Telecom players make competing bids for Sprint

Sprint's board of directors today plans to weigh competing bids from MCI WorldCom and BellSouth, according to media reports. But Deutsche Telekom, which already owns 10 percent of the company and is a partner in a three-way international joint venture, also may be working on its own bid, according to Reuters.

Late today, BellSouth reportedly raised its cash and stock offer for Sprint, according to sources cited by Reuters. Specific details of the sweetened bid were not disclosed.

The board of MCI WorldCom also was expected to meet late today, according to Reuters.

A merger between long distance rivals MCI and Sprint would create a strong rival to market leader AT&T, with particular focus on high-profit corporate and international accounts. AT&T claims about 42 percent of the long distance market, while a Sprint-MCI WorldCom pairing would grab about 32 percent.

Sprint's board is reportedly leaning toward MCI WorldCom bid, believing those two companies have the most complementary operations, reports say.

None of the companies involved would comment on the reported bids.

The deal also would give MCI WorldCom access to Sprint's PCS division, a national wireless phone network. That side of Sprint's business is still operating in the red, as it continues to build out its infrastructure nationwide. Most analysts say MCI WorldCom is chiefly interested in gaining a foothold in this wireless business, a service offering it now lacks entirely.

The two companies also have broadband business and consumer service divisions that could be complementary, analysts said.

The players
MCI WorldCom's focus could help persuade the two main bidding rivals to split up Sprint, some analysts say. BellSouth already has its own wireless division, and is more interested in Sprint's long distance and local phone assets.

"If MCI WorldCom didn't get Sprint's long distance business, it wouldn't be the end of the world," said Bob Wilkes, a telecommunications analyst with Brown Brothers Harriman. "It could be that both companies walk away with half a loaf."

Analysts say BellSouth is getting worried about its competitive position in a market where all of its peers and major rivals are involved in multibillion-dollar mergers. Its management has said previously it is already large enough to compete with giants like AT&T and SBC Communications as they move into its southeast markets--but the bid for Sprint shows the company may not be that comfortable with future competition.

BellSouth already has taken a share in long distance company Qwest Communications International, which recently agreed to merge with local carrier US West. Many analysts have speculated that BellSouth could attempt a merger with the combined company if it fails to grab Sprint's long distance assets.

Sprint also has the advantage of controlling local phone operations in Florida and the Carolinas, which would fill in gaps in BellSouth's territory.

"Sprint is the hole in the donut as far as BellSouth is concerned," said Boyd Peterson, a telecommunications analyst with the Yankee Group.

Deutsche Telekom executives have been quite public about ambitions to expand their international operations for some time, starting with acquisitions in Europe. The two companies already are partners in the troubled Global One international phone venture with France Telecom, which would likely be scuttled if Sprint and MCI WorldCom were to merge.

The German company reportedly held merger talks with Sprint before, though no public statement has ever been made by either company.

Enter the FCC
But a deal with either MCI WorldCom or BellSouth would have high regulatory hurdles to clear.

Federal Communications Commission chairman William Kennard said pointedly last week that the commission would be very skeptical of further megamergers in the long distance industry.

A former commission official said the chairman's comments, which stopped short of saying a Sprint-MCI WorldCom deal would not be approved, were not meant to block a proposed merger, however. "If you want to kill it, you had better be much clearer about killing it," the former official said.

Nevertheless, most analysts say Sprint would have to shed its extensive Internet backbone business, much as MCI sold its Internet assets as a condition of its merger with WorldCom for federal approval.

The full Sprint board is scheduled to vote on MCI WorldCom's bid after the close of trading today, according to Bloomberg.

Reuters and Bloomberg contributed to this report.