Worldcom Strikes $14 Billion Deal To Acquire Mfs New Company To Target Market For Business Communications

In a move sure to catch the attention of AT&T, MCI and Sprint, WorldCom Inc. has agreed to buy MFS Communications Co. in a $14.4 billion deal that brings together local calling, long-distance and Internet access.

The merger, announced Monday, is the third telecommunications mega-merger this year and the fifth-biggest corporate marriage in U.S. history. Strategically, it creates a powerhouse targeting the lucrative market for business communications.

MFS WorldCom, as the combined company will be called, includes UUNet Technologies Inc., an Internet provider to businesses that MFS bought this month in a $2 billion deal of its own.

“You’ve got a true gorilla playing in the telecommunications jungle, just like MCI, Sprint and AT&T,” said Gary Miller, president of Aragon Consulting Group Inc.

Not only does the combination produce a more powerful force in the wildly competitive long-distance business - WorldCom is the nation’s fourth-largest long-distance company - but it puts the new MFS WorldCom in position to go after the Baby Bells’ lucrative business customers.

While businesses produce just 40 percent of industry revenue, corporate customers are major spenders. A residential customer who spends $75 a month or more is considered a big phone user, Miller says. Big business customers spend at least $15,000 to $20,000 a month.

Both MFS and WorldCom have grown into powerful competitors by targeting such deep-pockets buyers of communications services.

Driving WorldCom’s purchase was a law - passed in February - deregulating the telecommunications industry. It allows long-distance and local phone companies to compete against each other. On Aug. 1, the Federal Communications Commission approved a set of rules for opening the local markets to long-distance and cable TV providers.

“What has happened is that by being fairly aggressive, WorldCom has been able to leapfrog everybody,” said Stephen J. Shook, a telecommunications analyst at Interstate/Johnson Lane, a brokerage firm.

The other long-distance providers, AT&T, MCI and Sprint, are also interested in offering packages of services that include local, long-distance and the Internet. Shook noted, however, they are approaching the matter in different ways.

Since the telecommunications bill’s passage, phone companies have been combining at a furious pace. Earlier this year, Bell Atlantic Corp. agreed to merge with Nynex Corp. in a transaction worth $22.7 billion and SBC Communications Inc. decided to purchase Pacific Telesis Group for $16.7 billion.

“What every company in this industry wants to accomplish is to be able to provide end-to-end service, that is from the point of origination to the point of destination, internationally, over a single company’s own facilities,” Bernard J. Ebbers, president and chief executive of WorldCom, said at a news conference.

That is, he noted, the very point of the MFS purchase by WorldCom. He said MFS WorldCom will be the first company to provide such end-to-end service since the breakup of AT&T.

MFS, a company little known outside the telecommunications industry, specializes in providing companies and other institutions with highcapacity phone systems that link them cheaply with long-distance providers.

WorldCom gains access to MFS’ base of business customers, as well as the UUNet Internet customers.