Slim Prospects for Level 3, Sprint Deal

The numbers don't add up for the rumored network deal between Level 3 Communications (LVLT Quote) and Sprint (S Quote).

Shares of Level 3 surged as much as 21% Wednesday after The Wall Street Journal reported the two phone companies were in "preliminary discussions" to combine so-called long-haul network assets in a separate venture.

Citing people close to the talks, the Journal story said Sprint would retain a controlling 51% stake if the companies struck a deal. Otherwise, a partnership of some kind could also emerge from the discussions.

Level 3 is a money-losing telco wholesaler with $6.4 billion in debt and less than $700 million in cash. It's no surprise the company would be considering some strategic options, but its financial woes, namely its debt, would be a heavy burden for any joint venture to carry.

Presumably Level 3's capacious fiber-optic national network holds some value. But that value wasn't helped this week by Qwest's (Q Quote) failure to sell its long-haul network. Qwest was hoping to get at least $2 billion for the long distance business.

Both Sprint and Level 3 declined to comment on the matter.

Level 3 shares closed up 20 cents, or 17.7%, at $1.33 Wednesday.