sad day for brazil imho waste of money when 3g comes
ot--WorldCom: What to Do When the Deal Dies
By Michael Hodel
The heavy hand of antitrust regulators at the Department of Justice came down Tuesday
morning to stop the merger between phone giants WorldCom (Nasdaq: WCOM - news)
and Sprint (NYSE: FON - news; NYSE: PCS - news). Wisely, both companies have
stated that they will not fight the department's ruling, so it seems likely that the deal will
collapse. Despite the deal's probable demise, however, WorldCom has numerous options at
its disposal and is still an attractive investment.
With a noticeable absence in its wireless business, WorldCom must ask what it should do now that its proposed merger with
Sprint Corp (NYSE: FON - news) has been blown apart. The first, and easiest, option is to do nothing. The company has an
extremely valuable Internet business and a long-distance voice business that, although in decline, prints money and has a
network that seems to stretch to the ends of the earth. Plenty of companies with less attractive assets and smaller customer
bases, such as Qwest Communications (NYSE: Q - news) and Level 3 Communications (Nasdaq: LVLT - news), believe they
can be successful without a wireless strategy.
Furthermore, WorldCom's resale wireless business, in which the company buys wireless services at wholesale prices from
other carriers and resells it at retail prices, claims more than 1 million customers and makes WorldCom the largest such wireless
provider in the country. Though this is not the most profitable business in the world, it fills out WorldCom's service offerings,
allowing it to meet all its customers' communications needs.
WorldCom's second option, which has been bandied about again and again, is to buy a wireless company outright. Two likely
candidates, Nextel Communications (Nasdaq: NXTL - news) and VoiceStream Wireless (Nasdaq: VSTR - news), have
emerged because of their nationwide capabilities. Neither company is particularly attractive because of their steep share prices,
but VoiceStream seems a more logical choice.
Unlike Nextel, VoiceStream operates on the GSM, or global system for mobile communication, wireless standard, the same
standard used throughout much of the world. Acquiring a GSM wireless provider makes sense given WorldCom's aspiration
for a global presence. VoiceStream also owns more spectrum than Nextel, which allows the company to serve a larger number
of customers. At present, Nextel has more subscribers than VoiceStream, but with WorldCom's financial backing and
customer base, this could change rapidly.
The third option is to build a wireless network from the ground up. This strategy would cost both time and money to implement,
because WorldCom doesn't own the necessary spectrum and acquiring spectrum would likely be quite expensive. Building such
a network would not be beyond WorldCom's capabilities, as the company's recent acquisition of Skytel gives it in-house
experience in building complex wireless networks.
The choices available to WorldCom are numerous. Given the proven business acumen of CEO Bernie Ebbers and the rest of
the WorldCom management team, it is a fairly safe bet that the company will analyze its options and pick the one that benefits
the company and its shareholders the most. True, the Sprint deal has cost the company precious time, and the cost of wireless
assets has skyrocketed in the meantime. Given the strength of the company's assets, its management team, and the options still
at its disposal, WorldCom is still a fantastic company at a great price.
Michael Hodel can be reached at michael.hodel@morningstar.com. |
