Report: Regulators poised to reject MCI-Sprint merger

MCI WorldCom and Sprint remain optimistic they will win federal approval of their $115 billion merger despite published reports that regulators are likely to reject the deal.

Officials of MCI WorldCom and Sprint say that they can sway regulators by citing the imminent entry of Bell Atlantic and SBC Communications into long distance and the surplus network capacity of rivals such as Qwest.

The Justice Department and the Federal Communications Commission must approve the union, the largest in corporate history.

"I really believe when they do the competitive analysis they'll conclude this is not damaging to competition," said Philip Verveer, a former Justice official and now a lawyer for Sprint. The Justice Department said Saturday that it has not taken a position on the merger. The FCC would not comment. MCI WorldCom expects to file its merger request next week.

The Washington Post reported Saturday that regulators are leaning toward rejecting the marriage of MCI WorldCom, the No. 2 long-distance carrier, with No. 3 Sprint. The concern: The union would violate antitrust standards by placing about 80 percent of the long-distance market in the hands of AT&T and MCI WorldCom.

Sprint is the largest local phone company in Las Vegas.

The long distance antitrust concerns were initially laid out by FCC Chairman William Kennard, who said last "Cmonth, ompetition has produced a price war in the long-distance market. This merger appears to be a surrender."

MCI WorldCom chief Bernie Ebbers said at the time that he would prove the deal is "pro-competitive." Ebbers and Sprint CEO William Esrey have met with FCC commissioners, but at least some officials remain skeptical.

Ebbers says there soon will be no distinct long-distance market. MCI WorldCom must bulk up to compete better with AT&T, SBC and a combined Bell Atlantic-GTE. The titans plan to offer bundles of long-distance, local, Internet and wireless service nationwide.

Regulators say long distance is still a separate market and it might be several years before the Bells across the country offer long distance, filling the void left by Sprint, which serves 10 percent of the market.

Verveer says Bell Atlantic's entry into long distance in New York state, possibly by early next year, will reshape the national dynamics before regulators consider the MCI WorldCom-Sprint deal. He says it would hold down the rates of AT&T and MCI WorldCom in New York, and thus, the whole country. Long-distance carriers must charge the same prices to their customers nationwide.

Verveer and MCI WorldCom officials also note that Qwest, Level 3 and other long-distance companies that target business customers, recently have expanded their networks. If AT&T and MCI WorldCom raised prices, rival carriers -- including roughly 600 long-distance resellers -- would step up their marketing to consumers to leverage networks that lie fallow nights and weekends.

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