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Worldcom-MCI merger would create Internet monopoly

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Contact: Brian Lustig (202) 331-5530 or Nan Gibson (202) 331-5546

Takeover would subvert competition, harm workers, consumers

Washington, D.C. – The proposed acquisition of MCI Communications by WorldCom would be the largest in American business history and would combine both the nation’s two largest Internet “backbone” systems and two of its four largest long-distance companies. Such a merger, however, would give WorldCom more than 50 percent of the Internet market, subverting competition by concentrating majority control in a single company. The resulting effective monopoly ultimately would work to the detriment of both consumers and workers, according to two new reports from the Economic Policy Institute (EPI).

Bad Deal of the Century, by Prof. Dan Schiller of the University of California, San Diego, finds that WorldCom’s proposed acquisition is both “overtly anti-competitive” and contrary to the intent of the Telecommunications Act of 1996, and therefore a prime candidate for rejection by federal regulators on antitrust grounds. The author warns that the takeover will endanger the nation’s shared public telecom infrastructure and have an adverse effect on workers and consumers.

In Monopoly.com, Rutgers University professor Jeff Keefe focuses in greater detail on the extent to which a combined WorldCom-MCI would dominate the market for Internet access. He presents evidence that the company’s ownership of various Internet “backbone” providers constitutes a majority share, a position that could enable the post-merger WorldCom to exercise monopoly control of the Internet.

Keefe also reports that WorldCom and MCI have failed to provide basic information on their Internet revenues, market share and role in providing Internet connectivity. He shows that WorldCom-MCI’s own claim that it will have a 20 or 22 percent Internet market share is belied by external estimates ranging from 48 to 68 percent. The company also would control 25 percent of the market for long-distance telephone service in the United States.

Bad Deal of the Century identifies the following key concerns regarding the planned takeover:

  • The proposed merger would allow WorldCom to develop market power over the Internet;
  • WorldCom’s historic strategy of targeting high-volume customers at the expense of the broader market is in opposition to the objective of universal service codified by the Telecommunications Act of 1996;
  • Consolidation of the companies could impose serious economic and social costs by neglecting the shared public telecommunications infrastructure and exacerbating the push for lower wages by the two non-union carriers as they increase their market dominance; and
  • The combined company’s questionable financial health would endanger the nation’s telecom infrastructure.

Schiller writes that the takeover is “a mistake waiting to happen,” adding that the risks he describes come at a time when the health of the nation’s telecom infrastructure “is most important to the overall well-being of the economy.”

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Dan Schiller, Professor of Communications at the University of California, San Diego, is a specialist in the history of U.S. telecommunications. He obtained his Ph.D. in communications in 1978 from the University of Pennsylvania and is the author of three books, including Telematics and Government, as well as The Enchanted Network: How Digital Capitalism is Remaking the World, a forthcoming study of the structure and policy of the Internet.

Jeff Keefeis a professor at Rutgers University’s School of Management and Labor Relations, where he investigates technological and organizational change in unionized settings. He has published in the Industrial and Labor Relations Review, Industrial Relations, and the Brookings Papers on Economic Activity and is the co-author of Turbulence in the American Workplace. Keefe received his Ph.D. in industrial and labor relations from Cornell University.

The Economic Policy Institute is a nonprofit, non-partisan economic think tank based in Washington, D.C.

To order copies of Bad Deal of the Century and Monopoly.com, contact EPI at 1-800-EPI-4844.