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Commentary: WorldCom and Sprint officially call off merger

Having turned down the WorldCom-Sprint deal, regulators will be faced with other deals that will be no more palatable to them.

By Jay Pultz and David Neil, Gartner Analysts

Gartner believes Sprint will be acquired--its customers, shareholders and employees have already accepted the idea--but other carriers can become takeover targets, too, including VoiceStream Wireless, WorldCom and even AT&T.


See news story:
Sprint, WorldCom call off $120 billion merger
is unlikely that large carriers will be bought and sold off in pieces, and the least-likely scenario is that the market will remain as it is today.

Gartner forecasts the following scenarios for consolidation among large U.S. carriers:

• International carriers, such as Deutsche Telekom, France Telecom and Nippon Telegraph and Telephone, will attempt U.S. takeovers (0.7 probability).

• Additional incumbent local exchange carriers (ILECs) and major interexchange carriers (IXCs) will combine through 2002 (0.6 probability).

• Highly leveraged companies, such as Qwest Communications and Global Crossing, could mount bids (0.3 probability).

U.S. regulators may object to the first scenario because foreign governments have at least minority stakes in these international giants. Under the second scenario, regulators will likely require ILECs and IXCs to remain at arm's length until local loops are fully open to competition or to sell off long-distance operations within local territories (much as with the Qwest-US West merger).

Having turned down the WorldCom-Sprint deal, regulators will be faced with other deals that will be no more palatable to them. The industry will likely put additional pressure on regulators to let consolidations continue. Furthermore, Gartner believes that U.S. regulations are out of touch with some marketplace realities in telecommunications.

The market will not clarify itself soon. Enterprises should expect major developments with the big U.S. carriers by year-end 2000. In addition, as ILECs win approval to offer long-distance services throughout their home territories (likely in 2002), further consolidation will occur.

(For related commentary on telecommunications, see 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.