When WorldCom Inc. Chairman Bernard Ebbers went shopping for land in Loudoun County to build new facilities for his UUNet Technologies Inc. Internet division, he ended up buying 530 acres, far more than he ever planned to use.

It was the move of a seasoned arbitrageur: Ebbers figures surrounding real estate values will rise once the UUNet buildings go up. When that happens, he said, "We get our land for free because we sell the land next to us for more."

Knowing when today's excess capacity is tomorrow's scarce resource is what makes Ebbers the reigning king of the telecommunications industry. Through dozens of acquisitions he built up his Jackson, Miss.-based company from a small player that bought bulk excess fiber optics capacity from other long-distance carriers and resold it under the WorldCom brand.

Now, Ebbers is heading into the final stages of his biggest deal: buying District-based MCI Communications Corp. for $37 billion in stock.

On Tuesday, Ebbers and MCI Chairman Bert Roberts sat down with reporters and editors at The Washington Post to discuss the logic and power behind the largest telecommunications deal in history and its implications for MCI's extensive operations in the District and its suburbs.

Roberts confirmed for the first time that MCI is seriously reviewing a D.C. government offer of financial incentives in exchange for MCI's commitment to double its current staff of about 1,000 in the District, where it has been headquartered since 1968. Ebbers, whose company has been criticized for not hiring enough minority employees, also said the company hopes to train up to 2,000 people for District-based jobs with the company, although he offered no details.

Their strategic plan envisions MCI-WorldCom capturing a sizable chunk of the voice, data and Internet budgets of business customers worldwide, estimated to be a $1 trillion market in the next few years. Soon, they say, a business in Maryland will be able to swap phone calls and data with a customer in Italy without leaving the MCI-WorldCom network.

They also predicted, correctly, that European regulators by Friday would recommend conditional approval of their merger to the European Union, which has until July 15 to block or allow the deal. The Euro-regulators gave their preliminary nod after Roberts agreed to go beyond his earlier concession to sell MCI's wholesale Internet business to Cable & Wireless PLC for $625 million: MCI now also will sell off its retail Internet customers to Cable & Wireless or some other buyer, with the proviso that those customers can't go back to MCI for a still unspecified number of years.

Both expressed frustration with the regulatory process here and in Europe. Roberts said MCI did not cave on the Internet issue because regulators or GTE Corp. have valid concerns that the combined companies would control too much of the World Wide Web's backbone traffic. Rather, he said, MCI and WorldCom settled because "We've got to move on" and get quick approval of the deal.

Roberts also said MCI likely would be a division of British Telecommunications PLC today had U.S. regulators acted more swiftly in approving that proposed merger last fall. As it happened, BT ended up lowering its price for MCI, which brought in WorldCom as a surprise higher-paying suitor.

Ebbers and Roberts have complementary styles. Roberts was quieter and more deliberate, making it clear that – even though the company he helped build dwarfs Ebbers' WorldCom in size – MCI's buyer, Ebbers, is fully in charge.

Ebbers was true to his reputation for being quick-tongued and sometimes brash, displaying a flair for summing up hugely complicated issues with pithy one-liners.

Frustrated by his understandably complex answer when asked why the regional Bells have made it so hard to compete in the local calling business, he finally blurted out: "It's money, baby, it's money. ... Access lines are gold!"

Sitting next to Ebbers was Roberts, who a year ago would have been looking over at BT Chairman Sir Iaian Vallance. Roberts is believable when he says MCI is better off with WorldCom than British Telecom. "The combination of these two companies was really superior for MCI," he said.

Ebbers agrees. "We're in the business of producing returns for our shareholders. First, fundamentally and exclusively," he said, implying that neither BT nor any other telecommunications company possesses his skill for spotting the next big arbitrage opportunity.

Following is an edited transcript of their conversation.

MCI-WorldCom and Getting the Deal Done

How much are you willing to sell to make this deal go through? Will you sell all your wholesale and retail Internet holdings?

Bernard Ebbers: Well, what we can confirm is that we have been negotiating with both the EU and the Department of Justice. Obviously, we wouldn't be negotiating more if they had accepted our original proposal. They wanted an enhanced proposal, and we have added a few bells and whistles to the original proposal. We now feel quite confident we're at a point where we'll get on with business.

But do you think this will be a substantive divestiture of MCI's Internet assets?

Ebbers: We think it will be substantive enough to satisfy the regulators on both sides.

Do you have enough feedback from Justice to get a sense that what you're proposing to EU will be enough, that Justice will sign off?

Ebbers: Yes.

How long will it take to settle on a buyer for your Internet assets?

Ebbers: We don't know how long it will take. As short as possible while we're trying to get the transaction closed.

How much does this divestiture injure your overall strategy when you started cooking up the merger?

Ebbers: Certainly you don't like to give up something like the Internet because it's the future of our industry. [But because] WorldCom has a very prominent Internet business, it's not like we had nothing to go forward with. We're very confident that it will have just a very minimal ... affect on our growth rate.

One thing you have to realize is the Department of Justice, in all fairness to them, and the EU do not come to this process with a lot of expertise on the Internet. ... We were 1,000 percent convinced that the original transaction with Cable & Wireless would meet their needs, would accomplish what they were trying to set out. ... Then they go back, after you've cut a deal with them and find a buyer ... and they ask the people who objected to the transaction initially, "How do you like this solution?" Well, hell, GTE isn't [ever] going to like it, I don't care how you cut it.

Can you elaborate on your view that there were never any anti-trust problems to begin with?

Bert Roberts: Well, first of all, I think that's true, but please keep in mind we are beyond any arguing. I mean, you can argue that for a long time and know you're right, but eventually we reach a point in time when we've got to move on. ... We've been through this process once before, with BT. And had the regulators in the United States approved that three weeks earlier than they did, we would have never gotten into this situation. You can say it probably turned out to be great because the strategic alliance with WorldCom is going to be better in all facets than what we were going to have with BT. But with that said, we've got to get it done.

Ebbers: You also have to keep in mind that the purpose of this transaction is not to grow the Internet. We were already doing that in WorldCom. The purpose of this transaction was to be able to be more effective competitors primarily in local service and in international local service. And that's where we'll really be moving the vast amount of our money and our assets. It's almost shocking to think that there's been no focus on any of those other issues. ...

The other thing that's real strange is the fact that a week or so ago when I had lunch with [EU commissioner] Carl Van Meirt, he asked me what I thought about this new Sprint proposal [in which Sprint said it would build new networks that transmit voice and data together as bits of digitized information, rather than sending voice calls over traditional telephone circuits]. I said, "What is your criteria going to be going forward [for deciding who controls the Internet]? Because all of this gets jumbled up in bits down one pipe. You're not going to know whether it's Internet or voice or data." He said, "Yeah, I guess that's right." I said, "What are you going to have, a limit on the number of bits any company can transmit?" That's about how foolish it's getting to be sometimes. But the fact of the matter is that this company is going forward and will be based on four primary issues: long distance, local, international and Internet.

If you do go ahead and sell your residential and business Internet customers to a third party, those customers came to MCI because they really bought into MCI's "One" concept, where voice, data and Internet are bundled into a single offering. Now you're going to tell these customers that their Internet will be provided by another company. Why should they stay with MCI if they no longer can get Internet from you?

Ebbers: Well, there certainly is some exposure there, there's no question about that. Instead of offering a bundled service, the customer is using two bundles. ... But that's what the regulators want. They want there to be some risk there that we will lose market share. But I'd like to see what would happen if the customers got together and filed some type of class-action suit against the regulators, saying, "You won't allow my service to be provided by this company."

Bert, can you talk about why this merger with WorldCom is a better strategic fit for you than the deal with British Telecom?

Roberts: At that point in time, I think it made absolute sense to align ourselves with a major worldwide partner [BT], in part so MCI could focus itself back inward in the United States marketplace. ... What happened was BT stepped back from the original deal we had. It was pretty obvious to us that in doing so, it put the company in play [amenable to higher offers]. It looked like the strategic fit was [better with] WorldCom, and the combination of these two companies was really superior for MCI.

Ebbers: We're in the business of producing returns for our shareholders. First, fundamentally and exclusively. And so, you look at this whole issue in the light of the fact that we are absolutely confident.

Roberts: You have to move the emotion out of it and just go on, he's exactly right. ... The value of this merger [is] reflected in the stock prices of the two companies.

Long-Distance vs. Local

Can we talk about why local and long-distance companies have yet to make significant inroads into each other's business?

Ebbers: The issue is that we have two fundamentally different classes of companies in the business. We have long-distance companies that average around 18, 20 percent [earnings before interest, taxes, depreciation and amortization, as a percent of revenue. The regional Bells have roughly 40 percent]. Now, first and foremost, does a company that gets 40 percent [positive cash flow] want to lose some of it to get into a business with 20 percent? Hell no. Do the 18-20 [percent] companies want some of the 40s? You're darn right we do. That's why you see non-Bell operating companies building local facilities to compete in the local marketplace, because we can improve our performance for our shareholders by doing that. And that's why you see the Bell operating companies not at all interested in getting the long-distance by having to give up anything locally. Only if they could do it incrementally without giving anything up. It's money, baby, it's money. And it's absolutely amazing. Southwestern Bell says they can't compete in local markets, that they're not big enough unless they partner up with Ameritech. At the same time you see [companies like] Brooks Fiber [Properties Inc., which WorldCom recently acquired] starting from nothing, all borrowed dollars, and now are very successful companies in the business. Why is that? Access lines are gold.

All of us in business started out as resellers and then we built networks. The resale pricing on local service [in which local phone service is leased wholesale from a Bell and resold under another brand name] does not cover your cost of sale. ... But we can't start [offering resale local phone service] because we would destroy our earnings model so bad we couldn't keep going. [But] once we build our basic network in the city ... it isn't nearly as expensive [to serve residential customers from that network]. ... Now will we ever be in Butte, Montana? Probably not. But will we be into a lot of the residential areas of bigger metropolitan areas? For sure.

If you had to predict, when will the Bells actually be let into the long-distance business?

Ebbers: My gut feel is that it will happen not within the next year, but after the next year and before two years are up. And the reason I believe that is that we're starting to see that there are a lot of states now that are requiring them to open their markets. That's a way to get 40-percent gross margin instead of the 20 and that gives us a platform that we can start from.

The Local Impact

If the merger does go through, what will be the impact on your employment locally? What will happen to your headquarters in the District and what about the land WorldCom has acquired out in Loudoun County?

Ebbers: Well, actually, the future for employment in the city is increasingly better. We are going to be continuing to fully occupy the MCI building [downtown]. We have been working with some organizations trying to come up with a method of adding roughly 2,000 jobs in the city here because we were falsely accused of taking people out of the city and going other places. But it's a training thing, we've got to get more people on that. On the Loudoun County thing don't be misled about what you read in the papers [laughter]. We bought a big piece of land because we've learned through experience when we go in there and build an office, the other land increases in value, and it cuts the cost of our building by about 30 percent. And we get our land for free because we sell the land next to us for more.

Now, as our business grows, we'll be adding [in Loudoun], but it's not like there's going to be a massive consolidation of employees from other locations. As our employment needs grow – and we have to add 8,000 employees a year as a combined company just to hit our growth targets – certainly, some of them will be there because that is our Internet headquarters, we do a lot of international stuff and MCI [operates] out of the Virginia area. So will we ever have 30,000 employees there? [This area] couldn't supply 'em if we wanted to hire 'em.

You're saying you're adding 2,000 jobs in the city? Not just moving people around?

Ebbers: No. [Those are] net new jobs we're looking at.

Over what period of time?

Ebbers: We don't know yet.

Why are you doing this?

Ebbers: Well, we have received a lot of criticism, some of it legitimate, on WorldCom – not MCI, MCI has a much better record – because we've done so many acquisitions. But we have a responsibility to the cities where we're headquartered to address the minority-hiring situation. And that's one of our attempts to do that.

Two thousand minority jobs?

Ebbers: Not designated minorities, but we certainly will focus on that.

Roberts: We started here. We've had a huge presence [in the District]. We've been good corporate citizens. There was some fear on the part of the city because of this merger that we were going to extract ourselves [from the District].

I think the message here is that the domestic division will still be headquartered in the MCI building and we will continue to increase our presence. The city is being very responsive in trying to find areas and give us various tax incentives and other things that will keep us here.

On Merging Corporate Cultures

How are you going to combine these two companies and their cultures? What are the things that are going to be hard to do?

Roberts: Well, first of all you have to understand that the cultures of these two companies are probably more identical than many of our competitors'; they're certainly more compatible. When MCI was doing the BT deal, we were going to make that work. So the starting point is that these are two companies that grew up having to compete with other customers, having to hire and build employees. ... And as a net situation I think you've got a starting point that's pretty good.

Secondly, you don't want to throw away things that have value ... [such as] the value that is in the word MCI, which has been built through millions and millions and millions of dollars of advertising. It's a household word. And so to market domestically and continue to market under the MCI product name, when you've put so much money into it, you don't want to give that up. ...

As you move into the world scene ... MCI has got an excellent relationship around the world with respect to dealing with the PTTs [state-run phone companies abroad]. But we're certainly not a household word out there in terms of competing in the marketplace. WorldCom probably has more revenue from what I would call business customers in Europe and so on than we do because we get ours from the PTTs.

Ebbers: You know, there are a lot of different cultures at WorldCom, 54 of them or so, and ... only one of my direct reports [people who report directly to Ebbers] comes from WorldCom. They've all come from, fit in, as a result of mergers or acquisitions. And we're finding that exact same thing with this transaction. We are further along in this transaction with planning and organizing and getting ready to compete than in any merger I've ever been involved in before. It's really, really exciting.

And when you think about what we will have as a combined company, MCI has a much, much larger customer base than WorldCom does. And when you think about WorldCom as out front building local facilities here in the United States, we both have a domestic intercity network. WorldCom is building facilities in Europe and Asia and so on, and we have the opportunity to have that traffic.

For example, Citicorp, which is a big MCI customer, or Chrysler or somebody like that, we will be able to offer them originating service on our own network where it never touches a Bell operating company, never gets off our network. Across the ocean, we also own our own undersea cable terminating in Europe.

When you think that to send a call from Washington to New York is the same cost as to send that call from Washington to Frankfurt, the marketing opportunities of that, where no one else can do it, there is no one out there that can offer end-to-end international service like that without it leaving your network. Those opportunities are phenomenal for us. So people are catching a vision of what we have the potential to do together.

As far as the culture is concerned, I think Bert's right, they are much more similar than different.

Roberts: I think another thing, just to say it, because culture sometimes starts at the top. I mean, this is very clearly true of Bernie. He's the CEO of the company, he's really run that company. And what I am to him is whatever he wants me to do to help out that process. ... But it's not going to be a power play or second-guessing. That's been made clear just from the way the organization is structured. ... There's not going to be a question of who's directing the company, within the minds of the two forces that have come together.

A few years back, MCI struck a deal with Rupert Murdoch's News Corp. to get into the television business. You bought a satellite in a federal auction and invested in News Corp. Now you're out of that business. It was the hottest idea on the block for about a year. What was wrong with that idea?

Roberts: Nothing at the time. But I think what happened was you saw a shift in a couple of things. First of all, there was an explosion in content [sources of information] over the last three or four years. The Web means you don't necessarily need to be aligned in a company that makes movies. I think the second thing that happened, at least from our point of view, was that the Telecommunications Act passed all of a sudden. ... The distribution of content at one time, I felt, was going to be important because I assumed that the cable companies were going to be competitive forces in telecommunications. Mistake. They're their own little monopolies. So we no longer needed to have a content play to compete against the cable companies because the cable companies never decided to compete. ... I mean we're in business because we're willing to take risks and, you know, charge forward. And if that's not the right movement, well, we'll move in another direction.

The U.S. economy has gone through this incredible period of growth, and corporate profits have been soaring. But we do have a lot of concern about Asia again. And I wonder, what does Asia mean to you? In the long term and the short term?

Ebbers: Asia is a non-factor other than we're just starting now to build a network in Tokyo. That's the only significant piece we have.

I do [see the prospects for the Asia crisis hurting industries]. But not in telecommunications. I believe we will see some severe impacts of the Asian marketplace on people who are affected by manufacturing, doing a lot of selling, exporting and cheaper imports coming into the country and so on. But people aren't importing [phone and data] calls into the United States -- and we're continuing to export calls.

MCI-WorldCom

Pro forma revenue 1998: $32 billion

Customers 22 million

Employees 70,000

International presence 200 countries

Local network facilities 100 U.S. markets

Long distance market

AT&T 50%

MCI Worldcom 25%

Sprint 13%

Other 25%