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To: PDL who wrote (5063)	9/27/1999 5:19:00 PM
From: VFD	Respond to of 11568

Wall Street Journal Interactive Edition >> Subscribe to SmartMoney Magazine Now >> September 24, 1999 Why Sprint and MCI WorldCom Should Get Together By Alec Appelbaum LOOK WHO'S TALKING WILL THEY, or won't they? Sprint (FON) and MCI WorldCom (WCOM) saw their stocks diverge Friday after the Wall Street Journal reported that the two companies were in merger talks. Sprint soared and WorldCom tanked. Seems the market is convinced that if Sprint is a prize, it would be an expensive one. But the fact is, these two companies need each other -- and not for the reasons you've already read. Sure, they could give AT&T (T) a run for its money in long distance. But the real issue is local access. And before MCI WorldCom can be a real player in that market, it needs to buy itself a strategy. AT&T figured this out some time ago. It blazed the trail earlier this year by buying cable companies and eliminating long distance charges on its wireless networks. By urging its subscribers to use their mobile phones as their only phones, AT&T is trying to avoid the 40% access fees it has to pay to local carriers in order to complete customers' calls. And by encouraging Motorola (MOT) to buy General Instrument (GIC), it was planting the seed for a new device that will allow the long distance company to use its cable and wireless assets to beam data, voice and video wherever its customers are (see story). MCI WorldCom has none of that. So it desperately needs Sprint's wireless assets to begin to forge its own local strategy, bypassing the local networks. But Sprint has another attack plan for local access as well. Last spring, it bought two distressed wireless-broadband operators for less than $1 billion, hoping to deliver voice, video and Net access over the air to homes. And last week, the company bought $10 million worth of equipment from Hybrid Networks (sorry, no snapshot available). The plan is to start upgrading the broadband infrastructure "immediately," with hopes of serving 20 to 30 markets -- and up to 25-million households in high-growth areas -- by the end of next year. These technologies are young, and nobody knows how they'll handle phone service. But you could say the same for AT&T's $100 billion investment in cable companies TCI and MediaOne. MCI WorldCom has endorsed wireless broadband as a strategy, paying $1.2 billion for paging outfit SkyTel and snapping up some distressed players of its own. With Sprint in its fold, it could expand this strategy while picking up a company with a reputation for innovative data products and intelligent marketing strategies. Kevin Roe, an analyst with ABN Amro, initiated coverage on Sprint [Thursday] with a Buy rating. In a note to clients, Roe praised its "very strong bundle" of network types. He singled out Sprint's Integrated On-Demand Network, known as ION, which joins wireless and wireline technologies in an ambitious package fitted by Cisco Systems (CSCO). Given time and investment, ION could get its owner around the access charges. So what's to stop a deal? Price and regulation -- the usual suspects. WorldCom chairman Bernie Ebbers might have to give up Sprint's long-haul Internet backbone, which would be dangerously big in combination with WorldCom's own UUNet. And he might have to fight off other suitors. International Data Corp., analyst Melanie Posey says SBC Communications has a clear motivation to grab Sprint's Internet backbone and long distance base, but that company has already committed to buy long distance access from the Williams Cos. (WMB). Another possibility: France Telecom and Deutsche Telekom could, says Posey, fix their fractured Global One alliance with Sprint, introduce some Global One products at next month's Telecom '99 show in Geneva and sell off Global One before turning their attention to Sprint. But if Ebbers really wants Sprint, he'll be tough to fight off. As this master dealmaker has proven many times before, there's always a way around price, regulation and rival bidders.