To all: Good read on NXTL from WSJ Interactive
MCI WorldCom Sought Out Nextel
As Long-Distance Cell-Phone Use Grew
By REBECCA BLUMENSTEIN
Staff Reporter of THE WALL STREET JOURNAL
NEW YORK -- MCI WorldCom Inc.'s talks to acquire Nextel
Communications Inc. have been prompted in part by the growing number
of cellular-phone users making long-distance calls, causing MCI
WorldCom concern that other long-distance companies are stealing its
customers.
Three years ago, most cell phones were used
to make local calls. Today, it is estimated that
more than one call in eight involves long
distance. Most analysts believe these numbers will continue to rise sharply
in the immediate future.
Boosting the number of wireless long-distance calls are the hugely popular
flat-rate, nationwide plans that don't charge extra for long-distance calls.
AT&T Corp. and Sprint Corp. have signed up hundreds of thousands of
users on such plans in the last year.
Move to Wireless
"Our long-distance traffic growth is increasing at a triple-digit rate for
wireless," said Dan Hesse, president of AT&T Wireless. "There's no
question there is long-distance traffic historically handled by wire line that is
moving to wireless."
MCI WorldCom doesn't own a wireless business, but Bernard J. Ebbers,
its president and chief executive, said earlier this year that he could be
persuaded to enter the wireless arena if the numbers of wireless
long-distance calls increased significantly. If MCI WorldCom's talks to
buy Nextel, reported Tuesday in The Wall Street Journal (see article), are
successful, the Jackson, Miss., company would gain a national wireless
network that some analysts say could be marketed to residential customers
as well as Nextel's existing base of business users.
"Long distance has become such a commodity business that these
all-inclusive plans are ways for companies to bring more customers to their
long-distance network and a way for them to differentiate themselves,"
said Mark Lowenstein, a senior vice president at the Yankee Group, a
Boston-based telecom consulting firm. One drawback is that AT&T must
pay independent cellular companies for roaming charges when its
customers make calls in areas not covered by its own national network.
Numbers Seen Growing
While long distance represents about 15% of wireless calls now, the
Yankee Group believes that portion will grow as the number of wireless
subscribers doubles in the next four years. There are about 69 million
cell-phone users in the U.S. today, or about 25% of the country's
population, according to the Cellular Telecommunications Industry
Association.
Cell-phone usage is expected to quadruple as callers increasingly use their
wireless phones for accessing their e-mail and the Internet as well as
making long-distance calls. "Wireless is going to start displacing wireline
traffic," said Mr. Lowenstein.
On word of the talks, MCI WorldCom's stock dropped $2.9375 to
$89.5625 Tuesday in composite Nasdaq Stock Market trading. The drop
was not as steep as some had predicted, leaving MCI WorldCom's stock
at near record levels and signaling that the market may be comfortable with
such a deal. Nextel's stock fell 43.75 cents to $39.1875.
Still, a deal is far from complete. One person close to the talks said the
two sides remain 15% apart on price.
Though exact numbers are hard to come by, it is the surging increase in
wireless use by cell-phone owners such as Kelli Upton, a Seattle-based
recruiter, that are prompting a reordering of the traditional long-distance
industry. Ms. Upton uses her cell phone so much that she has cut off the
long-distance service at home provided by MCI WorldCom.
Deliberate Decision
"It's less expensive for me," says Ms. Upton, who uses a Sprint PCS plan
that offers 1,500 minutes a month, including free long-distance calls, for
$70. Ms. Upton likes it so much, she says, that she has convinced her
mother to cut off her long-distance service as well in exchange for a cell
phone.
MCI WorldCom is one of the nation's largest wireless resellers, offering
service in 60 markets nationwide by marketing the service of other
providers. MCI made a deliberate decision not to participate in auctions
for cellular licenses, preferring to rely on selling the services of other
companies. Before merging with MCI, WorldCom also steered clear of
wireless. Instead, it focused on other high-growth areas such as data traffic
and the Internet.
MCI has taken a close look at Nextel in the past. In 1994, MCI
announced it would pay $1.3 billion for a 17% stake in Nextel, but later
backed out because of concerns about Nextel's technology.
Merrill Lynch analyst Daniel Reingold said a Nextel purchase would make
sense for MCI WorldCom. In a report, Mr. Reingold said a Nextel
acquisition would enhance MCI WorldCom's growth by 30% to 38%
over five years. But he added that if such a deal is done without using the
"pooling-of-interests" accounting technique, the purchase would reduce
MCI WorldCom earnings in the year 2000 by 25% to $2.10 from an
estimated $2.80.
Andy Sukawaty, chief executive of Sprint PCS, Sprint's wireless unit, said
the popularity of calling plans that include free long distance has surged in
the past few months -- traffic that he says is taking customers away from
competitors like MCI WorldCom. "If you go to an airport, people are
making calls everywhere," said Mr. Sukawaty.
--Steven Lipin contributed to this article. |
