Of all possible partners, why MCI WorldCom?

By Howard Anderson, Network World |  Networking

Why is Sprint selling? It didn't have to.

Sprint has an enviable hand in wireless and a surprisingly loyal customer base. Let me ask you this: What company with a single-digit market share, outside of Apple, has Sprint's brand recognition? None. But assume for a moment that Sprint was amenable to an offer. Why MCI WorldCom?

MCI WorldCom had one glaring hole in its armament: wireless. It saw AT&T go to market with its One Rate Plan, combining minutes of use from long-distance and wireless. MCI WorldCom couldn't match that. In fact, one of MCI WorldCom's strategic mistakes is that it failed to understand the importance of wireless three times. And MCI WorldCom passed on Nextel three times.

So what is worth $115 billion? The long-distance business? That's probably worth $25 billion. Actually, long-distance is a rotten business. Twenty-five percent of American homes change their long-distance carriers each year. It's a business of ever-decreasing margins, high churn rates and high advertising.

Sprint has a bevy of local communications companies, vestiges of its predecessor company, United Telecommunications. The local businesses have a worth of maybe $35 billion. Internet? Probably worth $20 billion. Hell, everything that has "Internet" attached to it is worth some number of billions. Global? This is one part of Sprint's business that is suffering. The global alliance between Sprint, the French and the Germans has not worked well. The partners seemed always to communicate by rumor.

The residual? Sprint's PCS business. Sprint took a real gamble with wireless. The carrier bid early, often and high. But Sprint fashioned a nationwide offering. The carrier worked the distribution angle well, aligning with Radio Shack. Sprint has also built a superb infrastructure and always has been the early adopter. For 11/2 years, Sprint was the only company getting behind wave division multiplexing and was Ciena's only customer.

Where does this leave AT&T? AT&T is fully deployed and will be very busy on all fronts. CEOC. Michael Armstrong has to get this team to work and work well; he has a massive job in retrofitting MediaOne and TCI; he just lost Leo Hindery, his cable guru, and six months ago he lost Bob Annunziata, who was the brain and brawn behind Teleport, AT&T's local phone business.

So what do we make of MCIWorldCom CEO Bernard Ebbers? Did he overpay for Sprint? Of course. Does it matter? Probably not. For one thing, he keeps Sprint out of the hands of BellSouth and the Europeans, both of which could be formidable competitors. He gains market share and he gains access to local markets, which is important to him. As long as the stock market buys his act, he is playing with almost free money.

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