Report: Justice staff recommends blocking long-distance deal

NEW YORK - Federal antitrust enforcers have recommended blocking WorldCom Inc.'s $115 billion buyout of Sprint Corp., The Wall Street Journal reported today.

The recommendation was forwarded to the Justice Department's antitrust chief, Joel Klein, following a six-month investigation, the newspaper reported, citing sources close to the review.

Klein is expected to meet next week with lawyers for both companies. He is not bound by the recommendation and could approve the deal if the companies agree to divestitures to protect competition.

The deal would create a telecommunications giant with revenue of more than $50 billion, making it one of the world's largest companies, with operations in 65 countries.

Justice Department staff reportedly is against the deal because it would combine the second- and third-largest long-distance carriers and because the companies would dominate Internet switching services.

Gina Talamona, spokeswoman for the department's antitrust division, would only say ''the matter is pending'' when asked about the report.

Talamona declined to say whether Wall Street antitrust lawyer Stephen Axinn, who was hired to do the review for the department, had sent his recommendations to Klein for a final decision.

Shares of both companies dipped more than 3 percent on the news, with WorldCom down $1.50 to $40.50 on the Nasdaq Stock Market and Sprint down $1.87 to $56.12 on the New York Stock Exchange.

The two companies have argued that there are a vast number of competitors in the market and that in the future, this will be increased as local Bell phone companies get approval to offer long-distance.

''When we signed the merger deal we knew the government would take the traditional long-distance market into account in its consideration of the deal,'' WorldCom spokesman Peter Lucht said.

''We believe that the dramatic changes affecting the telecomm industry including technology, the competitive landscape and consumer demand will lead the DOJ to decide that this merger should be approved.''

Sprint spokesman James Fisher said the companies are ''hopeful that all of the merger approvals - U.S., state and European - will be concluded by fall.''

The deal is also under review by the Federal Communications Commission and the European Commission, which last month warned of antitrust problems.

European Commission spokeswoman Amelia Torres declined to comment on the U.S. investigation.

Usually in such cases the European Commission cooperates closely with the U.S. authorities, but they don't always reach the same conclusion, she said. The EU investigation is ongoing and has a July 12 deadline.