DOD flags MCI/BT merger

The Pentagon last month expressed concern about serious threats to national security if the proposed $20 billion merger between MCI Communications Corp. and British Telecommunications is allowed to proceed.

Defense Department officials did not say they are looking to block the merger. But in a carefully worded filing with the Federal Communications Commission which has regulatory authority over the proposed merger DOD officials wrote: "There are national security issues raised by this proposed merger and transfer of control. At this time DOD is not requesting the commission act on these matters though we wish to reserve the right to do so at a later date if it becomes necessary."

MCI has more than 20 DOD contracts some of them classified and Pentagon officials want their security issues addressed and resolved before the merger receives any regulatory go-ahead from U.S. authorities.Jerry Edgerton vice president of MCI Government Markets last week said the company is "trying to do everything we can do to alleviate security concerns."

Many of the security issues stem from MCI's control of the Defense Information Systems Network through its Switched/Bandwidth Manager Services contract. MCI officials describe this service as the "brains" of the planned global DISN which will provide the backbone for moving sensitive and classified information.

MCI's control of the DISN switches makes it the gatekeeper for data and information that DOD said will allow the United States to maintain information dominance on future battlefields.

The filing made by the regulatory and acting general counsels of the Defense Information Systems Agency in the name of the secretary of Defense added that DOD "is working closely with MCI to address security issues directly associated" with MCI's Pentagon contracts and "expects to work through these issues with MCI and address them before the Committee for Foreign Investment in the United States."

CFIUS overseen by the Treasury Department originally was set up to examine sales of U.S. companies manufacturing sensitive technologies that could be used in weapons. MCI officials say they are not required to make a CFIUS filing but are doing so on a voluntary basis.

If the Pentagon is unable to reach a resolution of the security issues DOD's filing said the department "may return to the commission to request relief in the form of some limited conditions on the terms of the merger and transfer of control." The filing did not detail the conditions.

Behind the soft language lies what one DOD official called "major issues that we intend to raise with both the commission and the Defense Investigative Service " which is conducting a probe of the security impact of the MCI/BT merger.

Edgerton said MCI has met the security requirements of the DISN contract adding that DOD officials with such concerns "are chasing ghosts." He said MCI is close to completing a process in which a separate subsidiary will be set up to manage and operate federal networks with MCI Government Markets folded into that new unit. Edgerton noted that when BT acquired 20 percent of MCI in 1993 it entered into a separate security control agreement with DOD that covers the handling of classified material.

DOD officials who are aware of these measures said they still have concerns about the security of the switches.

A Sprint spokesman said his company would not take a position on the merger. "We'll let the process work on its own."

An AT&T spokeswoman said the company asked the FCC to approve the acquisition while adding "measures and safeguards" to ensure security.