As major service providers work to gain position for the coming pocket-phone revolution, Sprint Corp. is letting loose of its cellular holdings in order to concentrate on its personal communications services licenses.
Sprint has announced it intends to pursue a tax-free spinoff of its cellular unit to Sprint shareholders. Sprint Cellular is the nation’s eighth largest cellular operator, with 1.2 million customers in 87 markets in 14 states.
“Through a spinoff, both the cellular unit and the Sprint Telecommunications Venture can pursue their own growth strategies, and develop separate marketing identities and technological infrastructures,” said William Esrey, Sprint’s chairman and chief executive officer.
Spinning off successful cellular operations is not a new idea. AirTouch Communications Inc. was spun off from its parent, Pacific Telesis Group, in order to create shareholder value and to let the wireless operations of AirTouch operate outside the restrictions put on the regional Bell operating companies.
Phasing out the Sprint brand name from the new, spinoff company means Sprint will focus on one wireless branded product, PCS. The Sprint-cable TV consortium-comprised of Tele-Communications Inc., Cox Communications Inc. and Comcast Corp.-won PCS licenses to offer fully digital, high-end wireless services in 29 markets nationwide. Although Sprint Cellular is testing Code Division Multiple Access technology, the majority of its network is analog-based.
The decision to phase out Sprint’s cellular name “is a differentiation of product for the long term,” said analyst John Ledahl of San Jose, Calif.-based Dataquest Inc.
Sprint must make changes in its cellular ownership to comply with Federal Communications Commission rules regarding cross ownership of cellular and PCS properties. PCS license winners are not allowed to hold more than a 20 percent interest in a cellular provider serving 10 percent or more of the population in a given major trading area. Sprint faces FCC rule conflicts in Dallas, Detroit, Philadelphia and Des Moines, Iowa.
Sprint spokesman Mark Bonavia said customers could become confused if the Sprint brand is used for both PCS and cellular, especially if the two operations are competing in a market.
The proposed spinoff could be completed in the second quarter of 1996. It is subject to a favorable ruling on its tax-free nature, regulatory and government approvals and final approval by the Sprint board of directors.
Analysts at Prudential Securities said a spinoff would be the best option for Sprint shareholders.
“Cellular is estimated to account for 6 percent of revenues and 7 percent of operating revenues at Sprint in 1995, but its imputed market value now appears to be 20 percent of the total,” Prudential said. “Clearly, the non-cellular operations at Sprint are undervalued and the potential spinoff may merely uncover the value.”
In the past 18 months, Sprint Cellular has nearly doubled its customer base, Sprint said.
