Inquiry into telecoms merger gets under way

Date: 28/11/1996

By Tim Jones

TAKE-OVER investigators are poised to begin a formal inquiry into the creation of the world's first global telecommunications company.

British Telecom and MCI Communications Corp - the second largest telecoms operator in the US behind AT&T - are about to notify their 15-billion-ecu deal to the European Commission under the fast-track merger regulation.

The new holding company, to be known as Concert, will be 66&percent; owned by BT shareholders and 34&percent; by MCI.

Since the merger was announced earlier this month, the two firms have been in talks with the Commission's merger task force over whether the deal could be considered under the 1989 regulation, which ensures that the Commission carries out a first inquiry within one month and, if it detects regulatory problems, takes an extra four months to clear or reject the agreement.

The discussions have centred on the fact that, at first glance, MCI did not qualify for assessment because its annual sales revenue within the EU came to less than the 250-million-ecu minimum.

Since it bought Canadian company Systems House, MCI has had a large business in systems integration, providing tailored software which allows telecoms companies to combine and keep track of the various parts of their networks. The American firm also has a calling-cards business in Europe.

Problems arose in calculating how much sales revenue could be judged to have originated in Europe, and how much in the US. For instance, a telephone call from Italy to the US using MCI systems has to be treated as partly EU-generated revenue.

Now this has been sorted out - with both sides agreeing that MCI's turnover does exceed the threshold - the companies are expected to file the formal notification of the deal to the Commission in the coming days.

There should be few problems, given the state of the UK and US telecoms markets. Competition Commissioner Karel van Miert made it clear recently that, while BT dominated the British market, it was “not misusing” its dominant position. The UK has hundreds of licensed telecoms operators.

Moreover, the Commission has already carried out a detailed scrutiny of the relationship between BT and MCI, following the creation of their Concert joint venture in 1993 which prompted a 15-month investigation under Treaty of Rome articles. The two firms hope that the Commission will be able to clear the new deal in just four weeks, but it may take longer given the scale of the agreement.