Heavy Telecom Appetite Forged MCI-Sprint Pact
Who'll Be Left Standing? You Make Telecom Call
Investor's Business Daily -- 10/6/99 Author: Matthew Benjamin
The lesson in MCI WorldCom Inc.'s proposed purchase of Sprint Corp.? All you can eat. The uniquely U.S. concept has transcended the restaurant business and will soon be available at a phone jack near you. In as soon as two years, Americans will be able to gorge themselves on all the communications products they can stomach, analysts say. Surf the Web all day, make copious calls to friends down the block or relatives on the other side of the globe, and use your cell phone guilt free. Then pay one flat monthly fee.
Phone companies are connecting in unprecedented deals to be able to provide such a comprehensive bundle of services. ''What is in fact driving this (merger mania) is the belief that one-stop shopping and putting all these services under one brand is what consumers are going to look for in the future,'' said Mark Zohar, an analyst at Forrester Research Inc. in Cambridge, Mass.
The mania hit a new high this week as the second- and third-largest U.S. long-distance companies, MCI WorldCom and Sprint, respectively, revealed their plans to merge. The proposed $115 billion all-stock transaction would be the largest acquisition in corporate history. The two carriers, known primarily for providing long-distance voice service, plan to use their combined operations to bring consumers and businesses a much broader array of services.
''Looking at long distance as a separate world . . . is a very foolish way to look at our industry. People are going to buy packages of services for flat rates per month - all-you-can-eat Internet, data, local and long-distance,'' said MCI Chief Executive Bernard Ebbers at a press conference Tuesday.
With a national fiber-optic network and a rapidly growing wireless PCS unit, Sprint had become an attractive acquisition target for such full-service telecom shops. BellSouth Corp. was eagerly courting Sprint, and Germany's Deutsche Telekom AG also was expected to become a suitor. But as he has done before, Ebbers stole the prize and engineered a takeover offer approved by both boards. Regulatory approval is another matter, though.
''How can this be good for consumers?'' William Kennard, Federal Communications Commission chairman, said in the statement. ''The parties will bear a heavy burden to show how consumers would be better off.''
The planned merger is just one of many pending in the telecom industry. A few years ago there were four major long-distance providers and seven regional Bells providing local service. If the mergers pending go through, there soon will be two big long-distance companies and four Bells. And ''lots more deals are on the way,'' said analyst Zohar. Companies like the jilted BellSouth are expected to seek other partners. BellSouth may have its eye on Nextel Communications Inc., a McLean, Va., provider of wireless phone service. And don't be surprised, say analysts, if it seeks a union with the likes of Qwest Communications International Inc., a Denver-based long-distance carrier. Qwest's proposed acquisition of another Bell, US West Inc., was revealed in July.
Other pending mega-mergers include the combination of SBC Communications Inc. and Ameritech Corp., expected to gain FCC approval this week. Also, Bell Atlantic Corp. has stepped up efforts to gain final approval to buy GTE Corp. Bell Atlantic, the largest Bell, is poised to enter the long-distance market. Analysts say the company soon may meet FCC guidelines that will let it sell long-distance service. It also recently struck a deal with Vodafone AirTouch PLC to create a national wireless carrier. And AT&T, the leader with 44% of the U.S. long-distance market, is active. Under CEO Michael Armstrong, the company has swallowed up cable companies left and right, betting the coaxial cable that enters most American homes will also be the conduit for phone and Internet services.
The MCI WorldCom-Sprint announcement may have large international implications as well. The new company, to be called WorldCom, will be a big global rival, with operations in 65 countries and annual revenue of more than $50 billion. It may spur carriers like France Telecom SA, Germany's Deutsche Telekom AG and Japan's Nippon Telephone and Telegraph to pursue large acquisitions, analysts say.
''The business development people in Bonn and in Paris and in Tokyo now get busy,'' said Bob Fox, an analyst at Mercer Management Consulting Inc. Asked about his global plans, Ebbers answered: ''Facilities, facilities, facilities.'' He wants the company to build its own networks and equipment in every market it serves. Large phone companies want voice and data traffic they handle to begin and end on their own networks. That'll mean higher profit margins and more control. And phone companies that aren't part of the merger mania? ''To go it alone is pretty tough,'' said Fox.
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