The possibility of WorldCom selling or spinning off its consumer long-distance unit, much of which it acquired when it bought MCI Communications, was raised in talks with Justice Department officials in recent days as a potential consequence of a veto of the deal by regulators.

Such a spinoff or sale would remove one of the strongest competitors to AT&T Corp in the consumer business, WorldCom, and award the company's slow-growing, but profitable, consumer business to any number of rivals aiming to establish themselves in the market.

It also would amount to a snubbing of Justice Department concerns that the Sprint deal would have made WorldCom too formidable a competitor. Instead, WorldCom and Sprint argued to the Justice Department, there could be less potent competition in the consumer long-distance market if the deal wasn't approved.

On the other hand, the WorldCom consumer business could end up being sold to a big company that could create robust competition for AT&T. Among potential purchasers is German phone giant Deutsche Telekom AG, which has been on the prowl for acquisitions in the US; Bell phone companies seeking to get into long distance; or perhaps even America Online Inc, industry executives said.

People close to WorldCom said top company officials have told Justice Department officials that without a wireless network, which was the prime attraction of buying Sprint, the WorldCom executives are left with a consumer phone business increasingly viewed as a commodity. WorldCom's competitors, such as AT&T, have spent heavily to expand their consumer businesses through acquisitions of cable-television companies or by establishing themselves in the consumer Internet business. It is becoming increasingly clear that telecommunications companies need to offer an array of services in bundles, something WorldCom is in a much better position to do for its business customers than for consumers, since it lacks wireless and cable operations and has only a small consumer Internet business.

A sale or spinoff of the consumer unit likely would cement WorldCom's decision not to get into the wireless business, which now is seen as mostly a consumer business. Such a move could help the company's standing with investors. Consumer long-distance revenue comprises about $8 billion of the company's $37 billion in annual revenue. It is one of WorldCom's slowest-growing businesses, increasing at a rate of about 1 per cent to 2 per cent a year.

Getting out of consumer long distance would enable WorldCom to focus on its corporate-oriented data, Internet and international sales, which bring in some $18 billion in annual revenue and have been growing at a 32 per cent yearly clip. The company's overall growth rate, which has been dragged down since the MCI acquisition, likely would increase to well past 15 per cent, analysts say.

It is unclear exactly how such a spinoff would be structured. One possibility is that WorldCom would keep ownership of its long-distance network and sell the MCI brand name and its customer base to another company. That would allow WorldCom to essentially get out of the business of selling long distance, operating as a wholesaler instead of a retailer.

Under such an arrangement, WorldCom likely would strike a deal with the buyer that would give that party a preferred carrier discount for routing traffic on its network. That would allow WorldCom to fill its network with traffic around the clock, instead of only during business hours.

Retrenching from the consumer market would in many senses return WorldCom to its roots. Bernard J Ebbers, WorldCom's chief executive, built the company by reselling long-distance services to business customers at cut rates to AT&T's. When WorldCom burst out of relative obscurity to buy MCI in late 1997, the company only had about 200,000 residential long-distance customers. MCI, by comparison, had about 17 per cent of the entire residential long-distance market and had earned a scrappy reputation for being the first formidable competitor to AT&T.

Indeed, many have long expected Ebbers to get out of the consumer business, where observers expect the price per minute of long distance eventually will reach zero. Business customers tend to be much more lucrative, because they demand bundles of more specialised services, ranging from high-speed data to 800-numbers. When Ebbers purchased Sprint, he made a commitment to staying in the consumer market, where wireless had become essential. By combining Sprint and WorldCom's advertising and marketing expenses, WorldCom officials were planning on cutting billions in costs.

Now, with the Sprint deal all but over, those close to Ebbers say it may well make sense for WorldCom to exit the retail consumer market altogether. Without it, analysts say WorldCom's growth rates could pick up above those competitors who remain in the market.

-- (The Wall Street Journal)