Vaunted Verizon Needs a Victory

For example, over the past four years, Verizon's employee benefit costs have ballooned 50%, hitting $17.9 billion from $11.9 billion.

To be sure, the growth of Verizon Wireless, the joint venture with Vodafone (VOD Quote), has helped keep investors' attention from wandering to the negative stuff. And the company's bold promise to string optical fiber to homes and deliver the triple play of TV, phone and Internet seems to offer an attractive alternative to slowly shutting off the lights.

But don't think Verizon is sitting pretty. Last year, in a bid to rid itself of slow-growth operations, the company put some of its local-phone businesses up for sale. But the move failed when bidders failed to flock to the offering.

And Verizon may soon find that it could use a big pile of cash. One possibility is that wireless partner Vodafone could ask to be bought out of the Verizon Wireless venture. While Verizon has said it would love to own the entire business, it's not clear how the financing would work.

That's because Verizon is already treading on eggshells with credit agencies. Standard & Poor's and Moody's both put Verizon on watch for a downgrade last month, when the company made its bid for MCI. S&P had concerns about Verizon's already weakening core business and the ongoing cash requirements MCI would have.

Still, Verizon sees MCI as the single-best key to unlock the lucrative business services market and another way to offset its slumping consumer phone business.

"Verizon isn't about to let this go" and put together its own network, says analyst Greenholtz. "There's only so much money to go around. And with all their costs, Verizon is looking to make major cuts. I think they see a fully built MCI network as a way to get cost savings."