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MCI WorldCom: AOL merger a boon for business

The planned AOL-Time Warner merger will benefit MCI WorldCom as it carries most of AOL's data traffic, chief executive Bernie Ebbers says.

Bernard Ebbers The planned merger between Time Warner and America Online will benefit MCI WorldCom as the telecommunications firm carries most of AOL's data traffic, chief executive Bernie Ebbers said today.

In a speech to the Press Club in Washington, D.C., Ebbers said he welcomed the deal, even though the two companies would provide stiff competition to MCI WorldCom's high-speed consumer Internet services--and potentially to its phone services as well.

"We view it as very positive to MCI You've got Time Warner WorldCom," Ebbers told reporters. "AOL is our largest customer. We feel like this will give them the capability to get to more homes…and that will increase their need for the pipes they buy from us."

MCI WorldCom is currently seeking approval for its own $129 billion merger with Sprint--previously the world's largest merger until the AOL-Time Warner deal--so Ebbers has an acute interest in defending consolidation in the telecommunications industry.

But his comments also addressed current concerns, as MCI WorldCom stock has fallen considerably this week in part on the belief that the blockbuster merger would negatively affect the telecommunications company.

MCI WorldCom does have a strong relationship with AOL, however, dating back to a complicated three-way swap that brought CompuServe under AOL's roof. That deal gave MCI WorldCom Internet backbone networks from both service providers, as well as a long-term contract to handle much of the company's long-haul data business.

He also added today that MCI WorldCom would provide wholesale access to its entire range of high-speed Internet offerings, including its planned high-speed fixed wireless services. AOL might well want to purchase those connections for markets it can't reach with cable or telephone lines, he said.

Ebbers spent much of his speech today underscoring the rapid pace of consolidation across the industry, defending his company against critics in regulatory, government, and advocacy circles who have said a merger of the No. 2 and No. 3 long distance companies is not good for competition.

The industry veteran urged regulators to look at the communications market as an "all-distance" business, rather than an industry separated into distinct long-distance, local, data and wireless markets. In light of current and future packages of service from the likes of AT&T, Bell Atlantic and SBC Communications, MCI WorldCom and Sprint could be seen as simply fourth- and seventh-largest communications companies nationwide, he said.

"We needed to combine forces to become a complete competitor in the new game," he said. "If you're not all-distance in this business, you won't go the distance."

As a way of underscoring how quickly prices are dropping, Ebbers said MCI WorldCom would soon be offering a new package of local and long-distance services in New York, where Bell Atlantic has become the first big local phone company authorized to provide long-distance service.

Although specific details aren't yet available, Ebbers said his company would provide a "basket" of local and long-distance telephone minutes for a single flat rate. For low-use callers, the company would also create a plan that has no minimum use or monthly fee, he said.

When asked about future merger plans, Ebbers said that he expected the Sprint acquisition to close later this year. Yet he said he already has his eyes on new growth markets, particularly overseas.

"In Europe there is still lots of opportunity," he said. "We are going to continue to explore opportunities there."

Following the week's precipitous stock drop, analysts have reiterated their faith in the company's shares, even if AOL decides to take its network needs elsewhere.

"Admittedly, a loss of this business would clearly change the trajectory of the revenue growth almost immediately," wrote Jefferies & Company financial analyst Gregory Miller in a report today. "However, because it would represent less than 1 percent of total MCI WorldCom annual revenues, it would not be a loss that should cause unmitigated panic."