Brussels, 28 June 2000
Commission prohibits merger between MCI WorldCom and Sprint
The European Commission has decided to prohibit the merger between US telecommunications firms MCI WorldCom Inc and Sprint Corp as it would have resulted in the creation of a dominant position in the market for top-level universal Internet connectivity. In the course of the review, the companies proposed to divest Sprint's Internet business but this was insufficient to resolve the competition concerns resulting from the merger.
MCI WorldCom is the world's leading provider of Internet connectivity, with Sprint one of its main competitors. An in-depth investigation by the Commission showed that the merger would, through the combination of the merging parties' extensive networks and large customer base, have led to the creation of such a powerful force that both competitors and customers would have been dependent on the new company to obtain universal Internet connectivity.
This would have allowed the merged company to behave independently of both its competitors and customers and, therefore, to dictate conditions and prices in the market to the detriment of consumers around the world and particularly in the 15 European Union states.
The companies informed the Commission yesterday of their intention to withdraw their notification of the deal. But the Commission felt compelled to take a formal decision as its review had come to an end and as it can only accept a withdrawal if the deal is no longer legally binding. This is not the case, as the companies have not formally cancelled their merger agreement.
Following the Commission's objections, the companies offered on 8 June 2000, the last day for the submission of undertakings according to the strict EU merger review timetable -- to divest Sprint's Internet business from Sprint's other activities. However, the Commission's investigation showed that this proposal was insufficient as it would not re-establish, with enough certainty as to its effect, immediate and effective competition in the market for top-level Internet connectivity. In any case, the companies withdrew this undertaking yesterday.
When assessing the feasibility of the proposed divestiture, the Commission also took into account issues raised by Cable & Wireless after its purchase of Internet MCI which was divested from MCI's other activities to gain clearance of the WorldCom/MCI merger in 1998.
"It was vital for the Commission that the divested business became a strong, viable competitor to prevent the merged WorldCom/Sprint from dominating Internet backbone. The companies' offer failed to guarantee this because Sprint's Internet business is completely intertwined with its traditional telecoms activities," European Competition Commissioner Mario Monti said.
The Commission also studied the impact of the merger in the market for the provision of global telecommunications services to multinational companies where together with British Telecommunications's Concert alliance with AT&T the merged entity would appear to control the majority of the market.
The Commission could not, however, show the absence of competitive constraints from actual competitors in this market and that customers would not be able to countervail against any parallel behaviour by the two leading players. Therefore, the Commission concluded that a collective dominant position could not be established between the merged entity and the Concert alliance.
During the course of its investigation, the Commission also received a number of critical comments from US and EU based operators that the merger would lead to the creation of a joint dominant position in the international voice telephony market with AT&T on the US retail and wholesale long distance market. The Commission's investigation showed that if there was any risk for competition in this market it would be a consequence of the exercise of market power on upstream domestic US markets and that these effects in the EU would not be immediate or foreseeable enough to grant jurisdiction over this issue to the European Commission. The Commission therefore decided to draw the US authorities attention to these possible effects and to request them to take them into account in their investigation.
Pursuant to the EU-US agreement of 1991 on antitrust co-operation, the European Commission has examined the merger in parallel with the US Department of Justice. The two authorities have conducted independent and separate investigations but the Commission and the US Department of Justice have enjoyed a good working relationship. This co-operation will continue in future cases, especially if and when the two authorities identify common competition concerns that might require a jointly pursued remedial action.
This is the 13th time the Commission has blocked a merger since 1990, when it was given the mandate to review all mergers and acquisitions involving companies with combined global sales in excess of five billion euros and European Union sales of at least 250 million euros for each of them, irrespective of their nationality. But a similar number of deals have been withdrawn in the face of European antitrust opposition.