GTE sues to stop purchase of MCI by WorldCom Control of Internet, long-distance at issue

May 09, 1998|By BLOOMBERG NEWS

WASHINGTON -- GTE Corp. is suing to block WorldCom Inc.'s proposed $41.8 billion purchase of MCI Communications Corp., claiming the acquisition will hurt long-distance competition and create a company with a "stranglehold" on the Internet.

GTE, one of the largest U.S. local phone companies, said the combined WorldCom-MCI will control about half the world's Internet traffic and hurt competition in the U.S. long-distance market. Last year, GTE lost its own bid to buy MCI when WorldCom agreed to pay billions of dollars more.

GTE said it believes the combination will dominate the Internet and data-services market -- where GTE is increasingly focused. "We want to see the deal prohibited," said William Barr, GTE's general counsel.

"The merger will give MCI-WorldCom a stranglehold over the burgeoning Internet," the GTE complaint said. "The Internet will cease to be an open, highly competitive marketplace and rapidly degenerate into a closed network dominated by a single mega-firm."

The lawsuit, which was filed late Thursday in U.S. District Court but announced yesterday, is intended to put GTE in position to challenge the combination "in the unlikely event we are not satisfied that all our concerns have been met" in a government action, said Barr. "We think [government regulators] are taking our concerns seriously."

"I view this lawsuit as a fire wall for GTE," said Barr, who served as attorney general in the Bush administration. "We have to be in a position to act to protect our own interests. And to be in that position down the road, we have to start this litigation now."

"We are not intending to leapfrog in any way what the government agencies are doing," he said. "We think they are right on target and we expect they are going to block the deal."

James Rill, who served as Barr's antitrust chief at the Justice Department, is among those representing GTE in the case.

WorldCom's acquisition of MCI needs the approval of the FCC, the U.S. Justice Department and the European Commission. The European Commission will hold hearings on Tuesday and Wednesdayregarding the WorldCom/MCI combination. Barr is scheduled to personally argue GTE's case before the commission.

WorldCom is the No. 4 U.S. long-distance phone company, and MCI is No. 2. GTE believes the combined WorldCom/MCI "would form one network controlling 40 percent to 60 percent of Internet traffic," said a GTE spokesman.

With that market share, Barr said WorldCom/MCI would be in a position to dictate terms of arrangements between Internet traffic carriers.

Pub Date: 5/09/98

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