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interactive.wsj.com
October 5, 1999
MCI Worldcom, Deutsche Telekom, France Telecom May Gain From Sale of Sprint Stakes
Dow Jones Newswires
Deutsche Telekom AG and France Telecom SA stand to profit handsomely from MCI WorldCom Inc.'s $115 billion bid for Sprint Corp. if, as expected, they sell their minority stakes in Sprint to MCI WorldCom.
However, the European telecommunications giants also will take a hit from the expected termination of the Global One joint venture they have with Sprint, which would leave both companies without a U.S. platform for their multinational clients.
Minutes after MCI WorldCom confirmed its offer Tuesday, Deutsche Telekom said the German telecommunications giant might sell its 10% stake in Sprint and use the proceeds to make acquisitions. The spokesman wouldn't comment on whether Deutsche Telekom already has been approached about selling its Sprint stake.
The Deutsche Telekom spokesman said that based on the value of MCI WorldCom's offer for Sprint, Deutsche Telekom believes its Sprint stake is worth between 13 billion marks ($7.14 billion) and 17 billion marks ($9.33 billion).
The spokesman ruled out the possibility of Deutsche Telekom's making a counteroffer for the 90% of Sprint it doesn't own, saying the price paid was "much too high" and "for us not imaginable."
The spokesman pointed out that some analysts have suggested the company could use the proceeds from its Sprint stake to seek a partner in the U.S. or Europe. He said Deutsche Telekom is particularly interested in expanding its mobile telecommunications business within Europe.
Deutsche Telekom doesn't consider itself the loser in the MCI WorldCom deal with Sprint, the spokesman said. "Just the opposite," he said.
France Telecom likely holds the same view. Like Deutsche Telekom, the French telecom group holds a 10% stake in Sprint, which analysts expect it to sell for a one-time gain of about six billion euros ($6.44 billion).
France Telecom was silent on its plans early Tuesday. Deutsche Telekom will likely announce Tuesday or Wednesday how it intends to proceed with regard to its Sprint interests.
The MCI WorldCom-Sprint deal likely sounds the death knell for Global One, the ailing European joint venture between Sprint, Deutsche Telekom and France Telecom. France Telecom and Deutsche Telekom have equal stakes with Sprint in Global One's European operations, and they hold 25% stakes each in Global One's other international business, in which Sprint has a 50% stake.
If, as expected, MCI WorldCom's arrival marks the end of the road for Global One, its demise will remove the platform Deutsche Telekom and France Telecom gained in the U.S. through the venture. Market watchers believe this could be more of a problem for France Telecom than its German counterpart, given that the French company has concentrated more on developing its European operations.
Market watchers have been waiting for indications as to Global One's future since France Telecom Chairman Michel Bon said earlier this month he didn't think Global One would exist with the same shareholding structure or in the same form by 2001 -- the year it was expected to break even for the first time.
The three partners proved unable to agree on a business plan for the company, and once relations between Deutsche Telekom and France Telecom deteriorated, the operation ground to a standstill.
Relations between the two soured earlier this year when Deutsche Telekom embarked on an ill-fated attempt to merge with Telecom Italia SpA without telling its strategic partner.
The "divorce" left Germany as a gaping hole in France Telecom's European network. But it's a hole the French firm is looking to fill through its offer to purchase a minority stake in German mobile phone operator E-Plus Mobilfunk GmbH.
Late Monday, France Telecom announced it will buy Vodafone Airtouch PLC's 17.24% stake in E-Plus for 1.7 billion euros. The move marks its first foray back into Germany after the breakdown of its alliance with Deutsche Telekom.
"We've been waiting for the E-Plus news for a while," said a trader at a leading Paris brokerage. "It's good news that France Telecom is moving back into the German market, which is sizable, and there is a lot of potential for synergies with its Itineris mobile phone operations."
Although the E-Plus stake is a minority one, France Telecom wants to buy out the other E-Plus shareholders, Veba AG and RWE AG, who own 60.25% of E-Plus together, and U.S. telecom group BellSouth Corp., which owns 22.51%. Talks to this end are believed to be underway.
BellSouth made a bid for Sprint Monday, but was topped by a sweeter offer from MCI WorldCom.
Separately, French Finance Minister Dominique Strauss-Kahn said Tuesday the government is considering opening up France Telecom's local telecommunications loop -- also known as "the last mile" -- to other Internet service providers.
Speaking at an Internet conference, Mr. Strauss-Kahn said: "We don't exclude a certain kind of unbundling, that is, giving new operators the possibility of offering innovative Internet access services using France Telecom's local network."
He added that the government is anxious to "avoid any kind of monopoly situation."
France Telecom plans to invest two billion francs ($327.4 million) over the next three years in technology to transform ordinary telephone lines into high-speed digital channels for Internet and multimedia services, starting with the six central Paris districts, by autumn 1999.
France Telecom currently has a de facto monopoly of France's local loop, as the high cost of building a local network outweighs the potential profits available to competitors in the voice telephony market. Rivals have preferred to concentrate on the more lucrative long-distance national and international market, rather than try and undercut France Telecom on local calls.
However, given the booming market for Internet and data-transfer services, France Telecom's competitors are now eager to secure a direct access to the local loop.
In April, the French telecommunication regulator Autorite de Regulation des Telecommunications launched a public debate on the development of competition in the local-loop market, asking interested parties to bring forward their opinion.
A report summarizing the results of the debate will be released before the end of this year, an ART spokesman said.
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