News story indicates WCOM has alternatives to NXTL....also, read below how much it would affect WCOM profits to acquire and upgrade NXTL facilities!
___________________________
MCI WorldCom, Nextel Unable to Agree on Takeover
By Sarah Schafer
Washington Post Staff Writer
Thursday, May 6, 1999; Page E01
MCI WorldCom Inc., the nation's second-largest long-distance telephone company, has ended talks to acquire wireless firm Nextel Communications Inc. of McLean after the companies failed to reach an agreement on price, sources familiar with the discussions said yesterday.
Neither Nextel nor MCI WorldCom, which is based in Jackson, Miss., would comment. The negotiations, which reportedly began about a month ago, were never confirmed by the companies.
Analysts said MCI WorldCom executives determined that in addition to the cost of the acquisition they would need to make a significant investment to upgrade and expand Nextel's wireless network. Analysts said the acquisition alone could have cost MCI WorldCom up to $13 billion.
While MCI WorldCom has been searching for an entree into the wireless market, analysts said that what had appeared a logical solution with Nextel began to look less attractive.
"It's an issue where the [return on investment] was pretty bad," said Frank Dzubeck, president of Communications Network Architects in Washington, a telecommunications consulting firm. The company would have needed to revamp Nextel's infrastructure to handle data as well as voice, something AT&T Corp. plans to do with its network in the next few years.
Analysts said it is unlikely that Nextel and MCI WorldCom will revive the talks. On reports of the halt in negotiations, MCI WorldCom stock rose 8 percent to close yesterday at $89.62 1/2 on the Nasdaq Stock Market. The stock has languished since news of the talks broke several weeks ago. Nextel shares lost $1.18 3/4 to close at $37.87 1/2 in Nasdaq trading.
A Nextel acquisition would have filled what some analysts said is a hole in MCI WorldCom's service portfolio. Nextel is the last independent U.S. wireless firm with a national network, and MCI WorldCom's main competitors -- AT&T and Sprint Corp. -- have healthy wireless businesses.
As a result of the failure of the talks, MCI WorldCom will need to develop another wireless strategy, analysts said. Options include building its own wireless infrastructure, or aligning with a former Bell operating company, Dzubeck said.
"They need a wireless play," said Mark Lowenstein, a senior vice president for global wireless services at the Yankee Group, a Boston-based consulting firm. "Nextel has been the most obvious [solution]."
For Nextel, access to MCI WorldCom's coffers would have provided much-needed capital for expanding its network, which is crucial to the company's growth hopes.
Though a Nextel purchase would have solved some strategic concerns for MCI WorldCom, it would have come with some baggage. The acquisition likely would have dragged down MCI WorldCom's profits by about 25 percent while the company digested the deal, analysts estimated. Nextel has achieved positive operating cash flow, an important measure of a company's strength in the wireless industry, but the firm has not become profitable; it reported a loss of $1.8 billion for 1998.
Nextel also has $7.7 billion in long-term debt. MCI WorldCom chief executive Bernard J. Ebbers has been aggressively working to streamline the company and to avoid actions that would reduce the company's long-term earnings.
The long-distance giant could consider cobbling together a wireless network by acquiring companies such as Omnipoint, which has a wireless network in the Northeast, although that is a less likely scenario, analyst Lowenstein said.
Nextel will likely have other suitors, Lowenstein said, adding, "I think [Nextel] has solid enough organic growth to continue to build the network."
Meanwhile, Nextel faces growing competition as the bigger telecommunications players offer similar services.
Still, "I think Nextel can wait until there's a good deal," Lowenstein said.
© Copyright 1999 The Washington Post Company |
