SAN MATEO (05/20/2000) - The U.S. Department of Justice is getting ready to give a thumbs-down to the merger between WorldCom Inc. and Sprint Corp., according to a source close to the proposed merger.
Although both companies "have gotten indications from the Justice Department staff that the merger will not be approved, it is important to remember that things could change once the principals become more involved," the source said.
MCI WorldCom and Sprint are hoping that more direct involvement by their CEOs and other Justice Department negotiators will be able to swing a positive recommendation, but analysts believe the U.S. Federal Communications Commission and the Justice Department are trying to make a show of force against industry consolidation.
"The real antitrust issue has already been taken care of. [The companies] know they're not going to be able to hang onto Sprint's IP backbone any more than they could hang onto the MCI backbone," said Melanie Posey, an analyst at IDC, in Framingham, Mass. "All of a sudden, the Justice Department has upped the stakes now and [is saying], 'We just don't want WorldCom to get any bigger.' "In a statement, officials at both MCI WorldCom and Sprint said they "believe that the changes in law, in business institutions, in technology, in the competitive landscape, and in customer demand should be determinative and that the merger should be approved."
Posey added that, following the lines of the Microsoft antitrust case, the government is likely trying to get tough on large industry players "to preserve competition and protect customers," despite the numerous telecommunications vendors competing in today's market.
"Even if WorldCom and Sprint merge, AT&T is still there, Qwest is still there, and there are other companies that might not be as big but are also out there," Posey said, noting that this is not a case of a "widget company overpowering the market. I think it's another classic case of them applying the standards of smokestack industries to not just services but high-tech communications services, which makes it even more of a different thing."
MCI WorldCom Inc., in Clinton, Mississippi, is at www.wcom.com. Sprint Communications Co., in Kansas City, Missouri, is at www.sprint.com.