Analysts wonder what executive knows

Harry R. Weber

Monday, Feb. 17, 2003 | 9:57 a.m.

ATLANTA -- BellSouth's emphatic objection to Sprint's courtship of its No. 2 executive has some analysts and large shareholders asking themselves what it is that Vice Chairman Gary Forsee could reveal.

He may know about planned acquisitions by BellSouth or its wireless unit, Cingular, observers say. They also point to a decision by federal regulators expected next week that could enable Sprint to offer local phone service in BellSouth's territory.

"There are a lot of unknowns here," telecom analyst Patrick Comack said. "The willingness of BellSouth to go to the mat on this, there's obviously things the market is not aware of and Sprint is not aware of."

Overland Park, Kan.-based Sprint is seeking Forsee, who has been at BellSouth since 1999, to replace its chief executive, William Esrey, who has been criticized over his personal use of a questionable tax shelter. Forsee, head of BellSouth's domestic operations and chairman of Cingular, spent nine years at Sprint before joining BellSouth.

The Atlanta-based company went to court last month to stop Forsee from taking Esrey's job, citing concerns that he could disclose key information about BellSouth's business to one of its main rivals. BellSouth wants Forsee to honor a non-compete clause in his contract that prevents him from taking a job at a rival company for 18 months.

Sprint and BellSouth both sell long-distance service in nine Southeastern states and compete nationally for wireless customers.

On Feb. 10 a judge in Atlanta extended a restraining order that temporarily bars Forsee from joining Sprint. The judge also ordered the two companies to complete arbitration over Forsee's contract within 30 days.

The fight has centered on what Forsee knows and what he could tell Sprint.

In a recently filed affidavit, Rex Adams, president of BellSouth's long distance unit, said that on Dec. 19 he provided a detailed analysis of the company's customers and markets to a group of executives, including Forsee.

Adams said the material covered BellSouth's strategy for 2003, including how the company would deal with issues of churning -- the industry term for when customers switch from one carrier to another.

Adams said he elaborated on BellSouth's strategy during a meeting with Forsee and two dozen other senior managers on Jan. 28. The next day, court documents say, Forsee met with Cingular officials to discuss new products and related strategy. Shortly thereafter, he informed chief executive Duane Ackerman about his interest in the Sprint job.

Paul Wright of Loomis Sayles & Co., which owns 2 million BellSouth shares, said there has been a lot of consolidation in the telecom industry, and even speculation about a merger between Sprint and BellSouth. Forsee's knowledge of BellSouth strategy could affect the company's plans if he goes to Sprint, Wright said.

"I don't see how in the future he can divorce himself from that knowledge base," Wright said.

Forsee, for his part, has promised not divulge anything if he takes the Sprint job. In court papers, Forsee noted that Sprint did not object to him taking the BellSouth job four years ago.

Forsee cited his desire to return to his hometown of Kansas City, Mo., and the chance to head a large telecommunications company like Sprint.

"If I am denied the opportunity to accept this position, it is highly unlikely that I will have this chance again," he wrote.

Drake Johnstone, an analyst with Davenport & Co. in Richmond, Va., said Forsee's decision could take on greater significance if the Federal Communications Commission clears the way for Sprint to offer local phone service in BellSouth's territory.

"That's why they're sensitive to this issue and pulling out all the stops," Johnstone said.

Sprint has vowed to continue its fight to hire Forsee, and BellSouth has promised to work equally hard to keep him, or at least prevent him from going to Sprint -- they have even offered him more money to stay, according to court records.

Wright questioned the companies' goals, and said Sprint might do well to look for another chief executive.

"I'm not sure how hard Sprint should push this," he said. "Gary's an all right manager. I've seen him both at BellSouth and Sprint. But there's other guys out there."