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Sprint Seen as Next Takeover Target as Industry Rapidly Consolidates

Telecom: Deal between Deutsche Telekom and Telecom Italia heightens the speculation surrounding the No. 3 U.S. long-distance carrier.

April 23, 1999|ELIZABETH DOUGLASS | TIMES STAFF WRITER

The newly announced merger of two of Europe's largest phone carriers has intensified speculation that long-distance company Sprint Corp. is vulnerable and could become the next takeover target in the rapidly consolidating industry.

Even before Thursday's deal between Deutsche Telekom and Telecom Italia, Kansas City, Mo.-based Sprint was considered too small to survive against ever-larger telecommunications rivals around the world.

"It's an ironic thing that a company as big as Sprint is considered small, but if we're going to five or seven global telecommunications players, they're too small for that," said Scott Cleland, an industry analyst with Legg Mason's Precursor Group in Washington.

Sprint is already rumored to be in merger talks with Deutsche Telekom, which is partnered with Sprint in a key international venture and also holds a 10% stake in the U.S. carrier. Deutsche Telekom officials on Thursday declined to address a potential deal with Sprint, but they made it clear that expanding into the United States is a priority.

"This new company will have a very strong appetite for a U.S. foothold," said Roger Wery, a telecommunications consultant with Renaissance Worldwide Inc. of Newton, Mass. "Deutsche Telekom could either do the big triple-jump and make an acquisition in the United States in the next few weeks, or do some sort of partnership."

On Thursday, Sprint reiterated its plans to remain independent. A company spokesman declined to comment on any potential acquisition or merger.

"We like where we are right now, and we don't think we're disadvantaged," said Sprint spokesman Bill White. "We've amassed the assets we think we need quietly, without spending a lot of money on doing deals."

Indeed, Sprint is no shrimp. It booked more than $17 billion in revenue last year, with particularly strong gains in its wireless and long-distance operations. It remains a solid third in the U.S. long-distance market, and is a leader in the lucrative business of carrying data, such as Internet traffic.

Still, analysts point out that Sprint is lagging its major rivals in securing access to customer homes in the United States, a component considered critical to offering customers the full range of communications services in the future.

While AT&T and MCI WorldCom have established local connections through cable company purchases and acquisitions of smaller local carriers, respectively, Sprint's best connection to U.S. homes is through its still-expanding wireless unit.

Industry observers have also fretted over the strength and stability of Sprint's primary international operation, Global One.

Launched in early 1996, Global One is an international partnership among Sprint, Deutsche Telekom and France Telecom. It has more than $1 billion in yearly revenue and serves corporate customers in more than 65 countries.

While Sprint says it remains committed to the partnership, the venture has struggled to meet expectations, and there have been rumblings that the partners are at odds over its future.

On Thursday, France Telecom increased the tension by issuing a statement condemning the proposed merger of Deutsche Telekom and Telecom Italia.

"That [venture] is not particularly working well, and this merger deal definitely disrupts the relationship between the three entities in Global One," said Wery of Renaissance Worldwide.

Given Sprint's involvement in Global One, some believe the most likely merger partners remain France Telecom, which also owns 10% of Sprint, and Deutsche Telekom. The German firm's chief executive, Ron Sommer, also sits on Sprint's board.

"Through Global One, there has been a real-life due-diligence going on for several years," Wery said.

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