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Commentary: Sprint will find a suitor, either here or abroad

Prospects for a Sprint-WorldCom merger are grim, but Sprint must find a buyer as it cannot realistically continue as an independent entity.

    By Jay Pultz, Gartner Analyst

    Although neither Sprint nor WorldCom have publicly admitted defeat, prospects for a Sprint-WorldCom merger are grim.

    Sprint cannot pull out of the deal unilaterally

    See news story:
    WorldCom, Sprint may call off merger
    without facing a multibillion-dollar penalty. Yet with both U.S. and European agencies opposing the move, it is nearly certain that both parties will agree to cancel the plan and avoid a lengthy and costly legal battle.

    However, Sprint put itself on the market when agreeing to the WorldCom deal in the first place, so its die is cast. Gartner expects Sprint to be acquired by the end of 2001, either as a complete entity or in parts. Although the effect of either acquisition or divestiture could eventually be positive, Sprint customers would be least disrupted by a deal that would not break up the company. Nevertheless, Sprint customers will still have to carefully consider their long-range plans.

    Deutsche Telekom (DT) is one of the potential buyers that would be most likely to keep the company in one piece. DT would like to have as part of its business a full-service telecommunications provider in North America.

    Foreign ownership by the German telecommunications giant may be the chief obstacle to a possible Sprint bid. Opposition will likely not come from the Federal Communications Commission, but from Congress. Citing national security concerns, influential senators have publicly voiced their dismay at putting a large U.S. common carrier in the hands of a company that is still partly owned by the German government.

    Apart from possible government interference, the largest commercial barrier to a Sprint-DT merger is the speed of business and technical developments in the Internet arena. As a former government monopoly, DT is a less agile company than other possible Sprint suitors. On the other hand, DT would benefit Sprint by providing it a European presence. After terminating its involvement in Global One last year, Sprint needs an international strategy that goes beyond its current arrangement with WorldCom--an arrangement that will likely be phased out as the Sprint-WorldCom deal unravels. Moreover, DT is a major wireless carrier in Europe, and could complement Sprint's PCS service.

    Sprint must find a buyer. Since October 1999, Sprint customers have faced the uncertainties related to a pending acquisition, and the apparent collapse of the WorldCom deal leaves them with even more uncertainty. The company cannot realistically continue as an independent entity, and DT is an attractive suitor.

    However, Sprint customers should exercise caution. They should ensure that new contracts include service-level agreements as well as provisions for termination in case Sprint's new owner makes major changes of direction, or spins off part or parts of the company.

    (For related commentary that offers an IT world view on Germany, see TechRepublic.com--free registration required.)

    Entire contents, Copyright © 2000 Gartner Group, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.