First in a two-part series reflecting on the AT&T-SBC and Verizon-MCI mergers a year later

Mergers are usually announced with great flourish, and then executed with great stress and no small amount of tedium.

From the Verizon Business standpoint, however, the merger with MCI reversed that process. Thanks to a lengthy battle with Qwest, getting the Verizon-MCI merger done took a great deal of public wrangling while the merger process itself has been remarkably smooth, at least from the outside.

In the process, Verizon Business has stared down some critics and competitors, who expected internal debates over how to make the merger work would distract the company from the real business of serving customers and provide ample fodder for poaching of same.

“I have to admit I held some of the same suspicions,” said Jeffrey Kaplan, managing director of THINKstrategies, an industry consultancy focused on managed services for businesses. “But I have to give Verizon credit—they have respected what they bought and allowed it to continue to prosper.”

Kaplan attributes Verizon Business’ success to its retention of key personnel.

“Verizon and MCI came to the party with a similar mind set,” he said. “They had some complementary skills. MCI was a little further along in the managed services realm and application hosting and application-oriented services. Verizon recognized and respected that and allowed them to take the lead. Now those solutions are coming on board. The people I know who were part of previous organizations have, for the most part, stuck around. They are making the most of the opportunity to meld together the various pieces and parts.”

And the true measure of that success, he adds, is that “there hasn’t been much in the way of customer erosion or abandonment, and in fact, new customers have come on board.”

In one key area--IP and managed services--Verizon Business has grown by 25%, said Eric Bruno, vice president of market intelligence and alliance management, and overall, it posted three straight quarters of revenue growth in 2006 (fourth-quarter numbers are due out Monday). He believes the key has been the company’s determination to maintain its customer focus throughout the merger process.

“The first thing we looked at was the need to focus on the customer,” Bruno said. “We wanted to make sure our customers didn’t take a step back. That is a mantra. We are customer-focused, we are going to deliver a consistent customer experience. We start there.”

The next step was to look at product sets or overlapping systems, such as billing systems, and decide what’s best-in-class of what the two companies have, he said.

“We launched a Verizon Business customer center, and we integrated the customer portals that old MCI and old Verizon Enterprise Services Group operated,” he said. That created a single point for customers to get billing information or other account info, no matter what legacy system still housed the data.

“Now we are working underneath that to reduce the number of legacy systems that feed into it,” Bruno said. He admits that creating a single set of operations and support systems is a highly complex process and an ongoing project--but the goal of minimizing customer impact keeps the effort focused.

Verizon Business also looked at managing two separate private IP networks, and its decision there was admittedly a painful one, Bruno admitted.

“MCI had private IP capability which at the time of the merger was available in 98 countries, now it’s 116 countries,” he said. “When we looked at former Verizon ESG equivalent MPLS backbone--which I had quite some attachment to--we were celebrating the fact we were in 98 cities. So it made sense that that network was phased out. It is in the final stages of being phased out now. No customer is being pushed, no one has to step back. But we are not going to put new customers on it. As they migrate off and move to better solutions, we will begin to phase it down.”

Nor is Verizon Business hustling companies off its legacy packet networks to a more efficient IP solution, although that transition is happening on its own.

“This is not an area of forced migrations,” he said. “We built an evolutionary path forward for all of our customers, which has resonated with them. So we are seeing some acceleration in that transition.”

Perhaps the most fortuitous part of the merger for Verizon Business was the combination of two strong Ethernet service portfolios into a product set that won the Metro Ethernet Forum’s Carrier of the Year award for 2006.

“When we first came together to look at our product portfolios, we saw fantastic synergy between what MCI had deployed as Global IP--their backbone--and what we had deployed as Optical Ethernet, and it created an Ethernet portfolio that is award-winning,” Bruno said. “By bringing two companies together, we could accelerate the deployment of the Ethernet portfolio.”

That process was substantially accelerated--by the end of January 2006, less than a month after the merger was finalized, Verizon Business had merged the MCI’s long-haul Ethernet service with its own Ethernet access in 25 cities, and will have that number up to 40 this year. The company has continued to build on the product set, just recently announcing a Layer 2 Private IP service that lets customers have a virtual private LAN service (VPLS) but maintain control over their routing.

Bruno believes one reason customers haven’t turned away from Verizon Business during the merger process is that the company worked hard at communications, both internally and externally.

“We involved our major customers in the decision-making process,” he said. “They were involved, they were aware--it was a very managed transition for all of our significant accounts. We tried to make those decisions quickly and move forward. For all our customers, we let them know the situation is under control, they knew who was responsible, they knew we wouldn’t be asking them to take a step back. That mitigated some of the fear, uncertainty and doubt.

“The hardest part of any merger is just maintaining organizational equilibrium,” Bruno said. “The discipline around communications is key.”

In its carrier scorecard, the Yankee Group rated Verizon Business as second only to AT&T in its performance.

“VZB has established a successful business in supplying sophisticated managed services to a wide range of enterprises,” the report stated. “Its customers turn to it for more than communications links. VZB has embraced the “experience” objective and built the corporate assets and strategic partnerships to improve its customers’ operations. Yankee Group sees VZB aligning its assets and strategies in a manner consistent with growing successful “experiences” for its enterprise clients.”

Coming next: AT&T does one more merger

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