RealTime IT News

European Commission Blocks WorldCom, Sprint Merger

[London, ENGLAND] The European Commission (EC) formally blocked on Wednesday the $146 billion merger between MCI WorldCom and Sprint, saying the companies' plan to divest Sprint's Internet business was insufficient to resolve its concerns about competition.

European Competition Commissioner Mario Monti said it was vital for the Commission that the divested business become a strong, viable competitor to prevent the merged WorldCom/Sprint from dominating the Internet backbone.

"The companies' offer failed to guarantee this because Sprint's Internet business is completely intertwined with its traditional telecoms activities," said Mario Monti.

The EC's move comes after Tuesday's pronouncement by the U.S. Department of Justice that the link-up between the second and third largest long-distance telephone companies would effectively stifle competition in both the long-distance and Internet markets.

Attorney General Janet Reno said the merger threatened to undermine the competitive gains achieved since the Justice Department challenged AT&T's monopoly of the telecommunications industry 25 years ago.

On Tuesday, MCI WorldCom and Sprint said they would withdraw their notification of the deal. However, the Commission said it felt compelled to take a formal decision because it could only accept a withdrawal if the deal were no longer legally binding -- which was not the case. The two companies may have withdrawn notification to the EC but they had not formally canceled their merger agreement.

During its review of the proposed merger, the EC listened to critical comments from U.S. and European based operators. In the opinion of the Commissioners it was thought that the merged company would be able to behave independently of both its competitors and customers, thus dictating conditions and prices in the market on both sides of the Atlantic.

The Commission has now blocked 13 mergers since 1990. It reviews all mergers that involve companies with combined global sales of over five billion euros. In this instance it examined the merger in parallel with the U.S. Department of Justice -- and said the cooperation would continue in the future whenever there were common concerns about competition in the marketplace.