Cable & Wireless filed the suit earlier this month to protect its agreement to purchase MCI's wholesale Internet business for $625 million.
European and U.S. regulators are expected to seek additional concessions to ensure the combined MCI-WorldCom would not dominate the Internet business.
Cable & Wireless contended in the lawsuit that MCI was obligated to first offer it a chance to buy any revised package of assets it may sell. But a federal judge last week rejected Cable & Wireless' request to bar MCI from offering an expanded deal to any other company for ten days.
A spokesman for Cable & Wireless said talks with MCI are ongoing. He declined, however, to discuss the nature of those talks.
A source familiar with the talks said the discussions centered on Cable & Wireless possibly buying an expanded package of MCI's Internet assets. It was not immediately clear whether or not MCI has or may hold talks with other potential buyers as well.
Currently, MCI would have to pay Cable & Wireless a termination fee of $25 million in order to break their agreement.