MCI WorldCom Inc. has announced what could become the largest corporate takeover in history. It’s a move significant to schools and anybody else who uses telephones, cable TVs, or the internet. On Oct. 5, the nation’s second largest long-distance firm unveiled plans for a $115 billion acquisition of Sprint Corp., America’s third-largest long-distance company.
All the implications for schools were not immediately apparent at press time. Butat the leasteducators can expect the combined company, which will be called WorldCom, to have a significant effect on the telephone rates schools pay, the telecommunications services schools use, the number and complexity of the telecommunication bills schools receive, and quite possibly even the long-term viability of the eRate.
The eRate is a federal discount funded through telecommunications company revenues. It helps schools and libraries connect to the internet.
Although the smart money is betting the mega-merger ultimately will go through, the officials in Washington who must approve the deal were raising questions.
The nation’s top telephone regulator immediately warned the companies that they “bear a heavy burden to show how consumers would be better off” as a result of the merger.
The combined company would control 30 percent of the U.S. long-distance market, as well as offer wireless phone and paging services and an internet network. WorldCom also would be a stronger competitor to AT&T Corp., the nation’s largest long-distance and cable TV company.
But William E. Kennard, chairman of the Federal Communications Commission, said MCI WorldCom and Sprint will have to make a strong case for approval of the deal.
“American consumers are enjoying the lowest long-distance rates in history and the lowest internet rates in the world for one reason: competition,” Kennard said in Washington. “Competition has produced a price war in the long-distance market.
“This merger appears to be a surrender,” he said. “How can this be good for consumers?”
Bernard J. Ebbers, president and chief executive of MCI WorldCom, told reporters in New York, “We understood from day one it is our burden of proof to show this is pro-competitive.” He added, “We look forward to the opportunity of doing that.”
Consumers might not see any immediate benefit from the acquisition of Kansas City, Mo.-based Sprint because long-distance and wireless calling rates already are at historic lows. The new WorldCom, however, would offer a broader range of products by combining the strengths of MCI WorldCom and Sprint.
For schools, that might mean the chance to bundle long-distance, wireless, and internet services together into attractive packages that could rival those of AT&T. But Tom Magee, an attorney with Vorys, Sater, Seymour and Pease LLP, a firm that handles eRate issues for Ohio schools, cautioned that such bundles wouldn’t necessarily translate into less administration on the part of schools for programs such as the eRate.
“With the layers of bureaucracy involved in a large company, it can be trouble getting things done on a timely basis,” he said. “I’d imagine the problem would be compounded when two large companies get together.”
Sweetening the deal
MCI WorldCom in the final hours of merger negotiations sweetened its offer to $76 per share in stock rather than risk losing Sprint to rival BellSouth Corp., which had offered $72 per share in cash and stock, or $100 billion.
Both companies’ boards voted to approve the deal, and it was formally announced on Oct. 5. The deal would be the largest corporate merger ever, eclipsing the pending $82 billion deal between Exxon Corp. and Mobil Corp.
MCI WorldCom is the nation’s second biggest long-distance company and one of the world’s biggest operators of the networks that make up the internet, but it has no wireless calling business. Sprint PCS would fill that hole nicely.
“The merger with Sprint is particularly timely as wireless communications emerges as a critical component of full-service offerings,” said Ebbers. “Increasingly, wireless will be used for internet access and data services, two areas in which both companies excel.”
BellSouth was seeking Sprint’s long-distance business to complement its local telephone business in nine states in the Southeast. Like the other Baby Bells, the Atlanta-based company is hopeful that federal regulators will soon allow it to offer long-distance service in its home region.
Even the mightiest telecommunications companies are racing to grab an edge in technology and geographic reach so they can compete in a market where distinctions between telephones, television, radio, and computers are disappearing.
There have been 233 telecom deals this year alone, totaling $195 billion, according to Thomson Securities Data Co. If the MCI WorldCom deal with Sprint goes through, this year’s total will blow past the $220 billion in telecom deals signed for all of 1998.
MCI WorldCom Inc.
Federal Communications Commission