Merger heralds new telecom era

Sprint-MCI deal, the largest in history, signifies the rise of carriers

MCI Worldcom's prospective purchase of Sprint Corp. may signify the rise of a new kind of company: the phone line/wireless call/pay TV/e-mail/Internet shopping behemoth.

In the next century, consumers will increasingly opt for bundled telecommunication packages, predict many analysts. The convenience of one-stop shopping will replace today's confusing blizzard of telephone, television, and computer net bills and offers.

To survive in this new world, firms will likely need national reach, and the ability to offer a wide array of services. That belief is behind this year's explosion in telecom mergers and buyouts - 233 deals so far, totaling $195 billion.

The MCI-Sprint marriage, the largest acquisition in corporate history, would add more than $100 billion to this figure - if it goes through.

"National and international [regulatory] barriers are falling and technology is dramatically changing the picture. Combine that with the Internet and it spells big change," says Samuel Simon, chairman of the Telecommunications Research and Action Center, a Washington-based nonprofit consumer-advocacy group.

Not that this trend has sprung up overnight. Once it became clear that the Internet would, in some form, become a competitor to the communications world's historic giants, phone companies, a corporate race to merge became almost inevitable.

The US Telecommunications Act of 1996, which broke down the regulatory barriers to entry for a panoply of communication services, gave this race its starting flag. Already, the original seven Baby Bell local-line phone firms have reduced their number to four. What were once four big long-distance carriers now may become two: AT&T, and MCI Worldcom Sprint.

"When the dust settles we are going to have five to seven of these super-carrier companies," says Brian Adamik, senior vice president and a telecommunication-industry analyst at The Yankee Group in Boston.

MCI'S apparent victory in its bid for Sprint capped off a spirited two-week war for the firm.

MCI and Sprint had been discussing an amicable marriage for some time. But in recent days BellSouth, a Baby Bell based in Atlanta, also made a play for Sprint with a $100 billion unsolicited bid.

Then MCI increased its stock-swap offer to $108 billion, and won the prize. BellSouth had indicated it would go higher, but in many ways an MCI-Sprint partnership makes more sense, say industry analysts.

As a Baby Bell, BellSouth is still hobbled by the last vestiges of government regulation. It would have to win Washington's approval to enter the long-distance market - a nod that could be a long time coming, if it comes at all.

MCI Worldcom, by contrast, is a pioneer in the world of low-cost long-distance calls. In Sprint, it gets a partner with a higher-tech, somewhat more upscale reputation than its own. It also gets Sprint's large wireless network, a key asset for any firm that wants to compete with AT&T.

"Now MCI can market to consumers the one-stop shop of Internet access, wireless, and long distance. The only thing missing is cable," says Rob Frieden, a professor of telecommunications at Pennsylvania State University in University Park.

Will this deal pass antitrust muster? Maybe - but it isn't a forgone conclusion, say experts.

Both companies have Internet operations. One will likely have to be sold to satisfy US regulators.

Both, of course, are major long-distance providers. It is not clear yet how antitrust enforcers will view a marriage between the No. 2 and No. 3 firms in a market that is currently involved in "nickel-a-minute" price wars and features historically cheap prices.

"This sends up a huge red flag," says Mr. Simon. "AT&T and MCI will have over 80 percent of the [long-distance] market."

Other experts are not so sure this concentration in the long-distance field will be a problem, considering that Baby Bells may soon enter the market. The Internet itself, they argue, might quickly become a long-distance phone competitor, via voice services.

However, if consumers are confused by today's many phone pitches, they may be doubly so tomorrow. When buying a single service, such as Internet access, it is at least relatively easy to compare prices. In tomorrow's world of "bundled" services, consumers may have the ease of paying only one bill. But they'll have to look carefully to see what, exactly, they are buying.

"If anything, consumers have to be more vigilant to marketing pitches," says Mr. Frieden of Penn State.

Wall Street is likely to applaud the MCI-Sprint nuptials. "If they are able to integrate - and that is the big 'if' on all of these merger - it should be helpful to shareholders and improve share price," says Philip Garon, a partner at the law firm of Faegre and Benson LLP in Minneapolis.

Whether the work forces of the two firms will applaud is another matter. "The downside of it could be less employment. The adjunct of virtually all of these mergers is cutting of employees," says Mr. Garon.

(c) Copyright 1999. The Christian Science Publishing Society

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