WORLDCOM TO ACQUIRE MCI FOR $36.5 BILLION.

Byline: Seth Schiesel The New York Times

Selecting a winner among competing bids, MCI Communications, the nation's No. 2 long-distance telephone company, said Monday that it had agreed to be acquired for about $36.5 billion in cash and stock by Worldcom Inc., in a deal that would be the biggest merger in American business history.

By choosing a much richer offer from Worldcom, a telecommunications upstart, over a $28 billion proposal from the big local telephone company GTE and a $19 billion bid by an overseas giant, British Telecommunications, MCI highlighted the impact of newcomers on the once-stodgy world of telecommunications.

Surging demand for Internet access and other advanced communications services, accompanied by vicious price competition, are allowing aggressive young companies like Worldcom to reshape the industry - even if business customers, rather than consumers, stand to reap most of the near-term benefits.

A counteroffer from GTE or some other party still could emerge to delay or even scuttle the Worldcom-MCI pact; GTE declined to comment Monday. But analysts consider such a development unlikely, not only because of the financial terms of Worldcom's offer but also because over the weekend Worldcom secured the support of British Telecom.

The British company, which was already the largest shareholder in MCI, with 20 percent of the company, agreed to sell Worldcom its shares for about $7 billion in cash.

In many ways, Monday's deal is a result of the Telecommunications Act of 1996, which largely deregulated the industry. But so far, instead of bringing the robust competition that lawmakers had hoped would benefit consumers, deregulation has unleashed a wave of mergers and consolidation in which the immediate goal of telecommunications companies seems to be serving a lucrative corporate clientele.

``The promises across the industry of competition have been abundant but there have been no fruits,'' said Gene Kimmelman, co-director of the Washington office of Consumers Union, a consumer advocacy group that said it would ask federal officials to insure that the merged company competes in the residential local telephone business.

The deal is subject to approval by the shareholders of both companies, the Federal Communications Commission and the Justice Department. Officials at the Justice Department who are likely to pay close attention to the dominant position the combined companies would have in carrying the nation's Internet traffic, signed off Monday on a previously announced deal for Worldcom to acquire the underlying transport networks of America Online and Compuserve.

Despite MCI's name-brand status with consumers, less than half of its $18.6 billion in revenue last year came from residential long-distance service.

The bigger lures for Worldcom - which despite the big-spender role made possible by its stock price had only $4.5 billion in revenue last year - were MCI's international network traffic; its established presence as a provider of wholesale Internet services, and its growing collection of fiber optic networks to serve business customers in many of the nation's largest cities.

As the global telecommunications market approaches $700 billion, telecommunications companies of all sizes are casting about furiously for partnerships that can allow them to cut costs and offer a full bundle of communications services.

``The industry has a real opportunity here for certain companies who can move rapidly to become leaders on a broad scale,'' said Frank Governali, a telecommunications analyst for Credit Suisse First Boston. ``Worldcom has the talent and certainly the motivation and the eagerness to do that.''

The combined company, to be known as MCI Worldcom, would have more than $30 billion in sales next year, the companies said, making it larger than every telecommunications carrier in the nation except the long-distance leader, AT&T Corp., which had revenue last year of about $52 billion.

MCI Worldcom, which would maintain joint headquarters in Washington and Jackson, Miss., where Worldcom is based, would have control of about 25 percent of the long-distance market, compared with AT&T's roughly 50 percent. But it would be the world's largest carrier of Internet traffic, mainly as a so-called backbone network operator from which other online carriers lease capacity.

Anticipating questions from regulators about the effect on competition and perhaps the issue of whether sufficient attention will be paid to consumers' needs, the head of Worldcom sought to offer assurance Monday.

``American consumers are going to have a much more capable player than the individual companies were,'' said Bernard J. Ebbers, Worldcom's chairman, who would become chief executive of MCI Worldcom. ``The American public is going to have a very strong, aggressive company out there prepared to build facilities and capable of building facilities to provide the highest quality of service at the lowest price.''

Six weeks ago neither Worldcom nor GTE were players in the drama surrounding MCI, which had agreed last year to be acquired by British Telecom for $24 billion. But this past August it reluctantly decided to accept $19 billion from the British company, which was under fire from shareholders who were criticizing the original deal as overpriced.

Sensing an opening, Ebbers stunned the business world Oct. 1 by announcing a $30 billion all-stock bid for MCI. He was followed two weeks later by GTE, with its $28 billion cash offer.

British Telecom, still under pressure from its shareholders, effectively retired from the competition. That left MCI to choose between Worldcom, which since its founding in 1983 has grown through an increasingly adventuresome series of acquisitions, and GTE, an historically conservative telephone company tracing its roots to 1918.

Worldcom emerged victorious over the weekend, according to executives involved in the negotiations, after GTE and its chairman, Charles R. Lee, declined to match Worldcom's $36 billion stock-and-cash offer and failed to convince MCI that GTE could complete its own sweetened all-cash deal anytime soon.

WHAT THE MCI-WORLDCOM MERGER MEANS

To customers

All-in-one packages of telecommunications services, from long distance and local phone to Internet access, on a single monthly bill.

To employees

The companies expect to add about 10,000 employees over the next two years to their combined staffs of about 60,000. Few layoffs expected.

To the industry

Speeds up merger talks by other telecommunications companies trying to compete in a broad range of services. Combined entity would be largest Internet service provider, with 20 percent of the market.

To stockholders

WorldCom is paying $51 for each MCI share -- more than double its value when takeover talk emerged more than a year ago. Stockholders in British Telecom will reap $2.25 billion from their company's 20 percent stake in MCI.

CAPTION(S):

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BOX: WHAT THE MCI-WORLDCOM MERGER MEANS (see text)

Associated Press