Sources: MCI, Nextel in preliminary talks
The long distance giant reportedly is in preliminary talks to buy wireless phone company Nextel Communications.
Jackson, Mississippi-based long distance service provider MCI WorldCom may try to buy its way into the wireless business to further compete with rivals AT&T and Sprint, which own nationwide U.S. networks, according to The Wall Street Journal. Currently, MCI WorldCom doesn't own any wireless operations.
MCI WorldCom and Nextel representatives declined to comment on the report.
Shares of Nextel rose as much as 27 percent in Europe today on news of the takeover possibility. The McLean, Virginia-based company has a market value of nearly $11 billion and long-term debt of $7.7 billion, the Journal reported.
Last month, Nextel shares jumped to a record high on speculation that the company would be a takeover target. At that time, MCI WorldCom was one company mentioned by analysts.
CS First Boston analyst Cynthia Motz said she believes the two companies should get together and finds that strategically, an acquisition "makes perfect sense."
"I have been a major proponent for that for a while," Motz said. "The stakes are higher now. The competition for telecom dollars, I think, have accelerated."
Motz said that since MCI WorldCom also focuses on the business customer, the connection with Nextel is already present. By acquiring Nextel, which has boosted its technology offerings to the Internet with its new Internet phone due out in the third quarter of this year, WorldCom will have the wireless play it needs, she said.
"MCI WorldCom today does not own any of its own [wireless] networks, and needs to get into the wireless business as something more than a reseller," said Phillip Redman, an analyst with the Yankee Group.
Some people familiar with the matter say that even though the two companies could be holding preliminary talks, a deal may never be reached. Price was cited as one of the top hurdles to such a tie-up, the report said. Any deal would also need key shareholder Craig McCaw's approval, whose family has invested more than $650 million in Nextel.
Rival AT&T has signed up hundreds of thousands of wireless subscribers every quarter with its nationwide calling plans, including its popular one-rate plan that eliminates roaming or long distance charges.
MCI WorldCom CEO Bernard Ebbers has said he's interested in cellular companies, though he knows buying one could hurt the company's earnings. The growing use of wireless phones might push Ebbers to rethink his strategy, the report said.
"The stakes have changed in telecom and in the long term, he [Ebbers] will hurt his earnings if he doesn't make a wireless acquisition," Motz said.
People are going to use more wireless," Motz said. "If you don't have a wireless strategy, you will [be] hurt in a lot of ways."
Bloomberg contributed to this report.