05.08.1998|Corporate

GTE sues WorldCom and MCI to block merger of two companies

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WASHINGTON GTE Corporation filed a private antitrust lawsuit in federal court late yesterday afternoon to block the proposed $38 billion merger of WorldCom and MCI to ensure the combined mega-company will not have the ability to monopolize the Internet or significantly endanger competition in long distance telephone markets.

The suit, which was filed in U.S. federal district court in Washington, D.C., asserts that the merger of WorldCom-MCIthe number one and number two backbone providerswill allow the combined company to monopolize the market for Internet backbone services. GTE said in its suit that the combined company would own 40% - 60% of the critical Internet "backbone" network that transmits and routes data for consumers and Internet service providers.

The suit also cites the significantly diminished competition in the retail long distance market that would be created by merging the second- and fourth-largest long distance telephone companies. Combining WorldCom-MCI removes the key supplier from the wholesale long distance market, i.e., WorldCom, and lessens competition for long distance resellerslike GTEthat compete with AT&T;, MCI, and Sprint.

GTE and others have strongly opposed the merger before the Federal Communications Commission (FCC), the U.S. Department of Justice (DOJ), and the European Commission (EC).

"From the outset, GTE has consistently opposed this merger as highly anticompetitive," said William P. Barr, executive vice president and general counsel of GTE. "Subsequent events have confirmed this position. Both the U.S. Department of Justice and the European Commission are in the midst of intensive investigation of this transactionespecially its impact on the Internet and the domestic and international long-distance markets. Indeed, the European Commission has recently issued a detailed Statement of Objections setting forth its opposition to the merger as anti-competitive."

GTE's action yesterday comes on the heels of an April 28 announcement that the EC will hold hearings May 12 and 13 to require WorldCom and MCI to answer the ECs objections. U.S. antitrust officials are also examining whether WorldCom's purchase of MCI could thwart competition in the Internet backbone market and the domestic and international long distance markets.

"We are confident," Barr said, " that the merger authorities will conclude that this merger is unlawful and cannot go forward. For that reason, we are not seeking a preliminary injunction but instead will continue to work closely with the various authorities to assist in their review. GTE must be in a position, if necessary, to vindicate its rights and ensure that all its concerns have been adequately and effectively met," Barr added. "This matter is important to GTE as both a customer and a competitor."

In order for the WorldCom-MCI merger to be completed, approvals must be obtained from the FCC, Department of Justice, the EC and the states.

Bell Atlantic, Bell South, the Communications Workers of America, a number of European companies and the AFL-CIO are among those that have filed petitions against the proposed merger with the FCC.

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