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Sprint in talks to expand service in Mexico

The telecommunications firm signs a non-binding pact with Pegaso PCS for talks that could lead to Sprint taking a $250 million stake in the wireless firm.

Sprint has agreed to exclusive talks with a Mexican wireless service provider to expand its service area across the border.

The telecommunications firm signed a non-binding pact with Pegaso PCS today for negotiations that could lead to Sprint taking a $250 million stake in the wireless firm.

If a deal is sealed, Sprint would hold a 30.5 percent stake in Pegaso, and occupy at least one seat on the Mexican company's board of directors. Leap Wireless International, a spin-off of wireless company Qualcomm, currently holds a 28.6 percent stake in Pegaso.

Although far from final, the potential deal is the latest example of major wireless carriers forging partnerships to expand internationally. Local phone giant Bell Atlantic also has considered branching out into Mexico, a growing market. The company is eyeing wireless alliances in Northern Mexico.

Earlier this year, AirTouch Communications completed its merger with Britain's Vodafone, the first in a year of major international alliances.

Wireless mergers and general enthusiasm over the potential for wireless data services has recently driven many wireless stocks to new highs.

A Pegaso deal would round out international coverage for Sprint PCS, the company's wireless unit, and bolster Pegaso's bid to break into the Mexican market. Telcel, the wireless subsidiary of Mexican phone giant Telmex, claims roughly two-thirds of the wireless market, analysts said.

"This gives Pegaso some momentum that they really, really need," Dataquest senior wireless analyst Bryan Prohm said. "I think they realized in order to become competitive, they'd have to find someone who has had success."

Pegaso, which began service in February, is building a new digital, code division multiple access (CDMA)-based wireless network.

"I think it's a logical extension [for Sprint PCS] as North America becomes more integrated, especially along the border where there's a lot of cross-border traffic," he said.

Sprint PCS announced a 2-for-1 stock split earlier this week. Shares took a hit yesterday when investment firm Lehman Brothers cut its rating on the stock.

Sprint is in the process of being acquired by MCI WorldCom. The deal is still pending review by the Federal Communications Commission.