Thursday, January 5, 2006

Verizon and MCI Close Merger, Creating a Stronger Competitor and Closing a Chapter in Telecom History

Verizon Communications completed its acquisition of MCI, bring to a close a long history for MCI as one the fiercest and most colorful competitors in the telcom industry. MCI traced its lineage to Microwave Communications of America Inc., which was founded by Jack Goeken in 1963. In 1968, the company was joined by Bill McGowan, who led the regulatory fight to challenge AT&T in long distance communications, eventually leading to the break-up of AT&T in 1984.

In 1998, WorldCom acquired MCI in a deal valued at $37 billion at the time of its announcement. As part of the transaction, the merged company sold the MCI Internet backbone to Cable & Wireless, while retaining the UUNET network. In 2002, MCI-WorldCom was driven in bankruptcy after committing one of the largest accounting frauds in U.S. history. It emerged from Chapter 11 in 2004.

For Verizon, the merger accelerates it push into enterprise services, especially in out-of-region cities. Verizon's in-house Enterprise Advance initiative, which was launched in 2002, included the nationwide rollout of new optical and packet infrastructures. In May 2004, Verizon completed deployment of a national IP MPLS backbone consisting of some 200 routers deployed in 56 markets. Verizon deployed Cisco 12000 Series Routers in this national IP VPN network. Verizon also uses Juniper Networks' E-series edge routers for consolidating traffic. At the optical transmission layer, Verizon built nine regional rings connecting the company's local networks using Fujitsu's FLASHWAVE 7600 regional WDM system, FLASHWAVE 7200 transponders, and FLASHWAVE 4500 core transport MSPP system for the nine regional rings. Fujitsu's FLASHWAVE 4500 MSPP platform was also used extensively throughout the network as a Multi-Service Provisioning Platform (MSPP) to provide advanced services, like Ethernet over SONET, and aggregate traffic generated from Enterprise Advance business.

In addition to MCI's core enterprise and government customer base, the acquisition adds key network routes and infrastructure. Since emerging from bankruptcy, MCI embarked on several network building projects. In July 2004, MCI embarked on a Converged Packet Access (CPA) strategy based on Ethernet and MPLS over SONET. MCI selected CIENA and Siemens as key suppliers for a new Ultra Long Haul (ULH) DWDM optical network to serve as the foundation for all MCI services. MCI selected Ciena's CoreStream platform for an optical ULH backbone that leverages software-configurable wavelength switching. MCI has also tested 40 Gbps transmission using equipment from Ciena and Mintera. MCI awarded a multi-year Global Master Purchase Agreement to Movaz Networks covering the rapid deployment of its next generation optical transport solutions across its global network. MCI announced an expansion of its MPLS backbone using Cisco System's equipment.

"This milestone for Verizon creates a new competitive force with the power of the global MCI network and the reach of Verizon's broadband and wireless networks in the U.S.," said Verizon Chairman and CEO Ivan Seidenberg. "Our strategy is to be a customer-focused leader in consumer broadband and video, as well as business and government services, in both the landline and wireless environments. We believe that our superior networks are the basis for innovation and competitive advantage in communications. The combination of our world-class wireless and broadband access networks with the leading global IP (Internet protocol) backbone will allow us to deliver the highest quality end-to-end experience for our customers," Seidenberg added.

Some key notes on the Verizon merger:

  • MCI has been renamed "Verizon Business" and will now encompass business and government customers and related functions of the former MCI as well as similar businesses that previously were part of Verizon Domestic Telecom, including the former Verizon Enterprise Solutions Group.

  • Verizon now operates three network-based businesses: Verizon Business; Verizon Wireless; and Verizon's landline segment.

  • The combined company owns and operates an end-to-end, global IP network spanning more than 100,000 miles, providing next-generation IP network services to medium and large businesses and government customers.

  • Verizon will continue to be based in New York.

  • The combined company has approximately $90 billion in annual total consolidated operating revenues and approximately 250,000 employees, serving customers in 150 countries.

  • Verizon's top management team and Board of Directors remain unchanged.

  • Michael Capellas, former president and CEO of MCI, has announced that he is leaving the business now that the merger has been completed.

  • John Killian has been named president of this new Verizon Business unit.

  • A launch of new services is expected later this month.

  • The merger deal was first announced on 14-Feb-2005 for a valuation of $6.7 billion. At the time, the companies said the deal was driven by the rapidly changing dynamics of the U.S. telecom market, by operational synergies, as well as by the opportunities presented by next generation IP services -- especially enterprise services. The merger is expected to lead to a reduction of about 7,000 employees involved in network engineering and operations, sales, and corporate functions. The companies estimate $2 billion in CAPEX savings through the third year of the merger.

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