Update: WorldCom reportedly to sell Sprint
assets
June 21, 2000
by Rex Crum
WorldCom Inc. (WCOM)has apparently decided that a small Sprint is
better than no Sprint at all.
The Financial Times of London is reporting that Clinton, Miss.-based
WorldCom will sell off the entire
Internet and long-distance operations of Sprint Corp. (FON)for $40
billion to $45 billion. The proposed sale would be made in order to allay
U.S. and European monopoly fears over WorldCom's $115 billion
purchase of Sprint.
WorldCom officials would not comment on proposed sale.
European regulators have reportedly considered blocking the deal. Mario
Monti, the European Union's competition commissioner was in
Washington today to meet with U.S. Department of Justice antitrust
chief Joel Klein in Washington, D.C. today to discuss cases such as the
WorldCom-Sprint deal.
The sale would leave WorldCom with only a few of Sprint's wireline
assets which are believed to be worth between $5 billion and $10 billion.
WorldCom would also get control of Sprint PCS (PCS), Sprint's
wireless network which is valued at about $58 billion.
The proposed sale still needs the approval of WorldCom's board of
directors and the U.S. and European anti-trust officials.
European regulators had been pushing for WorldCom to sell off a major
part of its operations and had been smarting since London-based Cable
& Wireless Communications bought MCI's Internet business from
WorldCom in 1998.
"The EC has been concerned ever since WorldCom sold off its MCI
assets to Cable & Wireless," said Berge Ayvazian, president of The
Yankee Group. "That amounted to nothing."
Last year, C&W sued WorldCom, saying it failed to correctly hand over
MCI's Internet customer base. As a result, C&W claimed that it could
not effectively sell services to the former MCI customers and that
growth of its Internet business had slowed by 65 percent.
In March, WorldCom agreed to pay $200 million to C&W to settle the
lawsuit.
Ebbers won't let UUNet go
Many analysts have said that until now, the key for WorldCom to get the
merger approved was the company's Internet backbone. UUNet
reportedly delivers between 40 percent and 50 percent of all U.S.-based
Internet traffic. WorldCom chief executive officer Bernard Ebbers has
said he will never give up UUNet and would kill the deal if he were
required to sell off the prized unit.
Brownlee Thomas, an analyst with Giga Information Group, (GIGX)
said shedding Sprint's Internet backbone and long-distance operations
shows the company doesn't want a drawn out fight with regulators.
"You've got to give something with some teeth to it."
The real issue? Long distance
But Ayvazian of the Yankee Group says all the posturing over what
happens in Europe just clouds up the real issue behind the merger: the
long-distance market in the U.S.
Ayvazian says that nearly 5 years after the Telecommunications Act,
which was supposed to open the long-distance market to local carriers,
very little has happened to actually increase the number of long-distance
providers in the U.S.
Ayvazian says that if WorldCom wants to really erase anti-trust
concerns, the company should trade approval of its merger for
immediate access to the long-distance market for local carriers.
"Between AT&T (T) and WorldCom, they've got control over 75
percent of the U.S. market," Ayvazian said. "You can't argue that this
measure is anti-competition, because it is. [WorldCom] should suggest
that all local Bell companies get entry into the long-distance market if
they want to make some headway."
Any sale of Sprint's long-distance assets is expected to draw in several
potential bidders. Already, Bell South Corp. (BLS) and Deutsche
Telekom AG (DT) are considered likely to make bids for Sprint. Both
companies lost out in their attempts to buy Sprint last year.
WorldCom shares closed down $1.38 to $40.31, while Sprint shares fell
$1.13 to $59 at the close of trading today.
Rex Crum is a reporter at UpsideToday covering telecom,
broadband and wireless. |
