Long distance love affair: MCI's shares have surged this year as Verizon and Qwest fight to buy the company.

Legg Mason Value Trust manager Bill Miller owns shares of MCI...and he's not happy with Verizon's offer.

Yahoo CEO's unhappy anniversary There's no success like failure Big investors don't have time for Time Warner breakup Does Ma Bell want a DISH? Google can sell AOL stake by 2008 M&A Databank

More telecom news • Pick up the phone • BellSouth: The Bell of the ball • Mixed signals in telecom • Why Verizon is a better strategic fit for MCI • Big gains for tiny telcos? • Mother and child reunion: SBC's risky bet on AT&T

QUICK VOTE    What should Verizon do next in its effort to acquire MCI?   Raise its bid   Let Qwest have it    View results

NEW YORK (CNN/Money) - It might be time for Verizon to make one more bid for MCI...and if MCI doesn't like the offer, Verizon should walk away from the deal.

Sure, the largest of the Baby Bells wants to buy MCI but its pesky little brother Qwest refuses to concede defeat. And now MCI has decided that Qwest's latest offer of nearly $10 billion, or $30 a share, is too good to pass up.

So the pressure is on Verizon (Research) to raise its offer or pull the plug on the deal. MCI has given Verizon until April 29 to come up with a counteroffer. A spokesman for Verizon would not comment when asked what the company is planning to do next.

But Verizon has already raised its bid once. And in a move that angered many MCI (Research) shareholders, Verizon later agreed to pay $25.72 a share to acquire the 13.4 percent stake in MCI from Mexican billionaire Carlos Slim Helu, MCI's largest shareholder. That's 11 percent higher than what Verizon is currently offering for MCI's remaining shares.

So what does Verizon do next? If it raises its bid again, it could wind up winning MCI once and for all. But Verizon's shareholders seem to be tiring of this saga.

Even though Verizon is arguably in the best financial shape of all major telecoms – it is expected to report decent first quarter earnings growth of 4 percent and a sales increase of 6 percent on Wednesday -- the stock is down 16 percent this year. That makes it the fourth-worst performer in the Dow.

Granted, it's been a tough market for tech and telecom in general. But by way of comparison, BellSouth (Research) is down only 7 percent this year while SBC (Research), which is also in the process of doing a deal, has fallen 10 percent.

So Verizon must now decide how badly it really needs MCI. Is it worth further alienating its own investors?

Verizon could decide to match what it is paying Slim and raise its total bid to $25.72 a share. That could convince MCI's board, which has maintained that a Verizon merger makes more strategic sense since Qwest (Research) has a lot of debt and no significant wireless business, to once again select Verizon's bid.

It also might appease MCI shareholders, such as famed Legg Mason Value Trust manager Bill Miller, who did not appreciate being treated as second-class citizens.

But even so, Qwest's latest bid is still 17 percent higher than Verizon's $25.72 offer for Slim's shares, a significant gap. So it's uncertain whether MCI's board or investors would deem that as acceptable.

Steven Cohen, chief investment officer with Kellner DiLeo Cohen & Co., a New York-based hedge fund that owns a stake in MCI, said that Qwest's latest bid has to be taken seriously because more than half of the offer is now in cash.

That, he said, makes it tougher for Verizon to tout its stronger financial position as justification for a lower priced deal.

"If Verizon is going to compete, it can now no longer rely on MCI's board giving them a free pass with a lower bid," said Cohen.

But would Verizon want to raise its bid as high as $30 a share? One analyst doesn't think Verizon's CEO Ivan Seidenberg would be willing to go much higher than what it is offering Slim.

"Seidenberg is an 'I'm not going to pay a lot for this muffler' type of guy when it comes to deals. And given the price they've already paid to Slim, it might put a cap on what they would offer for the rest of the company," said Wayne Homren, an analyst with Parker/Hunter, a brokerage based in Pittsburgh.

The problem Verizon faces is that it must feel MCI would be a good asset to have now that fellow Baby Bell SBC agreed to purchase long distance giant AT&T (Research) in January. Long-distance is a declining business but AT&T and MCI both have enviable lists of corporate customers. And that's what has made both companies attractive.

"Residential long distance was a slam dunk for the Baby Bells. They destroyed AT&T and MCI in that business," said Homren. "But corporate clients have not been as willing to switch so Verizon would basically be buying the customers. They don't need or want MCI's network."

But Qwest is the more desperate company. Buying MCI gives it a lifeline (at least temporarily) to help it compete more effectively in the rapidly changing telecom world. Verizon, however, could still fall back on its dominant position in the local and long distance markets throughout most of the Northeast and Mid-Atlantic as well as having the nation's second-largest wireless carrier.

"This is not a life or death deal for Verizon but it's a critical deal for Qwest," said Cohen.

Another analyst who asked not to be named said Verizon might raise its bid to $28 a share but would probably not go higher than that, adding that he hoped egos wouldn't get in the way and drive Verizon to raise the bid much higher.

And when all is said and done, if Verizon does raise its bid again and MCI finds it inferior to Qwest's $30 a share offer, it would make sense for Verizon to put an end to the bidding war and let Qwest have MCI.

In addition to receiving a $250 million break-up fee, it would also stand to gain nearly $200 million by selling the stake it's acquiring from Slim to Qwest. More importantly, it would also prove to Verizon's investors that the company is willing to show some discipline and not overpay for a company in a dying business.

After all, MCI's stock began this year trading at about $20 a share and the only reason the stock is now worth nearly $27 is because of the takeover interest...not because the former WorldCom's fundamentals have taken a sudden turn for the better.

For a look at more telecom stocks, click here.

For a look at more of this year's big mergers, click here.

Analysts quoted in this story do not own shares of the companies mentioned and their firms have no banking ties to the companies.

Sign up to receive the Tech Investor column by e-mail.

Plus, see more tech commentary and get the latest tech news.