Posted: 11/1999
Sprint, MCI WorldCom Announce $115 Billion
Merger
By Ken Branson
MCI WorldCom Inc. and Sprint Corp. have agreed to merge in what may be the biggest U.S. corporate combination ever.
When the merger closes some time in the second half of 2000, the new company's name will be WorldCom, company officials say.
The two companies reached an agreement after Sprint's board of directors reportedly chose MCI WorldCom's offer over that of BellSouth Corp., Atlanta. News media reports have put the BellSouth offer at $72 billion, but no one at BellSouth could be reached to confirm or deny that offer. BellSouth issued a statement confirming that Sprint and BellSouth had been in negotiations but that the talks had concluded without an agreement being reached.
"I'm not the only cowboy any more," says MCI WorldCom CEO Bernard J. Ebbers. "Bill [Esrey] doesn't get any credit for it, but he's every bit as much a cowboy as I am."
Sprint Chairman and CEO William T. Esrey and Ebbers say that several issues will remain open for a while: Which of them will do what under the new structure, how many of the combined company's 140,000 employees will lose their jobs and how the brand names (MCI WorldCom, UUNET, Sprint, Sprint PCS, 10-10-321 and others) will be used.
Regarding the first issue, Ebbers points out that nearly all his present senior managers in MCI WorldCom joined the company as a result of mergers and now are laboring happily in the merged vineyard. Ebbers and Esrey concede there probably is some overlap among employees, but stress that the merger will result in more people, not fewer, being employed by the merged company. Ebbers adds that some may be kept on even though the logic of efficiency suggests they be let go. "Is it better to keep people now, or let them go and then try to hire them back when you need them?" Ebbers asks rhetorically. He suggests he would be inclined to keep people, and "grow into" needing them.
As to brand names, Ebbers says WorldCom will keep the two companies' brand names, but he isn't sure how they will be used.
Ebbers and Esrey emphasize that the merger will create the largest, integrated, wholly owned communications network in the world. "Facilities, facilities, facilities," Ebbers says. "We are absolutely believers in what we call on-net strategy. From origination to termination, we want the customers not to leave our own network."
Ebbers goes out of his way to praise Sprint PCS, Sprint's mobile wireless service, and Integrated On-Demand (ION), Sprint's asynchronous transfer mode (ATM)-based integrated network strategy, which, he says, will form a key part of WorldCom's strategy. Analysts seem to agree.
"MCI WorldCom has a very strong story except for wireless," says Jeffrey Kagan, an independent telecom analyst based in Atlanta. "This deal will fill in the wireless gap."
But a warning toxin has been sounded in regulatory quarters.
"American consumers are enjoying the lowest long distance rates in history and the lowest Internet rates in the world for one reason: competition," says William E. Kennard, chairman of the Federal Communications Commission (FCC). "Competition has produced a price war in the long distance market. This merger appears to be a surrender. How can this be good for consumers?"
Ebbers insists that it will be good for consumers, and says he and Esrey understand that the burden of proof is on them. He maintains, as well, that it is "foolish" to view the industry as segmented into long distance and local markets, because the technology powering networks doesn't care whether a communication is local or long distance. Soon, he says, consumers won't care either, but will be buying bundled services from the likes of the new WorldCom.
When WorldCom (as it was then known) merged with the former MCI Communications Corp. last year, the European Commission (EC) forced it to divest itself of its Internet backbone--which was sold to Cable & Wireless plc, London. Ebbers says he and Esrey are prepared to address any such concerns the EC may voice this time around, but he didn't say how. Both MCI WorldCom (which owns UUNET Technologies) and Sprint own Internet backbones.
Additionally, MCI WorldCom and Sprint are direct competitors in Brazil, where MCI WorldCom controls Embratel Participoes S.A., Sao Paulo, the country's incumbent long distance provider and the only company in Brazil with a nationwide Internet protocol (IP) network. Sprint has bought the "mirror license" in Brazil, which allows it to compete with Embratel. The head of the Brazilian regulatory body, Anatel, has said that the agreement with Sprint will have to be reworked.
