Originally created 03/11/98

U.S. studying WorldCom-MCI impact on competition

WASHINGTON -- Federal regulators are taking a hard look at whether WorldCom's proposed takeover of MCI Communications would dampen competition and drive up prices of Internet and long-distance services.

The $37 billion merger -- biggest in U.S. history -- is being reviewed by the Justice Department, which is collecting detailed information from the companies and their rivals.

GTE Corp. and Sprint Corp., which have raised concerns about the merger, confirmed Tuesday they have received civil subpoenas from Justice. Both companies provide long-distance service and operate high-capacity networks that carry Internet and other data traffic, known as the Internet backbone business.

Attorneys for GTE and Sprint said Justice is seeking detailed information about the proposed merger's impact on competition and pricing in the Internet and long-distance businesses. The agency currently is focusing more on Internet competition and pricing issues, attorneys said.

The Justice Department would not comment on the review.

WorldCom and MCI reject rivals' allegations that the merger would lead to higher pricing in the Internet and long-distance businesses, said MCI spokesman Frank Walter.

"The issues involving the Internet are being stoked by our Internet competitors, primarily Sprint and GTE," Walter asserted. He said the merger is on track for completion later this year.

A combined MCI-WorldCom would control at least 50 percent of Internet traffic in the United States and 25 percent of the nation's long-distance business, analysts say.

The Justice Department will assess the merger's impact on so-called interexchange points -- essentially the high-speed lines that connect one company's Internet backbone with another's, attorneys said.

William Barr, GTE general counsel, and David Eisenberg, Sprint's vice president for law, contend a combined MCI-WorldCom would have no incentive to upgrade those interexchange connections because 50 percent of the Internet traffic would begin and end over MCI-Worldcom's own network.

Another possible result, GTE attorneys contend, is that MCI-WorldCom would so dominate the Internet backbone business that it would charge Internet service providers and others inflated prices to use the network.

Those price increases ultimately could be passed along to consumers surfing the Net at home or work.

MCI's Walter said the combined companies would control 20 percent of U.S. Internet network revenue.

GTE and Sprint attorneys also said the Justice Department is interested in the merger's impact on long-distance prices, mainly for residential customers.

WorldCom accounts for 40 percent of residential long-distance service sold to other companies at wholesale rates, said GTE attorney Mark Schechter. Those other companies then retail the service to consumers.


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