Updated from Aug. 5

MCI

(MCIP)

surged after posting a quarterly loss and moving to share its cash hoard with investors.

The Ashburn, Va., telco saw its shares rise 17% early Friday on the news, which comes as Wall Street has been furiously speculating about a potential buyout of the struggling company. Recent federal rule setbacks and cutthroat price wars in the long-distance business have eroded much of the momentum MCI appeared to have just earlier this year, as it emerged from two years in bankruptcy protection.

The company posted a second-quarter loss and a decline in quarterly revenue, though the numbers weren't as bad as Wall Street had expected. For its second quarter ended June 30, MCI lost $71 million, or 22 cents a share. That's far narrower than the year-ago loss of $388 million, or $1.19 a share, in the year-ago quarter and the analyst consensus estimate of a 96-cent loss.

Revenue fell 15% from a year ago to $5.24 billion, in line with the Thomson First Call estimate.

MCI also declared a 40-cent dividend and said it plans to pay out that much quarterly. MCI said it had identified $2.2 billion in surplus cash that it will return to shareholders, under a section of its court-ordered reorganization plan.

One investor who asked not to be named attributed the stock's rapid rise late Thursday to the stock's prodigious dividend yield. At the stock's postclose trading price, the annual dividend yield is around 10% -- far superior to most other investments, including MCI's bonds, which yield 8%.

"This forces any buyer's hand, and quick," says the hedge fund manager, who says he's a buyer of MCI below $16. "There's going to be a definitive floor now. Good luck finding shares below $16."

In early action Friday, MCI jumped $2.29 to $16.13.

Eye on the Balance Sheet

On a conference call Thursday, the company said it was evaluating the carrying value of its assets and making fair value comparisons. Executives said they expect there will be a non-cash impairment charge taken in the third quarter ending in September. Archrival

AT&T

(T) - Get Report

said Wednesday that it was examining the book value of its assets with an eye to writedowns.

On the consumer front, where MCI generated $3 billion in revenue, the company acknowledged that it is looking to make cuts. Executives said given the adverse pricing rules, they plan to shrink consumer resale efforts -- via the unbundled network elements platform, or UNE-P, business that was hit by Washington's rule shift -- "significantly."

MCI has fired 13,300 employees since the beginning of the year, cutting total staff to 44,000 from 57,300. The company expects to slash an added 2,700 jobs by year-end.

For its part, MCI extolled its solid progress in cost-cutting.

"By executing against our business plan, we produced second-quarter results that reflect solid, measurable progress and significant financial improvements," said CEO Michael D. Capellas. "To remain competitive we will continue to drive operational improvements, deliver unparalleled customer service and introduce new IP-based products and services to the marketplace."

The news comes as MCI and AT&T sputter in the wake of new network-pricing rules from Washington. Both companies have said they would pull back from consumer phone service in the wake of pricing rules that remove the Baby Bells' mandate to provide cut-rate network rentals to them. The moves, which allow the companies to focus on the more lucrative business services segment, have led to speculation that both companies are being shopped.

MCI's dividend did nothing to quell that talk. MCI said it had cash and cash equivalents totaling $5.4 billion at June 30, and would begin sharing them with a quarterly dividend payable Sept. 15 to holders of record Sept. 1.

The move comes as tech companies of all stripes are warming a bit to dividends, particularly in light of favorable tax legislation put in place on corporate payouts.

Microsoft

(MSFT) - Get Report

, of course, scored headlines with its $32 billion payout plan of last month, but other dividend raisers have included

Qualcomm

(QCOM) - Get Report

as well.