BT-MCI hit by US go-ahead for rival merger

The $20bn British Telecom-MCI merger was facing a fresh threat yesterday following news that regulatory approval is imminent for the long-delayed merger of two of the largest American local telephone companies, Bell Atlantic and Nynex.

The Bell-Nynex deal will present a formidable competitor to the core long-distance business of MCI, whose merger with BT remains in doubt following the US company's shock $800m profits warning 10 days ago.

The Federal Communications Commission (FCC) signalled at the weekend that it is ready finally to approve the $23.7bn deal, first announced in April last year. It will create a new and highly potent telephone giant in the US, stretching from Maine all the way down to Virginia on the Atlantic seabord.

After months of intensive negotiations, the companies finally won over the FCC chairman, Reed Hundt, by offering a series of provisions designed to ensure the rapid opening all of the states in which they operate to free competition in local services.

These provisions offer cheer to companies like MCI, which will in theory then better placed to enter a market that counts some 26 million customers. However, under the terms of the 1996 Telecommunications Act, the newly combined company will be free in turn to begin offering long-distances services also. That could quickly outweigh the local-market benefits for MCI.

Speaking of the pledges being made on local market access, the chief of regulatory affairs at Nynex, Tom Tauke, remarked: "We think they are consistent with our efforts to enter the long-distance business."