DOJ Clears Verizon-MCI Merger

The US. Department of Justice today cleared the way for Verizon Communications Inc. to buy MCI Inc. and the FCC is expected to vote on the combination tomorrow. The departments Antitrust Division filed civil lawsuits today in U.S. District Court in Washington, D.C. to block the proposed acquisition, but the proposed settlements it attached would resolve those concerns. If Verizon and MCI agree to those settlements, the merger likely is a go.

The companies already have gotten the thumbs-up from international regulatory bodies, as well as most state-level commissions.

The conditions the DOJ has imposed on Verizon before it can complete its acquisition of MCI remain unclear to industry experts.

Enterprise customers all along have been concerned about special access pricing, says Colleen Boothby, a partner specializing in regulatory issues for Washington, D.C. law firm Levine, Blaszak, Block & Boothby LLC. Boothby also sits on the Adhoc Telecommunications Users Committee, which is made up of enterprise users and does not accept funding from carriers.

The enterprise customer point of view has been that the FCC needs to fix special access pricing for the mergers to be competitive, she says. The DOJ release doesnt really address that issue and the enterprise customer point of view on divestiture issues is, how disruptive is that going to be operationally to the customer?

Until the official document is released, Boothby is not sure exactly what the DOJ is ordering. If the department is telling Verizon and MCI to share fiber capacity with competitors, that wouldnt necessarily be very disruptive operationally, she says.

The departments approval for the merger does include a divestiture decree for Verizon and MCI to lease dark fiber connections to buildings within Verizons East Coast footprint, which would eliminate fears about a monopoly. Verizon says fiber being used by MCI to serve its customers will not be affected.

In its statement, the DOJ says the merger, as originally proposed, would have resulted in higher prices for certain business customers in eight metropolitan areas in Verizons franchised territory. However, Todays action by the department ensures that business customers that provide or buy telecommunications services to locations in Verizons territories will continue to benefit from competition, said Thomas O. Barnett, acting assistant attorney general in charge of the Departments Antitrust Division, in a news release. The division thoroughly investigated not just the local private line issues covered by todays settlement but all areas in which the merging firms compete, including residential local and long-distance service, Internet backbone services and a variety of telecommunications services provided to business customers.

The DOJ decided, with the exception of the eight cities stipulated in the civil suit, that the Verizon-MCI merger will not harm competition and likely will benefit consumers.

MCI earlier this year announced it would merge with Verizon, after Verizon and Qwest both waged a bitter, drawn-out battle for the IXC, which is a big player in the IP market.

The Verizon-MCI transaction is expected to close late this year or in early 2006.