Washington Post: MCI Wins Bidding for Sprint
By Peter S. Goodman
Washington Post Staff Writer
Tuesday, October 5, 1999; Page A1
The bidding war for one of the last major telecommunications catches left
on the market came to an end last night, with MCI WorldCom Inc.
claiming Sprint Corp. for more than $100 billion, despite a last-minute
competitive offer from rival BellSouth Corp., according to sources with
knowledge of the negotiations.
Sprint board members voted to accept the MCI WorldCom offer
yesterday afternoon and the company scheduled for this morning an
announcement in New York, while printing fact sheets for its managers on
the future with MCI, a source inside one of the companies said. But the
source cautioned that Sprint also made provisions to cancel the news
conference should BellSouth pile more money on the table.
Wall Street buzzed with rumors that Deutsche Telekom AG, a 10 percent
owner of Sprint, would deliver a bid of its own, but such a prospect
appeared unlikely last night as Sprint accepted MCI's terms.
Because so many mergers have run through the telecommunications
industry in recent months, deals that once would have seemed enormous
now register like business as usual. MCI's purchase of Sprint, though,
would tower above the field, amounting to the largest merger in U.S.
history. The resulting company would be broad by any measure, able to
sell local, long-distance and wireless service, along with high-speed
Internet access. The merger would cement MCI WorldCom's position
among the handful of large players – such as AT&T Corp., Bell Atlantic
Corp. and British Telecommunications PLC – expected to dominate
global communications in the future by offering a full array of services in a
"bundle" to businesses and consumers.
A pending merger between local phone powers SBC Communications
Inc. and Ameritech Corp., whose approval by the Federal
Communications Commission is expected this week, would amount to the
latest entry in the ranks of the "supercarriers."
"Telecom is about scale, scale, scale," said Scott Cleland, an analyst with
Legg Mason Precursor Group. "It's no longer a national playing field. It's a
global playing field. . . . The game is 'Clash of the Titans.'"
But while many analysts gushed about the consumer choices that would
flow from supercarriers competing across the spectrum, skeptical
consumer advocates suggested that such benefits would accrue only for
the richest customers, who spend the most as they ship fat computer files
across oceans while downloading stock quotes and electronic mail off
cellular phones.
"It undermines competition," said Gene Kimmelman, of the Consumers
Union in Washington. "There will be an enormous fight for the high-end
customer, but the majority of the public will have little or no choice, with
prices spiraling upward."
Analysts have come to expect that, in telecommunications mergers, the
biggest pile of dollars claims the goods. But Sprint board members, who
sources said gathered yesterday in New York and approved MCI's offer,
may have calculated that MCI stock has greater long-term value than a
cash-stock combination with a higher immediate value from BellSouth – a
reflection of MCI's highflying growth prospects.
MCI WorldCom has leveraged those prospects aggressively in building
itself into a global power. Chief executive Bernard J. Ebbers has
swallowed up more than 50 companies as he has expanded from his roots
as a marginal long-distance competitor. "WorldCom has finally digested
MCI and is ready for its next meal," Cleland said.
MCI is already the nation's second-largest long-distance carrier. Sprint is
third. Their combination would control about 30 percent of the U.S.
long-distance market, second to AT&T, which has 48 percent of the
market. And Sprint would fill a vexing gap in MCI's service offerings –
wireless. Sprint PCS, an all-digital national cellular network, is growing
furiously.
Over the weekend, BellSouth stormed into the quiet talks. One analyst
said Sprint has long been in BellSouth's sights, and the company decided
to make its move when it realized the last chance to grab a major
long-distance network could be slipping away.
BellSouth chief executive F. Duane Ackerman has often pledged the
company would go it alone, even as others have fused. Still, in April,
BellSouth bought a tenth of Qwest Communications International Inc., a
long-distance company that has become a national player. BellSouth has
failed to gain federal permission to enter the long-distance market in South
Carolina and Louisiana.
Being frozen out of long-distance may have worked against BellSouth's
hopes for Sprint: BellSouth would have had to shelve Sprint's
long-distance business in its core states and defer plans to become a
one-stop shopping center until it satisfied regulators it had earned the right
to enter long-distance by opening up its local markets for competition.
"That's a serious penalty that MCI WorldCom doesn't share," said Rex G.
Mitchell, an analyst with Banc of America Securities.
Also working against a BellSouth-Sprint marriage: The resulting company
would almost certainly have been forced to sell off valuable wireless
property to gain regulatory approval. Sprint PCS overlaps with
BellSouth's extensive wireless network in the South. Under federal rules,
one company cannot own multiple wireless licenses in single markets. But
wireless is the key to MCI's bid. In recent weeks, Bell Atlantic and
AT&T have expanded their wireless ventures. A former MCI executive
said the deals spooked MCI, convincing the company it needed a wireless
presence fast.
Not that the deal is free of regulatory hurdles. After WorldCom bought
MCI, FCC Chairman William E. Kennard said the long-distance market
was "just a merger away from undue concentration."
Both MCI and Sprint boast substantial Internet "backbones," the systems
that carry computer data. Company sources say they would likely have to
sell one network to gain regulatory blessing, leading to speculation
BellSouth could still wind up with that piece of Sprint's holdings.
Sprint rose $2.87½, to $59.87½, and shares of its PCS wireless unit rose
$3.18¾, to $78.68¾. BellSouth fell $2.68¾, to $42.68¾, while MCI
WorldCom rose $1.12½, to $71.62½.
Staff writer Ianthe Jeanne Dugan contributed to this report.
© 1999 The Washington Post Company
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