Vaunted Verizon Needs a Victory

Lest we forget, Qwest (Q) isn't the only telco that has a lot riding on this MCI (MCIP) business.

By now it's well established that Western weakling Qwest would face a grim future without MCI. The company continues to bleed red ink and is burdened with a heavy debt load. Indeed, no less an authority than Verizon chief Ivan Seidenberg has called Qwest a dead-end shop trying to lure MCI by writing a fantasy tale about winning synergies.

But for all its girth and comparative financial security, Verizon (VZ) is stuck in a precarious position of its own. It too operates a struggling local-phone business and holds a hefty chunk of debt. Meanwhile, costs keep soaring and the threat of cheap calling looms just over the horizon.

Taken together, Verizon's problems turn out to resemble -- perhaps in milder form -- Qwest's own.

"Verizon needs this as bad as anyone," says Telecom Pragmatics analyst Sam Greenholtz.

MCI could pick its merger partner as soon as Monday. A decision is looming after Qwest again raised its already superior offer and MCI's board got an additional 12 days' worth of deliberation in.

The rival bidders have squared off more than once, with Qwest boasting of the math behind its deal and Seidenberg pointing out that Qwest's revenue fell and its losses increased last year.

Last week, in a follow-up letter, Seidenberg scoffed at Qwest's first-year, postmerger cost-saving projection of $1.7 billion. "We have analyzed Qwest's synergy claims and believe the presentation might be more appropriately considered in the category of Modern Fiction," the literary-minded chief wrote.

But behind all that fiery letter writing is a big old telco with a host of problems strikingly similar to Qwest's.

While Verizon is, unlike Qwest, consistently profitable, it too faces some nasty trends. Last year, Verizon's core, local-phone-business revenue fell 4.8% from a year ago, while local phone lines in service shrank 4.6%. And even though Verizon managed to trim its whopping debt to $39.3 billion from $45.4 billion a year earlier, expenses continue to grow.