It’s becoming a tad boring to write about US carrier mergers and I am pretty sure it’s boring to read about them, too. Qwest, the midget among Ma Bell’s progeny, is still scrapping around trying to buy MCI, the bastard child of deregulation that has been forever tarnished by US court proceedings against its principals. The latter, allegedly, concealed the reality of the company’s accounts in order to protect its over-inflated share price and disguise the fact that the ceo of the time was ‘into’ the company in the shape of a personal loan worth more than US$450m. The alleged corporate fraud totalled US$11bn — or nearly enough to buy up this soiled company twice at today’s, post Chapter 11, market rate.

This is one to file under ‘B’ for ‘Basket case’. So why is Qwest persisting in its attempts to buy MCI once its initial bid, of US$6.3bn, was trumped by the heartier Verizon (with US$6.75bn), with a new offer tabled at US$8bn? Answer: because they are barking mad.

Brand new day?
It’s a brand issue, at the end of it all. SBC could justify paying US$16bn for AT&T because the deal for the ailing long-distance carrier bore a whiff of reflected brand nostalgia, albeit one which if scratched and sniffed would carry a scent that was a mixture of talcum powder and urine that one associates with organisations that are more than a century old.

Since this is a family website we won’t go further into the smell attached to MCI/WorldCom brand. Suffice it to say that the US$6-8bn being touted for MCI reflects, relative to the AT&T price, MCI's tarnished brand image. Qwest’s counter-bid thus looks opportunistic, since Verizon is surely better placed to subsume the acquisition than its financially-challenged rival. Qwest, the little RBOC, and MCI, the shop soiled IXC? Oh no. Oh no.

A great deal — too much, in truth — has been made of the supposed technological and service ‘synergy’ between these US local carriers and their long-distance prey. That’s tosh.

The term ‘mega-merger’ has resurfaced. Even advocates of the core Redux principles see this as wishful thinking, given that the real mega-mergers of the 1990s were up to twenty or thirty times bigger. It’s not a question of ‘mega mergers’, nor ‘megalomania’, nor ‘merger mania’. It’s a firesale (and in the case of MCI the matches are still being left carelessly around).

Here’s an alternative theory that may help to explain the motivation behind these takeovers. It’s a cheap way of buying efficiency gains, when semi-regulated local operators, grown cash-fat on their semi-regulated local operating profits (added to by broadband and mobile), find the option of organic growth precluded. It’s got nothing to do with synergy, or service or scale.

It has absolutely nothing to do with telecom. If you can’t beat them, you buy them. The only aspect of engineering involved is of the financial variety.

It’s the economics of the blood axe and the ice is running red, courtesy of the chiselled tooth and sharpened claw of market economics, just now.
Jim Chalmers