The European Commission has called for three additional concessions from Worldcom and MCI before it will approve their proposed $37 billion merger.
These concessions would put Cable & Wireless' planned acquisition of MCI's wholesale Internet business "in jeopardy", according to analysts, since the US company may need to look for a broader sale.
European regulators have taken a tougher stance than their US counterparts over the dominant position they believe a combined MCI-Worldcom would have in Internet backbones. The EC thinks the sale to C&W does not go far enough and is now considering three further conditions of approval for the massive takeover.
These are outlined in a fax sent by the EC to interested parties, such as competitors, yesterday. The first is a possible 'non-compete' clause, which would forbid Worldcom and MCI to tout for business from customers of the company that buys MCI's Internet assets. This clause could be even stronger, requiring the merged company to actually turn away business from such customers.
The second concession under consideration is forcing MCI to sell off its Intranet and Extranet business, including associated services such as managed firewalls, and its retail Net operations.
Third, the EC could demand that transfer of MCI's Internet customers, even dial-up clients, to the third party that buys its Net interests.
The proposed $625 million deal with C&W does not cover the transfer of Internet knowhow, personnel or infrastructure, nor does it prevent customers from reverting to MCI/Worldcom. Critics of the Worldcom bid claim this will make it hard for C&W to maintain MCI's strong position in the backbone market.
C&W may lose out anyway, since a US court rejected its bid to prevent MCI selling its Internet interests to anyone else. MCI is now free to sell to the highest bidder, although it would pay a $25 million penalty if it reneges on transferring the wholesale operations to C&W as planned.
If it does sell the retail Internet arm, C&W currently has first refusal, but there is likely to be a collection of counter-bids that will inflate the price. PSInet, BT and Qwest are among those likely to be interested.
The EC's merger team, representatives from EU member states and from Worldcom and MCI will meet in Brussels tomorrow to try to hammer out a deal. The US Department of Justice is expected to support any revised terms.
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