MCI Communications Corp., which last week found itself with a third suitor in GTE Corp., may finally have an opportunity to enter the wireless arena in more than a reseller role.
GTE, which owns cellular licenses in several metropolitan statistical areas, last week made a cash offer of $28 billion, or $40 per share, to acquire MCI. Long-distance carrier WorldCom Inc. had made a $30 billion stock offer to the company at the beginning of the month and last week began mailing a preliminary proxy statement to MCI shareholders.
MCI released a statement saying it would study the issues raised by both offers and that British Telecommunications plc, the company with which MCI was nearing a merger agreement, has given it permission to speak with WorldCom and GTE.
A deal with GTE would be the largest ever all-cash deal, although GTE has offered to negotiate the deal into a part-cash, part-stock deal.
MCI’s stock was trading in the $38 range during mid-day trading Friday. Before the GTE offer, the company’s stock was trading at $35.31. WorldCom’s stock had dropped a couple dollars since GTE made the competing offer to MCI. WorldCom stock was hovering around $34.25 mid-day Friday. GTE’s stock was slightly up, in the $46 range, as was BT’s stock, which was trading in the $77 range at mid-day Friday.
“The interesting thing that GTE brings is a formidable wireless presence in the A-and B-block,” said Chris Landes, a consultant with TeleChoice, a telecommunications industry consulting firm. “That’s something that MCI was relatively absent from, so that’s a real positive. GTE also has a pretty good presence in Latin America, which could also be leveraged.”
MCI has made several attempts to re-enter the wireless communications arena since selling its cellular and paging licenses to Craig McCaw in the mid-1980s. Today the company offers a one-stop shopping approach that includes local, long-distance, wireless, paging and Internet services.
In 1993, the company asked the Federal Communications Commission to issue it a nationwide license when plans were announced for a personal communications services spectrum auction, but the FCC decided against it.
MCI then formed an agreement with Nextel Communications Inc., which it backed out of in August 1994, claiming it was unsure of Nextel’s technology. Two months later, MCI pursued an alliance with the companies that eventually formed PrimeCo Personal Communications L.P., but an agreement was never reached.
MCI has paging resale agreements with Paging Network Inc. and SkyTel Corp. The company in 1995 also acquired Nationwide Cellular Services Inc., then the nation’s largest cellular reseller with 275,000 resale subscribers.
Last year, MCI signed a resale agreement with NextWave Telecom Inc. to buy at least 10 billion minutes of wireless airtime during a 10-year period. At the time, NextWave said it expected to begin offering PCS service by the middle of this year, but financial woes have prevented the PCS startup from launching any markets.
“I think they desperately want the one-stop shopping image, and you can’t do that without wireless,” said Dr. David Roddy, chief telecom economist with Deloitte & Touche Consulting Group Inc. “You’ve got a situation where MCI with GTE or with WorldCom desperately needs to tell a credible wireless story if they’re going to get anywhere near one-stop shopping.”
However, “GTE has not been progressing very seriously in wireless as of late … although it does have some numbers in terms of wireless subscribers,” continued Roddy. “It’s not an active wireless contender for first place and I think with MCI, it probably will have to beef that up somehow.”
GTE Wireless Inc. ranked fifth on RCR’s Top 20 Cellular Carriers list with nearly 4 million wireless subscribers, behind AT&T Wireless Services Inc., Bell Atlantic Mobile, BellSouth Cellular Corp. and Southwestern Bell Mobile Systems.
MCI’s board now faces the decision of whether it wants the local phone service expertise of WorldCom or a wireless play with GTE. Some analysts feel strongly that BT is now out of the running.
“The investors, I feel, are probably going to choose the short-term plan-one of the U.S. situations-and they’re going to ignore the huge potential demand in the international marketplace,” said Roddy.
MCI will have other issues to consider as well. Which deal will have the least anti-trust problems at the Federal Communications Commission and the Department of Justice? Will WorldCom’s stock hold up long enough to make its offer profitable for MCI?
Harvey Goldman, senior partner with Steel Hector & Davis L.L.P. said supporting a stock offer entails quite a bit of risk.
“They are going to have to look at what WorldCom’s paper is worth-what their stock is worth and also what the stock will be worth if WorldCom and MCI combine,” he said. “It’s clear what you’ve got with GTE-cash, right on the line-and that speaks a very loud language.”
But WorldCom’s stock historically has experienced phenomenal returns.
“It’s been a sexy company in a sexy industry, and it has performed,” said Goldman. “The question, of course, is can it continue to do so?”
“The odd, absolute, hands-down winner in this whole thing is British Telecom,” said Deloitte & Touche’s Roddy, adding that both its stock and MCI’s stock have increased since the new offers surfaced. “The only problem they have is finding enough champagne for the parties that they’re throwing in celebration.”
