The European Commission is expected to issue a statement of objections to MCI WorldCom Inc. and Sprint Corp. over the companies’ merger plans.
The EC said in February it was extending its investigation into the proposed $130 billion merger by another four months. EC regulators then said they were concerned about the new entity’s impact on access to the Internet backbone, global telecommunications services to multinational companies and termination in the United States of international voice calls.
EU Competition Commissioner Mario Monti said the commission’s investigation confirmed its concerns about the potential competition problems, according to published reports.
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.
A statement of objections is a legal measure in the commission’s examination of the deal. The companies have the option of calling for a hearing to voice their arguments for the merger.
Likely, the EC’s concerns will be echoed by the U.S. Department of Justice, experts believe. The EC and the DOJ are collaborating to identify common competition concerns.
Legg Mason Wood Walker Inc. analyst Scott Cleland believes the DOJ will seek and win a court injunction to halt the pending merger from proceeding. Even though the companies have agreed to divest Sprint’s Internet backbone division to make the merger go through, Cleland believes the move won’t be enough. And MCI WorldCom refuses to sell its Internet unit.
“The DOJ has already defined the Internet backbone as a separate market and already concluded it is a market susceptible to `tipping’ to monopoly in the MCI and WorldCom merger,” said Cleland.
The Economic Policy Institute on Friday released a report urging policy makers not to approve the merger in its current form based on the assessment that the combined company would have too much power in the long-distance and Internet market.
“Policy makers must maximize consumer welfare and protect competition instead of protecting competitors,” said co-author Steve Pociask, executive vice president and chief economist for Joel Popkin & Co. “When federal regulators examine this merger, they should conclude that it must not be approved in its current form.”
Shareholders from both companies overwhelmingly approved the merger Friday. More than 98 percent of WorldCom shares were voted in favor of the merger agreement.
WorldCom said it anticipates the merger to be approved by the DOJ in the second quarter, followed by approval from the Federal Communications Commission, various state government bodies and foreign antitrust authorities in the third quarter.
