Justice Clears WorldCom MCI Merger

(July 16, 1998)  The U.S. Department of Justice announced that it has approved the proposed merger between WorldCom and MCI.  The announcement accompanies MCI's announcement that it has reached a deal to sell all of its Internet business to Cable and Wireless.

WorldCom and MCI announced the $37 Billion merger last fall, shareholders have approved the deal.   However, it has been criticized by GTE, and thoroughly investigated by government antitrust regulators, mostly regarding concentration of Internet business.  A plan announced in late May by MCI to sell some of its Internet business to British telecom company Cable and Wireless failed to win regulatory approval for the merger.

The Department of Justice (DOJ) explained its decision in a press release.

"After reviewing the terms of the proposed divestiture and its likely impact on the market, the Department concluded that the divestiture would resolve the Department's competitive concerns about the merger.  Without the divestiture, the WorldCom/MCI merger would have combined the two leading providers of nationwide Internet backbone service -- a service that connects various high-capacity computer networks carrying Internet traffic. Customers of the backbone services include Internet service providers (such as America Online and Erol's) and private and public institutions and corporations."

Joel Klein, head of the DOJ Antitrust Division, stated in the press release that, "The merger as originally proposed would have given WorldCom/MCI a significant proportion of the nation's Internet traffic, giving the company the ability to cut off or reduce the quality of Internet services that it provided to its rivals."

"We have fully addressed the antitrust concerns of the U.S. Department of Justice and look forward to gaining final regulatory approval from the Federal Communications Commission," said Bert Roberts, MCI’s Chairman, in a press release. "We are eager to begin delivering the many benefits of the MCI WorldCom merger – growth for our shareholders, innovation and value for our customers, and new opportunities for our employees."

The merger still must be approved by the the Federal Communications Commission, and the Competition Directorate of the European Commission.  However, the European Commission announced its conditional approval of the deal in a press release on July 8.   Moreover, the Commission and the DOJ have been working cooperatively in this matter.

The sale of MCI’s Internet assets, as described in MCI's press release, "includes all associated traffic revenue and backbone facilities," and consists of the following:

• "U.S. nationwide Internet backbone – the backbone, comprising all of its 22 domestic nodes, 15,000 interconnection ports, more than 40 ongoing peering agreements, routers, switches, modems, e-mail servers and other equipment dedicated to its support. The network features high-speed dedicated access as well as toll-free nationwide and local dial-up access from more than 300 points across the U.S."

• "Dedicated Access Customers – Cable & Wireless will gain 3,300 major dedicated Internet access corporate accounts"

• "Internet Service Provider (ISP) Customers – Cable & Wireless will acquire approximately 1,300 ISP customers, including 130 International Directly Connected Customers (IDCs) in more than 75 countries. ISPs contract to provide Internet, billing and customer service to business and mass market users."

• "Dial-Up Business – this business provides nationwide dial-up Internet access for more than 250,000 consumers and 60,000 business users."

• "Web hosting and managed firewall services – these businesses include more than 100 corporate accounts and associated servers."

Telecommunications and Internet competitor, GTE, had lobbied long and hard against the merger.  There is still pending an antitrust lawsuit, GTE v. WorldCom and MCI.  The suit was filed in federal district court in Washington DC in May.  The Complaint asks the Court to enjoin the merger of WorldCom and MCI, claiming that it would create a monopoly in the national market for Internet backbone service in violation of §7 of the Clayton Act.  It also alleges that the resulting concentration in long distance and international telecommunications services would violate the Act.

WorldCom, headquartered in Jackson, Mississippi, is a global telecommunications company, with 1997 annual revenues of $7.35 billion.

MCI, headquartered in Washington D.C., is the second largest telecommunications provider in the United States and the fifth largest telecommunications provider in the world, with 1996 revenues of $18.5 billion.

Cable & Wireless, headquartered in London, England, is a leading provider of telecommunications and multimedia communications services, with annual revenues of approximately $12 billion.

Related Websites:

• MCI's Merger Information Page.
• WorldCom's Merger Information Page.

Related Tech Law Journal Stories:

• Story: GTE Files Antitrust Suit Against MCI and WorldCom, 5/11/98.
• Story: MCI Plan to Sell Internet Backbone Business Criticized, 5/29/98.
• Story: EU Clears WorldCom MCI Merger, 7/9/98.
• Story: Judge Sets Trial Date for WorldCom MCI Merger, 7/11/98.