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WorldCom and Sprint End Their $115 Billion Merger

WorldCom Inc. and the Sprint Corporation officially abandoned their $115 billion merger yesterday, bowing to pressure from regulators, who were concerned that the creation of such a large telecommunications company would stifle competition.

Far from dampening the outlook for ever-larger communications concerns, the dissolution of the agreement, which had been expected for several days, fueled speculation about consolidation among large telecommunications companies.

Both WorldCom and Sprint were mentioned as potential takeover targets, with British Telecommunications and Nippon Telegraph and Telephone reported to be in talks with WorldCom. Sprint, meanwhile, was said to be considering an overture made by Deutsche Telekom.

Shares in WorldCom rose to their highest level in more than four months, adding $3.4375, to $47.9375, while Sprint rose 68.75 cents, to $48.

While the companies mentioned in the reports played down speculation that they were negotiating or declined to comment, analysts were quickly redrawing the possible map of the United States telecommunications industry.

''If anything, acquisition intensity is sure to grow,'' said Sajai Krishnan, a partner in the San Francisco office of Booz Allen & Hamilton, a consulting firm. ''It's clear that in today's world you need to have control of the entire network.''

WorldCom would have moved closer to that vision had it succeeded in acquiring Sprint, which is coveted for its fast-growing wireless unit and its capability of handling large amounts of data over its Internet network. WorldCom grew through more than 70 takeovers during the last several years.

Regulators in both the United States and Europe, though, opposed the Sprint deal as they became wary of the effect the merged enterprises might have on the market for long-distance services.

''Why regulators were pushed out of their comfort zone on this particular deal will probably seem strange a year or two from now,'' said Jeffrey Kagan, an independent telecommunications analyst.

To be sure, having WorldCom, the No. 2 long-distance phone company behind AT&T, acquire the No. 3 long-distance company, Sprint, was a hard pill to swallow for regulators.

But their views could change as more phone companies start offering long-distance services nationwide, as Verizon has done in New York and SBC Communications has done in Texas. These moves are expected to increase competition and lower long-distance charges for consumers in many markets.

In the meantime, much of the consolidation in the telecommunications industry is expected to be concentrated not on long distance, which is becoming stagnant, but in faster-growing areas like wireless and data or broadband transmission services.

''There are many chances for WorldCom to come out of this unstymied in its strategy of growing-by-acquiring,'' said Andrew Hamerling, a telecommunications analyst with Banc of America Securities.

Companies like Qwest Communications International or Williams Communications could be seen as targets for WorldCom because of the potential they have for increasing the capacity for high-speed data transmission or wireless services, Mr. Hamerling said.

Of course, it is for some of these same reasons that WorldCom and Sprint, once their deal dissolved, were so quickly mentioned as takeover targets. The companies thought to have the means to acquire them are not American, however, but foreign ones like Deutsche Telekom, France Telecom, British Telecommunications and Nippon Telegraph and Telephone.

Yet while Deutsche Telekom and France Telecom have been allowed to acquire minority stakes in companies like Sprint, the acquisition of control of a large American phone company might encounter resistance from regulators, especially if the suitor is controlled by a foreign government, as is Deutsche Telekom (the German government owns a 57 percent stake).

Recently, United States lawmakers have made it clear that Deutsche Telekom, would face an uphill battle if it tried to buy Sprint. Perhaps that is why Deutsche Telekom, which is Europe's largest phone company, has shifted its sights in recent days to include smaller companies like VoiceStream Wireless and Qwest.

''I don't think the U.S. can have it both ways,'' William T. Esrey, Sprint's chairman, said in a telephone interview. ''We're moving to open markets abroad, but when we have resistance here that sends mixed signals.''

Source

http://query.nytimes.com/gst/fullpage.html?res=9F00E6DB163BF937A25754C0A9669C8B63

''There are many chances for WorldCom to come out of this unstymied in its strategy of growing-by-acquiring,'' said Andrew Hamerling, a telecommunications analyst with Banc of America Securities."

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