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WorldCom Shops for Wireless Carrier
With the pending merger of WorldCom (Nasdaq: WCOM) and MCI Communications (Nasdaq: MCIC), many are beginning to ponder what comes next for this telecom giant. The new entity will not only hold the number two position in the long-distance market, surpassing Sprint (NYSE: FON), but will also be well-positioned to battle for the leadership position within the entire telecom industry. To achieve that status, look for WorldCom to round out its offerings, providing integrated telecommunications services.
At first glance, WorldCom looks ready for battle. According to the company, MCI WorldCom will have a 25% market share of the U.S. long distance market, a number two position in the international telephone services arena and will rank as the leading provider of Internet services.
But WorldCom needs one more piece to complete the puzzle: wireless. Acknowledging the shortcoming, CEO and president, Bernard Ebbers, recently made noise regarding WorldCom's entry into wireless. Many figure that WorldCom will follow AT&T's (NYSE: T) model. A few years ago, AT&T acquired McCaw Cellular, giving it an instant lead in the wireless segment. This buy-instead-of-build strategy helped AT&T save millions of dollars on network deployment and a brandname recognition campaign.
A number of companies might be on WorldCom's radar screen. AirTouch Communications (NYSE: ATI) -- which controls cellular systems in ten of the 30 largest U.S. markets and offers PCS digital phone service in more than 20 large cities -- looks to be a top candidate. AirTouch also has a heavy international presence, offering services in Europe and Asia.
In fiscal 1997, AirTouch boosted earnings 117% (after preferred dividends) on revenues of $3.6 billion, which increased 60% compared to fiscal 1996. Gross and operating margins of 76.5 and 19.6, respectively, are superior compared to 44 and 12.1 for the rest of AirTouch's industry.
Other possible acquisition targets include 360 Communications (NYSE: XO), Nextel Communications (Nasdaq: NXTL), and Centennial Cellular (Nasdaq: CYCL). However, these candidates have some characteristics that reduce their attractiveness. Although Nextel is able to show substantial subscribership growth, the company is expected to lose $4.70 per share and $3.50 per share in fiscal 1998 and 1999, respectively. 360 Communications, on the other hand, would be an attractive acquisition only in conjunction with another carrier, since the company's wireless business is exclusively in the U.S.
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