Sunday, April 3, 2005

Verizon Issues Letter to MCI, Noting Market Forces

Verizon published a letter to MCI's Board of Directors urging them not be influenced by the interests of short-term investors but by the company's long-term strength and viability. The letter lays out reasons why Verizon believes its offer represents the most sensible course for MCI and its stakeholders, including the challenging industry environment it sees confronting MCI and the industry as a whole. This industry assessment includes:

  • continuing overcapacity, particularly in MCI's core long-distance segment;

  • declining unit prices for all communications services accompanied by soaring demand for broadband and wireless capacity and applications;

  • ongoing technological displacement as IP-based broadband and wireless products and services continue to undermine the industry's traditional wireline business model;

  • shift to a business model built upon the mass customization of bundles of services configured to suit each customer's needs in which voice is just one among many applications delivered by the vendor;

  • greater competitive pressure as AT&T completes the merger with SBC;

  • inter-modal competition most directly from cable and wireless services providers but also, in the near future, from potent new entrants such as power companies; and

  • growing skepticism in the capital markets as the demand for returns and rising interest rates intersect with the inherent realities of network economics' scope and scale.

Verizon argues that its financial position would protect the new company from the inevitable operational and financial challenges as new business models emerge, and would also allow Verizon/MCI to invest the substantial sums required to pursue exciting new opportunities in IP and wireless products and services. It also argues that the numbers in the Qwest proposal mask a myriad of financial and operational risks.


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