WorldCom, Sprint Getting Disconnected

Europe and Washington each hate the Sprint-WorldCom deal, for different reasons.

But between them, they've got the prospective partners in the biggest-ever corporate merger ready to call it quits. The Justice Department on Tuesday filed suit to block the $129 billion deal, saying there was no configuration it could think of that wouldn't stifle competition in U.S. long-distance markets. As early as Wednesday, Euro-trustbuster Mario Monti was to make public his own unwillingness to preside over what he sees as the sale of Europe's Internet backbone to a single Yank monopolist — but then Sprint and WorldCom withdrew their application to the E.U. Tuesday and saved him the trouble.

In announcing her decision, Janet Reno went as far as to invoke the Justice Department's telecom bête noire. "This merger threatens to undermine the competitive gains achieved by this department when it challenged AT&T's monopoly of the telecommunications industry 20 years ago," she said. In the years since passage of the 1996 Telecommunications Act, Baby Bells have reunited. Cable and phone outfits are teaming up, and AT&T is back on top. Companies are scrambling to align vertically by acquiring enough backbone, content and customer reach to be a one-stop telecom shop. On the same sort of grounds that Justice is fighting Microsoft — the times are too exciting to let behemoths stifle innovation — regulators may finally be ready to pull the plug on the industry's reconsolidation.

This deal seems doomed. Even WorldCom's most desperate proposed contortion — selling off all of Sprint's businesses but the one it wants most, Sprint PCS Wireless — is getting a negative reaction from both Justice and the firms' own bean counters. Both firms profess eagerness to study regulators' objections with an eye to satisfying them. But the way regulators are talking, and with WorldCom stock heading back up on news of an annulment, this pair's best call might be to go it alone, or root, like Microsoft, for a more laissez-faire Bush administration in January.