RealTime IT News

FCC Memo Paints Grim Outlook for Sprint-MCI Merger

An internal Federal Communication Commission memo recently made public reveals the nation's regulators plan to oppose the MCI WorldCom Inc. and Sprint Corp. merger.

Tom Krattenmaker, research director of the agency's office of plans and policy, wrote the Oct. 21 memo. Krattenmaker has led the assessment of a several telecommunications mergers and formerly worked in the antitrust division of the Justice Department.

MCI (WCOM) and Sprint (FON) filed their application for the merger with the federal agency on Nov. 17, almost a month after the internal FCC report was prepared. The merger remains in limbo as the FCC may take as much time as it desires to complete its review of the deal.

The memorandum described the proposed $129 billion merger of the two companies as an intolerable blow to competition. Krattenmaker said potential problems exist over the both companies' ownership of substantial Internet backbones, as well as the fact that they are the nation's second- and third-largest long-distance providers.

"This will raise the most troublesome issue," Krattenmaker said in his memo to FCC Chairman William Kennard. "Any further consolidation among the major providers would be intolerable, especially in its impact on residential subscribers."

The two telecommunications carriers contend that their merger would enable the companies to offer new services and save billions of dollars in network operations by eliminating redundancies.

Analysts predict that Spring and MCI will face a tough battle at the FCC and the Department of Justice, since the deal would leave the long-distance market with only two players, MCI WorldCom (WCOM) and AT&T Corp. (T). The two companies would control more 80 percent of the long-distance marketplace.

Antitrust and regulatory experts have ignored the fact that Bell Atlantic Corp. (BEL) has filed to become a long-distance carrier in the U.S.

Kennard indicated that the proposed merger appears to surrender competition among long distance carriers that has worked to drive Internet access and long-distance rates down over the past few years.

The Krattenmaker memorandum begins with a disclaimer in which he stated he knew very little about the merger. A spokeswoman for the FCC has not offered comment on the internal communication. However, the Washington Post reported that Chief of Staff Kathryn Brown labeled the memo a very preliminary assessment prepared by one of their staff members and that the memo did not amount to a decision by the commission.

In related news, Bell Atlantic late last week announced plans to establish a separate affiliate to sell high-speed data connections in New York, as the regional Bell company looks to secure regulatory approval of its bid to offer long distance service in the state.

The agreement to establish a separate unit, contained in a letter to the Federal Communications Commission, was designed to assure regulators that competing providers of high-speed data services would obtain get equal access from Bell Atlantic.

The FCC must decide by Dec. 28 whether to approve Bell Atlantic's request to enter the $7 billion New York market.

Bell Atlantic filed an application on Sept. 29 with the FCC stating it had opened its network to competitors by allowing oth