MCI Said to Be Soliciting Bids for Part of Its Internet Division
nytimes.com
By SETH SCHIESEL
Trying to placate regulators who are weighing its $37 billion sale to
Worldcom Inc., MCI Communications Corp. has quietly
solicited bids for part of its fast-growing Internet business, people close
to the negotiations said Monday.
The unit should fetch around $500 million, and British
Telecommunications PLC is among the companies expected to be
involved in the bidding, the people close to the talks said.
Small new long-distance carriers including
IXC Communications Inc. and the Williams
Companies Inc. were also invited to
participate, people close to the talks said, and
GTE Corp. could play a role. But MCI had
not solicited bids from its main competitors,
AT&T Corp. and Sprint Corp.
By declining to solicit bids from AT&T and Sprint, MCI appeared to
be trying to ensure that the Internet unit it is considering selling cannot
be used by its most formidable foes.
The companies declined to comment Monday.
By weighing the sale of a big portion of its Internet unit, MCI is moving
to allay fears by regulators in Europe and the United States that a
combined MCI Worldcom would dominate the market for
long-distance, or "backbone," Internet capacity. The Internet backbone
can be likened to the nation's interstate highways, while the retail
Internet market, which includes companies like America Online Inc., is
more akin to the roads that feed such highways.
Consumer groups and some rival companies that oppose MCI's
proposed merger with Worldcom and some independent analysts have
estimated that a combined MCI Worldcom would control as much as
70 percent of the Internet backbone, a figure both companies dispute.
The Justice Department's antitrust lawyers have focused on the Internet
issue. Regulators from the European Commission were also examining
the merger.
MCI is considering selling its domestic wholesale business, which
provides broad cyberspace on-ramps to smaller Internet access
providers, and its trans-Atlantic Internet business.
MCI would not sell its retail Internet unit, in part because MCI and
Worldcom do not stand accused of having the potential to dominate the
consumer Internet business in the same way they could control
wholesale pricing.
America Online, for instance, is the largest online service with 11 million
customers, providing ample competition in the retail market. But its
Internet communications network is owned by Worldcom.
By divesting itself of much of MCI's Internet business, the combined
company would strengthen its case for being allowed to hold on to
Uunet Technologies Inc., the largest Internet backbone supplier.
Worldcom acquired Uunet in 1996 when it agreed to acquire MFS
Communications Co., a big competitive local telephone company, for
$14 billion. MFS completed its $2 billion acquisition of Uunet only
weeks before MFS itself agreed to be acquired by Worldcom.
John W. Sidgmore, Uunet's president, is now vice chairman of
Worldcom. GTE asked European regulators last week to force
Worldcom to sell Uunet as a condition for approving Worldcom's
acquisition of MCI, people close to the companies said.
One of the odd twists of the current solicitation process is that both
British Telecom and GTE were involved in the original battle for MCI
last year. British Telecom had agreed to acquire MCI for $24 billion
before renegotiating the price to $19 billion, opening the door for
Worldcom.
GTE offered $28 billion in cash for MCI shortly after Worldcom made
its initial $30 billion stock bid last October, but GTE did not or could
not keep pace when Worldcom made its second, and winning,
proposal of $37 billion in both cash and stock.
British Telecom has agreed to support MCI's merger with Worldcom,
partly because British Telecom would receive $7.3 billion in cash for its
20 percent stake in MCI. But GTE has adopted an aggressive lobbying
position that has seen it fight the deal at every turn, including in the
courts.
The European Commission has said that it will rule on the proposed
merger by July 15, while the Justice Department has not outlined a
definitive time frame.
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