Qwest touts its bid to MCI shareholders

CHICAGO — Pitching a Qwest and MCI combination as a cost-saving bonanza, Richard Notebaert lashed out yesterday against an MCI management that is ignoring his company's bid for the nation's No. 2 long-distance carrier.

Frustrated that his $8 billion offer hasn't evoked even a courtesy response from MCI's management, the chief executive of Qwest stepped up his campaign on Wall Street by appealing directly to MCI shareholders.

Notebaert said Qwest's plan for MCI will generate cost savings exceeding $10 billion — thanks to the elimination of 15,000 jobs. He even raised the possibility of improving Qwest's offer — if only MCI agreed to talk.

He reiterated that Qwest's bid was more than $1 billion richer than the one from Verizon Communications.

"We have a superior bid, and even if you don't think it's superior, there's clearly potential for a superior bid," he told the shareholders during the presentation. "You have something worth discussing."

Even if Notebaert forces MCI's board to discuss his bid, few analysts expect he can wrest the company away from Verizon, which won over MCI with a $6.7 billion offer in stock and cash.

"What MCI's investors hope is that Qwest's persistence will make Verizon sweeten its bid," said Ben Silverman, an analyst with FindProfit.com.

Notebaert has even started to snipe at colleagues in the one-time gentlemen's club of Bell phone executives.

"I support consolidation in our industry, but I worry about concentration," Notebaert said yesterday. "If two firms have 80 percent of the market, everyone else becomes a niche player. You want at least three players to have competition."

Notebaert wrote an editorial published Monday in the Wall Street Journal that suggested a combination of SBC Communications with AT&T, followed by MCI's takeover by Verizon Communications, will suppress competition and stifle innovation.

A Verizon executive shot back Monday that Qwest's bid for MCI isn't in the public interest and might even threaten national security.

Such harsh words uttered publicly underscore the dramatic shift in the telecom landscape that the pending mergers of the two largest local carriers with the two biggest long-distance firms represent.

"It was always the hope among regulators that the Bells would compete head to head with each other," said Terry Barnich, a Chicago-based telecom consultant. "For years they maintained this gentlemen's club, never stepping on each other's toes. But now market forces are moving them into competition. So you get this public sniping."

Notebaert argues that regulators will give the SBC/AT&T and Verizon/MCI deals close scrutiny because of fears that a duopoly will dominate the industry.

Public officials have started asking that question, said Shane Greenstein, a professor in Northwestern University's Kellogg School of Management.

"There are two competing views," Greenstein said. "One is that every company is going to jump into all markets and compete, in which case these big mergers don't matter that much. But the other is the concern it will be the two big players who divide up markets to the detriment of everyone else, and that's what Notebaert is articulating."

If Notebaert fails to win MCI, as most expect, he said Qwest will seek to build its network by buying up pieces of AT&T and MCI that regulators will surely require be sold before they bless the pending mergers.

Both AT&T and MCI own local networks that serve business customers in Chicago, New York, Los Angeles and other markets that compete directly with SBC and Verizon in their home territories. It is unlikely that regulators would allow those competitive facilities to be absorbed by dominant local carriers.

"Significant divestitures will be required," Notebaert said. "It'll be a chance to pick up customers and facilities. It's very challenging, a tougher path than buying MCI, but we've proven at Qwest we can execute, and we'll do it if necessary."

Notebaert's backup plan makes sense, said Raul Katz, president and chief executive of Adventis, a Boston consultancy.

"It is viable," he said. "A lot of properties will be divested. It will definitely be an opportunity. There is a potential Plan B for Qwest in that."