The European Commission said it will extend its investigation into the proposed merger between MCI WorldCom and Sprint Corp. by another four months.
MCI WorldCom and Sprint last fall agreed to a $130 billion definitive merger that will combine the second- and third-largest U.S. long-distance carriers and give MCI WorldCom a much-needed nationwide wireless presence.
EC regulators are concerned about the new entity’s impact on access to the Internet backbone, global telecommunications services to multinational companies and the termination in the United States of international voice calls. In addition, the EC and the U.S. Department of Justice are collaborating to identify common competition concerns.
MCI WorldCom and Sprint have argued that Sprint’s sale of its stake in the Global One joint venture to France Telecom should remove any concerns the EC has. The EC disagreed, saying the Global One joint venture-previously organized by Sprint, Deutsche Telekom and France Telecom to target multinational companies-has insignificant involvement in the market for top-level Internet connectivity.
“The commission has raised serious doubts as to the compatibility of the proposed merger between MCI WorldCom and Sprint mainly because of its impact on competition in the market for top-level Internet connectivity,” said the EC in a statement.
To allow universal access to the Internet, carriers currently offering top-level connectivity on the Internet backbone carry other carriers’ traffic for free in return for the same advantage. The EC is concerned this practice could be thwarted with the merged company’s domination over the Internet backbone.
The EC argues that MCI WorldCom enjoys an undisputed leadership role in controlling the Internet backbone, and Sprint is probably the second-largest player in this market. The same issue arose when the EC scrutinized the merger of WorldCom and MCI in 1998, and MCI agreed to divest its Internet business.
The EC also wants to know if a merger of MCI WorldCom and Sprint would lead to the merged company dominating the market for global telecommunications services to multinational companies. Together with Concert-the strategic alliance between AT&T Corp. and British Telecommunications plc-the merged entity would appear to control the majority of the market, said the EC.
“The commission will also look at how the market for international voice telephony on the EU/U.S. route might be affected as the notified merger may lead to MCI WorldCom/Sprint and AT&T having bottleneck control of the U.S.-end for termination of international voice telephony traffic,” said the commission.
MCI WorldCom said both companies remain confident the commission will approve the transaction and expect it to be completed on schedule in the second half of this year.
“MCI WorldCom and Sprint will continue to cooperate fully and look forward to continuing their work with the commission demonstrating the competitive benefits that the merger will deliver to Europe, the U.S. and around the world,” MCI WorldCom said in a statement.
In related news, the EC approved BellSouth Corp. and the Netherlands’ KPN Telecom’s move to obtain joint control of E-Plus, Germany’s third-largest mobile operator.
BellSouth exercised its right of first refusal to acquire 100 percent of E-Plus. As part of the deal, KPN will take over a 77.5-percent stake, and the two carriers will share control of E-Plus.
The commission found that the merger neither created nor strengthened a dominant position on any market, nor did it lead to anti-competitive coordination between KPN and BellSouth outside of the joint venture.