GTE Files Antitrust Suit Against WorldCom and MCI

(May 11, 1998)  GTE filed an antitrust suit in federal district court in Washington DC on Thursday to enjoin the merger of WorldCom and MCI, claiming that it would create a monopoly in the national market for Internet backbone service in violation of § 7 of the Clayton Act.

The Complaint alleges that the "proposed MCI-WorldCom combination will substantially lessen competition and tend to create a monopoly in several vital national and international telecommunications markets":

• "The merger will destroy the critical competitive balance that exists on the Internet today by creating a dominant provider of Internet backbone service."
• "The MCI-WorldCom merger will also substantially lessen competition in highly concentrated wholesale and retail markets for long distance services."
• "Finally, the combination of MCI and WorldCom will substantially increase concentration and lessen competition in important international calling markets between the United States and numerous foreign countries..."

The Complaint alleges that MCI-WorldCom would "control a majority or large plurality of 40 to 60% or more of customer traffic exchanged between peers, and will be at least two to three times larger than the next largest backbone operator, Sprint."   It further alleges MCI-WorldCom would "no longer have an incentive to support interconnection with rival backbones," and would have "the ability to degrade the quality of rival backbone operators' network performance."

GTE Corporation (ticker: GTE), along with its subsidiaries, is one of the largest telecommunications companies in the world (market cap. $58.5 Billion).  GTE offers local and wireless service in a majority of states, and long distance service in all 50 states.  Outside of the U.S. GTE serves about seven million customers.   Its GTE Internetworking Inc. subsidiary is a national Internet backbone provider.

WorldCom (ticker: WCOM) provides long distance, local, and Internet services in the U.S. and around the world.  It is a major provider of Internet backbone.

MCI (ticker: MCIC) is the second largest long distance carrier in the U.S.  It also provides local, wireless, and information technology services.  It too is a major provider of Internet backbone.

The stock price of GTE was down for the week ending May 8, while the price of both WorldCom and MCI stock closed up for the week.

GTE itself made an unsuccessful bid to acquire MCI in October of 1997.  It offered $40.00 per share.  WorldCom and MCI announced their plan to merge on November 10, 1997, with $51 of WorldCom common shares to be paid for MCI shares.

GTE seeks a preliminary and permanent injunction of the merger.  Specifically, GTE requests the following:

"(1) A declaration that the proposed merger of MCI and WorldCom is unlawful and prohibited under section 7 of the Clayton Act, 15 U.S.C. § 18; (2) an order permanently enjoining the merger of MCI and WorldCom; (3) in the event that it becomes necessary to stop the consummation of the merger before the trial of this case, a preliminary injunction enjoining the merger; (4) costs and attorney's fees; and (5) any other relief that this Court may deem just and reasonable."

MCI and WorldCom need to obtain approvals from the EC, Department of Justice, and Federal Communications Commission.   GTE has opposed the merger before all three bodies.  See also, FCC Homepage for the WorldCom - MCI Proposed Transfer of Control, CC Docket No. 97-211.

GTE's lead counsel is Paul T. Capppuccio, of the Washington office of the law firm of Kirkland & Ellis.  The case has been assigned to Judge Thomas Penfield Jackson, who is also presiding in the Justice Department's case against Microsoft.