Phone Wars: MCI Up for Grabs
No. 2 carrier now has two suitors. Dominating Internet may be goal for little-known WorldCom.
Yesterday's proposed telecommunications merger, which would set a world record for corporate mergers, illustrates the pressure for just a few telecommunications companies to dominate not just their local markets, but the world business in telephone and Internet traffic.
Mississippi-based Worldcom offered to buy MCI, America's second-biggest long-distance phone carrier, for $30 billion, comfortably ahead of the $25.6 billion combination of Bell Atlantic and Nynex.
If successful, the bid would unseat an effort by British Telecommunications, eager to become a world player, to buy MCI for $18 billion.
Telecommunications carriers in the United States and elsewhere are joining forces to try to capture a world communications market worth $726 billion a year and rising. The result, say analysts, will be more efficient service and, arguably, lower prices for consumers.
The latest merger bid from an up-and-coming WorldCom continues the industry's consolidation fervor with a twist. It's trying to control not only voice communication but also data transfers, particularly those on the Internet.
If it succeeds, a company that few consumers have heard of will suddenly own a big chunk of the data links that knit cyberspace together.
WorldCom's $30 billion bid came as a surprise on two fronts. The Jackson, Miss., carrier has never swallowed any company so large, and MCI already has plans to merge with British Telecommunications (BT) in what would be the world's largest transcontinental purchase.
WorldCom's bid for MCI represents a $12 billion premium to the offer from BT, which dominates the British telecommunications business and wants a piece of the US market.
"I think it will definitely wake up BT," says Robert Hoskins, an MCI spokesman. "From a stockholder's point of view, that's a really good deal."
A combined MCI-WorldCom would create the nation's second-largest long-distance telephone company, behind AT&T, and also include significant local-phone franchises in major metropolitan areas, plus a strong Internet presence.
Snags for British Telecom
BT's proposed purchase of MCI has hit some financial snags of late. Following MCI's disappointing second-quarter earnings and the possibility of more sluggishness in the third-quarter, BT in August cut its bid by 25 percent.
MCI stockholders, who had approved the earlier bid in April, will have to vote again on the new asking price. WorldCom is hoping shareholders will prefer its own bid.
More than money is at stake. BT and MCI are already working closely to combine operations.
Later this month, they plan to announce several new products and cost-saving projects that run into the millions of dollars. "The relationship between MCI and BT is very very good," Mr. Hoskins says. "BT probably has more to offer than WorldCom does. We are really going after the global market."
One intriguing facet of the potential linkup between MCI and WorldCom is both companies' strong Internet presence. MCI is already the world leader in Internet transmission, carrying roughly half of the data that travels the high-volume data pipes known as the Internet backbone.
WorldCom has already been on a buying binge to increase its business of providing Internet service.
WorldCom's subsidiary, UUNET Technologies, is a giant in providing Internet services around the globe, with more than 1,000 points of presence throughout the US, Canada, Europe, and the Asia-Pacific region.
Three weeks ago WorldCom agreed to buy the communications infrastructure of CompuServe, enhancing its position as a leader in the Internet communications industry.
Separately, WorldCom yesterday announced an agreement to acquire Brooks Fiber Properties, which provides local telephone services in 44 medium-size US cities.
WorldCom's bid for MCI takes advantage of recent troubles between BT and MCI over projected losses in MCI's local telephone business.
WorldCom said its offer would be better for MCI than British Telecom's because it already has built an extensive local phone network in the US.
"While MCI and British Telecom are both great companies, the fit between them just doesn't work without sufficient local network assets in place," WorldCom president and chief executive Bernard J. Ebbers said.