Sprint's Internet business heading for the block?

Sprint hasn't officially slapped a "For sale" sign on its Internet business, but industry observers agree a sale is imminent to ensure that MCI WorldCom's planned acquisition of Sprint gets regulatory approval.

MCI and WorldCom, although reluctantly, set a precedent last year by agreeing to sell off MCI's Internet business in order to get U.S. and European regulators to approve their merger. Regulators pushed the divestiture because MCI's Internet business, when combined with WorldCom's UUNET, would have created an ISP with more than 50% market share.

So now MCI WorldCom is offering a record-breaking $115 billion for Sprint, with its prime wireless, long-distance and local networks, and yes, Sprint's OC-48 Internet backbone. But who would grab Sprint's Internet backbone? Cable & Wireless, Deutsche Telekom, BellSouth and even PSINet have all been named as companies that could benefit from picking up Sprint's Internet business.

Will C&W buy again?

Cable & Wireless may still be smarting from its acquisition of MCI's Internet backbone. Since the company bought MCI's business, it has had to endure its share of headaches, from lack of support staff to users complaining about poor customer service (NW, Jan. 11, page 1).

Some observers question whether Cable & Wireless will want to go through that process again.

Others take the opposite tack. The fact that Cable & Wireless may have learned from its mistakes is one reason the company might want to pick up Sprint's Internet backbone and customers, says Jeanne Schaaf, a senior analyst at Forrester Research in Cambridge, Mass.

"It makes sense that now that Cable & Wireless has worked through its MCI mess, that it would benefit from a brand-new customer set," she says.

When making acquisitions, service providers are looking for breadth of services, economies of scale and geographic reach, says Dan Merriman, a vice president at Giga Information Group, a consulting firm in Norwell, Mass.

Sprint's Internet business doesn't offer enough of all three categories for Cable & Wireless to make a purchase worthwhile, he says.

Then there is Deutsche Telekom, a company that already is a partner of Sprint's in the GlobalOne international service alliance. "Deutsche Telekom comes to mind right away," says Melanie Posey, senior analyst at International Data Corp., a Framingham, Mass., consulting firm.

"They are looking for a U.S. presence, and this would give them national coverage," she says.

But Forrester's Schaaf says that a former monopoly such as Deutsche Telekom will be looking for more than just an Internet backbone. The company may be more interested in an acquisition that also includes Sprint's long-distance voice networks, she says.

Other shoppers

Incumbent local exchange carriers (ILEC) may also be potential shoppers.

BellSouth and SBC Communications are the two most likely suitors, analysts say.

While new regulatory hurdles would have to be addressed if an ILEC were to acquire Sprint's national 'Net - none of the ILECs are permitted to offer long-distance service -- a buy would not be a bbad idea, Schaaf says.

There are still other suitors, such as PSINet, the only independent national ISP that hasn't been bought by a big telecom company.

Finally, there's Exodus Communications, the collocation and Web hosting service provider that completely relies on other service providers to link its data centers around the world.

This story, "Sprint's Internet business heading for the block?" was originally published by Network World.

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