European and US regulators are likely to force Worldcom or MCI to sell off substantial Internet interests before their merger can go ahead.
In talks with the EC, the two companies this week faced demands that Worldcom sell off its UUnet Internet service provider arm, or that MCI divest its Internet business.
Sources said the EC said it would not be satisfied by a partial sale of MCI's Net operations, a compromise believed to have been proposed by the would-be partners, and US authorities are expected to agree.
European competition commissioner Karel Van Miert is seeking to eliminate any market overlap in top level Internet connectivity, the EC said yesterday. An antitrust official said the sell-off of the whole of MCI's or Worldcom's backbone holdings was the "only one possible remedy".
Van Miert will meet US officials in Washington next week and says he is "trying to obtain the same concessions as the Justice Department", which has said that overlaps are unacceptable.
"In view of the market shares on the basis of both revenues and traffic flows, Commissioner Van Miert would like to reiterate his view that this merger would lead to the creation of a dominant position in the supply of top level Internet connectivity," the EC said. "Any overlap between Worldcom and MCI should be eliminated without any doubt."
Van Miert also reacted angrily to reports that Worldcom chief executive Bernie Ebbers had told his annual shareholders' meeting that the EU had been forced to correct its calculations of Worldcom/MCI's market share. The EU estimates the combined share of the Internet access market to be over half.
"Commissioner Van Miert is surprised that Mr Ebbers could make such statements before the shareholders of Worldcom. To put the record straight, these allegations are simply not true," a spokesperson said.
Ebbers told his shareholders last week that the EU had acknowledged it made a miscalculation in estimating combined market share and now estimates this at less than 38 per cent of the overall market.
Van Miert believes Worldcom and MCI have accepted the "only meaningful way of assessing market power in the Internet - on the basis of traffic flow and not the companies' proposed revenue measure", the spokesperson continued.
GTE, the leading opponent of the merger, has led the call for the partners to divest one or more of their Internet backbone activities.
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