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Verizon to Acquire MCI for $7 Billion


This is the third big merger in the U.S. telecommunications industry in as many months. Verizon, the largest phone company on the eastern seaboard, is offering nearly $7 billion dollars to buy MCI, a mostly long-distance provider based in suburban Washington, D.C. MCI used to be known as WorldCom, which was forced into bankruptcy by accounting fraud in 2002. When the company emerged from bankruptcy, it resumed operations under the MCI name.

After the largest long-distance company, AT&T, was acquired last month by the regional phone company SBC, analysts predicted that MCI could not survive long as an independent company.

Speaking on CNBC television, Verizon's chief executive, Ivan Seidenburg, explained why MCI is an attractive partner. "What we want to own is the capabilities to get to the market. So what MCI brings to the table is extraordinary sales force, network, Internet protocol capabilities, product innovation, excellent culture," he said.

Mr. Seidenburg said in the fast-changing, technology-driven telecommunications industry, the telephone is no longer the principal tool of growth.

Michael Capellas, the former chief of Compaq Computer who has headed MCI since it emerged from bankruptcy, says the merger is all about moving up the pyramid of corporate technology. "Like all things in technology, you've got to continue to move up the stack. The core [of the stack] starts to commoditize, the standards move at IP [internet protocol], and you build services on top of that," he said.

Another of the regional phone companies, Quest, had been bidding to buy MCI, whose main asset is its Internet backbone, which accounts for a high percentage of all Internet connections made in North America. Earlier, Sprint, another long-distance firm, purchased Nextel, a cellular phone company, also based in suburban Washington. Verizon says the merger with MCI is likely to take a year to complete. The merged company is expected to shed 7,000 jobs.

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