CWA Continues Fight Against MCI-WorldCom Deal: Merger Doesn't Meet Public Interest Test, FCC is Told

The European Commission's decision requiring MCI Communications to sell its entire Internet operation as a condition of merger with WorldCom wouldn't have happened without the persistence of CWA and other organizations that oppose the anti-competitive deal.

In addition to divesting its 40 percent control of the Internet backbone, the reported agreement with the EC requires MCI to sell all its Internet assets - not just the wholesale assets it planned to sell to Cable and Wireless - and additionally calls for a $7 billion payment to British Telecom for its 20 percent stake in the company. The EC will monitor the divestiture to ensure that all terms of the agreement are met.

Meanwhile, CWA is continuing to make the case to U.S. regulators that the mega-merger is bad news for consumers. A new CWA analysis points out that a merged MCI-WorldCom "will be driven by financial imperatives to avoid serving the 'less profitable' residential consumer market." In "Taking MCI Out of Local Competition," CWA demonstrates that the combined MCI-WorldCom will be a weaker company financially, one that cannot possibly meet its projected profit margins without drastic cost-cutting in capital expenditures and operating costs.

For the merged company, the only business strategy that will enable it to keep its promises to investors is one that serves "high-margin business customers," according to WorldCom executive John Sidgmore. These statements and other company filings not only contradict MCI-WorldCom's claims that it will build networks to serve all consumers in the local market, but clearly show that the merger is not in the public interest, a key test of Federal Communications Commission review, CWA points out.

Some analysts are taking a skeptical view of the mega-merger as well. Casey Alexander, an analyst with Gilford Securities, told CNN that the merger now in some ways was "almost a violation of what WorldCom management told their shareholders to expect. They told their shareholders to expect that they would only buy high-growth businesses...They told their shareholders to expect that they would never get into the residential side of the long distance business, that they would only focus on the commercial, high margin aspects of telecommunications."

He continued: "Now, with the divestiture of the Internet access, and the Internet assets of MCI, they're (shareholders) getting the worst parts of these deals, but they're so far into it and the egos involved, I don't believe, will allow anyone to step aside." Alexander noted that his firm was not recommending the stock to investors.