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GTE files suit to block merger

The telco files a lawsuit to block the proposed merger of WorldCom and MCI, citing antitrust problems with the megadeal.

GTE said today it filed a lawsuit to block the proposed merger of WorldCom and MCI, citing antitrust problems with the mega-deal.

The lawsuit, filed in U.S. District Court in Washington, charges that the $38 billion combination will allow the combined company to "monopolize the market for Internet backbone services."

It marks the latest opposition to the deal, which has received shareholder approval but still is being scrutinized by regulators both in the United States and Europe. In addition, some state attorneys general are concerned that the deal will stifle competition.

The complaint says that the MCI and WorldCom merger will have anticompetitive effects on the national market for Internet backbone service, regional markets to extend the reach of Internet backbones, the wholesale U.S. market for long distance services, the regional long distance markets, and the markets for international calling services.

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Through the merger, "a single backbone operator will achieve a majority...of the Internet backbone market and a disparate size advantage.... As a result, MCI-WorldCom's incentives and power will change dramatically," according to the document.

"The combined company's backbone network will no longer be as relatively dependent on interconnection with any other single backbone network, while all other networks will become even more critically dependent for survival upon interconnection with the largest network," the complaint said.

It added that, as a result, barriers to entry into the Internet backbone network services business will increase substantially.

GTE's action comes on the heels of an April 28 announcement that the European Commission will hold hearings on May 12 and 13 to require WorldCom and MCI to answer the its objections to the merger.

Like other telecommunications mergers, it stems from deregulation and the desire to provide consumers with a one-stop shop for phone and data communications.

MCI and WorldCom both have denied that the merger is anticompetitive.

In its lawsuit, filed late yesterday, GTE charges that the merged companies would "own 40 percent to 60 percent of the Internet backbone."

Combining MCI and WorldCom, the nation's second- and fourth-largest long distance carriers, respectively, also would quash competition in the phone market, the suit alleges.

"From the onset, GTE has consistently opposed this merger as anticompetitive," said William Barr, general counsel of GTE. "We are confident that the merger authorities will conclude that this merger is unlawful and cannot go forward."

Wall Street speculation also has centered on a merger between GTE and another big telco. No such deal has occurred, however.