Kennard Dubious About MCI WorldCom-Sprint Deal

WASHINGTON (Reuters) - Federal Communications CommissionChairman William Kennard reacted sharply to news Tuesday of MCIWorldCom Inc.'s proposed $115 billion purchase of Sprint Corp.

WASHINGTON (Reuters) - Federal Communications Commission Chairman William Kennard reacted sharply to news Tuesday of MCI WorldCom Inc.'s proposed $115 billion purchase of Sprint Corp., calling it a "surrender" of competition that imposes a heavy burden on the firms to show the deal is good for consumers.

"Competition has produced a price war in the long distance market," Kennard told reporters after delivering a speech. "This merger appears to be a surrender. How can this be good for consumers? The parties will bear a heavy burden to show how consumers would be better off."

The deal -- the latest in a series of largest-ever corporate takeovers -- would slice the number of major players in the long distance market to a handful.

MCI WorldCom, the second-biggest U.S. long-distance company, said it would buy No. 3 carrier Sprint for $115 billion in stock. It would also assume $14 billion in debt from Sprint.

The combined company, to be called WorldCom, would have about 30 percent of the $90 billion U.S. long-distance market and create a formidable rival to market-leader AT&T Corp.

MCI WorldCom said the boards of the two companies had approved a definitive agreement to merge and the deal is expected to close in the second half of next year.

But first it needs approval from both the U.S. Justice Department's antitrust division and the Federal Communications Commission. Overseas, it would face scrutiny by the European Commission in Brussels.

The difference is, that while the Justice Department can repeatedly extend the time for consideration, if a company agrees, European regulators face a hard, inflexible deadline.

Analysts expect regulators will take a long look at the combined strength of MCI WorldCom and Sprint in Internet backbones, the high-capacity fiber systems that speed information around the world from one network to another for use on the World Wide Web.

Unlike Kennard, Justice Department officials were circumspect about the merger Tuesday, even refusing to concede they would handle the matter. They have handled every other major phone company merger in recent years.

"It has yet to be determined which agency will take a look at it," a Justice Department spokeswoman said. The Federal Trade Commission also reviews mergers.

European regulators are already deeply involved in MCI WorldCom, which is operating under restrictions set by the European Union when it approved MCI's $40 billion combination with WorldCom.

Last year the European Commission forced MCI to sell its Internet business after a lengthy review of its merger, in what was at the time the biggest divestiture ever imposed by the EU executive body.

Earlier this year, Cable & Wireless Plc, which bought the MCI Internet business for $1.75 billion, complained in Federal District Court in Washington that MCI had not fully complied with the EU Commission divestiture condition.

But a European Commission official repeated Tuesday in Brussels there was no indication that MCI was violating the 1998 agreement.

U.S. officials have not commented on the Cable & Wireless suit, but Kennard has been hinting about his reservations over the MCI-Sprint deal even before it was announced.

Last week Kennard was asked about a news report that the merger of MCI WorldCom and Sprint would easily clear regulatory hurdles, that matters would be fine.

"You don't hear me saying it's going to be fine," he said at the time.