The telecom consolidation game drew another roar of investor approval as Sprint ( FON) rolled out a little combination of its own.
Shares of the Overland Park, Kan.-based telco rose 6% Monday after the company said it would go ahead with its long-awaited plan to eliminate its Sprint PCS ( PCS) wireless tracking stock. Wall Street took the move as signaling that Sprint is throwing its hat into the mergers-and-acquisitions ring. The industry has been flush with hookup talk ever since last month's $41 billion blockbuster between Cingular and AT&T Wireless ( AWE). But some investors don't expect a big deal involving Sprint. Instead, they see a big telco struggling to avoid losing ground to the surging use of wireless phones. These industry experts say Sprint is focusing on cost-cutting as revenue continues to evaporate in its long-distance and business-services operations. "This is not real exciting stuff," says independent telecom strategist Marty Hyman. "It's consistent with the cost restructuring they have under way. I don't think it tees up anything in terms of merger activity." Tracking stocks such as Sprint PCS were a regrettable investment banking fad of the '90s. While they gave parent companies some IPO cash and a way to promote a popular unit without losing control of the operation, they also required separate books, additional staffing and higher costs. Sprint is merely looking for some "cost efficiency" by realigning the products, sales and management of the company, says Hyman. On Monday, Sprint FON rose $1.18 to $18.91, and Sprint PCS rose 41 cents to $9.41. With competition for business services growing ever more cutthroat -- big players like AT&T ( T), MCI and Sprint are expecting annual revenue declines in the order of 10% -- there are few options aside from continued cost-cutting, say analysts.
Even though AT&T tried a last-minute bribe of promising 5,000 new U.S. jobs to help gain support for the deal, the Justice Department filed a complaint to fight the combination of the nation's No. 2 and No. 4 wireless carriers.