FRAMINGHAM (06/27/2000) - Citing concerns about reduced competition and higher prices for millions of businesses and consumers, the U.S. Department of Justice (DOJ) today sued to block the proposed $120 billion merger of telecommunications rivals WorldCom Inc. and Sprint Corp.
The lawsuit, filed in U.S. District Court in Washington, seeks a permanent injunction to block the merger of two of the three largest companies in the telecommunications business.
In a related announcement, WorldCom and Sprint jointly said that because of the DOJ's action, they are withdrawing an application for approval of the merger by the European Commission. The companies added that they will reinstate the application at a future date if they "decide to proceed with the merger."
The DOJ's move to file suit followed criticisms of the WorldCom/Sprint deal that were made yesterday by top European antitrust regulator Mario Monti.
Monti, the European Union's competition commissioner, said he expected to recommend that WorldCom's planned acquisition of Sprint be blocked.
At a news conference held to announce the DOJ's decision, U.S. Attorney General Janet Reno said the merger would cause adverse effects for residential long-distance users, international long-distance services, Internet backbone services and other segments of the market.
Joel Klein, assistant attorney general and the head of the DOJ's antitrust division, joined Reno at the news conference, emphasizing the department's belief that the merger would harm competition in a wide range of telecommunications services used by virtually every American.
"Despite significant progress toward increased competition, many important markets are still dominated by the big three -- WorldCom, Sprint and AT&T," Klein said. "In critical telecom markets, this merger would reduce those big three to a big two -- too few."
No concessions or changes offered by the two companies during discussions with the DOJ about the merger had alleviated the agency's concerns, Klein added.
"There is no resolution that the parties have proposed to us that addresses the full range of competitive concerns at this point," he said.
In a tersely worded statement issued shortly after the DOJ action was announced, WorldCom general counsel Michael Salsbury said that the company will "promptly review its options with Sprint."
J. Richard Devlin, a Sprint executive vice president and general counsel, said in a separate statement that Sprint is "disappointed that we have been unable to convince the Justice Department that the merger is in the best interest of the American public and would advance competition." Devlin didn't say what the company's next step will be in reaction to the suit.
Steve Koppman, a senior telecommunications analyst at Dataquest Inc. in San Jose, said the DOJ announcement comes as no surprise after weeks of negative reports from sources close to the negotiations between the agency and the two companies. Even Sprint Chairman William Esrey went public with his own worries about the status of the merger just two weeks ago, when he said at the company's annual shareholders' meeting that he was becoming less optimistic that the deal with WorldCom would go through.
Koppman called the DOJ action "basically a positive development" aimed at preventing further concentration in the long-distance market.
Klein said the DOJ's suit wasn't intended to close the door on other mergers among telecommunications companies. "The notion that this signals anything in terms of going forward, in terms of the telecom market, is simply incorrect," he said. "The department takes these cases one at a time."
Margret Johnston of the IDG News Service and Aaron Pressman of The Industry Standard contributed to this story.