Key piece of MCI Internet unit being sold to Cable & Wireless Aim is to gain regulatory OK for WorldCom merger

May 29, 1998|By Mark Ribbing | Mark Ribbing,SUN STAFF

MCI Communications Corp. said yesterday that it is selling a key chunk of its Internet holdings to Cable & Wireless PLC for $625 million in cash.

The move is intended to allay regulators' concerns about MCI's proposed $37 billion merger with WorldCom Inc.

The merger has raised fears that the combined company would have excessive power over the Internet.

The European Commission, which must sign off on the colossal deal, had said that either MCI or WorldCom would have to give up their Internet operations for the merger to win approval.

MCI said that by selling its "backbones" -- the main networks for Internet traffic -- to Cable & Wireless, it has satisfied regulatory concerns about the merger. "We think this should clear the way for swift merger approval," said MCI spokesman Jim Monroe.

The nation's No. 2 long-distance company said it is sticking to its prediction that the merger will close this summer, and said it expects to complete the sale to Cable & Wireless at the same time.

MCI is not leaving the Internet business entirely; it will still provide Internet service to residences and businesses. However, will do so only as a reseller of other companies' network capacity; it will no longer offer its own capacity wholesale to Internet service providers.

The company said its wholesale business accounted for most of the $230 million in Internet revenue the company took in last year.

"They're neutered," Jeffrey Kagan, an Atlanta-based telecommunications consultant, said of MCI. "I was floored to see that MCI was not just tossing [regulators] a bone. They threw in the whole towel. If this doesn't satisfy them [regulators], I don't know what will," Kagan said.

Not everyone agreed that MCI had gone far enough. GTE Corp., a rival phone company that has sued to block the MCI-WorldCom merger, downplayed the significance of the sale.

"We simply believe this does not address the antitrust concerns," said GTE spokesman Peter Thonis. GTE, he said, would have preferred to see the sale of MCI's entire Internet operation.

The U.S. Justice Department and Federal Communications Commission still have not decided whether to approve MCI's sale of its Internet properties and its merger with WorldCom. Yesterday, Justice officials would say only that the department will study the MCI-Cable & Wireless deal. The FCC declined to comment on the deal.

MCI, based in Washington, D.C., has about 7,500 employees in that area. Monroe said the sale will not cause job losses, though about 50 employees will be shifted to Cable & Wireless, a London firm with its American operations in Vienna, Va.

Pub Date: 5/29/98

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