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MCI's `Sham' Divestiture Falls Short, CWA Tells FCC
MCI's effort to confuse regulators and Wall Street over the divestiture of its Internet operations continues to be a shell game, the Communications Workers of America said following news reports that MCI was looking for additional buyers for its retail Internet holdings.
"We've told the Federal Communications Commission that this divestiture is a sham, and now it appears that Wall Street supports our position," said CWA President Morton Bahr. The market price offered for a piece of MCI's Internet business is far below comparable sales of other Internet systems, he said, adding that "it's clear that MCI wants to spin off parts of its operation to appease regulators while retaining the key to Internet backbone dominance."
In a June 11 filing to the FCC, CWA stressed that the proposed sale of a piece of MCI's Internet operation to Cable and Wireless would have little effect on the anti-competitive impact that would result from a merged MCI-WorldCom.
MCI sought to carefully structure this sale, ensuring that Cable and Wireless's Internet business "would continue to be part of the MCI/WorldCom interlocking economic structure by virtue of its supplier relationship, lease-back of facilities and limited two-year non-compete agreement," CWA said.
The evidence of MCI's artfulness is obvious when regulators look at what this sale doesn't include, the CWA filing notes. "It does not include MCI's retail Internet customers; the vast majority of MCI's Internet technical, sales, marketing, customer service and administrative staff; MCI's Internet operations support systems and network operations centers; MCI's collocation space; and MCI's web-hosting, intranet, network integration and other value-added services."
The $625 million price tag for Cable and Wireless is just about one-fourth that of the most recent, comparable sale of a complete Internet operation, the $2.2 billion sale of UUNet Technologies to MFS (now WorldCom) in 1996.
MCI, according to news reports, is considering an additional sale of its retail Internet services. But that combined spinoff still would fall far short of the cost of an integrated Internet operation, a judgment by the market that MCI is divesting itself of less critical operations. Even without these two operations, a merged MCI-WorldCom "would have dominant control of the Internet backbone market...and would have the incentives and ability to use its market power to set the terms, price and quality of interconnection at anticompetitive levels," CWA said.
To resolve these serious anticompetitive issues, regulators must ensure that no one backbone provider has dominant market power. This would require a complete divestiture of either Worldcom's or MCI's entire Internet business and customer base prior to merger approval. And since this is clearly not where MCI and WorldCom are headed, the FCC must reject their merger request, CWA said.
"We've told the Federal Communications Commission that this divestiture is a sham, and now it appears that Wall Street supports our position," said CWA President Morton Bahr. The market price offered for a piece of MCI's Internet business is far below comparable sales of other Internet systems, he said, adding that "it's clear that MCI wants to spin off parts of its operation to appease regulators while retaining the key to Internet backbone dominance."
In a June 11 filing to the FCC, CWA stressed that the proposed sale of a piece of MCI's Internet operation to Cable and Wireless would have little effect on the anti-competitive impact that would result from a merged MCI-WorldCom.
MCI sought to carefully structure this sale, ensuring that Cable and Wireless's Internet business "would continue to be part of the MCI/WorldCom interlocking economic structure by virtue of its supplier relationship, lease-back of facilities and limited two-year non-compete agreement," CWA said.
The evidence of MCI's artfulness is obvious when regulators look at what this sale doesn't include, the CWA filing notes. "It does not include MCI's retail Internet customers; the vast majority of MCI's Internet technical, sales, marketing, customer service and administrative staff; MCI's Internet operations support systems and network operations centers; MCI's collocation space; and MCI's web-hosting, intranet, network integration and other value-added services."
The $625 million price tag for Cable and Wireless is just about one-fourth that of the most recent, comparable sale of a complete Internet operation, the $2.2 billion sale of UUNet Technologies to MFS (now WorldCom) in 1996.
MCI, according to news reports, is considering an additional sale of its retail Internet services. But that combined spinoff still would fall far short of the cost of an integrated Internet operation, a judgment by the market that MCI is divesting itself of less critical operations. Even without these two operations, a merged MCI-WorldCom "would have dominant control of the Internet backbone market...and would have the incentives and ability to use its market power to set the terms, price and quality of interconnection at anticompetitive levels," CWA said.
To resolve these serious anticompetitive issues, regulators must ensure that no one backbone provider has dominant market power. This would require a complete divestiture of either Worldcom's or MCI's entire Internet business and customer base prior to merger approval. And since this is clearly not where MCI and WorldCom are headed, the FCC must reject their merger request, CWA said.