Sprint refused to sell Vegas, other local operations

Steve Green

Wednesday, June 28, 2000 | 11:24 a.m.

Merger rejected

The European Union today rejected the merger of telecommunications giants WorldCom Inc. and Sprint Corp., a day after the Justice Department went to court to block the deal.

The setbacks raised doubts about whether the United States' second- and third-largest long-distance carriers would continue their effort to combine. But for the moment, both said they were still considering their options.

The European agency said the merger would have sharply reduced competition in connecting to the Internet.

Sprint Corp.'s local telephone operations around the nation -- the biggest being in Las Vegas -- unexpectedly emerged as an antitrust issue Tuesday in Sprint's proposed merger with WorldCom Inc.

Sprint, in talks with the government, refused to sell these local operations and this refusal contributed to the Justice Department suing to block the merger.

Sprint is based in the Kansas City, Mo., area. It is the dominant local telephone company in the Las Vegas area with 581,713 business and residential customers and 961,250 access lines in Clark County.

Before Tuesday, it was believed the local phone operations wouldn't be subject to antitrust scrutiny because WorldCom doesn't have a significant presence in the U.S. local phone industry and Sprint itself is a small player in that segment of the telecommunications industry.

But Sprint revealed Tuesday that in recent negotiations with the U.S. Justice Department, federal antitrust enforcers demanded the local phone operations be sold.

"The Justice Department has long maintained that stand-alone long distance is a discrete antitrust market, yet in recent discussions, the Justice Department insisted that any divestiture would have to include both Sprint's long distance business and its local telephone operations," said Sprint's Richard Devlin, executive vice president and general counsel. "Those positions are difficult to reconcile."

The Justice Department, in its lawsuit seeking to block the merger, suggested a combined Sprint-WorldCom would have an unfair advantage in its local markets. Already, the Justice Department said, Sprint's share of the long distance market in its local markets is greater than in areas where it does not offer local service.

AT&T has about half of the $80 billion long-distance business while WorldCom controls about 20 percent and Sprint about 8 percent.

"In Sprint's local exchange territories, substantially more than 8 percent of the lines subscribe to Sprint (long distance), outside of its local exchange territories approximately 7 percent of the lines subscribe to Sprint," the government lawsuit said.

The lawsuit said that among local phone companies, Sprint is the only significant long distance competitor outside of its local service areas.

Despite these concerns about Sprint-WorldCom using its local operations to leverage sales of long-distance services, the Justice Department mainly cited concerns that the combined company would stifle competition on the Internet and in the overall long-distance telephone industry.

Industry executives said the Justice Department lawsuit probably will kill the merger. Regarding their plans, the companies said only that they would review their options.

People close to the companies told the New York Times that while Sprint and WorldCom remained unlikely to battle the Justice Department through an entire trial, they might file preliminary objections to the suit in hopes of reopening negotiations to win approval.

The Times cited sources close to WorldCom and Sprint as saying that the two companies were considering big concessions -- including a complete spin-off of Sprint's long-distance telephone business and Internet operation -- to appease antitrust regulators.

But in the end, the concession offer never came, those people told the Times, because the Justice Department wanted the companies to also agree to a spin-off of Sprint's local phone business. WorldCom was reluctant to agree, while Sprint was adamantly opposed, they told the Times.

The Justice Department declined comment on negotiations with the companies.