A close watch: Merger to get full scrutiny

If the events that unfolded last week are any indication, MCI WorldCom and Sprint must jump some high hurdles to get MCI WorldCom's proposed $115 billion buyout of Sprint approved by the Justice Department and the FCC.

On Dec. 14, the DOJ hired top-gun antitrust lawyer Stephen Axinn to help review the merger's effect on competition and the likelihood that it would give MCI WorldCom/Sprint monopoly powers. Axinn's hiring suggests that the DOJ will take a long, hard look at the proposed combination of the nation's No.2 and No. 3 long-distance carriers.

"In a transaction of this magnitude, [the review] can take a substantial period of time," Axinn said, before declining further comment on the case.

A day later, FCC general counsel Christopher Wright sent a letter to both companies asking for input on how the union would affect the Internet backbone business. As the owner of UUNet, MCI WorldCom is the leading carrier of high-capacity networks that transmit and route data for ISPs, carriers and others.

Sprint is also a major player, but the companies' 114-page merger filing with the FCC on Nov. 18 made only a one-paragraph mention of the consolidated Internet backbone holdings.

With two major players involved, Wright said the potential impact of the proposed merger on the Internet market is of interest to the FCC - although the FCC does not regulate the Internet. The FCC took a similar stance when it reviewed WorldCom's purchase of MCI in 1998.

"We knew from the beginning that the Internet assets would be an issue," said a Sprint spokesman. "But since the DOJ was going to go over it carefully, we said in the filing that we would deal with it at [the] Justice [Department] first."

Sprint and MCI WorldCom lawyers are working quickly to comply with the FCC request, but the amendment to the filing will take a few weeks, the Sprint spokesman said. The companies will have to define the Internet backbone market, including the current and future competitive landscape, and explain how the combined company would promote competition.

Antitrust lawyers said they don't believe the companies can get the deal approved without selling off at least some Internet backbone operations. Even that may not be enough to squeeze the deal past regulators, said Christopher O.B. Wright, a partner at Cooley Godward LLP. "Reducing the number of national players in long-distance cannot be cured by a divestiture of assets."