Report: Qwest, Verizon eyeing MCI

 According to reports, Qwest Communications International and Verizon Communications are in talks with MCI regarding a possible merger.

This news is on the heels of SBC Communications’ announcement on Monday to acquire AT&T for about $16 billion.

The Wall Street Journal Thursday reported that Qwest has been talking with MCI for months about a potential merger that could total $6.2 billion. The Journal also said that Verizon is in preliminary talks with MCI, but the LEC has not decided if it will make a bid.

David Willis, an analyst at consulting firm Meta Group, says he doesn’t see Qwest fixing any of its troubles by buying MCI. “Qwest already has a long-distance business. Buying more assets is not going to improve its position,” he says. Qwest is the weakest of the LECs, with sizable debt of $17.2 billion.

According to a report from Forrester Research, a Qwest-MCI merger could provide “Qwest with access to a state of the art global network. The collapse of KPN-Qwest reduced Qwest’s scope in the U.S.”

The Journal piece also points to Carlos Slim, MCI’s single largest investor, as a wild card. There has been talk that Slim might try to transform MCI into a private company.

MCI has a significant business customer base and $5.6 billion in cash, which is why it’s a target. The carrier’s domestic and international networks and services compete directly with AT&T. Clearly the other LECs do not want SBC to gain such a big advantage by buying leadership in the enterprise market while they are left behind.

It’s not clear at this point if Verizon and/or BellSouth are also looking at Sprint. While not a strong international player, Sprint has steadily held the number-three position among the biggest interexchange carriers in the U.S.

Sprint’s wireless business, the carrier’s strongest asset, may also be more attractive to Verizon, since both networks are based on Code Division Multiple Access. But it could also cause regulatory approval problems for the LEC. By acquiring Sprint, Verizon Wireless would be catapulted to the front of the pack as the largest wireless provider in the U.S. by tens of millions of users.

And the same wireless business could be problematic for BellSouth, which is a 40 percent owner of Cingular Wireless, the largest wireless service provider. SBC owns 60 percent of Cingular, which primarily uses GSM technology to support its network.

One scenario that BellSouth could be considering is exiting its joint venture arrangement with SBC on Cingular and moving forward with a bid for Sprint. It’s just one of several possibilities.

MCI does not comment on rumor and speculation, spokesman Bradford Burns said.