MCI WorldCom, Sprint deal to be closely scrutinized

Top officials with MCI WorldCom Inc. and Sprint Corp.

Top officials with MCI WorldCom Inc. and Sprint Corp. said this morning at a news conference that they expect their historic $129 billion merger to close in the second half of next year. But the first order of business is securing the approval of the U.S. Justice Department and the Federal Communications Commission.

"We have talked to the chairman of the FCC, Mr. [William] Kennard, and we understand that we will have to prove that this is pro-competitive," said Bernie Ebbers, chairman and CEO of MCI WorldCom, who will serve as president and CEO of the new company, called WorldCom. "The chairman has said that he will retain an open mind."

But in a staement, Kennard was less than sanguine about the companies' prospects.

"This merger appears to be a surrender," he said. "How can this be good for consumers? The parties will bear a heavy burden to show how consumers would be better off."

Before the deal is completed, observers say, the companies will have to convince the FCC that the merger promotes competition in long-distance, Internet and local phone services. There's also the strong likelihood that Sprint will have to divest its Internet business.

"The upside potential for our companies is nearly limitless, with better quality of service control to [our] customers, higher bandwidth, customized services and lower per-unit costs," said William Esrey, Sprint's chairman and CEO, who will serve as chairman of WorldCom.

Tale of the tape

Culminating weeks of intense speculation, the merger agreement disclosed today calls for MCI WorldCom to acquire Sprint for $129 billion in combined equity, debt and preferred stock.

The terms of the deal call for each share of Sprint stock to be exchanged for $76 in MCI WorldCom stock, while separate shares of tracking stock in Sprint PCS are to be exchanged for one share of newly issued MCI WorldCom stock, plus 0.1547 shares of existing MCI WorldCom shares.

Of the $129 billion, $115 billion comes from MCI WorldCom equity and $14 billion in debt and preferred stock.

The companies expect the merger to create a single global communications company capable of offering businesses and consumers innovative packages of voice, data, Internet and wireless services.

Upon completion of the merger, one immediate benefit will be the new company's ability to compete with conventional telephone services and cable television telephony services via a combination of local DSL (digital subscriber line) services, which the two companies have in place, and broadband wireless services offered over both companies' recently purchased MMDS (multimedia multipoint data services) spectrum.

In addition to long distance, the new company expects to compete vigorously with incumbent regional Bell operating companies for local telephone subscribers, although MCI WorldCom and Sprint envision a new paradigm in communications with "packages of services for flat rates per month [since] looking at long distance [or local] as a separate world is a very foolish way of looking at our industry," Ebbers said at the New York news conference.

In advance of completing the merger, the companies will embark on commercial arrangements to resell each other's services on a wholesale basis, including Sprint PCS services sold under the MCI WorldCom brand and MCI WorldCom international services sold by Sprint under its brand.