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
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
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have withdrawn notification to the EC but they had not formally canceled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
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.

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