Friday May 8, 5:54 pm Eastern Time
GTE files suit against MCI-WorldCom deal
(New throughout, pvs WASHINGTON)
By Jessica Hall
NEW YORK, May 8 (Reuters) - GTE Corp (GTE - news), which lost a bidding war for MCI
Communications Corp. (MCIC - news) last year, said on Friday it filed a federal antitrust lawsuit to block
victorious WorldCom Inc.'s (WCOM - news) $37 billion acquisition of MCI.
The lawsuit, filed in U.S. District Court in Washington late on Thursday, alleges the combined
telecommunications company would monopolize the Internet and threaten competition in long-distance
telephone markets.
''From the outset, GTE has consistently opposed this merger as highly anticompetitive,'' William Barr,
executive vice president and general counsel of GTE, said in a company news release. Barr is a former U.S.
attorney general.
MCI said it sees no new threat from GTE's complaint and it still expects the merger to close during the
summer. The proposed merger has received shareholder approval, but remains subject to scrutiny from U.S.
and European regulators.
The lawsuit was assigned to U.S. District Judge Thomas Penfield Jackson, who is hearing the U.S.
government's case filed last year against Microsoft Corp (MSFT - news).
GTE said the lawsuit is about the MCI-WorldCom merger's threat to competition, not about trying to win
MCI for itself.
''This has nothing to do with GTE's former bid for MCI,'' said GTE spokesman Peter Thonis. ''We are not
seeking to buy MCI.''
GTE, a local phone company based in Stamford, Conn., contends the combined MCI-WorldCom company
would own between 40 percent and 60 percent of the critical Internet ''backbone'' network that transmits and
routes data for Internet service providers.
The lawsuit also alleges there would be significantly diminished competition in the retail long-distance market
created by merging the second- and fourth-largest long-distance phone companies.
GTE also said combining WorldCom and MCI would remove a key supplier from the wholesale
long-distance market, WorldCom, which would lessen competition for long-distance resellers, like GTE, that
compete with MCI, AT&T Corp. (T - news) and Sprint Corp. (FON - news)
Analysts said GTE's complaint may delay the MCI-WorldCom merger but it is unlikely to unravel the deal.
''GTE is acting like a scorned lover,'' said Jeffrey Kagan of consultancy Kagan Telecom Associates. ''No
one company, no one government can dominate the Internet. It is growing too quickly.''
Analysts also disputed GTE's complaint about long-distance dominance since AT&T would still remain the
nation's largest long-distance company.
The recent mergers of Baby Bell companies such as Bell Atlantic Corp. and Nynex Corp., and SBC
Communications Inc. and Pacific Telesis Corp. also set a standard on what type of mega-deal regulators are
willing to approve, analysts said.
''If regulators are willing to approve Bell Atlantic-Nynex, they have no grounds to oppose MCI and
WorldCom. They've already set a benchmark for standards on these types of deals,'' said Christine Heckart,
vice president of telecommunications consultancy TeleChoice.
GTE said it is not against large telecommunications mergers in general, but it opposes deals which create
market dominance.
''Mergers are not bad, per se. But the question is who's merging. There are some mergers that bring different
pieces of the industry together. ... This merger is a redundant merger. This is the combination of redundant
power,'' Barr said.
GTE, however, supported the Bell Atlantic-Nynex merger.
GTE said it expects regulatory authorities to block the proposed merger, but it still filed the lawsuit to be in a
position to protect its rights. The company eventually may seek a prelimary injuction if all of its concerns are
not met.
The European Commission had recently issued a detailed Statement of Objections setting forth its opposition
to the merger as anti-competitive. WorldCom and MCI will respond to those objections during hearings on
Tuesday and on Wednesday.
Bell Atlantic, BellSouth Corp., the AFL-CIO trade union federation, the Communications Workers of
America trade union and a number of European companies are among those that have filed petitions against
the proposed merger.
''GTE has been filing against the merger on every opportunity. It's really nothing new,'' said MCI spokesman
Frank Walter.
''The long-distance and Internet markets both could not be more open to competition. There is broad
competition and new entrants ... are coming into the market,'' Walter said.
GTE's stock added $1 to $58.31 in composite afternoon trading on the New York Stock Exchange.
WorldCom rose 6 cents to $42.875 and MCI rose 75 cents to $50.19, both on Nasdaq.
More Quotes
and News:
AT&T Corp (NYSE:T - news)
GTE Corp (NYSE:GTE - news)
MCI Communications Corp (Nasdaq:MCIC - news)
Microsoft Corp (Nasdaq:MSFT - news)
Sprint Corp (NYSE:FON - news)
Worldcom Inc (Nasdaq:WCOM - news)
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