MCI, Sprint push competition for merger approval

Painting themselves as a new high-speed Net competitor to AT&T, MCI WorldCom and Sprint officially ask federal regulators to approve their $129 billion merger.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
3 min read
Painting themselves as a new high-speed Net competitor to AT&T, MCI WorldCom and Sprint officially asked federal regulators today to approve their $129 billion merger.

The companies know that the deal will be a hard pill for regulators to swallow. Federal officials have voiced concerns about competition in the Internet business as well as in the telephone business if the merger is completed. MCI WorldCom and Sprint control two of the largest Net backbones, and are respectively the No. 2 and No. 3 long-distance telephone firms in the nation.

The merger comes amid increasing consolidation in the communications industry, following hard on the heels of AT&T's cable acquisitions and deals between the local telephone giants. All of the companies cite their need to compete in the new market for telephone and data services.

In the filing, the firms highlighted their separate purchases of fixed wireless companies over the last year, saying the technology could become a new high-speed Net access alternative.

"AT&T and the cable companies are trying to tie up one line into the home. The Bell companies are trying to tie up the other line," Sprint general counsel Rich Devlin said. "Our merger brings us the capability of bringing a third line for broadband data into the house."

The two companies agreed to merge early last month, after a short bidding war. With a price tag of about $120 billion, the agreement dwarfs even the giant Baby Bell mergers now under Federal Communications Commission review.

FCC Chairman William Kennard expressed his own skepticism shortly after the merger was announced.

"This merger appears to be a surrender," he told reporters. "How can this be good for consumers? The parties will bear a heavy burden to show how consumers would be better off."

In their filing today, the companies stressed that regulators need to look beyond the long-distance market to the day when the big local, long-distance and cable companies all will be competing head-to-head.

"AT&T, SBC and the merged Bell Atlantic and GTE will all be bigger in terms of revenue," MCI WorldCom general counsel Mike Salsbury said. "We would be the number four player in this post-merger world."

Reports have already appeared showing that regulators are leaning against approval, but the Justice Department earlier this week denied that it had formed an option on the issue. Analysts say that it is too early in the process for regulators to have formed any solid opinion about the merger.

"It is too early in the application process for any regulator or politician to have a fixed conclusion," Goldman Sachs analyst Frank Governali wrote in a report this week. "We expect a tough review process and are not surprised that some regulator somewhere voiced concerns…In a sense, it's part of the process."

If completed, the merger will at last give MCI WorldCom access to a national wireless phone operation--though Sprint's PCS division. It will create a long-distance telephone powerhouse that will rival--if not quite match--AT&T and create one of the largest Internet backbone infrastructure companies in the world.

MCI was forced by regulators to sell off its Internet assets when it merged with WorldCom last year, and many analysts say they expect a similar requirement to be imposed on this case.

Already companies such as Qwest Communications International have said they would bid on the Net assets if they do reach the auction block.