approval, could slow the cutthroat price wars that have eviscerated balance sheets but have been such a boon to consumers. The biggest phone companies are now largely regional goliaths that dwarf their competitors -- and that can provide an extensive array of services.

"This is going to be the biggest change in the industry in 21 years," when AT&T was forced to break up its century-old monopoly, said Jay E. Pultz, a vice president at Gartner Inc., a research firm. "All the services will be primarily under the umbrella of behemoths," he said, and with fewer competitors, "it means prices aren't going to be in the free fall they have been."

Rich Nespola, chief executive of the Network Management Group consulting firm, predicted that initially the biggest competition will be between cable and phone companies. "But they will lose those monikers, because they're all going to be communications providers," he said.

In the Washington area, the sale of MCI would probably remove another prominent nameplate from the region's once-bustling telecommunications scene, and its announcement comes on the heels of Reston-based Nextel's sale to Sprint. The acquisition would end MCI's legacy as an independent long-distance phone company that fought to break up the AT&T monopoly in the mid-1980s and more recently fought regional phone companies such as Verizon to sell its own brand of local phone service.

The deal, announced early yesterday, would give MCI shareholders $4.8 billion in stock and $488 million in cash. MCI shareowners would receive 0.4062 shares of Verizon common stock for each common share of MCI. Shareholders would also receive a special dividend payment of $4.50 per share, totaling $1.46 billion. The sale must be approved by MCI shareholders as well as federal and state regulatory agencies, which could take about a year, the companies said.

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