The MCI Foodfight: Shareholders, Not Regulators, Should Decide

by on March 11, 2005

Competition is heating up in the telecom industry, and not just for customers. Verizon’s bid for MCI–once thought a done deal — is being aggressively challenged by Qwest. After MCI’s board accepted Verizon’s $6.7 billion bid on Valentine’s Day, Qwest sweetened its own bid, offering some $8 billion. MCI’s board met this week to consider the offer, with a decision expected next week. This intra-Bell food fight should put paid to any notion that Bells are too monolithic to ever challenge one another. And it’s a good thing for investors–not least those with MCI stock.

The problem is that both sides are now making this a political issue. Qwest struck first and hardest, with high-profile statements by CEO Dick Notebaert that a Verizon-MCI merger would dangerously increase concentration and threaten competition in telecom. A media and lobbying campaign has followed–urging regulators to scrutinize the deal. Verizon has been much more restrained, although it too has played the political card, arguing that–because Quest owns an Internet backbone already–its deal could decrease competition.

Economically, such claims are doubtful, to say the least. The Internet backbone market is highly competitive, as is the market for business customers Quest focuses on. And telecom as a whole is swimming in new competiton, from cable TV firms, wireless firms, Internet-based telephony and more.

Worse, the claims are politically short-sighted. Both firms have (rightly) fought for years to relax the grip regulators have had on the industry. But now they are inviting those regulators to come right back in. Its a strategy they–and their customers–will regret.

The fight over MCI is a tough, and legitimate one. And sometimes even entertaining. But given the competitive state of telecom today, the final decision should be based on finances, not politics; and by MCI shareholders, not politicians.

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