Feds Block WorldCom-Sprint Merger

Tuesday, June 27th 2000, 12:00 am
By: News On 6

WASHINGTON (AP) — The Justice Department filed suit Tuesday to block the proposed $129 billion merger of WorldCom and Sprint, the nation's second- and third-largest phone companies, on grounds it would increase prices for millions of consumers.

The companies almost immediately withdrew their merger notification filed with the European Commission, citing Justice Department opposition. But they denied they were abandoning the merger.

``If, in the future, the parties decide to proceed with the merger, they will make such notifications as are appropriate under European merger laws,'' WorldCom and Sprint said in a joint news release.

Sprint is still pursuing a merger with WorldCom, said Sprint spokesman Mark Bonavia.

The Justice Department suit and the companies' withdrawal came a day after the European Union's antitrust chief said WorldCom and Sprint had presented a less than satisfactory response to European concerns that the merged company would dominate high-level Internet access around the world.

Attorney General Janet Reno, announcing the lawsuit at a news conference, said, ``This merger threatens to undermine the competitive gains achieved since the department challenged AT&T's monopoly of the telecommunications industry 25 years ago.'' The lawsuit split AT&T into a national long-distance company and eight regional local phone companies.

Reno's antitrust chief, Assistant Attorney General Joel I. Klein, said the two companies now compete aggressively and their merger would leave just two major competitors in many sectors of the industry.

``If WorldCom were allowed to acquire Sprint, large and small businesses and millions of individual consumers would have to pay higher prices and accept lower service quality and less innovation,'' Klein said.

Mario Monti, who is in charge of antitrust affairs for the European Union, said the European Commission suggested WorldCom and Sprint might be able to amend their proposal but ``only under exceptional circumstances.'' He declined to comment on what such circumstances might be, but later added that if those standards were not met, ``Then my proposal to the commission would be to prohibit the merger.''

Shortly before Reno announced the suit, Sprint General Counsel J. Richard Devlin declared that Sprint had ``presented an overwhelming case in support of the merger,'' adding: ``The public benefits are too great to pass up.''

The government said this was the largest merger challenged by the department.

Klein said changes in the deal proposed to the government by the companies were not sufficient to protect competition. Although Klein would not identify those changes, European sources have said they offered to sell Sprint's long-distance services and Internet backbone.

Klein said Americans are finally beginning to see the fruits of the AT&T breakup and the resulting competition by the many phone calls they receive at home from WorldCom and Sprint representatives offering to switch their service.

In residential long-distance telephone markets and several other markets, WorldCom and Sprint are the only substantial competitors to AT&T and to each other, the government said. Each has constructed national and international fiber optic networks and developed sophisticated systems for handling millions of customer accounts, hired and trained large work forces capable of providing a variety of high-quality telecommunications services to customers nationwide.

The department said the deal would reduce competition in the following markets:

—Long-distance service to U.S. residential customers. WorldCom had 19 percent of residential telephone lines; Sprint had about 8 percent, and combined with AT&T, those three have 80 percent.

—Internet backbone service throughout the United States. Firms in this market connect internet service providers with internet users. WorldCom operates the largest internet backbone, with 37 percent of all internet traffic. Sprint has the second-largest backbone, with 16 percent of the traffic.

—International long-distance between the United States and more than 50 foreign countries. In each of these markets, the combined WorldCom and Sprint shares is at least 30 percent, and, combined with AT&T, the top three have at least 80 percent of these markets.

—International private lines between the United States and more than 60 foreign countries. In this market for dedicated lines used exclusively by a particular customer, the combined WorldCom and Sprint shares in each market are at least 37 percent, and, combined with AT&T, the top three have at least 82 percent.

—Data network services to large business customers in the United States.

—Custom network services for very large businesses in this country.

Shares of WorldCom were up $3 to $40.50 on the Nasdaq Stock Market Tuesday, while shares of Sprint were down $2.125 cents to $57.438 on the New York Stock Exchange.

Two other major media mergers — American Online with Time Warner and AT&T with MediaOne — also are under attack. A consumers group urged the U.S. government Monday to investigate links between AT&T and AOL-Time Warner.

Officials with Consumers Union said cross-ownership links between Time Warner Inc. and the recently merged AT&T and MediaOne are a violation of conditions that the Federal Trade Commission set when Time Warner acquired Turner Broadcasting System Inc. in 1997.

The FTC should require AT&T to sell its interest in Time Warner Entertainment or force Time Warner to restructure so there is no joint ownership of cable properties with AT&T, Consumers Union said.

Earlier this year, federal regulators gave conditional approval to AT&T's acquisition of MediaOne Group Inc., making the nation's top long-distance carrier also the nation's largest cable company in a deal originally valued at $58 billion.