C&W sues MCI over Internet purchase

CABLE & WIRELESS'S ambitions to break into the fast-growing market for Internet traffic were thrown into doubt yesterday as the telecom group filed a lawsuit against MCI Worldcom, the US telecom giant which sold part of its Internet business to C&W last year, for failing to fulfil the terms of the deal.

C&W, which is seeking unspecified damages, has argued that, among other things, MCI Worldcom failed properly to transfer its Internet customer base to C&W, impeded its ability to run the business, and attempted to poach former customers.

The news knocked C&W's shares 22p to 752p yesterday, as investors fretted that the company was struggling to keep up with the fast-growing Internet market in the United States.

When C&W bought MCI's Internet business for $1.7bn last year, the deal was hailed by Dick Brown, then C&W's chief executive, as a "huge leap" for the company. Last month his replacement, Graham Wallace, pinned the company's future on the growth of Internet-based traffic after putting One 2 One, the mobile phone operator, up for sale.

The lawsuit, which was filed with a Delaware court on Wednesday evening, reveals that growth in the business has fallen sharply since MCI Worldcom handed over control.

According to the document, growth has fallen "far below" the rates of between 50 and 100 per cent a year that the business previously enjoyed, and is now growing less fast than the overall Internet market.

C&W claims it signed up an average of 84 new customers per month between October and December, compared with an average of 242 per month in the eight months before the sale.

C&W also complains that hundreds of customers have cancelled their service or raised disputes about the service, at a cost of tens of millions of dollars, while the company has been too busy hiring staff which MCI Worldcom failed to supply to develop new products and services.

MCI was forced to sell the Internet business by regulators following its merger with Worldcom in 1997. Although MCI originally planned to sell only its Internet backbone - the physical infrastructure which carries the traffic - it was subsequently also told to transfer its customer base of large corporate users. As part of the deal with C&W, MCI Worldcom agreed not to approach any of its former customers for two years.

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