Sprint, MCI talking merger

George Stein and Colleen McElroy

Friday, Sept. 24, 1999 | 10:57 a.m.

MCI WorldCom Inc., the second-largest U.S. long-distance phone company, is in talks to buy Sprint Corp. to create a company with $35 billion in annual sales to rival AT&T Corp., a person familiar with the talks said today.

No transaction is imminent and the talks could collapse, the person said. Under a proposal discussed, MCI WorldCom would buy the No. 3 long-distance carrier for stock and issue new tracking shares for its Sprint PCS wireless unit. That structure would prevent the unprofitable wireless unit from lowering earnings.

With Sprint, MCI WorldCom Chief Executive Bernard Ebbers gets what some investors says he needs most -- a nationwide wireless phone business. Sprint CEO William Esrey would get a deep-pocketed partner to take on AT&T, the largest U.S. carrier.

Sprint is the dominant local phone company in Las Vegas, where MCI isn't a big player in the local landline phone industry.

But a Sprint-MCI combination would face tough regulatory scrutiny on a national level.

"Congress would certainly scrutinize this transaction," said Tom Burnett, founder of Merger Insight, which tracks mergers and acquisitions.

The Telecommunications Act of 1996 was designed to spur competition in U.S. phone markets. Instead of competing head-to-head and entering new markets, some of the largest U.S. phone companies have combined.

The biggest purchases include WorldCom's acquisition of MCI Communications Corp., Bell Atlantic Corp.'s purchase of Nynex Corp. and SBC Communications Inc.'s purchase of Pacific Telesis Group.

Ebbers, reached at the PCS '99 wireless conference in New Orleans, declined to comment. The talks were reported earlier by the Wall Street Journal.

Sprint, based in Westwood, Kansas, has a $44 billion market value and $3.57 billion in long-term debt. Sprint PCS has a market value of $32 billion.

Deutsche Telekom AG and France Telecom SA, each own 10 percent of Sprint and are its partners in the money-losing Global One alliance. The two European phone companies wouldn't be able to block a sale to MCI WorldCom, the paper said.

Sprint officials weren't immediately available for comment. Officials at Sprint PCS, Deutsche Telekom, France Telecom and Global One declined to comment.

MCI WorldCom, Sprint and AT&T. are racing to provide customers with one-stop shopping for local and long-distance services, wireless phone and paging service, and Internet access, to increase retention and revenue.

Together, MCI WorldCom and Sprint would have about 30 percent of the $80 billion-a-year U.S. long-distance phone market. AT&T has about 48 percent of the market.

MCI WorldCom and Sprint are also two of the largest carriers of Internet traffic. Sprint would probably have to sell its Internet business to win regulatory approval because MCI WorldCom has a similar business, the Journal reported.

Ebbers, who built MCI WorldCom with 60 acquisitions this decade, said on June 9 the company isn't in merger talks with Sprint because regulators wouldn't look kindly on a union of the second- and third-largest U.S. long-distance carriers.

Regulators likely wouldn't approve such a combination until some of the largest U.S. local phone companies get into the long-distance market, he said. Analysts expect New York-based Bell Atlantic to be the first to do so, early next year.

"Does Sprint have assets other than PCS that would be attractive to us? Well, they have a customer base. We're not allergic to customer bases," Ebbers said at the time at a PaineWebber Inc. conference in New York.

Thanks to the purchase of dozens of companies, Ebbers, a Canadian-born one-time farmer, has amassed some of the most extensive telecommunications assets in the industry. They include U.S. Internet, local and long-distance operations as well as several overseas networks.

He has primarily focused on business customers, who buy multiple services and are more profitable than consumers.

That strategy changed a year ago, when Ebbers completed his biggest purchase yet, the $47 billion acquisition of MCI, the No. 2 U.S. long-distance phone company with 75,000 employees and more than $30 billion in annual sales. At the time, it was the largest acquisition completed in the telecommunications industry.

More recently, Ebbers has turned his attention to wireless. Earlier this year, MCI WorldCom was in talks to buy Nextel Communications Inc., a nationwide wireless phone company. The companies disagreed over price and the talks ended.

In May, MCI WorldCom made its first big move into the wireless market when it offered to buy SkyTel Communications Inc., the second-largest paging company, for $1.8 billion in stock and debt. MCI WorldCom will gain 1.6 million customers and a paging network to offer e-mail and other data services.

In the U.S., wireless carriers are teaming up to offer nationwide services. This week, Vodafone AirTouch Plc, the world's largest wireless company, and Bell Atlantic agreed to unite their U.S. wireless operations to create the biggest mobile phone company in the U.S., with almost twice as many wireless customers as AT&T.

Wireless is one of the fastest-growing segments in the telecommunications industry. Sprint PCS has said it will add more than 3 million customers in 1999. As of June 30, Sprint PCS had about 4 million customers.