Bloomberg: WorldCom's $47.3 Billion Purchase of MCI Wins Approval From U.S. FCC
Bloomberg News
September 14, 1998, 4:39 p.m. ET
WorldCom's $47.3 Bln Purchase of MCI Wins U.S. FCC Approval
Washington, Sept. 14 (Bloomberg) -- WorldCom Inc.'s $47
billion purchase of MCI Communications Corp. won U.S. Federal
Communications Commission approval, clearing the way for the
marriage of the second and fourth largest U.S. long-distance
companies.
The combined company, known as MCI WorldCom Inc., will be
well-positioned to take on such global telecommunications
powerhouses as British Telecommunications Plc, France Telecom SA
and Deutsche Telekom AG in the race to offer multinational
companies one-stop shopping for local phone, domestic and
international long-distance service, and data services.
MCI Worldcom will offer a package of telecommunications
services in 17 countries and control about a quarter of the $70
billion U.S. long-distance market, second only to AT&T Corp. It
also will remain the top carrier of Internet traffic, the fastest-
growing portion of the telecommunications industry.
MCI-Worldcom has ''pledged to me that the merged firm will
undertake a strong commitment to extend competitive
telecommunications facilities to residential areas including our
nations inner cities,'' said FCC Chairman William Kennard.
Jackson, Mississippi-based WorldCom shares climbed 11/16 to
47 3/4, and shares of MCI, based in Washington, D.C., rose 1/2 to
59 5/16.
Internet
WorldCom is buying MCI to combine MCI's substantial customer
base with WorldCom's vast data network. WorldCom's move
''stabilizes prices and enables them to drive costs down
dramatically,'' said Scott Cleland, a telecommunications analyst
with Legg Mason Inc.
FCC clearance of MCI WorldCom was expected once MCI agreed
to sell its Internet business for $1.75 billion in cash to Cable
& Wireless Plc to address concerns raised by the U.S. Justice
Department and European regulators that the combined company
would control too much of the global Internet traffic.
Even with the sale of MCI's Internet business, the company
is expected to remain the dominant Internet service provider,
analysts say. ''I don't think the division of Internet assets
seriously compromised their competitive position,'' said George
Reed Dellinger, a telecommunications analyst with HSBC Washington
Analysis.
''The reach, the scale, the marketing strength these
companies have together enhances their ability to be a
substantial player in the market,'' said Paul
Glenchur, an analyst with Charles Schwab & Co.'s Washington
Research Group.
Wireless Void
One gaping hole in MCI WorldCom's global telecommunications
package is wireless phone service, analysts said, raising the
possibility of future acquisitions.
AirTouch Communications Inc. could be a likely target, said
Dellinger. Another possibility, Dellinger said, is for WorldCom
to top Bell Atlantic's $68.3 billion offer for GTE Corp., which
provides cellular phone service to more than 4 million customers
in 17 states.
WorldCom purchased MCI under a similar scenario. British
Telecommunications Plc initially offered $25.5 billion for MCI.
WorldCom and GTE Corp. then jumped into the game last October --
WorldCom with a $34.71 billion offer and GTE with a $33.5 billion
offer for MCI. WorldCom prevailed when it upped its bid Nov. 10
to $47.4 billion in stock and debt.
Business Market
The combined MCI WorldCom will serve as a formidable
competitor in the local phone market for business customers. MCI
last year abandoned its plans to enter the local phone business
by reselling the service of the Baby Bells and GTE Corp. on the
grounds that it wasn't receiving steep enough discounts on the
service to make any money. It was left with the costly and time-
consuming strategy of building its own local phone networks.
Combined, MCI WorldCom will offer local phone service, mostly to
business customers, in 103 markets across the country.
Cleland said the company would most likely continue to focus
on the local business customers. ''I would be surprised if it
gave a lot of effort beyond jawboning to getting into the local
residential market,'' he said. ''It's a high-growth, business-
oriented company, and the residential local market isn't a high-
margin, high-growth prospect.''
Internationally, WorldCom is building a pan-European phone
network. In July the company started operating a fiber-optic grid
that links phone networks in cities across Europe.
The company will offer a complete package of local phone,
long-distance and international, and data services in 17
countries -- including the United Kingdom, France, Germany and
Japan -- through their own national networks.
The MCI WorldCom transaction is part of a wave of
consolidation in the telecommunications industry spurred by
sweeping telecommunications deregulation legislation in 1996.
Transactions that have already been cleared include Bell
Atlantic's purchase of Nynex Corp., SBC Communications Inc.'s
purchase of Pacific Telesis Group., and AT&T Corp.'s purchase of
Teleport Communications Group Inc.
U.S. regulators and antitrust authorities are currently
scrutinizing SBC Communications Corp.'s $67.7 billion acquisition
of Ameritech Corp., Bell Atlantic's $68.3 billion purchase of
GTE, and AT&T's $44.5 billion purchase of Tele-Communications
Inc.
--Heather Fleming and Alan M. Wolf in Washington, (202) 624-
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