Sprint Corp. reportedly is intensifying its search for a European partner to construct a possible merger or partnership scheme that could give the long-distance carrier enough cash to buy out its cable partners in the personal communications services business.
Analysts close to the situation indicate Sprint has had low-key discussions with candidates in past months, and talks have heated up recently with Germany-based Deutsche Telekom AG and possibly a few others. Sprint declined to comment.
“Sprint is looking to hook up. A large part is driven by global positioning,” said David Kerr, director of wireless programs with Strategy Analytics in New York. “It makes sense, and the timing is wise. The cable guys are real motivated to get out.”
Tele-Communications Inc., Comcast Corp. and Cox Communications Inc. are ownership partners with Sprint in Sprint Spectrum L.P., a nationwide PCS operator that is in the midst of aggressively rolling out its markets using Code Division Multiple Access technology.
Analysts say the cable partners have wanted out of the partnership for about a year. The rollout phase hasn’t given them a return on their investment, and with the exception of Cox, which has spent more time focusing on telecom services, the cable companies want to focus and invest in their core businesses. Neither TCI nor Comcast were available for comment at press time.
The original intent of the Sprint-cable partnership has changed. When the companies formed the new venture in 1994, the plan was to compete head-on with existing local telephone companies by using cable TV lines and new wireless communications technology. TCI, the second-largest owner in the venture, began to struggle under its debt load. Agonized by intense competition from satellite TV providers, it had to refocus on its core business. Early this year, TCI shareholders voted overwhelmingly to create two new series of Telephony Group tracking stocks, one of which tracks its 30-percent interest in Sprint PCS.
Comcast, a 15-percent owner in the business, said earlier this year it expects significant losses in the future due to start-up costs of Sprint PCS. Cox, another 15-percent owner, has built a novel network in California using cable plants. Commercial service began last year and is branded Sprint PCS.
Kerr and other analysts believe a merger or partnership with a European operator would be win-win situation. “Wall Street analysts like the fact that cable companies are focusing on their core businesses. It will help to improve debt ratios for some of those cable guys. For Sprint, it reduces an ongoing resource drain of having to be with those partners,” said Kerr.
Industry watchers have speculated for some time that Sprint most likely would leverage an alliance with Deutsche Telekom or France Telecom Group. Each owns 10 percent of Sprint and both last year invested $3.66 billion to acquire about 86 million shares of Sprint’s class A common stock. Early last year, the three launched GlobalOne, a global telecommunications venture.
“There’s a limited set of potential players out there that would be a strategic fit,” said Kerr. “France Telecom, Deutsche Telekom and Telefonica of Spain make sense. Another we could see is NTT of Japan, which has stated that it wants to be a global player.”
The MCI Communications Corp./WorldCom Inc. deal and the loosening of World Trade Organization agreement restrictions may be a catalyst for Sprint’s more aggressive action in finding a global partner, said Kerr. European companies are eager for an alliance with U.S. companies to access the U.S. local access business, a potential billion-dollar market, say analysts.
“Also, the other aspect and key factors to think about is that the European PTT is deregulating the landline market. Carriers are actively seeking to find partners and make sure those partners don’t become competitors on their own markets,” said Kerr.
