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Tuesday, October 5, 1999 Published at 21:05 GMT 22:05 UK

Business: The Company File

Telecoms firms in record $129bn merger

US telecommunications giants MCI WorldCom and Sprint have agreed to a $129bn merger.

The BBC's Patrick O'Connell: "This is the biggest business deal, ever"
It is the world's largest-ever corporate merger.

The deal came after MCI WorldCom, the second biggest US long-distance telephone company, increased its earlier bid to scupper a rival offer for Sprint. The new company will be called WorldCom.

The deal includes a share offer worth $115bn, and the assumption of $14bn worth of Sprint's debt.

However the link-up - to include Sprint's PCS wireless operations - will face extremely close scrutiny from competition authorities, especially as both companies are major Internet backbone providers.

Federal Communications Chairman William Kennard warned that "the parties will bear a heavy burden to show how consumers will be better off."

"American consumers are enjoying the lowest long-distance rates in history and the lowest internet rates in the world for one reason: competition. ..This merger appears to be a surrender," he added.

Cost savings

Two companies hope to make substantial cost savings by combining their long distance networks.

Bernard Ebbers: "Inroads formed"
Sprint operates long distance, wireless and data transmission services, with 20 million business and residential customers and $17bn in revenues. MCI WorldCom has $30bn in revenue and operates in 65 countries.

"The economics of the combination are particularly compelling and WorldCom will have the capital, proven marketing strength and state-of-the-art networks to compete more effectively against the incumbent carriers domestically and abroad," said Bernard Ebbers, chief executive of WorldCom.

The company says it hopes to generate cost savings of $1.9bn each year, which will help it invest in the next generation of mobile phone services and broadband Internet access.

Outstrips Exxon

The union of the two companies will create a formidable competitor to industry leader AT&T and would control about 32% of the US long distance telecoms market.

It is the latest blockbuster deal for Mr. Ebbers, following WorldCom's $40bn acquisition of MCI in September 1998.

The merger would eclipse Exxon's planned $82.5bn purchase of rival Mobil, and the $72bn deal between Baby Bell operators SBC Communications and Ameritech. Both of those deals are still undergoing regulatory scrutiny.

The Sprint board was reported to have voted to accept the offer after a late meeting on Monday to discuss the MCI WorldCom and rival BellSouth bids.

MCI WorldCom had been negotiating a deal with Sprint for weeks before Atlanta-based BellSouth stepped into the fray at the weekend with a cash and stock bid of its own.

This led to a series of increases in bids on Monday before the offer from MCI WorldCom was accepted.

Merger wave

There has also been uncertainty about the future role of Deutsche Telekom and France Telecom, each of which holds a 10% stake in Sprint. Deutsche Telekom had reportedly been preparing its own offer earlier this summer, only to be blocked by France Telecom.

Sprint favours a deal with MCI Worldcom, which could result in significant savings as the two long distance carriers combine their networks.

The deals are being driven by the need to create a few huge international telecoms groups, which will dominate the industry in the next century.

AT&T has shaken the industry by planning to create a high-speed network capable of voice, Internet, and video transmission, spending $120bn to buy cable television companies TCI and Mediaone. It has also boosted its global business and wireless alliance with BT.

Meanwhile, the Global One alliance that involved Sprint with Deutsche Telekom and France Telecom has come under pressure after the unsuccessful plan for Deutsche Telekom to merge with Telecom Italia.

Technological convergence

In Europe, the big national telephone monopolies are facing unprecedented challenges as their home markets are opened to competition.

In the United States, the boundary between local and long distance telephone systems - set up when the courts split up the Bell Telephone System in the 1980s - is eroding.

Another driving force is the convergence of voice, Internet, mobile phones and television, which will require huge new investments.

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