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Sprint joins wireless shuffle
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by Chris Nolter

In a move that highlights the growing importance of wireless operations for wireline telecoms, Sprint Corp. is recombining its PCS tracking stock that represents its mobile business with its FON stock.

While the long-anticipated move will end Sprint's five-year experiment with a wireless tracking stock, some observers suggested that it could position to the company to take part in another trend: consolidation.


The Overland Park, Kan., telecom announced over the weekend that each PCS wireless share will be converted into .50 shares of FON common stock as of April 23. Sprint plans to reveal more details Friday, March 5, during a conference call.


Lehman Brothers Inc. advised the telecom's board on the recombination.


The move could be a prelude to more transactions. "The simplified structure will provide clarity in valuing the firm's assets while making it easier for the company to participate in M&A transactions as a buyer or seller," UBS Investment Research analysts John Hodulik and Colette Fleming wrote in a report.


What deal it might pursue, however, is unclear.


Sprint's wireless network runs on the code division multiple access, or CDMA (news - web sites), standard. The largest carriers that employ the technology are Verizon Wireless and AllTel Corp.


The recombination would appear to complicate a potential deal with Verizon Wireless. The company is a joint venture of Verizon Communications Inc. and Vodafone Group plc, and does not have wireline assets.


However, the combination could make Sprint more compatible with AllTel, which does have wireline and wireless operations.


"Certainly from the point of view of issues related to the style of operations, I think Sprint and AllTel would be compatible," Pierce said, adding that she did not see Sprint being acquired.


Sprint and AllTel both derive more than half of their revenues from wireless, and there are other similarities.


"I see some logic behind the rumors given that they have similar wireless technology and their local operations are both rural and independent," said Todd Rosenbluth of Standard & Poor's. "I don't have an opinion on whether something is going to happen."


The new Sprint would have an enterprise value of $41.4 billion, with a market cap in the neighborhood of $26.5 billion and net debt of $14.9 billion. AllTel, by comparison, has an enterprise value of about $20 billion.


The combined Sprint would trade at 4.9 times projected Ebitda for 2005, according to estimates by UBS, versus a multiple of 6.2 times 2005 Ebitda for AllTel.


AllTel is said to have a roaming agreement with Verizon Wireless, though company spokesmen declined to comment on the relationship between the companies.


Qwest Communications International Inc. said Monday that it would provide nationwide wireless services by reselling Sprint's service, which might suggest a compatability between the companies.


"We don't think that Sprint is an easy acquisition for anybody," Rosenbluth said. "There are a lot of moving parts. They don't dominate in anything."





It is the second time in a month, following Cingular Wireless' $47 billion acquisition of AT&T Wireless Services Inc., that investors learned a wireless stock would be removed from the market.

Sprint has been combining some of the back-office operations of its wireline and wireless businesses for more than a year. "It's an indication of what's been going on at Sprint internally, the combining of business units to focus on customers versus product line," said Lisa Pierce of Forrester Research Inc.

Aside from savings and benefits of combining operations of its business units, the recombination could also buoy the valuation of the wireline stock.

Like the acquisition of AT&T Wireless by Cingular, the joint venture of SBC Communications Inc. and BellSouth Corp., the recombination shows how wireline carriers look to offset their losses of customers and revenues to mobile carriers, and to enhance revenues by bundling services.

In general, these established wireline operations throw off cash, but don't have long-term growth potential and promise of wireless telecommunications. Yankee Group analyst John Jackson has dryly dubbed this "mad cash cow" syndrome.

The wireless business should also benefit from the arrangement, though.

"If you can hop on your parents' network for your back haul traffic, that gives both companies, wireless and wireline, significant cost advantages," Pierce said. "There's good reason to do that whenever possible."


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