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Qwest Wants MCI, Says Report

The telecom merger fireworks have been ignited.

After much speculation as to which possible merger combinations will follow SBC Communications Inc.'s (NYSE: SBC) $16 billion takeover of AT&T Corp. (NYSE:T), The Wall Street Journal today is reporting that Qwest Communications International Inc. (NYSE: Q) is now in talks to acquire MCI Inc. (Nasdaq: MCIP).

Light Reading reported two weeks ago that Qwest has been in talks to combine with other companies (see Qwest's Quest to Ditch Its Debt). But the idea that Qwest, which is saddled with large quantities of debt, could buy somebody else is somewhat surprising. Most observers expected Qwest to be bought by somebody else.

Qwest has a total debt level ($17.1 billion) that is more than 120 percent of its revenues for the past 12 months ($13.87 billion) -- a substantially higher burden of debt than that of any of the other RBOCs. It's unclear how Qwest would pay for MCI.

The WSJ says that Qwest has been in talks with MCI for months and is offering about $6.3 billion, which is close to its market value. The WSJ adds that talks are "fluid" and may break down. The story also reports that Verizon Communications Inc. may have designs on bidding for MCI.

Many analysts are expecting a series of attempted mergers and combinations in light of the SBC/AT&T merger. The new, combined company would rival Verizon as the second largest service provider in the world by revenues and market cap, and it would set the stage for a battle to become the largest service provider in North America (see SBC to Buy AT&T for $16B).

Most analysts see the SBC/AT&T combination as putting pressure on all RBOC competitors, including Qwest, Verizon, and BellSouth Corp. (NYSE: BLS), to figure out ways to build heft and/or more efficiency in order to better compete with the new juggernaut (see Execs Explain SBC, AT&T Pairing and BellSouth at a Crossroads).

The other major service provider expected to enter the merger picture is Sprint Corp. (NYSE: FON).

— R. Scott Raynovich, US Editor, Light Reading

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