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The week in review: MCI WorldCom, Sprint in mammoth merger

In the largest corporate merger ever, MCI WorldCom makes a deal to buy No. 3 long distance company Sprint for an estimated $129 billion.

In the largest corporate merger ever, MCI WorldCom made a deal to buy No. 3 long distance company Sprint for an estimated $129 billion.

The acquisition will create a telecommunications titan able to take on market leader AT&T on relatively equal terms. The new company--to be called WorldCom--will claim about 35 percent of the long distance market, close to AT&T's roughly 42 percent, according to analysts' estimates.

Titan vs. titan
Both companies aim to offer customers and businesses combined packages of long distance, wireless, and high-speed "last mile" Internet access technology in addition to international telecommunications services.

But responding to the proposed agreement, Federal Communications Commission chairman William Kennard criticized the impending merger as a "surrender" of competition that imposes a heavy burden on the firms to show the deal is good for consumers.

The looming MCI WorldCom-Sprint merger could create complications for MCI WorldCom's deal with services firm EDS. Eight months ago, MCI WorldCom agreed to negotiate a ten-year, multibillion-dollar contract under which EDS would manage a major chunk of its computer applications and data systems. But analysts said the whopping contract could be on the rocks, bogged down by its extreme size and shadowed by the MCI WorldCom-Sprint agreement.

On the cable front
The FCC voted to relax its cable television ownership rules, potentially lowering the regulatory obstacles AT&T must clear to win approval of its proposed $55 billion purchase of MediaOne Group. But the company still will be forced to shed subscribers or find a way to restructure its current cable investments to comply with the rules, analysts said.

The AT&T-MediaOne combination would make AT&T the largest national cable operator, with access to more than half of the 95 million households able to buy cable service.

Amid speculation that cable modem service provider Excite@Home might split into two companies, America Online chief executive Steve Case said the world's largest Internet service provider still covets an alliance with the company. Case's statements marked AOL's first public comments following Wall Street rumors suggesting that Excite@Home could sell its Web content business to AOL.

Angling for access
In an interview with CNET, Case said AOL also would like to make a deal with AT&T to get into the cable modem business. Case spoke from the launch party for AOL 5.0, the latest version of the company's subscriber software. The release came as pressure is building among online giants to grow subscribers at a critical time in competition.

As evidence of the cutthroat race to woo users, sources told CNET that CMGI plans to spend more than $100 million on a 12-month advertising campaign that trumpets major changes aimed at transforming its AltaVista Web directory into a top-tier portal player.

But relative latecomers like AltaVista might have trouble catching up to the likes of Yahoo, which trounced estimates for third-quarter earnings. Yahoo had 3,150 advertising clients in the third quarter, up from 2,700 in the previous period, and its registered user base grew to 80 million, compared with 65 million in June.

Free-for-all strategy
In a special report, CNET took a special look at what happens when companies risk giving away computers and Internet access to attract consumers. Whether anyone can make money in this market is unclear, even to the companies that have staked their futures on these confounding business models.

In an effort to streamline operations, IBM will merge its consumer PC group into its larger organization for corporate computers amid concerns that the fourth quarter may not be as good as expected. The consolidation underscores Big Blue's ongoing efforts to enhance the profitability of its PC division, which has been hit hard in the past two years by declining prices.

One computer maker that can't seem to lose is Apple. Company executives introduced three new iMac computers and demonstrated additional features in its Mac OS 9 software, drawing approval from the Apple faithful and analysts alike.

Chipmaker Intel forged ahead with its high-end processor plans, but the company seems to be moving in a direction that no one else is interested in following. Although Intel's upcoming Itanium chip, formerly code-named Merced, speaks a brand new language, IBM, Compaq Computer, Hewlett-Packard, Sun Microsystems, AMD, and other competitors said they would stick with the chip architectures they already have.

Browser bothers
As AOL celebrated its proprietary software release, things weren't so cheery at the company's Netscape unit. Netscape postponed the release of its Communicator 5.0 browser to fine tune new features. It also said that more top executives have left the organization.

Recently disclosed Netscape departures included those of Bob Lisbonne, senior vice president of client products, who is leaving the division but staying with AOL for the time being, and Lori Mirek, who quietly left this summer after a brief tenure as senior vice president and general manager of Netscape Business Solutions.

Brick-and-mortar moves
A company with the working name Online Retail Partners, which has secured somewhere between $100 million and $300 million in venture financing, quietly prepared to launch a major service to provide the technology, expertise, and funding to help brick-and-mortar retailers catch up online.

Sources said that financiers Paul Allen and George Soros were involved in the funding, as was Comcast Interactive Capital. The service comes as venture capitalists are increasingly funding the panicked migration of many land-based retailers to the Web.

Demonstrating the difficulty that traditional retailers have in competing for online sales, Wal-Mart, the world's largest retailer, said it won't open its redesigned Internet shopping site until January 1, a later-than-expected start that will miss the holiday season.

Analysts predicted a potential shakeout in the online travel market after Sabre Holdings said it would buy online travel company Preview Travel and combine it with its own Internet-based travel service, Industry observers said to expect more deals as players in the online travel business maneuver to gain market share and clout with suppliers.

Also of note
In an interview with CNET, Larry Ellison explained why his mission is to topple German software giant SAP...Analysts said Perot Systems' post-IPO stock plunge was to be expected of an 11-year-old company that's more about the nuts and bolts of computer systems technology than Web flash...Webvan unexpectedly delayed its initial public stock offering...Philips Electronics said it would discontinue its Nino line of Windows CE-based handheld computers...Colorful, design-minded computers based around Advanced Micro Devices' chips will debut this month...An antivirus company discovered a breed of computer virus that for the first time targets high levels of certain Windows NT operating systems.