MCI WorldCom Facing Down Regulatory Hurdles After Sprint Pact - TheStreet

MCI WorldCom Facing Down Regulatory Hurdles After Sprint Pact

Sprint's wireless assets were the key to attracting rich bids, analysts say.
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Regulators served notice that

MCI WorldCom's

(WCOM)

planned $115 billion acquisition of

Sprint

(FON)

will get their full attention.

Federal Communications Commission

Chairman William Kennard said at a news conference Tuesday that the proposed merger of the nation's No. 2 and No. 3 long-distance carriers would "bear a heavy burden to show how consumers would be better off," according to a spokesman. Meanwhile, analysts said Sprint's wireless operations clinched the deal, which if completed will be the largest in corporate history.

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The merger proposal became official early Tuesday morning after the companies' boards approved the linkup. Soon after, local phone service giant

BellSouth

(BLS)

, which had bid $100 billion in a thwarted attempt to acquire Sprint, conceded that its discussions with the Westwood, Kan., telecom giant had concluded.

Earlier, Sprint shareholder

Deutsche Telekom

(DT) - Get Report

confirmed it wouldn't counter the MCI WorldCom bid and said it would sell its 10% stake in Sprint for a $7.5 billion profit. The German phone company had been considered a possible suitor for Sprint's coveted wireless network.

Shares of MCI WorldCom, which rose just under 5% Monday in anticipation of the news, were off 3 5/16, or 4.6%, at 68 5/16. Sprint shares climbed fractionally, rising 3/8 to 61 1/4, and Sprint shareholder

France Telecom

(FTE)

added 2 1/2, or 2.9%, to 90. Deutsche Telekom was up 1/2 to 42 9/16 and BellSouth added 1/4 to 42 11/16.

MCI WorldCom made it clear the wireless business was Sprint's prize jewel. "The merger with Sprint is particularly timely as wireless communications emerges as a critical component of full-service offerings," said Bernard J. Ebbers, president and chief executive of MCI WorldCom. "Increasingly, wireless will be used for Internet access and data services, two areas in which both companies excel."

MCI WorldCom said it expects to save $1.9 billion in 2001 and $3 billion a year by 2004 by slashing redundant networks and taking advantage of "other operational savings."

The deal now faces approval from shareholders and from an already leery Federal Communications Commission, as well as the

Justice Department

.

MCI WorldCom and Sprint overlap one another on long distance and Internet service. The FCC said long-distance price wars, which have only gotten more heated in recent months, could slow down after the merger.

And the FCC isn't the only regulatory body out there, one analyst noted. The overlaps "are pretty significant regulatory hurdles," said Gregory Miller, a telecommunications industry analyst for

Jefferies

. "It's not something that DOJ is going to let slide easily despite the fact that you've got other competitors coming up."

MCI WorldCom badly needs Sprint's wireless assets, said Charles DiSanza, who covers WorldCom for

Gerard Klauer Mattison

. The firm upgraded WorldCom shares to a buy yesterday before the deal was announced. "Even if WorldCom bought

Nextel

(NXTL)

, at this point, anything they do is going to be fine as long as they get in there and actually get a wireless company," he said.