The Wall Street Journal Interactive Edition -- May 20, 1998
Level 3 Assails WorldCom, MCI,
Says It Already Acts as a Monopoly
By JOHN J. KELLER
Staff Reporter of THE WALL STREET JOURNAL
Network start-up Level 3 Communications Inc., taking aim at MCI Communications Corp. and
its would-be owner WorldCom Inc., accused the two of acting like the old AT&T monopoly,
and it has hired high-powered litigator David Boies to press its case with U.S. and European
regulators.
Level 3's Chairman, James Q. Crowe, in a letter to the director of the European Commission,
which is conducting an intensive review of the merger, claimed that MCI and WorldCom have
refused to discuss connecting their networks with Level 3's system -- thus denying the young
Omaha, Neb., company crucial access to Internet sites around the world.
It is a startling accusation from an unlikely entrepreneur: Mr.
Crowe had a hand in building the very juggernaut he now
claims could impede his new company. He once ran
competitive local-phone trailblazer MFS Communications
Co. and bought Internet giant UUNet Technologies Inc.
before selling the combined business to WorldCom a couple
of years ago. Now, he is accusing MCI of the same kind of anticompetitive behavior MCI once
fought AT&T Corp. over.
MCI denied the charge. But clearly the planned $37 billion purchase of MCI by WorldCom is
meeting ever-stiffening resistance. European regulators and U.S. authorities fear the new
combination will have a dominant share of the data traffic generated by the rapidly expanding
Internet. GTE Corp., which filed suit recently in federal court in Washington to block the deal,
and other rivals complain the merger would be anticompetitive, particularly as it relates to the
Internet.
To get the deal cleared, MCI-WorldCom could be forced by regulators to unload part of its
Internet business, possibly MCI's or some of WorldCom's. The New York Times said Tuesday
that MCI is shopping its business around. MCI declined to comment on the report.
Interconnection agreements aimed at linking competing networks seamlessly -- "peering" in
Internet parlance -- have been critical to the communications industry dating back to the turn of
the century, when the old American Telephone & Telegraph Co. was formed. The old AT&T
began building its empire by refusing to allow competing phone companies to connect to its
network. The smaller companies then had the daunting choice of either building their own
systems to rival what AT&T had or being bought by AT&T. The government put a stop to the
practice in 1913, forcing AT&T to connect its long-distance network to all phone companies,
including independents.
In subsequent years, AT&T's power was broken further, first in the early 1980s when MCI
fought for and won the right to interconnect to AT&T's long-distance system and offer
equivalent services to customers. Then, in the late 1980s, Mr. Crowe's former MFS helped lead
the fight to win similar connections to local Bell networks, prying open the Bell monopolies to
competition. The Telecommunications Act of 1996 made this law.
An MCI spokesman said MCI and WorldCom have more than 40 peering arrangements with
Internet-transmission providers, and that Level 3 doesn't yet meet the companies' standards of
providing "high-quality" service. "We have to ensure the integrity of our network and high
quality of service for our customers ... and would be glad to let them purchase capacity from us
and to peer when they meet our quality."
Mr. Boies, who has represented clients such as International Business Machines Corp., CBS
Inc., Westinghouse Inc. and others in high-profile cases in the past, is currently helping the
Justice Department to shape its controversial antitrust lawsuit against Microsoft Corp. Formerly a
partner with New York law firm Cravath Swaine & Moore, he left that firm last year to form his
own litigation boutique. He couldn't be reached for comment.
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