European Commission Press Release.
Re: WorldCom/MCI Merger.
Date: July 8, 1998.
Source: EU website.

DN: IP/98/639     Date: 1998-07-08

Brussels, 8^th July 1998

Commission clears WorldCom and MCI merger subject to conditions

The European Commission has given conditional clearance to the merger between WorldCom, Inc and MCI Communications Corporation (MCI), subject to a divestiture of MCI's Internet business activities. WorldCom and MCI are both publicly-quoted telecommunications companies offering the normal range of telecommunications services. Both also offer Internet-related services. The Commission's investigations found significant overlaps in this market for 'top level' or universal Internet connectivity. WorldCom is currently the leading player in the market, with MCI one of its main competitors. The merger would have given the combined entity a market share of some 50% of the relevant market. The parties have committed to divesting MCI's Internet assets, thus eliminating the overlap with WorldCom's Internet business.

WorldCom and MCI are among a small group of Internet Service Providers (ISPs) who can provide connectivity anywhere on the Internet solely through their own peering agreements (i.e. agreements with other network operators for mutual termination of traffic) without having to rely on the purchase of a 'transit' service from any other provider. Such connectivity is provided, in the form of Internet access services, both to directly connected customers and to intermediate ISPs who resell the connectivity to other buyers or to final users.

'Network externalities' (i.e. the phenomenon whereby the attraction of a network to its customers is a function of the number of other customers connected to the same network) would have enabled the merged entity to behave independently of its competitors, and to degrade the quality of Internet related services offering of its competitors. After offering a limited assets sale which the Commission judged insufficient, the parties proposed remedies which involved the divestiture of a package including all of MCI's Internet interests, sufficient to enable the acquirer to take over the position of MCI as a player in this market.

The Commission's investigations, and negotiations of remedies, were undertaken in parallel with the examination of the case which is still being conducted by the US Department of Justice (USDOJ). The process so far has been marked by considerable level of co-operation between the two authorities, including exchanges of views on the analytical method to be used, co-ordination of information gathering and joint meetings and negotiations with the parties.

The timetable for divestiture would allow the parties the opportunity, subject to clearance from the USDOJ and the Commission, to agree a sale in advance of, but conditional on, the merger. Under the terms of their undertakings submitted the parties must seek the consent of the two competition authorities to the proposed buyer of the divested activities. The two authorities will continue to co-operate until the undertakings are fully implemented and exchanged formal letters to this effect in accordance with the EC-US agreement regarding the application of competition laws. The remedies include the possibility for the Commission, in appropriate circumstances, to appoint a trustee to oversee compliance with the undertakings and, if necessary, to ultimately take control of the sale process (i.e. finding a buyer and drawing up an agreement).

Subject to full compliance with these conditions the Commission has therefore declared the concentration compatible with the Common market.