FCC Memo Paints Grim Outlook for Sprint-MCI Merger

An internal Federal Communication
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.

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

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
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

er carriers to lease phone
lines, switching equipment and other essential elements.

But carriers that compete with Bell Atlantic to provide Digital Subscriber
Line services in New York complained that the “Baby Bell” was not giving
them equal access to local loops.

DSL competitor, Covad Communications Group
complained to the FCC that Bell Atlantic had not provided fair access to
their local loops used to deploy high-speed DSL services.

The complaint prompted Bell Atlantic officials to setup the separate DSL,
which is an action not required under the 1996 Telecommunication Act, but
would address the concerns of federal regulators.

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