A merger between WorldCom, Inc. and MCI Communications Corp. would give most of the nation's urban areas a choice of local carriers, and it would offer both carriers huge savings in overhead costs.
And none of that would happen in a merger between MCI and British Telecommunications plc.
That was the case laid out this morning by WorldCom Chairman and CEO Bernard Ebbers as he announced that WorldCom was offering to buy MCI for about $30 billion.
Ebbers told a packed news conference in New York that he had a "cordial conversation" this morning with MCI Chairman and CEO Bert Roberts at which Roberts was noncommittal regarding WorldCom's offer. But Ebbers aimed his arguments not at MCI management, but at MCI shareholders, who stand to gain $9 billion more from WorldCom's offer than a recently revised buyout offer from BT, and at MCI customers as well.
Under a WorldCom/MCI merger, in addition to the 52 local markets currently served by WorldCom, MCI's local services business would add nine more cities where WorldCom does not currently have a presence at all. In addition, WorldCom announced today that it is purchasing competitive local provider Brooks Fiber Properties, Inc., and that would add another 34 second-tier cities to the list, according to WorldCom officials.
By contrast, BT would have to pour money into MCI's coffers to help MCI complete its local buildouts and sell local service to turn a profit. "We can offer far greater synergies and savings than BT can," Ebbers said. "They just don't live here."
Ebbers noted other synergies between the two companies:
If WorldCom and MCI were to merge, much would depend on WorldCom's ability to integrate local, long-distance, Internet and wireless services instead of letting them stand apart as piece-parts. Ebbers said WorldCom has avoided cobbling together end-to-end services via reselling existing local carriers' services because that provides at best a 20% gross profit margin before administrative expenses. Fully built-out local networks provide a 60% gross profit margin, he said.
BT and MCI officials had yet to respond to WorldCom's offer by midday, though some financial analysts said BT shareholders may welcome a way out of the MCI deal, which has been controversial in Great Britain because of MCI's recent decline in profitability.
AT&T, whose local services strategy has been built around resale, urged users to remember that mergers of any kind usually follow a tortuous path. "AT&T wishes its colleagues in Washington and London well as they try to sort through these new developments in the coming days, weeks, months and years," the company said archly in a prepared statement. AT&T adeed: "WorldCom's latest play doesn't affect our strategy in the least."
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