GTE threatens $40bn merger
Bid to strip WorldCom/MCI of internet business
Sunday 17 May 1998
GTE, the third-ranking US local phone company, intensified its efforts to block the takeover, arguing that the combined company would control half the world's internet access, a claim Worldcom disputes. GTE told a two-day hearing of European Union competition regulators that Worldcom should sell UUNet, which supplies Micro-soft's network, known as MSN.
None of the companies involved would comment on the matter. The European Commission and US Federal Communications Commission said that the internet was an area under review as part of their consideration of the merger.
Concern about a combined WorldCom/MCI's dominance of the booming market for global internet access is mounting, mainly from US rivals, who are anxious that it would be a formidable competitor in the American market.
Analysts said WorldCom was unlikely to agree to sell UUNet because the internet is the fastest-growing segment of the market and will increasingly come to carry more voice, video and other data traffic.
"Discussions with the FCC and EC are still ongoing, and this assumption that we control 50 per cent of the internet backbone is being put about by opponents, not customers," said a spokesman for WorldCom in London.
"We're in discussions with regulators about how much of that market we own, if indeed such a market can be defined."
GTE and Sprint, the third-largest US phone company overall, have both filed lawsuits against WorldCom's bid on the grounds that it would stifle competition in the global internet and long-distance communications markets.
"A definition of what makes up the internet backbone market is part of the US FCC's review [of WorldCom's plan to buy MCI]," said Diane Cornell, chief of the international bureau at the FCC's telecommunications division.
The internet is made up of a mix of public and private communications networks. Measured by internet revenues, WorldCom/MCI has about 20 per cent of the market. Measured by traffic, it could be said to control 50 per cent at any one time, because most internet calls are routed via the US. However, since the internet was designed by the US Department of Defence to be able to resist military attack, traffic flows are constantly being rerouted.
WorldCom said its internet revenues combined with those of MCI only amount to about 5 per cent of total sales, and total less than the $2bn of savings in capital expenditure that the companies said they would make by 1999 when they announced their plan to combine the businesses.
MCI carries about 40 per cent of all internet traffic, while WorldCom further beefed up its internet business this year by acquiring the network services units of CompuServe and America Online.
Last week GTE, which lost out to WorldCom on its bid to buy MCI last year, filed a lawsuit in the US to block WorldCom's bid on the grounds that it would monopolise the internet and significantly endanger competition in long-distance communications.
The European Commission began reviewing the proposed telecoms takeover in November and must make a final ruling by 15 July. The US Department of Justice and FCC must also rule on the plan.
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