MCI WorldCom Puzzles Antitrust Experts
WASHINGTON (Reuters) - MCI WorldCom Inc.'s $115 billion bid for Sprint Corp. puzzles antitrust experts, who are unable to agree how quickly -- or even whether -- it will win approval from government authorities.
Some say the decision may hinge on America's local phone companies gaining permission to invigorate the long distance market with new competition.
But others think it will be dicey for the Justice Department to approve the marriage of the No. 3 and No. 2 long distance carriers in the United States, cutting the number of big long distance carriers to two.
Federal Communications Commission Chairman William Kennard cast doubt on the deal last week after it was formally announced, telling reporters competition had produced a price war in the long distance market and proclaiming: ''This merger appears to be a surrender.''
Kennard said the parties ''will bear a heavy burden to show how consumers would be better off.''
MCI WorldCom President and Chief Executive Officer Bernard Ebbers took up the challenge in an editorial page column Friday in the Wall Street Journal.
''There are two titans that have the potential to establish telephone hegemony -- AT&T and the Bell operating companies,'' he wrote. ''A merged MCI WorldCom and Sprint represents the best hope for a strong and effective alternative...''
Of course, even if the deal is approved there will likely be some divestitures.
Just as MCI had to divest its Internet ''backbone'' -- the high-capacity fiber that carries the World Wide Web around the world -- when it merged with WorldCom, most experts expect Sprint will have to dump its backbone as a condition of the acquisition. But the more difficult question is long distance.
In the view of some experts, Bell operating companies could provide a major new long distance choice for consumers, making it easy for the Justice Department to permit the marriage of MCI WorldCom and Sprint. The key question is how soon the Bells can meet legal requirements to get into long distance.
The law bars the big four Bell operating companies from offering long distance until they open their local markets to other phone companies.
The Federal Communications Commission has turned down five applications by the Bell companies so far, as the Justice Department's antitrust division recommended in each case.
But now Bell Atlantic Corp. is close to entering the long distance market in New York State, which used Justice Department criteria to conduct its review.
''Bell entry is pretty much poised to happen,'' said a lawyer who is an expert in both telecommunications and antitrust law. He asked not to be identified.
He and others said once the local Bell operating systems enter the long distance market, each will be able to quickly gain a large market share of the people it serves locally.
But if the Bells are unable to enter the long distance market soon chances for approval might drop.
In the absence of Bell competition, MCI WorldCom's 26 percent market share for all toll service revenues would combine with Sprint's 11 percent to compete with AT&T's 43 percent. That means all other carriers would have about one-fifth of the market, according to FCC figures for 1998.
''If number two and three have to combine to compete with number one, what does that say about the abilities of numbers four and five to compete?'' asked Kevin Arquit, an antitrust lawyer with Rogers & Wells in New York.
Arquit answered the question by saying that would raise barriers to entry for other companies -- something that is anathema in antitrust law.
Jeffrey Olson, a telecommunications lawyer with Paul, Weiss, Rifkin, Wharton & Garrison in Washington, believes the Bells will be able to enter the market.
Olson said once Bell Atlantic gets permission to compete in New York, other Bells will have a blueprint to follow that can gain them admittance.
Olson said the deal is defendable whether or not the Bells enter long distance, because the business is open to entry.
AT&T's share of long distance revenue has dropped steadily for the past decade, while Sprint's share has hovered around 10 percent, and MCI's has grown slightly.
But the scattering of other companies that make up the remainder -- small though they may be on an individual basis -- has doubled during the same period.
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