Sprint Chats Up BellSouth

As telecom merger talks ebb and flow, those predicting imminent action continue to be all wet.

Sprint (FON) has initiated informal discussions exploring a possible hookup with BellSouth (BLS), according to a person familiar with the situation. The development comes out of a Labor Day weekend that featured reports that AT&T (T) was fending off BellSouth's advances.

Sprint and BellSouth have been down this road before, notably when BellSouth threw a $72 billion hail Mary aimed at tripping up the 1999 linkup of Sprint and WorldCom. That deal, of course, was scotched by the feds the next year on antitrust concerns.

Even given the history, though, few industry observers are taking word of renewed discussions between the Atlanta local-service provider and the Westwood, Kan., telco very seriously.

Call it discussion fatigue or a sudden change in the merger climate, but earnest efforts toward deal making under the industry-consolidation banner appear to be giving way to a growing go-it-alone strategy.

"No one has a gun to these companies' heads," says Lehman Brothers analyst Blake Bath. On Tuesday, shares in all three telcos treaded water, with BellSouth dropping 14 cents to $25.06, Sprint rising a nickel to $14.82 and AT&T adding 2 cents to $22.32.

New Strength

The entire industry has a healthier feel nowadays than it has had in some time. After a long stretch in which many deals were vaguely discussed but none of any great import came to pass, the would-be gun of insolvency has finally gone away. And with the market's solid rally since springtime, telecom companies are suddenly approaching a still-tight market with an altogether different outlook.

"Their balance sheets are much stronger, the stocks are up, and even Sprint's biggest worries are behind it now that they sold their directory business," says Bath.