Howard Buskirk

Qwest made a 3rd offer for MCI on Thurs., raising its bid to $9.07 billion. Qwest urged the MCI board to weigh its offer. “We're not giving up,” Qwest Senior Vp Gary Lytle told us. “There’s no give-up in Qwest.” Lytle said Qwest is concerned that rival suitor Verizon has convinced the MCI board not to listen to shareholders. Lytle said Qwest specifically calls on MCI to let shareholders vote on its latest offer.

Nortel won a key U.S. govt. contract to help move the Defense Dept.’s Defense Information Systems Agency (DISA) to a VoIP network completely under Pentagon control. Once updated, the system, now housed in MCI-owned facilities, will shift to 6 Air Force bases across the U.S., a process sources said should take about one year. Nortel won a $20 million contract to provide the technology to help DoD switch to VoIP. Nortel is working under General Dynamics and CSC, which won the contract to redesign the Defense Switched Network (DSN). “The DSN is a large, sophisticated global network that is well designed and operated, but it also has relied on a managed service from private sector… providers for a portion of its infrastructure,” said Chuck Saffell, pres.-federal solutions for Nortel. “That means that the ability of the DSN to respond to any given crisis could be restricted because it is not under direct governmental control.” “What this starts is the process of the [network] becoming VoIP,” a Nortel federal solutions official told us: “For us, it’s a seminal event and we hope DoD views it that way as well.”

MCI once again rebuffed Qwest Tues. accepting a revised -- but still lower -- bid from chosen merger partner Verizon. Qwest said in a statement it was still assessing and left the door open to another run at MCI. Verizon offered $23.50 a share in cash and stock, which includes a 40-cent dividend MCI has already paid to shareholders. Qwest instead has offered $8.45 billion, or $26 a share.

UBS said in a report Thurs. that the Bells have signed commercial agreements with 30-50% of their UNE-P base of 16 million lines. The report provided some of the most complete numbers yet on commercial agreements to replace UNE-P. Not all Bells have provided complete numbers. BellSouth didn’t give a line count for a contract it signed with AT&T citing a confidentiality agreement with the CLEC. UBS said UNE-P contracts will give Bells a “modest boost” of $95 million in EBITDA or roughly 35 basis points of wireline margins for the Bells collectively. The Bells obtained deals about $4 per line higher than under UNE-P regulation, UBS said. On the negative side, UBS sees a base dwindling by 6.5 million to 9.8 million over 5 years based on 3.5% monthly churn. Qwest likely has agreements on the highest percentage of lines, UBS said. UBS said BellSouth, following a deal with AT&T, has 38% of its UNE-P lines under agreements. For SBC the percentage is about 50% and for Verizon 38%, UBS said.

Tex. Attorney Gen. Greg Abbott (R) filed a landmark lawsuit against Vonage for failing to make clear to customers that the firm’s service doesn’t provide access to traditional emergency 911 service. The suit, filed under the Tex. Deceptive Trade Practices Act, charges Vonage with “misrepresenting the type of emergency telephone service it offers, and the fact that the ‘911 dialing’ feature is not automatically included when a customer signs up for telephone service.” Abbott seeks $20,000 per violation.

SBC has reached 22 commercial agreements covering 31% of its UNE-P lines, a spokesman said Mon. Negotiations continue with other wholesale customers. Unlike BellSouth and Verizon, SBC didn’t give numbers on its negotiations March 11, as the FCC began its one-year phase-out of switching as a TELRIC-priced UNE. The Bells all reported substantial numbers of agreements just before the deadline.

Both sides in the often bitter ultra wideband debate -- proponents of MultiBand OFDM technology and Motorola spinoff Freescale -- said Thurs.’s FCC decision revising UWB testing rules was good for UWB device makers as they start to build a market, with some of the first consumer devices possibly on shelves before Christmas.

In a major govt. contracting development, the GAO said the Treasury Dept. must reopen negotiations on a marquee $1 billion telecom contract that AT&T won from the Treasury Dept. The move is a setback for AT&T and a win for other bidders, who may have another chance to win the contract. “This is a big deal,” said Warren Suss, a consultant and expert on govt. contracting issues. “This is the Dept. of Treasury’s core communications network. A lot of important stuff goes over it, particularly the IRS data.”

Qwest made a higher offer for MCI on Thurs., changing its bid to the equivalent to $8.45 billion. MCI said it would consider the new offer and provide a response by March 28.

Harvard Business School Prof. Clayton Christensen warned Wed. that the Bells could face the same challenges that deeply wounded integrated steel companies in the U.S., losing much of their revenue base to mini-mills - low cost “innovators” that now own half the market. Christensen, a best-selling author, addressed the future of the telecom sector during a speech at the National Press Club. Christensen warned that “disruptive” technologies pose the biggest threat to incumbents like the Bells, citing the steel industry example. Mini-mill operators with their low cost technologies were able to offer steel at 20% below the costs of their larger competitors. Initially, they captured the most- undervalued market segment - rebar or steel used to reinforce cement, he said. Soon, they captured much of the rest. Mini-mill success led to the collapse of prices in the market, with low-cost competitors fighting each other for market share, Christensen said: “Entrants tend to beat the incumbents when they engage in a disruptive strategy. They create a situation where [incumbents] flee rather than fight.” Christensen said it’s not clear how the Bells will fare vs. challengers like Vonage as VoIP becomes more of a disruptive factor in the market. “In almost every instance the disruptive technology appears to the incumbent as a threat and to the entrant as a growth opportunity,” he said: “In the end it always proves to be both. It’s the destruction that by making something simple and affordable creates a new wave of growth. There’s no reason why the incumbent couldn’t cause the growth to happen themselves.”