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Summary:

Wall Street Journal notes that late Tuesday night Qwest Chief Executive Richard C. Notebaert and several MCI officials — including court-appointed monitor Richard Breeden and director W. Grant Gregory had a chat. On the call, MCI asked Mr. Notebaert to raise Qwest’s current bid of $27.50 […]

Wall Street Journal notes that late Tuesday night Qwest Chief Executive Richard C. Notebaert and several MCI officials — including court-appointed monitor Richard Breeden and director W. Grant Gregory had a chat.

On the call, MCI asked Mr. Notebaert to raise Qwest’s current bid of $27.50 a share to $30 a share and requested stronger assurances in the agreement for Qwest to stick with the deal in spite of potential customer losses or other downturns in MCI’s business after a deal would be signed but before it closed.

Okay if this is true, . MCI folks may have some sense of terrible times ahead, and that’s why they want those assurances. Not a good sign for any eventual owner. Or is it a game of Chicken little being played out in the telecom boardrooms?

By Om Malik

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  1. Charlie Sierra Wednesday, April 6, 2005

    What the MCI folks are talking about here is that if a deal with Qwest were made, the defection rate would accelerate. Its a fact.

    MCI Business is in Atlanta, and the message mgt has heard from bigtime enterprise customers is that Qwest is a non-starter. Forgettaboutit.

    Thus MCI is in the proverbial hard place. The deal with Qwest is an illusion, because the non-cash portion will be near worthless months before any closing, due to a constant stream of pressers from walking highend customers.

    The risk that any deal with Qwest would blow up before closure is very real, and everybody would lose. bigtime.

    I still think that two years from now Verizon will regret wasting time on MCI, and instead wish they’d found a way to structure an understanding with Vodafone, to acquire Nextel.

    Breaking up the Sprint-Nextel would pay big dividends, but forcing Sprint to raise the price for MSO access to wireless. Denying the would be third major wireless player much needed additional scale, is much more important.

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  2. Charlie, as always spot on, however, from my sources, MCI has been losing customers faster than before and Q has nothing to do with it. It is a myth being propagated by some, but in reality a lot of them gave up on MCI a long time ago. the company has over promised and under delivered for nearly three years ago and has basically survived on price cuts and deep discounts. I am not sure if they can really say that the high end customers are going to walk.

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  3. Charlie Sierra Wednesday, April 6, 2005

    Om, this is a fairly complex topic, and I can only hope to shine some light on it.

    But here’s the deal:
    1) Switching carriers is no simple task. Full stop. period. Often times the division of intermixed assets is not even well known. It takes 3-6mos minimum just to make material progress.
    a) Switching costs are not cheap.
    b) Risks are very large. A switching screwup could damage your main business, etc.

    2) There is still a very healthy pulse on MCI’s network. ATT and MCI are the enterprise market, nobody else is even close, including Sprint and all the “pure” fiber guys.

    3) The biggest customers have relationships with nearly all carriers. So you never fully leave one for another. Signing an additional carrier is not switching, but it can be “news”.

    4) Qwest is (self-acknowledge?) desperate.

    5) VZ owns NYC/NE, the center of the world and HQ of everybody that counts.

    Thus, the creative bundling options are all in the VZ-MCI corner. VZ-MCI will be able to meet any market pricing and still make more profits than any other competitor.

    The way I look at it is that VZ-MCI is the only MCI option with anything close to growth prospects. I’m led to believe that VZ has some interesting plans in the works, Qwest is merely looking to decellerate the eventual.

    Just look at wireless. VZW has the best operation and mints lots of CASH, Qwest is a Sprint MVNO and is happy to just break even.
    I rest my case.

    Telecom’s “Rumble in the Jungle”, is when the RBOC’s begin to seriously fight within each others borders. It might not ever happen, but if it does, it will be irreversable.

    PS. With all due respect, I think you’re a bit too harsh on MCI minus the former mgt team. anyway additional datapoints add more color.

    We’ll both know the answer in a few years. vbg.

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