III.

MCI-WorldCom Merger

The 1996 Telecommunications Act deregulated the U.S. telephone market. MCI became the first long-distance company to offer local telephone service, but it also faced new competition in the long-distance market from regional telephone companies. In 1996 British Telecommunications announced plans to purchase Washington D.C.-based MCI. However, after BT lowered its offering price by nearly 20 percent, in 1997 MCI accepted a purchase offer of $37 billion from telecommunications firm WorldCom.

Founded in 1983, WorldCom had used its own fiber-optic cable network to become one of the leading U.S. telephone and Internet service providers (see Fiber Optics). WorldCom, based in Jackson, Mississippi, also owned Internet access company UUNET Technologies, one of the world’s leading Internet service providers.

The merger faced scrutiny from antitrust officials in the United States and Europe. Regulators voiced concerns that the proposed company’s Internet business would have an unfair advantage in the market because both WorldCom and MCI had substantial Internet holdings. In early 1998 WorldCom’s UUNET division had gained control of the network units of CompuServe, a subsidiary of America Online, making UUNET the world’s leading provider of Internet access. To gain approval for the WorldCom-MCI merger, MCI sold its Internet assets to Cable & Wireless PLC, a British telecommunications firm, for $1.75 billion in 1998. The European Commission and the U.S. Federal Communications Commission approved the merger later that year.