Racing To Lay Claim to Sprint

Sprint is scheduled to report quarterly earnings next Monday, but market analysts are more intrigued by what won’t be discussed: a major structural change thought to be brewing at the telecommunications company.In recent weeks, speculation has centered on three scenarios: a new venture being funded by other companies to develop the WiMAX spectrum of Sprint and Clearwire; the sale of parts of the company, particularly those associated with Nextel, or the sale of the entire company to a third party such as Deutsche Telekom.Any structural change for Sprint would almost certainly require federal review and approval. Some of the companies mentioned as purchasers of Sprint or as partners in a new venture with the company are American. Others are not. Many reasons may develop to impede governmental approval of a restructuring of Sprint, but foreign ownership should not be one of them.Why is even part of Sprint for sale? Sprint has struggled the past two years in an extremely competitive wireless services market, where the line between a successful and an unsuccessful operator is thin. Even the best laid plans of wireless carriers can go awry.Consider the example of a spectrum swap four years ago: Nextel offered to swap fragmented licenses in one band of spectrum for one large swath of undeveloped spectrum. In return, Nextel would help public safety organizations develop the vacated spectrum. To most outside observers at the time, Nextel received an enormous benefit worth billions of dollars.Switching customers from one band of spectrum to another and helping public safety organizations develop the vacated spectrum has proved far more time-consuming and costly than anyone imagined four years ago. Last Friday, the D.C. Circuit Court of Appeals ruled that the FCC can insist that the deadline to vacate spectrum be enforced. By all accounts, the deadline cannot easily be met. Now the Nextel spectrum swap is considered a large and growing liability.In 2005, Sprint merged with Nextel and its spectrum swap asset. Today, it is difficult to find an outside observer who believes the Sprint-Nextel merger worked well. The spectrum swap is but one of several instances where the newly merged company encountered difficulties.In 2005, Sprint’s market capitalization was well above $50 billion; today it is less than half as much. Although it is entirely possible that Sprint can remain independent and soldier on, as its financial fortune has fallen, speculation of a major transaction has risen.If one were to assemble a list of the most likely acquisition or joint venture candidates, many would be international carriers. The two largest American wireless carriers, AT&T and Verizon, would appear to have considerable regulatory and antitrust obstacles to acquire any part of Sprint. Smaller wireless carriers may not have the financial resources to swallow Sprint. A private equity acquisition, widely speculated 12 months ago, is far more problematic today with tightened debt markets. American cable and high-technology companies are still plausible candidates.In recent months, speculation also has shifted to international wireless operators for at least three reasons. First, several such carriers would value a foothold, or an expanded footprint, in America. Moreover, these carriers have the technology and business experience to operate a wireless business successfully. Second, some of these carriers have the financial wherewithal to acquire Sprint. Third, as the dollar declines and as other currencies rise, American assets inevitably become the targets of foreign investment.Foreign ownership of American wireless companies is no longer an insurmountable obstacle. Deutsche Telekom was the first international carrier to make major American wireless acquisitions — VoiceStream Wireless and Powertel in 2001, for about $35 billion. Those assets, which formed the foundation for T-Mobile, are profitable and valuable today. As with any transaction, an acquisition of all or part of Sprint may involve national security issues. If the purchaser is an international company, those security issues can be addressed. Sensitive contracts, for example, can be divested.Sprint has tens of millions of customers and a great many investors. Those customers want to be sure that new owners would wisely invest in continuing and improving their service. Investors want to be sure that they receive the highest and best offer for their assets. The interests of consumers and investors are aligned and will remain aligned if our government allows foreign investors to bid for Sprint.A former FCC commissioner, Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He can be reached at hfr@furchtgott-roth.com.

Racing To Lay Claim to Sprint

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