Bloomberg:WorldCom's MCI Buy Wins U.S. OK; Cable & Wireless MCI Price at $1.75 Bln
Bloomberg News
July 15, 1998, 3:37 p.m. ET
WorldCom's MCI Purchase Wins U.S. Justice Department Approval
Washington, July 15 (Bloomberg) -- WorldCom Inc.'s $49
billion takeover of MCI Communications Corp. was approved by the
U.S. Justice Department after the nation's No. 2 long-distance
company agreed to sell its Internet service for $1.75 billion to
Cable & Wireless Plc.
The approval by the department's antitrust division follows
the European Union's clearance and leaves just one more
regulatory hurdle before the companies can complete a transaction
creating the second-largest U.S. telephone company behind AT&T
Corp. and a formidable international competitor.
The U.S. Federal Communications Commission must decide
whether the transaction serves the public interest and promotes
competition for long-distance services. It could announce a
decision by summer's end. The companies now have two days to give
the FCC details of the Internet divestiture.
''The merger as originally proposed would have given
WorldCom/MCI a significant proportion of the nation's Internet
traffic, giving the company the ability to cut off or reduce the
quality of Internet services that it provided to its rivals,''
said the Justice Department's antitrust chief, Joel Klein. The
divestiture ''preserves the competition among major Internet
service providers.''
The combination -- to be known as MCI WorldCom Inc. -- is
part of the wave of consolidation in the telecommunications
industry that includes the merger of Bell Atlantic Corp. and
Nynex Corp., and SBC Communications Inc.'s acquisition of Pacific
Telesis Group. Still under review is SBC's proposed $66 billion
purchase of Ameritech Corp. -- a transaction that would reduce to
four the number of regional Bell operating companies.
Still Dwarfed by AT&T
MCI WorldCom would be the first U.S. long-distance
competitor to be more than half the size of AT&T. Its combined
1998 revenue is projected at $32 billion, compared to AT&T's
$51.32 billion last year. AT&T agreed on June 24 to buy Tele-
Communications Inc., the nation's No. 2 cable company, for $45.2
billion in stock and assumed debt to get direct access to
customers' homes using TCI's cable network.
MCI WorldCom, combining the second- and fourth-biggest U.S.
long-distance companies respectively, would have a larger global
computer network than AT&T and have local networks in more
cities. The company would have about 25 percent of the $70
billion-a-year U.S. long-distance market and offer local services
in more than 100 cities.
The 20-member European Commission, the European Union's
executive agency, approved the combination on July 8 on condition
the new company find a buyer for MCI's Internet business,
complete the sale within an undisclosed specific time period and
not try to win back former MCI Internet customers.
Analysts had predicted that U.S. regulators would see the
combination as an opportunity for a new company to bring
competition to the local operating monopolies, now dominated by
the regional Bell companies. One goal of the Telecommunications
Act of 1996 was to promote competition in the local retail
market.
Internet Concerns
Regulators on both sides of the Atlantic were concerned that
combining the Internet assets of MCI with WorldCom's UUNet
Technologies Inc. would enable the combined company to dominate
the market for transmission of traffic on the worldwide web. MCI
initially agreed to sell only its wholesale Internet business
that has 1,300 customers in 76 countries to Cable & Wireless, the
No. 2 U.K. phone company. Regulators called that concession
insufficient, so MCI then agreed to sell all of its Internet
assets.
Also of concern to U.S. regulators was whether WorldCom's
acquisition of MCI's retail long-distance business would reduce
its incentive to compete in the wholesale market. WorldCom is the
largest U.S. wholesaler, selling its long-distance capacity to
resellers like GTE Corp., who in turn market it to business
customers under their own brand names.
GTE and other opponents of the combination argued that the
new company would have an incentive to raise wholesale prices and
limit supply to avoid cannibalizing MCI's retail business.
GTE economists argued in FCC filings that new players in the
wholesale long-distance market, like Qwest Communications
International Inc., IXC Communications Inc. and Williams Cos.
Inc., wouldn't quickly achieve the size and scope of WorldCom's
business in order to compete effectively.
Since WorldCom's purchase of MCI was announced in November,
MCI shares have climbed about 75 percent and WorldCom's shot up
around 60 percent.
Cable & Wireless shares have surged nearly 30 percent in
recent weeks amid reports the company would acquire WorldCom's
Internet service.
--James Rowley in Washington 202-624-1913 with reporting by |
