WPC  2 ZB!\\SB\MIDLER_5NXN\  PXP 1ZZInitFontSet the initial font default5#Xx6X@X@# ZZInitFont#Xx6X@X@# ZZActivateActivates all the styles* 2# ff(ZZActivate    XX   X0Í ÍX0Í ÍZDColorSets color for draft entries ZFColorSets color in Footer entries DraftDraft Date of Document - Upper Right Corner.  `z (#E X  [Draft"] 2{ fUf0Z!ZWhiteChanges color of text to White ZBlackSets color to black  ѫXN\  PXP(hH  Z 6Times New Roman RegularXXx6X@X@<Q 9Z .Courier New RegularXXx6X@X@<Q 9Z .Courier New RegularXXx6X@X@<Q 9Z .Courier New RegularXXx6X@X@<Q 9Z .Courier New RegularXXx6X@X@<Q 9Z .Courier New RegularXXx6X@X@<Q 9Z .Courier New RegularXXx6X@X@<Q 9Z .Courier New RegularX2  "|x7#Xx6X@X@#   ZZInitFont#Xx6X@X@# ZDColor ZFColor [NYLIT1: 142467.2 :3911A:03/20/9810:55a]7d#Xx6X@X@#   `(#(#Kd$i#Xx6X@X@#   *  i    (2Before the \ FEDERAL COMMUNICATIONS COMMISSION2 h#Washington, DC 20554 33Court End J dTT  dTT  J P P  PartiesIn the Matter of Applications of WorldCom, Inc. for Transfers of Control of MCI Communications Corporation  ID No.AFFIDAVIT OF SUNIT PATEL CC Docket No. 97211 Caps Begin44cstate  STATE OF MISSISSIPPI, )    ) x ss.: 55Caps Endccounty x COUNTY OF HINDS, ) 1.My name is Sunit Patel. I am the Treasurer of WorldCom, Inc. ("WorldCom"). 2.I participated in the preparation of WorldCom's estimates of achievable cost savings that are expected to result from its proposed merger with MCI Communications Corporation ("MCI"). Those cost savings are set forth at pp. 4043 of Amendment No. 3 to WorldComs SEC FormS4, filed with the SEC on January 22, 1998, and attached as an Exhibit to the Joint Reply filed by WorldCom and MCI with the Federal Communications Commission on January26, 1998. The cost savings estimates were prepared jointly by a team of WorldCom and MCI engineers and analysts. They are estimates, but WorldCom believes that they are, on the whole, achievable. WorldCom also believes that they are reasonable when compared to the combined company's revenues and operating expenses. 3.To calculate the projected cost savings resulting from WorldCom's proposed merger with MCI (the "proposed merger"), WorldCom estimated the projected costs WorldCom and MCI would incur on a stand alone basis, and the proportion of those costs that could be reduced by combining the businesses of the two companies. 4. When estimating those projected savings, WorldCom relied on its experience in the telecommunications business and its experience with acquiring other companies. WorldCom has met or exceeded its projected cost savings estimates when acquiring companies in the past.#Xx6X@X@#   ЍFor example, WorldCom substantially exceeded its projected cost savings estimates after acquiring MFS Communications Company, Inc. on December31, 1996. WorldCom anticipates that it will similarly meet its projected cost savings estimates after its merger with MCI. 5. WorldCom devoted considerable effort to developing its synergy estimates. Although it would be impossible in this affidavit to replicate all of that work, I will describe three specific examples of WorldCom's estimates ofcertain cost savings arising from the proposed merger: reduced domestic network costs, avoided costs in MCI's local activities and reduced local capital expenditures. For reasons of confidentiality, I will not discuss specific detailed dollar amounts. This affidavit is not intended to be an exhaustive or comprehensive analysis of all the savings that WorldCom and MCI can achieve as a result of theproposed merger and does not attempt to set forth any revenue enhancements that might result from the merger.  I.` ` ` DOMESTIC NETWORK COST SAVINGS 6. Domestic network costs include fixed line costs and variable line costs. For fixed line costs, WorldCom and MCI pay a set monthly fee for access on another companys network. For variable line costs, WorldCom and MCI pay a fee on a metered, perminute or percall basis.  A.Fixed Line Costs Four types of fixed line costs are involved: offnet costs, dedicated access line and local loop line costs, entrance facility costs and direct end office trunking costs. a.Offnet Costs 7. WorldCom and MCI incur offnet line costs when they lease a line from each other or another interexchange carrier to provide services off their respective networks. For example, WorldCom leases a line from MCI to provide service for its customers between Dallas and El Paso, Texas. The monthly fee paid to lease that line is recorded as an offnet cost. 8.The S4 estimates were based in part on WorldComs anticipation that it will be able to reduce its projected offnet costs after the merger by moving its offnet capacity that is on the long distance networks of other carriers to MCIs long distance network. WorldCom currently has a portion of its offnet capacity on MCIs long distance network. After the proposed merger, WorldCom expects to be able to move an additional portion of its offnet capacity to MCIs facilities by 1999 and a significant portion by 2001. 9.The S4 estimates were also based in part on WorldComs anticipation that MCI will be able to reduce its projected offnet costs after the merger by moving its offnet capacity that is on the long distance networks of other carriers to WorldComs long distance network. MCI currently has a portion of its offnet capacity on WorldCom's long distance network. Within the first few years after the proposed merger, WorldCom anticipates that MCI will be able to move more of its offnet capacity to WorldComs facilities. As WorldCom expands its long distance network through new builds, WorldCom anticipates that MCI would move a significant amount of its offnet capacity to WorldComs network by 2001.  b.DAL/LL Costs 10. WorldCom and MCI incur dedicated access line ( DAL) costs and local loop ( LL) line costs when they lease a line from a local exchange carrier. A DAL typically connects an end user to an IXCs switch. Such a DAL allows the long distance customer to bypass the LECs switched network when the customer receives or places a call. WorldCom leases such a line if it can provide that long distance customer better rates by incurring the DAL cost than it could by routing the customers long distance calls through the LECs local switched network. Similarly, a local loop provides a nonswitched connection between an IXC and an end user. When WorldCom provides a customer with a private line between different cities, it leases a local loop from a LEC at either end of the private line to complete the nonswitched connection between the end users. The cost of leasing such lines is recorded as DAL and LL costs, respectively. 11. WorldCom and MCI incur direct end office trunking ( DEOT) costs when they lease a line from a LEC that connects WorldComs and MCIs respective POPs with a LECs end office (a DEOT route). If WorldCom and MCI do not lease a DEOT route, then a call on their respective networks enters the LECs network through the LECs serving wire center and is routed to the LECs tandem switches. Each tandem switch is connected to several end offices that are in turn connected by copper wires to end users. The call is routed from the tandem switch to the appropriate endoffice and then to its ultimate destination. MCI and WorldCom must pay the LEC a perminute or percall fee to carry their respective traffic from the LECs serving wire center to the LECs end offices. That perminute or percall fee is recorded as a subpart of their respective switched access costs. In contrast, the DEOT route goes directly from the IXCs POP to the LECs end office. The DEOT cost is a fixed, monthly fee. Thus, WorldCom and MCI lease a DEOT route when the volume of traffic routed through a particular LEC end office is high enough that the DEOT cost is less than the switched access cost that would be incurred without the leased DEOT route. The monthly fee that each company pays to lease a DEOT route is recorded as a subpart of its respective DAL/LL costs. 12.The S4 estimates were based in part on WorldComs anticipation that MCI will be able to reduce its projected DAL and LL costs after the merger by moving its DAL and LL capacity that is presently on the local networks of other carriers to WorldComs and Brooks Fibers local networks. After the merger, WorldComs and Brooks Fibers networks could provide significantly more of MCI's DAL and LL capacity than they are currently providing. As WorldCom expands its local networks through new builds, WorldCom could provide even more of that capacity by the year 2002. Ќc.Entrance Facilities Costs 13.WorldCom and MCI incur entrance facilities costs when they lease a line from a LEC that connects the LECs serving wire center with WorldComs and MCIs respective points of presence ( POP). The monthly fee that WorldCom and MCI pay to lease lines between a LECs serving wire center and WorldComs and MCIs respective POPs is recorded as an entrance facilities cost. 14. The S4 estimates were based in part on the assumption that MCI will be able to reduce its projected entrance facilities costs after the merger by moving its entrance facilities capacity that is on the local networks of other carriers to WorldComs and Brooks Fibers local networks. After the merger, WorldComs local network could provide a significant portion of MCIs entrance facility capacity. As WorldCom and Brooks Fiber expand their local networks, WorldCom could provide even more of MCIs entrance facility capacity by 2002.  B.Variable Line Costs 15.Six types of variable line costs are involved: switched access costs, inWATS costs, domestic WATS costs, noncontiguous WATS costs, directory assistance costs and debit card costs. Ќa.Switched Access Costs 16.WorldCom and MCI incur switched access costs when they use the local switched network of a LEC to originate or terminate a long distance call. Unlike DAL costs and LL costs, switched access costs are incurred on a perminute or percall basis. For example, if a Washington, D.C. customer is connected through a DAL to WorldComs POP, WorldCom pays a monthly fee to a LEC in Washington, D.C. for the DAL. If that customer makes a call to Los Angeles, California, WorldCom pays a perminute or percall fee to a LEC to complete the call through the LECs local switched network in Los Angeles. Such a call would enter the LECs network at its serving wire center and then pass through the LECs tandem switches and the appropriate end office before reaching its final destination. The perminute or percall fee for accessing the LECs switched network is recorded as a switched access cost. As described above, WorldCom and MCI reduce their switched access costs when they lease a DEOT route. 17.The S4 estimates were based in part on WorldComs anticipation that it will be able to reduce its projected switched access costs after the proposed merger by moving its switched access capacity that is on the local networks of other carriers to MCIs DEOT routes. WorldCom is projected to lease DEOT routes for a portion of its local network traffic carried by LECs. MCI leases significantly more DEOT routes than WorldCom. After the merger, WorldCom anticipates that it could take advantage of MCIs DEOT routes and move a significant amount of its local network traffic onto MCIs routes. 18.The S4 estimates were also based in part on WorldComs anticipation that MCI will be able to reduce its projected switched access costs after the proposed merger by moving its switched access capacity that is on the local networks of other carriers to WorldComs and Brooks Fibers local networks.  b.InWATS Costs 19.WorldCom and MCI incur InWATS costs when calls originate on another IXCs network and are delivered to WorldComs or MCIs respective networks. The originating IXC bills MCI or WorldCom for such calls. WorldCom and MCI incur InWATS costs when the call originates off their respective networks within the continental United States, Alaska, Canada, Hawaii, Puerto Rico or the Virgin Islands. For example, if an end user places an 800" call in Canada to a WorldCom customer, WorldCom pays a perminute or percall fee to the IXC in Canada to deliver the 800" call to WorldComs network. The perminute or percall fee paid by WorldCom to the originating IXC is recorded as an InWATS cost.20.The S4 estimates were based in part on WorldComs anticipation that it and MCI will be able to reduce their projected InWATS costs after the merger by optimizing their InWATS rates with other long distance carriers and by taking advantage of MCIs additional facilities and relationships with other carriers. Moreover, the combined company could achieve an additional reduction in InWATS costs by taking advantage of its greater purchasing power and negotiating lower rates.  c.Domestic WATS Costs 21.WorldCom and MCI incur domestic WATS costs when they pay each other or another IXC to terminate a call within the continental United States. IXCs incur domestic WATS costs when they have overflow traffic. The perminute or percall fee paid by the originating IXC to the terminating IXC is recorded as a domestic WATS cost. 22.The S4 estimates were based in part on WorldComs anticipation that it and MCI will be able to reduce their projected domestic WATS costs after the merger by optimizing their domestic WATS rates with other long distance carriers.  d.NonContiguous WATS Costs 23.WorldCom and MCI incur noncontiguous WATS costs when they pay another IXC to terminate a call within Alaska, Canada, Hawaii, Puerto Rico or the Virgin Islands. Noncontiguous WATS costs are thus the same as domestic WATS costs, except for the area in which the call is terminated. 24.The S4 estimates were based in part on WorldComs anticipation that it and MCI will be able to reduce their projected noncontiguous WATS costs after the merger by optimizing their noncontiguous WATS rates with other long distance carriers and by taking advantage of MCIs additional facilities and relationships with other carriers. Moreover, the combined company could achieve an additional reduction in its noncontiguous WATS costs by taking advantage of its greater purchasing power and negotiating lower rates.  e.Directory Assistance Costs 25.WorldCom and MCI incur directory assistance costs when they pay LECs for providing directory assistance services to their respective long distance customers. For example, if a New York City customer of WorldCom calls directory assistance in Washington, D.C., by dialing 12025551212", WorldCom pays a LEC in Washington, D.C. a per call fee for providing the directory assistance service. That fee is recorded as a directory assistance cost. 26.The S4 estimates were based in part on WorldComs anticipation that it and MCI will be able to reduce their projected directory assistance costs after the merger by optimizing their directory assistance rates with LECs. The combined company could achieve those savings by taking advantage of its greater purchasing power and negotiating a reduction in its current directory assistance rates.  f.Debit Card Costs 27.WorldCom incurs debit card costs when it pays a thirdparty vendor a perminute or percall fee to process calls made on its debit cards. For example, when a customer places a call using a WorldCom debit card, the call goes through a thirdparty vendor which tracks the call and records the debit. WorldCom pays that vendor a fee for each call. The fee is recorded as a debit card cost. 28.The S4 estimates were based in part on WorldComs anticipation that it and MCI will be able to reduce their projected debit card costs after the proposed merger. WorldCom could achieve those savings by moving its debit card services to MCIs debit card platform. Where MCI uses a thirdparty vendor to process some of its debit card services, WorldCom anticipates that the combined company could also achieve debit card savings by taking advantage of its greater purchasing power and negotiating lower rates for outside vendor resources.    II.AVOIDED COSTS IN MCI's LOCAL ACTIVITIES 29.MCI incurs both SG&A costs and line costs when it offers local services to its customers. MCI provides local services by using its own local networks and by reselling the services of other LECs (such as the RBOCs) in areas where it does not own local networks. MCIs local services business operated at a loss in 1997 and is projected to operate at a loss in 1998. 30.The S4 estimates were based in part on WorldComs anticipation that the combined company will be able to expand MCIs local services more efficiently than MCI would be able to do so on a standalone basis, for two reasons. First, the combined company will be able to reduce its SG&A costs for local services. Those savings will result from reductions in administrative costs in areas where each company owns its own local networks. Second, after the proposed merger, the combined company will use the combined local networks to the fullest extent possible to provide local services to customers who would otherwise have been serviced through a LECs facilities. By relying on WorldComs local networks, the combined company will reduce its costs for its local services and thus improve its profit margins for those services. The combined company will experience greater cost savings and better profit margins over time as the revenue from its local services increases and it utilizes its own local facilities to a greater extent. Ќ  III.LOCAL CAPITAL EXPENDITURE SAVINGS 31.MCI incurs capital expenses when it expands its local networks within cities where it already offers local services and builds local networks in new cities where it does not offer such services. The S4 estimates were based on WorldComs anticipation that the merger will reduce the combined companys projected local capital expenditure budget primarily by reducing duplication and by creating greater purchasing efficiencies.  I hereby swear, under penalty of perjury, that the foregoing is true and correct, to the best of my knowledge and belief.  Sig  `(#(#Kă Sunit Patel    Sworn to before me this _____ day of March 1998.  `*ă n z Notary Public