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Attorney General Janet Reno Holds News Briefing on Antitrust Actions Taken in WorldCom-Sprint Merger

Aired June 27, 2000 - 11:04 a.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

SASHA SALAMA, CNN CORRESPONDENT: I'm now being told that we're going to listen in on Janet Reno with the latest comments on Sprint/WorldCom.

(JOINED IN PROGRESS)

JANET RENO, ATTORNEY GENERAL: ... communications services. Most importantly, it would result in higher prices for millions of consumers and businesses and lead to lower-service quality and less innovation.

That's why the department is seeking a permanent injunction to prohibit the merger.

This merger threatens to undermine the competitive gains achieved since the department challenged AT&T's telephone monopoly 25 years ago. It is so critical to our economy that we preserve competition for services that many of us rely on in our everyday lives -- long distance calls, data network services and Internet connections.

If this deal were to go forward, consumers and businesses would pay the price because competition would be reduced in many important telecommunications markets, including long distance services sold to residential customers in the United States, international long distance services between the United States and foreign countries, Internet backbone services, international private line services between the U.S. and foreign countries, and data and custom network services.

Since the breakup of the AT&T monopoly, there has been an explosion of new technologies, like fiber-optics, innovative and competitive marketing plans of telecom companies, and the development of new networks which constitutes the Internet. All of these advancements resulted in better products and more choices for consumers.

But we can't stop there. In order to continue to see these kinds of innovations, we must keep the marketplace competitive. Going from the big three telecom companies -- WorldCom, Sprint and AT&T -- to the big two would be like giving customers the wrong number. Every consumer and business in this country and worldwide has benefited from so many of the innovations and technological advances as a result of the breakup of the telecom monopoly. We must continue to go forward, toward greater competition, better innovation, not backwards towards the telecom monopoly of yesterday.

Now, I'd like you to meet, again, one of the busiest men in Washington, Joel Klein.

JOEL KLEIN, ASSISTANT ATTORNEY GENERAL: Thank you, Madam Attorney General. And as usual, thank you for your leadership and your support on this important matter. As you just said, the Department of Justice today filed suit to block the proposed merger of WorldCom and Sprint.

This was an extensive and almost nine-month investigation, and the division concluded that the merger would harm competition in a wide range of telecommunications services used by virtually every American consumer and by businesses both large and small. In many ways, it is very complicated because the pervasive nature of the services at issue, but at its core this is a three-to-two merger and the kind of merger that would harm a wide range of consumers and businesses.

For most of the 20th century, of course, AT&T held a monopoly in long distance services. In the last 20 years as the monopoly faded away in the aftermath of the department's antitrust suit against AT&T, we have seen the enormous benefits that competition brings to consumers and businesses alike in terms of lower prices, increased services and greater innovation. But despite significant progress toward increased competition, many important markets are still dominated by the big three -- WorldCom, Sprint and AT&T. In critical telecommunications markets, this merger would reduce those big three to a big two. Too few. And the elimination of an important competitor would lead to higher prices and fewer choices for America's consumers.

In long distance services for residential and small business customers, something that we're all familiar with, a merged Sprint- WorldCom and AT&T would have roughly 80 percent of the market. But those high market shares alone don't tell the full competitive story.

Sprint and WorldCom, as we all know, compete very aggressively for customers. Anyone who watches TV and sees the commercial campaigns that these competitors run understands that point. And our extensive analysis of the markets showed that consumers consider Sprint and WorldCom to be a particularly close substitute for each other. A disproportionate -- in terms of the numbers, a disproportionately large number of Sprint customers believe that WorldCom is the next alternative for long distance and vice versa. That's important in terms of competitive terms, and, therefore, eliminating the competition between these two companies would permit WorldCom and AT&T to charge higher prices.

The same is true in the international markets, markets between the United States and many foreign countries where we're beginning to see growth of an expansion of telecommunication services. Today the big three dominate those markets as well, not only in switched international service provided to the mass market, but also in private lines that are dedicated to businesses. Further, we found that the merger would harm competition in the long distance data networks services market that large businesses rely on to move their most important data within and beyond their corporate networks. Think about how much data now moves throughout the United States and global economy. The big three are the dominant players here as well. They're the dominant providers of private lines, of ATM networks, of frame relay networks and x-dot (ph) 25 networks, each of which is an important type of network based on its own technological protocol for large businesses.

Whether we consider these as individual markets or collectively, this merger would combine two of the three critical competitors with predictable anti-competitive consequences. Similarly, and again just showing the depth and the full reach of anti-competitive implications here, the customized networks services purchased by America's largest telecommunications customers -- people who buy huge amounts annually of voice and data service -- they would become more costly too...

BILL TUCKER, CNN ANCHOR: And there you have it. As expected, the Justice Department has announced that it will, in fact, block the planned merger of WorldCom and Sprint, not allowing the deal to proceed.

TERRY KEENAN, CNN ANCHOR: That's right, it would have been a $129 billion combination. Attorney General Janet Reno just saying that competition would be reduced in many telecom markets to both businesses and consumers, saying that both businesses and consumers would pay the price if this merger were allowed to go through.

And we want to go back to our Steve Young, who has been following this story.

And Steve, what are the -- what's the headline here for both consumers and investors?

STEVE YOUNG, CNN CORRESPONDENT: Well, the headline seems to be that Joel Klein is adhering to this strict regimen that three-to-two is bad for consumers. I think it's going to probably be controversial, because there's a plethora of new companies that are going to offering alternatives. But he said that consumers are used to WorldCom and Sprint as being the preferable backups, I guess, to AT&T. And they seem to be bent on this course.

TUCKER: All right, Steve, thank you very much.

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