New Unit – Verizon Business – Serves Business and Government Customers
Verizon Communications Inc. and MCI, Inc. recently closed on their merger, enhancing Verizon’s ability to deliver the benefits of converged communications, information and entertainment to customers across the country and around the world.
The closing followed an announcement earlier in the week by MCI that it restated its financial statements for the first three quarters of 2005, reducing net income by $52 million. MCI said the restatement would have no impact on the acquisition.
The merger follows on the heels of the acquisition of AT&T Corp. by SBC Communications, marking a major consolidation in the telecom industry.
Verizon and SBC, which has renamed itself AT&T, will each have more than 70 billion dollars in annual revenues. Both are involved in a range of services from fixed line service to long distance to wireless and high-speed Internet.
In addition to its strength in long distance, MCI had built up a following among business customers. Verizon said the new business unit encompasses business and government customers and related functions from MCI as well as segments from Verizon.
Both are also working on plans for Internet-based television systems that will compete with the cable TV industry. The two mega-deals effectively eliminate the standalone long-distance industry, as phone companies seek to turn themselves into full-service communications suppliers.
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, said Verizon chairman and CEO Ivan Seidenberg in a statement.
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 Seidenberg. Our added network capabilities and strong customer relationships provide a solid foundation for innovative and integrated wireless, wireline and multimedia services designed to meet customer demands for speed, mobility and control.
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 said Seidenberg.
New Unit Named “Verizon Business”
The telecom giant created a new unit called Verizon Business encompassing the business and government operations of the former MCI.
Verizon Business is the name of the new Verizon business unit encompassing business and government customers and related functions of the former MCI as well as similar businesses that previously were part of Domestic Telecom, including the former Verizon Enterprise Solutions Group.
MCI, which was renamed from WorldCom after the company’s spectacular collapse, was the subject of an intense bidding war last year between Qwest Communications and Verizon.
The reconstituted company will have about $90 billion in annual revenue and about 250,000 employees.
Verizon now operates three network-based businesses: Verizon Business; Verizon Wireless, operator of America’s most reliable wireless network; and Verizon’s landline segment, which is deploying the most advanced wireline broadband and video network in America today.
Verizon Business serves medium and large businesses and government customers and it will announce details of new products and services later this month.
As expected, MCI chairman and chief executive Michael Capellas has resigned now that the deal is closed.
This new business segment boasts a highly trained and experienced force of sales and service professionals deployed in hundreds of sales offices around the world. It 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. As previously announced, John Killian has been named president of this new unit, and his leadership team executives have been overseeing integration planning for their respective functions since October.
We have the team in place to hit the ground running and offer Verizon Business customer’s greater value from Day One, said Killian. We believe that our strong commitment to customers and our integrated product offerings will deliver the most advanced business communications solutions and best customer experience available in today’s marketplace.
While further details about Verizon Business will be announced at the upcoming market launch, Verizon will continue to build on the success of its “master brand” strategy.
Other segments of the former MCI are being combined with similar existing functions in Verizon. For example, the MCI Foundation will be part of the Verizon Foundation.
By acquiring MCI, Verizon obtains its own long-distance network and a large roster of corporate clients.
Transaction Details
The merger was announced on Feb. 14, 2005, and received the required state, federal and international regulatory approvals by year-end 2005. Verizon and MCI have been engaged in integration planning since the merger was approved by MCI shareholders on Oct. 6, 2005.
The merger was also structured as a tax-free reorganization, and generally MCI shareholders will be taxed only to the extent of a previously paid special dividend and the supplemental cash payment.
Verizon’s Leadership Team
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.
Seidenberg said, “Michael’s work in transforming MCI over these past few years has been extraordinary. He has been a great leader, and he leaves a legacy as an architect of one of the world’s great, next-generation communications companies — a strong competitive force focused on customer innovation.”
The Balancing Act
The US telecom industry has consolidated into a handful of full-service giants that can deliver local, long-distance, wireless and high-speed Internet services over networks that span the globe.
Independent telecom analyst Jeff Kagan said the deal underscores the transformation of the telecom industry a decade after a deregulation move that allowed separate companies in long distance and local phone service.
Long distance as an industry in the United States is now dead, Kagan said.
Ten years ago we passed the Telecom Act of 1996 and set the local and long distance companies into competition with each other. During the past 10 years we have seen the long distance business shrink as a stand alone business and finally give up. The local phone companies won that battle.
But Kagan said the new battleground is over new technologies such as high-speed Internet and telephony using the Internet.
But today the telecom marketplace is in the middle of a major transformation during the next few years and when it is done will look much different than ever before, he said.