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Well, the rumors were true. It's back to fighting Oceania. :-)
Looks like Internet Architecture will be pledging allegiance to London
after all... the stock should do well at the opening bell in a few
minutes is my guess.
C&W got all the infrastructure, but only some of the customers: to wit,
1300 ISPs. Two years out, MCI can rebuild its IP service internally for
its other customers, theoretically. But all the talent went on the
barrelhead for $625m.
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Cable & Wireless to Buy MCI's Internet Backbone and ISP Service Business
Washington, D.C. and London, May 28, 1998 - Cable & Wireless will acquire
MCI's entire Internet backbone service business for $625 million (£385
million) in cash, the two companies announced today.
The transaction gives Cable & Wireless a premier Internet business in the
fastest-growing sector of the U.S. telecommunications market. It also
addresses anti-trust issues being examined by the U.S. Department of Justice
and the European Commission and, subject to approval by those authorities,
should clear the way for the swift approval of the MCI WorldCom merger.
The acquisition expands Cable & Wireless's already strongly growing
portfolio of global communications Internet services and enhances its
prospects for growth in the booming global Internet marketplace.
Richard H. Brown, Cable & Wireless Chief Executive, said: "The Internet is a
vital element of our growth engine. Already it is the world's fastest
growing telecommunications service, growing at more than 50 percent every
"This transaction catapults us into a leading role in the World League of
Internet and data traffic carriers. It gives us the scale and scope we need
in the United States to match our leading role in the rest of the world.
"Data has already overtaken voice in terms of traffic in the U.S. and across
the Atlantic and Pacific Oceans. The rest of the world is set to follow
suit. With this transaction, Cable & Wireless is ideally placed as the pace
of the communications revolution accelerates."
The terms of the deal are as follows:
* MCI will sell to Cable & Wireless its Internet backbone
service business, comprising all of its 22 domestic nodes,
15,000 interconnection ports, more than 40 ongoing peering
agreements, and equipment dedicated to supporting the network
including routers and switches. These are key pieces of
technology that will allow users to access the Internet
* Cable & Wireless will acquire and assume support for MCI's
contracts with its Internet Service Provider (ISP) customers,
whose business is primarily re-selling Internet access.
Today, MCI has more than 1,300 U.S. domestic and
international ISP customers across 76 countries.
* In order to continue high standards of service for all
customers, Cable & Wireless and MCI have concluded an
agreement to ensure the fulfillment of all existing
contractual arrangements with customers. Initially, MCI will
provide the underlying telecommunications transport services
supporting the Cable & Wireless backbone and will provide
additional services as required by Cable & Wireless. MCI will
use Cable & Wireless's backbone services to support its
growing base of non-ISP customers.
MCI's residential and non-ISP commercial customers (who are not resellers of
Internet services) are not affected by this agreement, and MCI will continue
to provide non-Internet services to its ISP customers. Residential and
commercial customers will continue to receive MCI services exactly as they
do today from the same access facilities, under the same terms of their
contracts and with support from their existing account teams. For a period
of at least two years, underlying Internet services for MCI's existing
customers will be provided on the Cable & Wireless network. MCI will
continue to provide Intranet, web-hosting and other value-added Internet
services to its customer base.
MCI has played a pioneering role in the development of Internet commerce,
communication and technology. In 1987, it was chosen to provide the high
speed fiber optic lines that formed the National Science Foundation's
Internet backbone. This ultimately gave way to today's competitive Internet
backbone services in the United States.
Cable & Wireless companies lead the market for Internet services in Hong
Kong and the Caribbean and this is a rapidly growing market for Cable &
Wireless worldwide. Hongkong Telecom IMS is the leading Internet Service
Provider in Hong Kong with 235,000 Internet customers, increasing by 10,000
a month, and operates a direct high-speed Internet access gateway to China.
Optus (49 percent Cable & Wireless) is one of the leading Internet Service
Providers in Australia, one of the world's most advanced Internet markets.
Cable & Wireless Communications in the UK is the fastest growing Internet
Service Provider and is pioneering the development of the interface between
Internet and entertainment digital TV.
In the United States, Cable & Wireless, Inc. (a wholly-owned subsidiary of
Cable & Wireless) is a leader in the long distance and international
communications market, serving approximately 100,000 business customers in
50 states with a range of voice, data, messaging and Internet services
through 35 local sales offices. Headquartered in Vienna, Virginia, near
Washington, D.C., the company has annual revenues in excess of $1 billion
and 2,300 employees. It operates its own digital fiber optic network between
major cities in the USA which is constantly expanding.
"By divesting MCI's Internet backbone, we have eliminated any overlap with
WorldCom's Internet business," said Bert Roberts, MCI's chairman. "We have
formed an agreement that addresses anti-trust concerns with the MCI WorldCom
merger, ensures the continued delivery of quality Internet services for all
our customers and creates an exciting new opportunity for some of the
industry's most skilled Internet personnel."
Today's announcement is an agreement to acquire MCI's Internet backbone and
ISP service business which has assets of approximately $100 million (£60
million) and projected turnover of approximately $220 million (£135 million)
annualized for the 12 months to 31 December 1998. The agreement provides
Cable & Wireless with certain revenue and traffic guarantees. Cable &
Wireless will gain the engineering and other expertise of certain MCI
personnel currently dedicated to the operation of MCI's backbone service
business as well as sales, marketing and support personnel who service MCI's
ISP customers. MCI will fund an incentive programme to ensure that Cable &
Wireless benefits from the world-class skills of some of the industry's best
The MCI WorldCom merger is subject to approval by the Department of Justice
(DOJ), European Commission (EC) and the Federal Communications Commission
(FCC). Cable & Wireless's acquisition of MCI's Internet backbone service
business requires approval from the DOJ and the EC. This transaction will be
completed concurrently with the completion of the MCI WorldCom merger, which
is expected this summer.
In Cable & Wireless's annual results for the full year to 31st March 1998,
announced on 13 May, turnover (revenue) including Cable & Wireless's shares
of associates and joint ventures increased by 19 percent to $13.6 billion
(£8,302 million). Group turnover increased 16 percent to $11.5 billion
(£7,001 million). Total operating profit (the operating profit of the group
and its share of associates and joint ventures) before exceptional items
rose 19 percent to $2.8 billion (£1,684 million). Pre-tax profit rose 54
percent to $3.6 billion (£2,184 million). Pre-tax profit before exceptional
items grew 13 percent to $2.6 billion (£1,597 million). Exceptional items
for the year totalled $963 million (£587 million).
Cable & Wireless is one of the world's leading providers of global
telecommunications services with revenues of approximately $12 billion
annually. Its businesses provide 17 million customers in 70 countries with a
complete range of international, domestic and mobile communications. Cable &
Wireless is the world's third largest carrier of international traffic,
provides mobile communications in more than 30 countries and operates the
world's largest cableship fleet.
MCI, headquartered in Washington, D.C., is a leading provider of
local-to-global communication services to business, government and
residential users. The company's fast-growing portfolio of advanced data and
IT services accounts for a quarter of MCI's approximately $20 billion in
annual revenue. MCI operates one of the world's largest and most advanced
digital networks, connecting local markets in the U.S. to hundreds of
locations worldwide. MCI has agreed to merge with WorldCom, one of the
world's fastest-growing communications companies. The merger will create MCI
WorldCom, a company uniquely positioned in the U.S. local and long distance
markets as well as the global data and Internet markets.
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