MCI WorldCom Will Go It Alone

SAN FRANCISCO (07/04/2000) - Bernard J. Ebbers, who emerged from Mississippi to go on a decade-long acquisition spree to assemble a global telecom powerhouse, has, like Bill Gates, finally met his match in the Justice Department. And for the Internet Economy, that may be a good thing.

While Sprint Corp. (FON) and MCI WorldCom Inc. (WCOM) continue to mull their options, it's clear their planned merger is doomed. Having withdrawn their consideration in the European Union, and having been sued by the U.S. government, the only alternatives the companies have is to drastically restructure the deal or to find new dance partners. Meanwhile, competitors like Deutsche Telekom AG (DT) are already swooping in to pick apart the two companies.

MCI WorldCom depends on mergers and acquisitions to grow - it achieved its No.

2 position in long-distance service (following AT&T (T) ) and its No. 1 position in Net backbone service through more than 60 such deals. In the last 10 years, it has bought MFS, which at the time was the largest competitive local phone company; UUNet, far and away the largest Internet backbone; and MCI, then the second-largest long-distance carrier.

Now MCI WorldCom's free-spending era appears to have ended. In addition, the company itself has become a target for takeovers. And Sprint may be worth more sold off in pieces than it is intact.

While most people know the two as phone companies, much of the government's complaint focused on Sprint and MCI WorldCom's Internet holdings. According to the Justice Department, UUNet is the dominant Net-service carrier, with 37 percent of the market. More important, UUNet's and Sprint's 53 percent combined share of Net traffic would have been at least five times larger than that of the next-largest backbone provider.

What does this mean for the Internet Economy? Improved customer service, possibly. While Ebbers has demonstrated a willingness to pay top dollar for other networks, he has displayed little regard for the customers that come with them. With further acquisitions stymied by regulators, he will have to consider the consumer before the next merger.

In the two years since MCI WorldCom acquired MCI, the company has earned a reputation for negligent service, for both phone and Net customers. The issue came to a head during the buyout of MCI, when the company was forced to divest MCI's Internet backbone. That unit was bought by Cable & Wireless (CWZ) - a deal that turned ugly, with C&W winning a $200 million settlement after accusing MCI WorldCom of stealing key employees and information, irreparably damaging the business.

And, as the company has done following each acquisition, MCI WorldCom set about cutting back on its customer-service divisions. Its reputation took an extra hit when its frame-relay network crashed last August: Customers with dead Internet connections were met with seeming indifference and deafening silence from MCI Worldcom executives during the 10-day outage.

Within days of last week's word that the Justice Department would oppose the merger, MCI WorldCom was reportedly considering selling its long-distance phone service to focus on data networking. Meanwhile, Sprint's wireless service is perhaps the most coveted business unit on the block. It's hard to imagine a stronger signal that the future lies in Internet traffic and bundled telecom services, rather than in plain old telephone service.

Now it's time for Ebbers, a reputed deal junkie, not to simply look for another partner to swallow up, but to figure out what to do with the assets he's acquired. And that could be a clear-cut win for consumers.

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