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At some point in the coming months, the proverbial blood may be hitting the floor. Verizon Communications Inc.’s $6.7 billion proposed acquisition of MCI Inc. would result in job losses in the corporate legal department — in all, 357 attorneys work for the two telecom giants — and it will almost certainly mean some outside law firms are going to lose a big client. The deal is far from complete, and the waters were muddied Thursday by Qwest Communications’ competing — and higher — bid for MCI. But in a Webcast with Wall Street analysts on Feb. 14, Verizon’s Chief Financial Officer Doreen Toben said a combined Verizon-MCI would “have head count reductions in a number of areas … [including] corporate staff functions such as HR and legal.” Overall, 7,000 employees would be shown the door. It’s still unclear exactly who will be cut under Verizon’s plan. The company says it is too early to know the specific fate of inside and outside counsel. And MCI executives, including General Counsel Anastasia Kelly, have declined requests for an interview. But as Timothy Casey, MCI’s former chief technology counsel and a partner at Fried, Frank, Harris, Shriver & Jacobson, puts it, “Every firm that has a telecom practice is going to get squeezed” by telecommunications industry consolidation. And in MCI and Verizon’s case, Casey says, “there’s going to have to be some cutback, and almost always it’s in the company that’s acquired.” If MCI’s legal department is targeted for dismantling, it will spell the end of one of the iconic legal players on the D.C. scene. MCI was, of course, the company whose litigation helped break up AT&T’s telephone service monopoly. A number of Washington telecom lawyers have served a tour of duty in MCI’s legal department. And though MCI’s 2002 bankruptcy following an $11 billion accounting debacle slowed things considerably, the company still provided a reliable source of work for a number of outside firms. “If you looked up a list of the top firms in America, many of them did work for MCI,” says David Smorodin, who served as the company’s senior litigation counsel until last year. In the short term, that work is still going to be available. Lawyers from more than a dozen firms will be billing to finish the Verizon transaction and help the merger over a series of regulatory hurdles with the federal government, state commissions, and the European Union. The work is expected to take up to 18 months. On MCI’s side are New York’s Davis Polk & Wardwell; Los Angeles’ Gibson, Dunn & Crutcher; Chicago’s Jenner & Block; and D.C.-based firms Steptoe & Johnson and Lawler, Metzger & Milkman. For Verizon, the list includes New York’s Debevoise & Plimpton; and D.C. firms Kellogg, Huber, Hansen, Todd, Evans & Figel; Wilmer Cutler Pickering Hale and Dorr; and Howrey Simon Arnold & White. In-house teams at both companies are also working on the deal. TIGHT RELATIONSHIPS Long term, it’s a different story. In the coming months, Verizon will have to calculate how much legal work it has — and whether that work will stay in the hands of its longtime counsel at firms like Kellogg Huber; Wilmer Cutler; and Farr & Taranto or will also be divvied up among MCI’s largest outside counsel: Jenner & Block, DLA Piper Rudnick Gray Cary, and Lawler Metzger. Jenner & Block, by all accounts, has the biggest single slice of MCI’s outside work. It’s a relationship that stretches back to 1974, when then-MCI General Counsel John Worthington turned to Jenner, his former firm, to lead MCI’s civil case against AT&T. Jenner saw the case through to victory and remained a key firm for MCI’s litigation, appellate, and regulatory work. DLA Piper also has a tight relationship with the company. Former MCI General Counsel Thomas O’Neil III is a DLA Piper partner, and lobbyists at the firm have been working with MCI since the mid-1990s. Since then, the firm has picked up arbitration, litigation, and criminal investigations work for the company. Billings have topped the seven-figure mark, former MCI officials say. Yet DLA Piper has a close connection to Verizon as well: Senior Adviser Hugh Price, former head of the Urban League, is on the company’s board of directors. Both Jenner & Block and DLA Piper declined to comment. Lawler Metzger has also been doing Federal Communications Commission work for the company in recent years. Patton Boggs counts on the company for about $700,000 a year in revenue, according to Securities and Exchange Commission filings. And, according to former MCI litigator Smorodin, other firms like Sutherland Asbill & Brennan; Squire, Sanders & Dempsey; and Heller Ehrman White & McAuliffe have done smaller work. Who keeps business may depend, in part, on the role the firms have played in political and regulatory fights over such issues as how much long-distance companies should pay to access local customer networks and how to price local access for long-distance calls that use Internet protocol. Being on the opposite side from Verizon in a political fight could be deadly. Jenner & Block, for example, has represented MCI before the FCC and in court — most recently at the U.S. Court of Appeals for the D.C. Circuit against FCC rules that restricted the company’s wholesale access to local networks owned by companies like Verizon. Says Daniel Akerson, a former MCI president, and CEO and chair at Nextel Communications: “I certainly expect Jenner & Block will be tarred. I’d start looking for new business.” INSIDE TRACK The political issues may also play a role in which in-house lawyers make the cut, say some former company officials and telecommunications attorneys. And, they say, the company is also likely to get rid of attorneys doing duplicative employment, regulatory, and lobbying work. Some may get lucky — particularly those handling contracts with the new mid-Atlantic business customers that are key to Verizon’s acquisition of MCI. But Verizon has a history of paring back legal costs where possible. In the company’s previous two mergers — the 1997 deal with Nynex and its 2000 merger with GTE — cost-cutting measures included scaling back the size of its legal department. The company declined to say by how much. Right now, Verizon has a 172-lawyer team, and it has a tight rein on the company’s work, says John Thorne, Verizon’s deputy general counsel. “Our system of practice is not to turn things over to firms,” he says. Though a smaller company, MCI has the larger legal team — 185 lawyers. But that’s a far cry from the MCI legal department’s glory days. At its peak in the early to mid-1990s, former MCI executives estimate the company’s in-house department had more than 300 attorneys. MCI never lost sight of how important legal work was and turned itself into “a very formidable player in the world of law and policy,” says Philip Verveer, a telecommunications attorney at Willkie Farr & Gallagher. The company relied heavily on its in-house attorneys, who appeared in court, deposed witnesses, and served as first chair in litigation. At 185 today, “it’s a shadow of its former self,” Casey says. Much of the decline came around the time of the company’s star-crossed 1996 merger with WorldCom Inc. After the merger, the company — operating as WorldCom and led by CEO Bernard Ebbers — saw its stock value soar to $180 billion by 1999. But the bubble burst in 2002, as accounting irregularities came to light. Its 2002 bankruptcy filing was the largest in U.S. history up to that point. Ebbers, who was removed by the board in 2002, is currently on trial in New York for allegedly lying to investors and ordering WorldCom executives to falsify financial statements. After the financial fiasco, the company changed its name back to MCI, and in April, it emerged from bankruptcy. TOP PLAYERS One of the corporate officials charged with helping the company back to health is Anastasia Kelly, who took the top legal job in 2003. Her mission included consolidating legal offices and re-examining the company’s relationship with outside firms, with an eye toward keeping some and eliminating others. How Kelly will fare with Verizon is unclear. She does have a financial cushion, however, if she doesn’t remain on board. Awarded 75,000 shares of MCI stock in 2004, she sold about 6,000 shares in the last year at a value of about $107,000, SEC filings show. Her remaining stock — roughly 69,000 shares — would be worth approximately $1.4 million if the Verizon deal is completed. Kelly’s counterpart at Verizon is former Attorney General William Barr, who headed the Justice Department under President George H.W. Bush. Barr is one of Verizon’s highest-paid executives. According to SEC filings, his compensation package topped $2.2 million in 2003, the latest year for which figures are available. Barr isn’t the only political and legal heavyweight with ties to the Verizon-MCI deal. The MCI board of directors also includes a former attorney general, Nicholas Katzenbach, as well as Eric Holder Jr., a Covington & Burling partner and deputy attorney general during the Bill Clinton years, and Laurence Harris, a Patton Boggs partner and former MCI lawyer. Jonathan Sallet, former MCI chief policy counsel, served in the Department of Commerce during the Clinton administration. And former MCI lawyers dot Washington. In addition to O’Neil, Casey, and Smorodin, other one-time MCI lawyers in the D.C. area include: former GC Michael Salsbury, who is at Chadbourne & Parke; former director of intellectual property litigation Laurie Adams, now with Heller Ehrman; former chief patent counsel Debbie Miller Shehan of Fried Frank; and former commercial litigator Robin Cohn, now with Swidler Berlin. Whatever the future of the teams of lawyers representing MCI, one thing is clear: With the rapid consolidation of the telecommunications industry over the past few months, the company’s days as a leading legal player are over. “MCI was really a leader in sort of forging competition in an industry that before that had none,” says Jean Kiddoo, a longtime telecommunications lawyer with Swidler Berlin. “So it’s kind of the end of an era to see it go.”

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