Updated from 7:57 a.m. EDT
Antitrust concerns may stymie
plan to purchase rival telecommunications concern
for $115 billion.
Federal antitrust officials have recommended to Joel Klein, the head of the
antitrust division, that the deal be blocked.
A call to the Justice Department for comment was not immediately returned.
Sprint did receive verbal indications that the recommendation would be made, while a person close to WorldCom maintained that no recommendation could be made since lawyers from both sides are still presenting their case. In a statement, both companies vowed to press ahead: "We believe that the changes in law, in business institutions, in technology, in the competitive landscape and in consumer demand should be determinative and that the merger should be approved."
Klein plans to meet with lawyers from both WorldCom, based in Clinton, Miss., and Sprint, based in Westwood, Kan., in the coming weeks. It is within his bounds to approve the deal in spite of the recommendation.
There are concerns that combining the second- and third-largest long-distance carriers in the U.S. would be too monopolistic, as the combined company would control 70% to 80% of the residential, commercial and industrial markets. Also at issue is the fact that the two companies together would dominate Internet switching services.
The deal is also being reviewed by the
Federal Communications Commission
, which warned of potential antitrust problems just last month.
There has long been talk of Sprint possibly selling its Internet "backbone" business -- and possibly of both companies selling parts of their long-distance businesses -- to appease antitrust officials. James Fisher, a spokesman for Sprint, acknowledged concerns in Europe and the U.S. about the possible concentration of the Internet business when the two companies merge. "We have shown a willingness to talk to regulators about divesting," he said. "We feel that we shouldn't have to divest, but clearly the regulators disagree, so we are willing to compromise."
Fisher added, "There have been concerns expressed about the concentration of the long-distance business, but at this point there's been no argument that has convinced us that we need to divest anything more than the Internet backbone."
"I've always felt that the concentration of the Internet backbone and long-distance markets could be real issues," said Tom Burnett, president and founder of research house
. "This could be a real killer for the deal. This could be the one where the government draws a line in the sand." Merger Insight does not rate or underwrite companies.
At the same time, some analysts speculate that today's information could have been leaked by either the government or people opposed to the deal to force the parties involved to the negotiating table.
Burnett is encouraged that Sprint is willing to divest its Internet business, but he doesn't see a solution for the long-distance question, noting that in 1999, Sprint derived $10.57 billion in revenue from its long-distance operations.
The Justice Department's concerns were first disclosed Thursday in
The Wall Street Journal
The Washington Post
WorldCom announced its intention to
buy Sprint on Oct. 5. Both companies are hopeful that the deal will close this fall.
Shares of WorldCom fell 1 7/16, or 3%, to 40 9/16 in Thursday morning trading, while Sprint shares dropped 2, or 3%, to 56. (WorldCom closed down 2 7/16, or 6%, at 39 9/16 while Sprint closed down 1 3/4, or 3%, at 56 1/4.)