In an effort to gain approval for their troubled merger bid, US telecoms giants MCI WorldCom and Sprint are in talks behind closed doors with trade officials from the European Commission, which is widely thought to be a major opponent of the plan.
The smart money is already declaring the merger dead in the water, regardless of what the Eurocrats say. The US government has already done plenty to put the skids under the $115bn deal, which was first announced in October 1999, and may be about to apply the coup de grace.
If successful, however, the tie-up would be the second biggest merger in corporate history, after the more recently announced Times Warner and America Online deal which is also awaiting a governmental rubber stamp.
The merger was hardly unexpected when it was announced. It was, and for the time being still is, the biggest example of the changes engulfing the deregulated global telecoms market. Largely brought on by the convergence of voice, video and data services, all the major telcos around the world have been trying to put on muscle and expand services.
Gunning for AT&T
The specific aspiration of MCI WorldCom and Sprint, which would be renamed WorldCom if their merger gets the go-ahead, will be to take on the daddy of them all, AT&T, which controls almost half of its home market and has massive investments abroad. It is clear that the key battleground between WorldCom and AT&T is the high profit corporate and international accounts. Approve our bid, says WorldCom, and we'll give those AT&T guys a bloody nose, and bring a little more balance to the market, to the benefit of major customers everywhere.
Aside from the elementary consideration that consolidation seldom leads to lower prices and better services, WorldCom's claims do not stop at heading off AT&T. It has been forecasting all manner of technological dividends for consumer and corporate customers, should a green light be given to the merger.
MCI WorldCom chief executive Bernard Ebbers said he sought out Sprint in the first place largely because of its US wireless phone network and investments in advanced messaging technologies. At the time the merger first hit the headlines, he described it as "particularly timely, as wireless communications emerge as a critical component of full service offerings". There are plans on the table for high-speed digital subscriber line facilities and fixed wireless access using the combined company's MMDS spectrum
Then there are Sprint's web investments, touted by chief executive William Esrey as "set to provide end-to-end integrated broadband services for the home and the business market, as an alternative to traditional cable and telephony providers".
The natural fit between the two operators, so the myth goes, will provide a whole far greater than the sum of the parts, providing corporate users with an unmissable feast of cutting-edge benefits, as well as considerable cost savings.
Perhaps to add some Larry Ellison-style glamour to the lustre of the deal, Esrey at one point let slip that he finalised some of the details of the merger with Ebbers over a satellite telephone while on horseback in Colorado. It now seems that both men may be riding into the sunset alone, if the weight of analyst opinion is anything to go on.
Susen Sarkar, principal analyst with the Yankee Group in the UK, said: "The feeling is that the two companies will walk away from the deal voluntarily, having been warned by Washington that they won't allow it."
Sarkar does not think that anyone on this side of the Atlantic need be too sorry. "End users won't notice too much of an effect either way. The sort of services that WorldCom has been promising are being offered by so many others in the market anyway," he said.
There could even be reasons to rejoice in the deal's failure, according to others. A source from a rival telecoms company, who did not wish to be named, said: "WorldCom has been so acquisitive over the last few years that they have got all sorts of problems with unifying their back-office systems. Last year, their Frame Relay backbone went down as a result, and a lot of corporates were very unhappy. Another merger, especially one of this size, will mean more delays and aggravation, and stop them focusing on customers for a while longer."
MCI WorldCom refused to comment, and is no doubt anticipating a torrid month or two ahead.
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