US to block WorldCom merger

The US Department of Justice is filing a lawsuit to block WorldCom's proposed takeover of Sprint, likely spelling the end of the controversial merger at least in its original form.

WorldCom's Washington, D.C., office early Tuesday released a statement acknowledging the pending action.

"WorldCom was advised today that the US Department of Justice intends to file suit to block WorldCom's proposed merger with Sprint," WorldCom General Counsel Michael Salsbury said in the statement. "WorldCom will promptly review its options with Sprint."

The US government's action comes close on the heels of public statements Monday by Mario Monti, the European Commission's competition commissioner. Monti announced he was recommending rejection of the merger to the European Commission. He also acknowledged that he has been working closely with US regulators to coordinate their actions.

The lawsuit by the Justice Department, likely to be filed in US District Court for Washington, DC, does not necessarily mean that WorldCom and Sprint won't be able to work out some sort of transaction.

But it appears to doom any possibility that WorldCom will be able to gain control of any of Sprint's key services employed by enterprise network professionals - long-distance, Internet, frame relay, ATM and private line.

Instead, in a negotiated settlement WorldCom may still be able to buy Sprint's wireless PCS network while allowing Sprint to find another buyer for its entire wireline voice and data business. But even that possibility is fading. The Justice Department and the European regulators in the past two weeks have told WorldCom that for any such arrangement to work, the parties would need to bring a buyer for Sprint's wireline business directly to the table.

Among such rumoured buyers are Deutsche Telekom and BellSouth, but neither has publicly stepped forward with the required offer.

Technically, WorldCom will have the right to challenge the Justice Department's lawsuit in a trial. But few parties have appeared to support WorldCom's assertion that combining with Sprint would not create undue concentration in the US market for long-distance voice and data services. User comments to the Federal Communications Commission on the matter have been running overwhelmingly opposed to the merger.

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More about BellSouthDepartment of JusticeDeutsche TelekomEuropean CommissionFederal Communications CommissionSprintUS Department of JusticeWorldCom

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