Qwest Communications International Inc. (Q) is raising its offer to buy MCI Inc. (MCIP) to $8.5 billion, adding nearly half a billion dollars cash to its bid to scuttle the long-distance phone company's merger with Verizon Communications Inc. (VZ), a source familiar with Qwest's plans said Wednesday.

The sweetened offer, worth about $1.8 billion more than the current value of the Verizon deal, is expected to be submitted to MCI by Wednesday evening, the source said on condition of anonymity.

All three companies declined comment.

The Verizon-MCI deal calls for MCI's board to make a determination whether any rival bid is "superior." If the deliberations lead to that conclusion, Verizon would have five days to respond with a counteroffer.

Should MCI's board either reject the new Qwest proposal or agree to an improved Verizon offer, Qwest could still try to take its bid directly to shareholders. That potential proxy fight would likely be resolved in May at the MCI shareholder meeting to vote on the Verizon deal.

Earlier Wednesday, Verizon sent a sharply worded letter to MCI questioning Qwest's predictions of huge savings and future growth from a potential Qwest-MCI combination, citing Qwest's declining business and large debt load.

"No wonder there appears to be a desperate quality to Qwest's efforts to acquire MCI," Verizon Chief Executive Ivan Seidenberg said in the letter. "Qwest fails to explain the financial alchemy required to keep Qwest afloat, complete the acquisition of MCI, and invest in the business."

That letter prompted a statement from Qwest CEO Richard Notebaert (search):

"Our activities over the next 24 hours will demonstrate our commitment to winning MCI. It is unfortunate that some in the process feel MCI shareholders should be deprived of the true value of their asset," Notebaert said. "The new company will be financially strong, with significant free cash flow, and offer investors a unique growth opportunity. Let fairness, economics, and the best interests of shareholders decide this matter."

MCI's shares fell 34 cents to $23.69 on the Nasdaq Stock Market (search).

Shares of Qwest, the local phone provider in 14 states across the Rocky Mountains and Pacific Northwest, fell 7 cents, or nearly 2 percent, to $3.79 in afternoon trading on the New York Stock Exchange. Shares of Verizon, which dominates phone service in the eastern United States, dropped 23 cents to $35.45 on the NYSE.

The expected Qwest bid comes as the company, the local phone provider in 14 states across the Rocky Mountain and Pacific Northwest regions, wraps up two weeks of meetings with MCI.

MCI, formerly known as WorldCom and based in Ashburn, Va., rejected Qwest's original $8 billion offer in favor of its agreement with Verizon for many of the same reasons cited in the Verizon letter.

Analysts have speculated that Qwest would need to boost the cash portion of its offer for a second time to quell worries by MCI management and investors about whether the Qwest shares they'd receive in a merger would hold their value over time.

Denver-based Qwest first revised its offer in late February, leaving the price tag at $8 billion, but increasing the cash portion of the deal to nearly $3 billion and providing some guarantees on the value of the stock it would pay.

That offer, which prompted an agreement by New York-based Verizon to allow MCI and Qwest to meet, valued MCI at $24.60 a share, consisting of $9.10 in cash and $15.50 worth of Qwest shares.

Notably, Qwest's shares temporarily sank Wednesday below one of the proposed "collars" in its revised bid. Qwest's offer says that if its stock falls below $3.74 a share, the stock portion of its payment would be increased to maintain the $15.50 value.

The new bid expected Wednesday would boost the cash Qwest is offering to $10.50 per MCI share, or about $3.4 billion, in addition to $15.50 worth of Qwest stock for a total of $26 per MCI share.

Verizon has agreed to pay stock and cash currently worth $6.65 billion, or $20.45 per MCI share. That includes $2 billion in cash, or $6 per MCI share.

Qwest has argued that its deal will generate three times as much savings as Verizon has promised, and that a Qwest-MCI deal would raise fewer objections from government officials concerned about lost competition. The savings include up to 15,000 job cuts, or more than twice as many as Verizon plans.

Seidenberg's letter noted that Qwest is carrying about $17 billion in debt, lacks a wireless division and posted a 3.4 percent revenue decline in 2004.

"Qwest's claims do not pass a common sense test, and it has so far provided only scant supporting detail," the letter said.