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Justice Department approves MCI/WorldCom deal

Cable & Wireless buys 'Net business.

By Torsten Busse
Network World,

The U.S. Department of Justice yesterday approved WorldCom, Inc.'s proposed $37 billion acquisition of MCI Communications Corp., on the condition that MCI sells its wholesale Internet business, MCI said.

Following the news of the Justice Department approval, MCI said it signed an agreement to sell its Internet backbone facilities, wholesale Internet business as well as its retail Internet business for $1.75 billion in cash to Cable & Wireless PLC of the U.K.

Sale of MCI's Internet business was a condition for approval from both European and U.S. regulators, who feared that the combined WorldCom/MCI would dominate the Internet access market, since WorldCom already has a substantial Internet access business. The sale of MCI's Internet business to the U.K. company was widely expected.

"We have fully addressed the antitrust concerns of the U.S. Department of Justice and look forward to gaining final regulatory approval from the Federal Communications Commission," said Bert Roberts, MCI's chairman, in a statement. The FCC is expected to complete its review of the merger in August.

Under the terms of the agreement with Cable & Wireless the sale of MCI's Internet assets includes all associated traffic, revenue and backbone facilities, worth a projected $375 million this year, MCI said.

Specifically Cable & Wireless will acquire the following Internet assets from MCI:

1. Its U.S. nationwide Internet backbone, comprising all of MCI's 22 domestic nodes, 15,000 interconnection ports, more than 40 ongoing peering agreements and all equipment dedicated to its support and operations.

2. MCI's dedicated Internet access customers, giving Cable & Wireless 3,300 major corporate accounts.

3. MCI's 1,300 Internet service provider customers including 130 international, directly-connected customers in more than 75 countries.

4. MCI's nationwide dial-up business including more than 250,000 consumers and 60,000 business users.

5. Web hosting and managed firewall services for more than 100 corporate accounts and associated servers.

MCI said it will provide underlying transport services for Cable & Wireless's Internet backbone for up to five years.

The deal also includes a noncompete agreement for transitioning accounts of 24 and 18 months for wholesale and dedicated access retail customers, respectively. Also, approximately 1,000 MCI employees, including engineers, sales, customer service, marketing, operations and administrative support staff, will transfer to Cable & Wireless.

The agreement with Cable & Wireless is contingent upon the final regulatory approval of the WorldCom/MCI merger, expected following FCC approval.

Today's agreement between MCI and Cable & Wireless includes the transfer of MCI's retail Internet customer base, while the Internet backbone services business and its ISP customers were the subject of a May agreement signed by the two companies.

MCI said the agreement with Cable & Wireless will have "no immediate impact on MCI's Internet customers," who will continue to receive service from MCI until the close of the WorldCom/MCI merger, upon which the deal with Cable & Wireless becomes effective.

At that time MCI customers will become Cable & Wireless Internet customers. WorldCom/MCI in turn will then begin to offer its own suite of Internet services to their customers.

The Justice Department's approval removes one of the last hurdles to WorldCom's acquisition of MCI, which won conditional approval from European regulators last week. The European Commission's condition for final approval was MCI's divestiture of the Internet business.

One analyst who, along with others, had expected regulators to conditionally approve the WorldCom/MCI merger, said that after wrestling with regulators the companies can now go back to serving customers.

"This was one of the most noisy, competitor-driven oppositions to a merger we've seen," wrote Jeffrey Kagan, an Atlanta-based telecom industry analyst in an e-mail bulletin to reporters. "It will be interesting to watch how competition develops among titans. Now it's a horse race."

"This is the first major long-distance merger. Now we will see the creation of titans on both sides of the fence. It will be interesting to watch the promised competitive heat get turned way up as the large long distance companies go head to head with the large regional Bell operating companies," Kagan wrote.

Cable & Wireless in London could not be reached for comment.