Sprint, MCI WorldCom Announce $115 BillionMerger

Posted: 11/1999

Sprint, MCI WorldCom Announce $115 Billion
Merger
By Ken Branson

MCI WorldCom Inc. and Sprint Corp. have agreed to merge in what may be the biggest U.S.
corporate combination ever.

When the merger closes some time in the second half of 2000, the new company’s name
will be WorldCom, company officials say.

The two companies reached an agreement after Sprint’s board of directors reportedly
chose MCI WorldCom’s offer over that of BellSouth Corp., Atlanta. News media reports have
put the BellSouth offer at $72 billion, but no one at BellSouth could be reached to
confirm or deny that offer. BellSouth issued a statement confirming that Sprint and
BellSouth had been in negotiations but that the talks had concluded without an agreement
being reached.

"I’m not the only cowboy any more," says MCI WorldCom CEO Bernard J. Ebbers.
"Bill [Esrey] doesn’t get any credit for it, but he’s every bit as much a cowboy as I
am."

Sprint Chairman and CEO William T. Esrey and Ebbers say that several issues will remain
open for a while: Which of them will do what under the new structure, how many of the
combined company’s 140,000 employees will lose their jobs and how the brand names (MCI
WorldCom, UUNET, Sprint, Sprint PCS, 10-10-321 and others) will be used.

Regarding the first issue, Ebbers points out that nearly all his present senior
managers in MCI WorldCom joined the company as a result of mergers and now are laboring
happily in the merged vineyard. Ebbers and Esrey concede there probably is some overlap
among employees, but stress that the merger will result in more people, not fewer,
being employed by the merged company. Ebbers adds that some may be kept on even though the
logic of efficiency suggests they be let go. "Is it better to keep people now, or let
them go and then try to hire them back when you need them?" Ebbers asks rhetorically.
He suggests he would be inclined to keep people, and "grow into" needing them.

As to brand names, Ebbers says WorldCom will keep the two companies’ brand names, but
he isn’t sure how they will be used.

Ebbers and Esrey emphasize that the merger will create the largest, integrated, wholly
owned communications network in the world. "Facilities, facilities, facilities,"
Ebbers says. "We are absolutely believers in what we call on-net strategy. From
origination to termination, we want the customers not to leave our own network."

Ebbers goes out of his way to praise Sprint PCS, Sprint’s mobile wireless service, and
Integrated On-Demand (ION), Sprint’s asynchronous transfer mode (ATM)-based integrated
network strategy, which, he says, will form a key part of WorldCom’s strategy. Analysts
seem to agree.

"MCI WorldCom has a very strong story except for wireless," says Jeffrey
Kagan, an independent telecom analyst based in Atlanta. "This deal will fill in the
wireless gap."

But a warning toxin has been sounded in regulatory quarters.

"American consumers are enjoying the lowest long distance rates in history and the
lowest Internet rates in the world for one reason: competition," says William E.
Kennard, chairman of the Federal Communications Commission (FCC). "Competition has
produced a price war in the long distance market. This merger appears to be a surrender.
How can this be good for consumers?"

Ebbers insists that it will be good for consumers, and says he and Esrey understand
that the burden of proof is on them. He maintains, as well, that it is "foolish"
to view the industry as segmented into long distance and local markets, because the
technology powering networks doesn’t care whether a communication is local or long
distance. Soon, he says, consumers won’t care either, but will be buying bundled services
from the likes of the new WorldCom.

When WorldCom (as it was then known) merged with the former MCI Communications Corp.
last year, the European Commission (EC) forced it to divest itself of its Internet
backbone–which was sold to Cable & Wireless plc, London. Ebbers says he and Esrey are
prepared to address any such concerns the EC may voice this time around, but he didn’t say
how. Both MCI WorldCom (which owns UUNET Technologies) and Sprint own Internet backbones.

Additionally, MCI WorldCom and Sprint are direct competitors in Brazil, where MCI
WorldCom controls Embratel Participoes S.A., Sao Paulo, the country’s incumbent long
distance provider and the only company in Brazil with a nationwide Internet protocol (IP)
network. Sprint has bought the "mirror license" in Brazil, which allows it to
compete with Embratel. The head of the Brazilian regulatory body, Anatel, has said that
the agreement with Sprint will have to be reworked.