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30 . 3 . 94 Official Journal of the European Communities No C 93 / 3

Notice pursuant to Article 19 ( 3 ) of Council Regulation No 17 (') and Article 3 of Protocol 21
of the European Economic Area ( EEA ) Agreement concerning a request for negative clearance
or an exemption pursuant to Article 85 ( 3 ) of the EC Treaty and Article 53 ( 3 ) of the EEA

Agreement — Case No IV / 34.857 — BT-MCI

( 94 / C 93 / 03 )

( Text with EEA relevance )

I. INTRODUCTION II . PARTIES

1 . The present case was originally notified as a
concentration pursuant to the merger control regulation .
However, the Commission concluded that none of the
transactions notified constituted a concentration . The
parties were so informed by decision issued on 13
September 1993 . Consequently, and at the request of the
parties, the notification was converted into a notification
for negative clearance and / or exemption pursuant to
Regulation No 17 .

Following the entering into force of the European
Economic Area ( EEA ) Agreement, the parties requested
the Commission to extend the notification to cover also
Article 53 of the EEA Agreement .

2 . The notified operation actually comprises two main
transactions :

( i ) BT is to take a 20 % stake in MCI, worth US $ 4,3

billion . BT will acquire new equity and will become
the largest single shareholder in MCI, with
proportionate board representation and investor
protection . As will be further detailed later, several
provisions have been included in the relevant
agreement to impede BT from controlling or
influencing MCI ;

( ii ) the creation of a joint venture company, Newco, for

the provision of enhanced and value-added global
telecommunications services to multinational ( or
large regional ) companies . The parties will
contribute their existing non-correspondent interna ­
tional network facilities, including Syncordia, BT 's
existing outsourcing business, to Newco .

In the framework of Newco, the parties will ratio ­
nalize their respective holdings in other TOs and
groupings in the world . In this respect, MCI have
already acquired most of BT 's existing business in
North America .

3 . British Telecommunications pic ( BT ), the former
United Kingdom monopolist telecommunications
operator, and now a publicly quoted company, supplies
telephone exchange lines to homes and businesses ; local,
trunk and international ( to and from the United
Kingdom ) telephone calls ; other telecommunications
services and telecommunications equipment for
customers ' premises .

Worldwide turnover for BT in 1993 was ECU 17 952
million, a figure that shows a slight decrease in respect of

1992 ( ECU 18 080 million ). Over 95 % of BT 's turnover
is obtained in the EEC, mainly ( over 94 % ) in the
United Kingdom . Outside the United Kingdom, BT has
an established presence in France, the Netherlands,
Germany and Spain, where it has recently announced a
joint venture agreement with Banco de Santander to
provide data transmission services in Spain in compe ­
tition with the local TO .

BT is the world 's fourth largest telecommunications
company in terms of traffic ( minutes of telecom traffic ).

4 . MCI is a telecommunications common carrier in
the United States providing a broad range of United
States and international voice and data communications
services including long distance telephone, record
communications and electronic mail services to and from

the United States .

Worldwide turnover for MCI in 1992 was ECU 8 137

million . MCI 's turnover in the Community for the same
year depends on the method of calculation used but was
said by MCI to be ECU 326,27 million .

MCI is the second largest long-distance operator in the
United States after AT&T and the world 's fifth largest in
terms of traffic .

III . THE RELEVANT MARKET

A. Newco

5 . The market Newco will address is the emerging
market for value-added or enhanced services to large
(') OJ No 13, 21 . 2 . 1962, p . 204 / 62 . multinational corporations, extended enterprises, major

No C 93 / 4 Official Journal of the European Communities 30 . 3 . 94

national and other intensive users of telecommunications
services provided over international intelligent networks .
This market will cover a wide range of existing global
trans-border services, including virtual network services,
high speed data services and outsourced global telecom ­
munications solutions specially designed for individual
customer requirements . Initially, however, Newco will
focus its development efforts on multinationals, with
specific emphasis on the biggest 500 .

6 . In this market, Newco is expected to offer a
portfolio of global products included in six categories of
service offerings . Those global products will originally be
based on a blend of existing products of the parent
companies . The categories and the products are still
under discussion between the parent companies and may
evolve as the parties further refine them in view of
changes in the regulatory environment, the technology
and consumers ' needs .

The six categories are the following :

— data services : low speed packet, high speed packet

and frame relay services, pre-provisioned, managed
and circuit switched bandwith,

— value-added application services : value-added
messaging and video conferencing services,

— traveller services : global calling card services,

— intelligent network services,

— other services : integrated VSAT network services,

— global outsourcing that will allow the distributor to

offer its customers the ability to transfer responsi ­
bility and ownership of their global networks to
either the distributor or Newco . In this respect,
Newco will be able to integrate within its own
offerings third party products already owned by
customers that they want to keep .

Given the needs o big companies to link locations
geographically dispersed over the world ( that means also
providing broad coverage of delivery capacity and
in-country support ), those products must be global in
nature and respond to a very particular set of
requirements .

For a product to be global, it must have a number of
characteristics that make it different from similar

domestic products . Those characteristics are :

— consistent service levels, delivery schedules availa ­

bility,

— make time-zones, languages and currencies
irrelevant,

— overcome inadequacies of local infrastructures,

— make customers assume service is local when it is

actually being provided from the other side of the
world .

7 . The requirements of big companies that a provider
of services must meet, and that refer to all products or
services being provided are :

— a single point of contact accountable for assuring

service levels,

— seamless, uniform, flexible features / functionality
across geography,

— end-to-end provisioning, installation, fault
management and service support,

— reliable service,

— customized billing, management information,
reporting with language and currency flexibility,

— speed, ease of implementation,

— products that meet existing and evolving needs .

Generally speaking, those requirements have not been
adequately satisfied under the still existing structure of
the global telecommunications market based on national
monopolies . A national telecommunication operator
( TO ) does not provide real one-stop shop, end-to-end or
seamless services to customers premises located outside
the national borders . What a TO was doing up to now
was to cooperate with other TO 's to link their respective
networks . Doing so meant that customers were billed
separately and in different currencies by the TO of each
country where they had facilities, that services and
features available in each country were different ( or at
least that some features available at home were not
available abroad ), and that they had to face many other
problems linked to the differences in culture or language .

8 . This situation began to change because of two
elements . The starting up, first in the USA, then in the
— provide ubiquitous service across multiple borders, United Kingdom and now in the rest of the Community,

30 . 3 . 94 Official Journal of the European Communities No C 93 / 5

of the gradual liberalization process of the global tele ­
communications market, and, secondly the rapid
convergence of telecommunications and information
technology . Both elements enabled the introduction of
new services and products which vastly improved quality
and range . One result was that multinationals and other
big companies began to construct their own private
networks . However, those private networks were costly
because they eliminated scale economies of service and
personnel, and because telecommunications was not the
core business of those companies . For those reasons, now
that the continued evolution of the said two elements has

substantially changed the overall situation, those
companies are turning to telecommunication service
providers such as Newco .

9 . In addition, as regulation eases and technology
advances, the border between services still under
monopoly and liberalized services fades away . This fact
adds further uncertainty to the market .

interest expressed by the parties to go global to better
serve ( and keep ) their existing customers and to better
address new areas of the market .

14 . The telecommunications market is developing fast
and there is plenty of uncertainty about how it will look
in a few years time : the prospect of full liberalization is
pushing TO 's to take positions, in order to be in the best
possible situation when full liberalization comes . Many
alliances are being announced nowadays, and most of
them include provisions to enter the value-added
segment, as a first step ( at least in the Community,
value-added and enhanced services have been liberalized
before the rest of telecommunications ), in particular as
regards the provision of advanced value-added services
to big multinationals . In this respect, the creation of
Newco and the investment of BT in MCI are steps to
preposition themselves for when full liberalization is in
place, steps that are being followed by many TO 's who
are creating sets of products comparable to those of
Newco .

10 . In this context, what BT and MCI intend to offer
through Newco is what the existing technology allows C. Geographic scope
them to offer within the current regulatory limits . New
products within existing categories and new categories of
products will be offered by Newco in the years to come . 15 . The geographic market to be addressed by Newco
and to be considered in respect of the investment of BT
in MCI, contrary to the previous situation under which

11 . In this respect, BT and MCI have indicated that the market was divided along national lines, is interna ­
they will offer through Newco also international voice tional and even global . It could be argued that national
traffic and other basic services when regulation permits . borders are still for the most part in place . However,

strategic alliances like the present one are being created
now, anticipating a market situation where national
boundaries would have substantially disappeared .

Structure of the market

D. Market shares of Newco
12 . It is particularly difficult to give a precise picture
of the existing structure of this emerging market because
its principal feature is that it is in constant evolution . 16 . Newco 's addressable
What is certain is that there is a very significant growth by the parents at ECU (. . .)
potential in the segment to be addressed by Newco, due 1994 and is projected to
to improvements the continuing in basic emergence infrastructure of new, the increasing technologies stan ­, billion growth in over 1999 its . It first is also five
dardization sophistication of of services customers across and borders their reliance, the increasing on tele ­ Community 1994 / 95 rising will to account (. . .) in
communications as a transport vehicle for information .
All this in the framework of a rapidly changing telecom ­
munications regulatory environment, that in the According to the business
Community will amount to full liberalization of voice will achieve (. . .) in 1994 and
telephony in 1998 ( 2003 for some Member States ).

16 . Newco 's addressable market has been estimated
by the parents at ECU (. . .) ( business secrets ) billion in

1994 and is projected to achieve over (. . .) annual
growth over its first five years to achieve ECU 6 369
billion in 1999 . It is also estimated that the European
Community will account for (. . .) of the market in

1994 / 95 rising to (. . .) in 1998 / 99 .

According to the business plan Newco 's market share
will achieve (. . .) in 1994 and grow to over (. . .) by 1999

( assuming no dramatic change in the categories of
products offered ).

B. BT 's investment in MCI

13 . The acquisition by BT of new equity equivalent to
a 20 % stake in MCI is aimed at the global telecom ­
munications market . It is intended to serve a common

E. Main competitors of Newco

17 . Many companies, on their own or in cooperation
with other partners, have entered or are entering the

No C 93 / 6 Official Journal of the European Communities 30 . 3 . 94

market for international value-added services . Among
them the most important are : ATT Worldsource, ATT
Istel, GEIS, International Private Satellite Partners
( limited to North America and Europe ), Eunetcom,
Unisource, Infonet, Sprint International, FNA ( limited to
financial services ), and IBM ( through IBM 's connect
programme ). Some of those projects are the current
expression of strategic alliances between TO 's, the real
scope of which is not well determined yet, but that are
similar to the present one between BT and MCI in that
they are positioning movements by their partners in view
of the full liberalization to come and are not limited to

the provision of value-added services .

In addition, almost every TO in Europe and in North
America is trying to offer to its existing customers, at a
national level or a limited international level, an
improved set of value-added and enhanced services .

For many of them, the range of specific products they
want to offer and the kind of customers they want to
serve are not clear yet . However, a substantial number
intends to address the needs of the same companies
Newco sees as potential customers, so that it is
anticipated that there is going to be substantial compe ­
tition at least at that level .

It should also be noted that a substantial number of

major companies whose needs Newco is intended to
address have installed or are in the process of installing
their own internal networks built on circuits leased from

TOs .

A. Agreements regarding Newco

( i ) The joint venture agreement ( JVA )

This is the principal document bringing about
Newco . Under it, the parents indicate their intention
to achieve joint success in the global telecommuni ­
cations market and to offer a seamless set of global
enhanced and value added products to the
customers of MCI and BT .

( ii ) The intellectual property agreement ( IP A ) concluded

among BT, MCI and Newco concerning the
licensing to Newco of the parents ' technical infor ­
mation and the licensing to Newco of the parents '
technical intellectual property rights which Newco
requires to carry out the business .

( iii ) The BT / MCI services agreements ( SA ), under which

Newco and each parent ( this time as supplier ) agree
on the terms and conditions of supply and support
services to be provided by each parent to Newco,
related to the establishment by Newco of the global
platform and to the provision by Newco of the
global products and services .

( iv ) The BT / MCI distribution agreements ( DA ) under

which Newco appoints each parent ( acting this time

as distributor ) as its exclusive distributor for global
F. Position of buyers products in the Americas, in the case of MCI, and in
the rest of the world, in the case of BT .

18 . The customers that Newco intends to serve are
multinational corporations, extended enterprises, and
other intensive users of telecommunications and in
particular the biggest (. . .) of them . Many of them have
huge telecommunication needs . In addition many have
developed experience in the management of their own
internal networks . They will only switch to providers
such as Newco, if so doing proves to be cost-effective .
Finally, given their knowledge of the market they are in
a position to request offers from different competitors .
All those factors give them considerable purchasing
power which will give rise to pressure on margins and an
expected high level of competition between suppliers .

IV . THE TRANSACTION : THE NOTIFIED

AGREEMENTS

19 . The complexity of the operation concluded
between BT and MCI is reflected by the substantial
number of agreements notified to the Commission .
Those agreements are summarized below .

( v ) The agreement for the sale and purchase of the business

of Syncordia and disclosure letter concluded between
Newco and BT that sets up the terms and conditions
of the sale of the assets and business included in
Syncordia, which up to now was BT 's outsourcing
unit .

( vi ) The Infonet indemnity agreement concluded between

BT and MCI under which MCI undertakes to
indemnify and hold BT harmless from and against
any legal action by Infonet against MCI, arising
from MCI 's ownership in Infonet .

B. Agreements regarding BTs investment in MCI

20 . ( i ) The investment agreement ( IA ). Under it BT has

agreed to purchase 20 % of the outstanding
shares of common stock of MCI .

30 . 3 . 94 Official Journal of the European Communities No C 93 / 7

( ii ) The registration rights agreement concluded
between BT and MCI required in order for
each party to consummate the transactions
contemplated by the investment agreement .

( iii ) The McCaw indemnity agreement under which

BT undertakes to indemnify MCI and hold it
harmless in respect of any legal action by the
cellular phone company McCaw against BT as
owner of a number of shares in McCaw .

( iv ) Finally, the transaction also includes three
agreements related to the sale by BT to MCI of
most of its existing activities in the USA and
Canada .

C. Contractual provisions

21 . The most relevant provisions of the agreements
from a competition point of view are further detailed
below .

The day-to-day mangement and operations of Newco
will be delegated to a chief executive officer who will be
responsible to the board for all matters in the ordinary
course of business .

Newco will be incorporated in the United Kingdom with
day-to-day mangement vested in a United States-based
service company . It is expected to employ around (. . .)
people . It is anticipated that over the five initial years,
the parents will invest US $ (...) billion ( ECU (. . .)) in
Newco including the assets will be transferred to it prior
to closing . BT will invest US $ (...) million and MCI
US $ (...) million .

( ii ) Purpose and activities of Newco

23 . Newco has been created for the provision of
enhanced and value-added telecommunications services
to big companies, and of outsourcing . By enhanced and
value-added telecommunication services the parties mean

any international telecommunication service ( collectively
referred to as global products ) which regulation permits
to be offered between two or more countries by
members of a single group and which regulation permits
to be managed on an end-to-end basis (*).

A. Concerning Newco To achieve that goal, Newco 's precise activities can be
split into planning and management activities on the one
hand, and support and marketing on the other hand .

( i ) Structure of Newco

In respect of the first, Newco will be responsible for :

22 . Newco is an international joint venture company,
and according to the parties, the central focus of their
alliance . Following the incorporation of Newco, 75,1 %
of its share capital will be owned by BT and 24,9 % by
MCI . Each party will have the right to appoint Newco
board directors in accordance with its shareholding .
Thus BT will be entitled to nominate six out of eight
directors ( the A directors ) and MCI two out of eight
( the B directors ).

Most decisions of the board are to be adopted by simple
majority of the directors present at any board meeting .
However, a number of important decisions cannot be
adopted without the prior consent of both shareholders .
Most important of those decisions are changes in
business direction, management appointments and
approval of the five-year business plan and annual
operating plan and budget, so that MCI has joint control
of the company ( this was the conclusion of the
Commission in its decision of 13 September 1993 ).

( a ) the planning and development of global products . As

part of this function, Newco shall review the current
products of the parents and the regulatory
constraints still remaining at any given moment ;

( b ) the establishment of a global platform ( i.e. a software

package ) over which the global products will be
provided . Newco will provide a ' best-of-breed '
platform comprised of a combination of any or all of
transmission, switching, signalling, network intel ­
ligence and service management services . The archi ­
tecture, design and continuing development shall be
at the discretion of Newco, although it shall ensure
that those parts of the distributor domestic system

O The following services are excluded from the definition : ( i )

voice international simple resale ; ( ii ) international direct
distance dialling provided on a correspondent basis ; ( iii ) the
provision of international private leased circuits ; and ( iv ) any
services which for regulatory reasons must be offered on a
correspondent basis .

No C 93 / 8 Official Journal of the European Communities 30 . 3 . 94

used are compatible with the overall design . Such
platform will be originally based on the existing
systems of the parents . So, interworking those
systems will consume the most important part of
Newco 's time and efforts in its early years of
operation ;

c ) the provision of telecommunications services
management to customers including the acquisition
and management of assets and staff from customers
( global outsourcing ). In this respect . Syncordia will
continue to exist either as a division or as a separate
branch within Newco .

conditions substantially as favourable to Newco as if
such transaction had been entered into with a third party
on an arm 's length basis ( cost plus a reasonable market
rate of return ) but no more than that .

Pursuant to Article 17 ( 3 ) of the JVA, Newco shall
purchase all products, services and facilities from the
parents only if in each case the relevant parent can
provide the same on terms at least as favourable as
regards price, quality and service to Newco as would be
obtainable in an arm 's length transaction from a supplier
not related to Newco or the parents .

For so doing, Newco will have a budget for R&D acti ­
vities . However, as Newco will not have its own ( IV ) Non-compete provisions
in-house facilities, the R&D activities will actually be
undertaken mainly by the parents, under contract with
Newco . The former will keep the ownership of their
laboratories and of the existing technology being
licensed to Newco . 25 except . in Pursuant accordance to Article with 18 the ( distribution 1 ) ( a ) of the agreement JVA and,
each shareholder and it ? ultimate parent undertakes to
Newco and the other shareholder and its ultimate parent

Newco will derive its revenue from selling its services to

that it shall not carry on or be engaged or interested in

its parent companies who will be the exclusive the provision of enhanced and value-added telecommu ­
distributors of the Newco products . In this respect, it will

nication services anywhere in the world or international

not have direct contact with customers except as regards
the provision and sale of global outsourcing services . outsourcing services or appoint any person to be a

director of a business which provides such services other

Newco will nevertheless have a number of responsibilities

than as director of Newco or its subsidiary undertakings .

and obligations towards the distributors : In addition, and except in accordance with the distri ­

bution agreement, they also undertake not to solicit the
custom of any person for the purpose of offering to it

( a ) it business will decide plan,, who according is going to to principles be the main set up or in ' lead the ' enhanced and value-added telecommunications services

or international outsourcing services .

Newco will derive its revenue from selling its services to
its parent companies who will be the exclusive
distributors of the Newco products . In this respect, it will
not have direct contact with customers except as regards
the provision and sale of global outsourcing services .
Newco will nevertheless have a number of responsibilities
and obligations towards the distributors :

( a ) it will decide, according to principles set up in the

business plan, who is going to be the main or ' lead '
distributor in each contract for global products ;

( b ) Newco will provide technical and commercial
support to each distributor in sales and marketing
activities including assisting in identifying potential
customers, advising on the most suitable means of
meeting the requirements of a customer, supporting
account management and assisting in the preparation
of proposals to customers ;

( c ) it will provide billing services to distributors ;

( d ) it will provide second level customer service in

support of the first level support provided by the
distributors ;

( e ) it will carry out global market analysis and an annual

products development plan .

( iii ) Provisions concerning dealings with / by Newco

24 . Pursuant to Article 17 ( 1 ) of the JVA, transactions
between Newco and a shareholder shall be on terms and

However, neither BT nor MCI will be in breach of the
non-compete provision as a consequence of any actions
undertaken by either of them in compliance with the
licence granted to BT by the Secretary of State, or any
applicable regulatory certificate, licence or any obli ­
gation imposed upon MCI by any authority in the USA

( Article 18 ( 3 ) and ( 4 ) of the JVA ). It has to be noted,
however, that in such a case, and provided that the
parent involved cannot find an alternative means of
complying with the non-compete provision, then it shall
pay to Newco an amount equal to any profits made as a
result of such action ( Article 18 ( 5 ) of the JVA ).

Finally, Article 18 ( 9 ) and ( 10 ) ensures that in case of
# deregulation of the United States / United Kingdom ( and

vice versa ) route for the provision of international voice
services, BT and MCI will receive from each other the
necessary capacity to compete ; however if both parents
cannot agree on a method to effectively compete with
third parties except by means of international voice
resale, then Newco will be authorized to offer basic
international voice services on that deregulated route .

30 . 3 . 94 Official Journal of the European Communities No C 93 / 9

( v ) Licences granted to Newco and by Newco to the ( 1 ) ( b ) and ( 2 ) ( b ) of the IPA ), subject only to the

distributors payment by each parent company to the other of a given

royalty during four years . In addition, they also receive
similar licences for Newco 's own intellectual property
26 . Pursuant to Article 3 ( 3 ) of the intellectual rights .
property agreement, each parent grants to Newco irre ­
vocable, perpetual, non-exclusive, non-transferable
licences to use the technical information solely for the ( vi ) Ownership by Newco of new technology
purposes of the business . ( However, it has to be noted
that the term ' technical information ' excludes

confidential information and trade secrets of a

27 . Pursuant to Article 7 ( 1 ) of the IPA, Newco may

commercial nature .)

( v ) Licences granted to Newco and by Newco to the

distributors

( vi ) Ownership by Newco of new technology

Newco has the right to grant the following sub-licences :

( a ) to BT solely for the territory ( i.e. the world
excluding the Americas ) and to MCI solely for the
Americas to use the technical information licensed
from the parents in the distribution of Newco 's
products ( Article 3 ( 4 ) ( a ) ( i ) of the IPA ). In
addition, each distributor has the right to grant
similar sub-sub-licences to : ( a ) customers and ( b ) an
outside party for the sole purpose of discharging, in
whole or in part, the licensed distributor 's obligations
under the relevant distribution agreement ( but in any
event restricted to the territory of that distributor ) ;

( b ) to the so-called non-owning parent ( i.e. the parent

which does not own a specific technical intellectual
property right ) for using the licensed technical infor ­
mation in respect of products other than global
products provided by Newco to customers connected
to / or served by such parent but limited to that
parent 's territory as distributor ( Article 3 ( 4 ) ( c ) of
the IPA ).

Newco itself cannot sub-license an outside party with
two exceptions :

( a ) in the circumstances that the distribution agreement

has become non-exclusive ( Article 3 ( 5 ) ( a ) of the
IPA );

( b ) where Newco is providing directly to any customer

global outsourcing .

Furthermore, Newco grants similar licences to each
parent upon request to use technical intellectual property
rights ( Article 6 of the IPA ) of Newco .

Finally, it has to be noted that the sub-licences granted
to BT or to MCI under their respective technical intel ­
lectual property rights will survive termination of the
agreement as irrevocable, perpetual and worldwide
licences unrestricted as to use and licensing ( Article 13

27 . Pursuant to Article 7 ( 1 ) of the IPA, Newco may
be the owner of the technical intellectual property rights
in new developments . In such a case, the parent that
sponsored the development ( Newco does not have its
own R&D activities ) will receive from Newco a
non-exclusive, irrevocable, perpetual licence to use that
development for any purpose ( Article 7 ( 2 ) of the IPA ).
Conversely, in case the new development is owned by
the parent that has sponsored it, then that parent will
grant a similar licence to Newco ( Article 7 ( 3 ) of the
IPA ).

( vii ) Trade mark provisions

28 . Pursuant to Article 12 ( 3 ) ( a ) and ( b ) of the IPA
each parent grants the other ( this time without any inter ­
vention by Newco ) a non-exclusive licence to use and
license the trade marks of the one in the territory of the
other in connection with the sale, distribution, provision
or performance of global products only .

( viii ) Provisions regarding the distribution of Newco
products

29 . Pursuant to Article 2 ( 1 ) of each distribution
agreement, Newco appoints the distributor as its
exclusive distributor in the territory . Such appointment
means that the distributor has the exclusive right, to
promote, sell and distribute services in the territory

( Article 3 ( 1 ) of the DA ) and the corresponding obli ­
gation to promote the sale of the global products in the
territory ( Article 8 ( 1 ) of the DA ). In addition, the
distributor accepts to obtain from Newco all
requirements for global products ( Article 5 ( 1 ) of the
DA ). Finally, in consideration of the provision of the
services, the distributor pays to Newco ( i ) a variable
annual charge based on the forecast that each distributor
is obliged to provide to Newco each year of the
aggregate requirements of its own customers for the next

12 months ( it has to be noted that if the actual
requirements of the distributor are less than those stated
in the forecast, no part of the charge will be refunded by
Newco ), and ( ii ) a usage charge . Also, in consideration
of the licences granted by Newco to the distributor
pursuant to the intellectual property agreement, the
distributor shall pay Newco an annual charge that for
the first financial year will amount to US $ 6,5 million
( Article 16 of the DA ).

No C 93 / 10 Official Journal of the European Communities 30, 3 . 94

Newco undertakes not to sell global products directly or
indirectly in the territory other than to the distributor
( Article 4 ( 1 ) of the DA ). However, Newco can sell
global outsourcing services directly to customers when it
is desirable to do so for tax or other reasons and

assuming that in such a case the distributor releases
Newco from its undertaking in Article 4 ( 1 ) ( Article 4
( 2 ) of the DA ). The provision of the global products to
the distributor includes the provision by Newco of all
necessary use of remote networks on the most
competitive terms available, where the products are to be
provided at one or more sites of one customer located
outside the territory ( Article 6 ( 5 ) of the DA ), and the
provision by Newco of reasonable technical and
commercial support to the distributor in sales and
marketing activities ( Article 9 of the DA ).

In the context of the exclusive distribution arrangements,
the parties have confirmed that passive sales by each
distributor to customers in the exclusive territory of the
other are a genuine possibility . This means that if a
potential European customer, with activities in at least
two Member States, but no presence in the United
States, decides to contract with MCI ( instead of BT, the
exclusive distributor for Europe ) for the provision of
Newco services in Europe only, MCI will conclude the
sale in America ( without infringing any licence granted
to it by Newco or any trade-mark licence granted by
BT ) and then will ask Newco to procure all necessary
use of remote networks ( third party networks ) on the
most competitive terms available . For so doing, Newco
could, in some cases, engage BT 's services ( in particular
as regards regulated services still provided by BT ), but is
always obliged to obtain supplies on a competitive basis .
However, MCI will be responsible for that customer .

B. Concerning BT 's investment in MCI

( i ) Restriction on transfer of shares by BT and limits to the

ability ofBTto increase its shareholding in MCI

30 . Pursuant to Article 5 ( 1 ) of the investment
agreement, BT undertakes not to dispose of its shares in
any manner whatsoever for four years from the closing
date . After that date, BT can sell but must give a right of
first refusal to MCI ( Article 5 ( 3 ) of the IA ).

Pursuant to Article 6 ( 1 ) of the IA, BT is granted the
right to acquire any new shares issued by MCI necessary
to maintain the percentage it has in MCI at that moment
or to increase it assuming that such purchase does not
breach any foreign ownership restrictions under United
States law existing then ( Article 6 ( 2 ) ( d ) and ( 4 ) of
the IA ).

However, pursuant to Article 7 ( 1 ) of the LA, BT has
agreed not to acquire directly or indirectly the ownership
of any additional equity of MCI to exceed 20 % of it
until the 10th anniversary of the closing date .
Furthermore, during the same period, BT has expressly
undertaken not to seek to control or influence the
company ( Article 7 ( 3 ) of the IA ).

Once the 10-year ' standstill ' period has expired, BT can
increase its shareholding up to a certain level that will
vary depending on whether the United States Communi ­

cations Act 's foreign ownership restrictions still apply at
the current level or above . However, even if those
restrictions were completely eliminated, BT would
generally only be allowed to exceed a 35 % stake in
MCI by a tender offer or business combination that has
been approved by a majority of the independent
directors and by a majority of the shareholders ( other
than BT ) ( Article 7 ( 4 ) of the IA ).

( ii ) BT 's consent rights and board representation

31 . The MCI board is to be composed of 15 directors .
BT 's representation on the MCI board will remain in
proportion to its shareholding . BT is currently entitled to
three directors . Four directors can be executive officers
of MCI . There is a similar representation on most MCI
board committees . At least eight members of the MCI
board must be fully independent of MCI and BT ( Article
9 ( 7 ) and ( 9 ) of the IA ).

Notwithstanding its board representation, BT will not
have access to any competitive sensitive information
concerning MCI 's activities in the EEA .

BT, as the sole holder of MCI 's class A common stock,
has been granted substantial consent rights with respect
to certain corporate actions of MCI concerning equity
issuances, acquisition of core and of non-core business,
sales of assets and borrowings over some specified limits .

( iii ) Loss of rights provisions

32 . Pursuant to Article 9 ( 12 ) of the IA, in the event
that either BT or MCI engages directly or indirectly in
the core business (') of the other ( in the Americas in the

0 ) Defined as all telecommunications and other electronic
information services and equipment for the provision of such
services, as they exist on the date of this agreement or
hereafter exist, including ( but not limited to ) all forms of
telecommunication access and egress ; and value-added
consumer and business services generated through or as a
result of underlying telecommunications services using all
technology ( voice, data and image ) and physical transport,
network intelligence, and software applications, and
including ( i ) information processing, ( ii ) systems integration
and outsourcing, ( iii ) transaction processing and ( iv ) cable
television .

30 . 3 . 94 Official Journal of the European Communities No C 93 / 11

case of BT and outside the Americas in the case of MCI )
or transfers or provides sales and marketing in
connection with any person or acquires an interest in any
person who is engaged in the core business of the other,
then the engaging party will lose certain rights .

In the case of BT, its shares in MCI will be converted
into common stock and it will lose its voting and consent
rights and its board representation in MCI .

In the case of MCI, BT will cease to be bound by
various obligations concerning future share transfers,
voting or the standstill provisions mentioned above .

Following discissions with the Commission, the parties
have modified the agreements so that the loss of rights
provisions which affect MCI in relation to the EEA will
only apply for a period of five years from the date of
closing of the agreements . Once the five-year period in
respect of those rights has expired, MCPs loss of rights
are terminated in relation to the EEA .

In any event, the loss of rights provisions will not be
automatically triggered ; there are a number of
exceptions ( listed in Article 9 ( 12 ) ( b ) and ( d ) and
including without limitation correspondent relationships
in the ordinary course of business and ownership of
Newco and any activities in connection thereof ) and a
procedure to be followed ( including arbitration in case
of disagreement ) before a loss of rights is deemed to
exist .

V. THE REGULATORY SITUATION

33 . Both MCI and BT are constrained under existing
regulation not to discriminate in any manner whatsoever
in respect of third parties .

The Communications Act and FCC 's policies prohibit

MCI from making any unjust or unreasonable discrimi ­
nation in the provision of its services including access to
these services by MCPs competitors and foreign corre ­
spondents . In addition the FCC has a complaint process,
should any party feel aggrieved by MCPs ( or any other
TO in the USA ) actions or inactions .

35 . The situation is similar as regards BT because
under the terms of the Public Telecommunications

Operator Licence that BT received under the Telecom ­
munication Act 1984, which is enforced by the Office of
Telecommunications ( Oftel ), BT cannot show undue
preference or discrimination in the provision of certain
services towards other persons, nor unfairly favour any
part of its own business as against competitors . In
addition, a prohibition on exclusive dealing in the
provision of international telecommunications services
prevents BT from making arrangements with overseas
correspondents, including MCI which would exclude
them from dealing with other operators in the United
Kingdom .

36 . Those regulatory constraints are also reflected in
the agreements, so that actions undertaken by MCI or
BT in complying with their respective obligations are for
example excluded from the non-compete provision in the
joint venture agreement ( Article 18 ( 3 ) and ( 4 ).

The Commission intends to take a favourable view
towards the notified transactions pursuant to the compe ­
tition rules of the EC Treaty and pursuant to Article 53
of the EEA Agreement . Before doing so, it invites
interested third parties to send their observations within
one month of the publication of this notice to the
following address, quoting the reference TV / 34857 BT
— MCI ':

Commission of the European Union,

34 . As regards MCI, pursuant to the requirements of Directorate-General for Competition ( DG IV ),
the Communications Act of 1934 as enforced by the Directorate for Restrictive Practices, Abuse of Dominant
Federal Communication Commission ( FCC ), MCPs Positions and Other Distortions of Competition I,
network arrangements and services are described in rue de la Loi 200,
publicly available tariff schedules or contracts . B-1049 Brussels .