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Roadblocks Threaten Sprint-MCI WorldCom Deal
An analysis by the Legg Mason Precursor Group, a top telecommunications investment research firm, predicted the Department of Justice will likely block the proposed merger of Sprint Corp. and MCI WorldCom because of its anti-competitive effect on long distance, Internet and data networking.
With AT&T, the merged company would share roughly 80 percent of the residential and business long-distance market; alone it would control 40 percent. The mega-company also would control six of the eight largest traffic exchange points on the Internet backbone, as well as 50 percent of all Internet traffic.
To push its merger through, MCI WorldCom already has agreed to divest Sprint’s holdings, but the Justice Department has indicated this isn’t enough, according to the investment research firm. In 1998 both the DOJ and the European Commission, as a condition for approval of the merger of MCI and WorldCom, required that the new company sell its entire Internet business to Cable and Wireless. “The DOJ is embarrassed that the MCI divestiture to Cable & Wireless went so badly and that it negotiated away its authority to ensure that the backbone market would remain as competitive as it was pre-merger. The companies now have low credibility with the DOJ,” Legg Mason writes.
With AT&T, the merged company would share roughly 80 percent of the residential and business long-distance market; alone it would control 40 percent. The mega-company also would control six of the eight largest traffic exchange points on the Internet backbone, as well as 50 percent of all Internet traffic.
To push its merger through, MCI WorldCom already has agreed to divest Sprint’s holdings, but the Justice Department has indicated this isn’t enough, according to the investment research firm. In 1998 both the DOJ and the European Commission, as a condition for approval of the merger of MCI and WorldCom, required that the new company sell its entire Internet business to Cable and Wireless. “The DOJ is embarrassed that the MCI divestiture to Cable & Wireless went so badly and that it negotiated away its authority to ensure that the backbone market would remain as competitive as it was pre-merger. The companies now have low credibility with the DOJ,” Legg Mason writes.