People close to the Verizon camp say the big telco has started a so-called due diligence process at Sprint. The sources describe the work as at the "fact finding" and information-gathering stage, with no formal discussions under way.
Like fellow Bells
, Verizon has reached a critical turning point for its business strategy, thanks largely to
$16 billion bid for
Monday. The proposed merger would thrust SBC into a truly national market, for the first time pitting the San Antonio telco against its regional Bell peers.
A representative for Verizon declined to comment. Sprint's CFO Bob Dellinger said in an interview Thursday that the company was "excited about what we are doing with Nextel," adding, "that's where our focus is." In December, Sprint and
agreed to a $30 billion merger of equals.
Industry observers say it's consolidation time and all the players are exploring their contingency plans and counterstrike options.
"I think in Verizon's case, they are being pushed," says Telecom Pragmatics analyst Sam Greenholtz. "I don't think they are ready yet, but they have to look at players like Sprint -- they don't have any choice."
The timing isn't exactly perfect for Verizon. The phone giant is spending billions on a massive fiber optic network expansion and a similarly ambitious wireless Internet upgrade -- even as it tries to reduce its $36 billion debt. It is saddled with a cumbersome power-sharing arrangement with U.K. telco
in the hard-charging Verizon Wireless joint venture.
Nonetheless, the walls are arguably closing in a bit on the New York telco.
According to a report in
The Wall Street Journal
Thursday, Denver-based Qwest is discussing a deal with
, the No. 2 phone and data service provider to big businesses.
Prior to the SBC-AT&T deal, the Bells were struggling to show some vitality by balancing their eroding core wireline phone business with stellar wireless growth. But now, the pending merger of SBC and AT&T exposes a big weakness in Verizon's business services offerings. And as regional players, Verizon and BellSouth are very limited in terms of national and international communications service reach.
One Wall Street analyst said he's not surprised that Verizon is cracking Sprint's books. "Given what's been going on lately in the sector, if you are Verizon's deal people, you aren't just sitting back watching," says the analyst, who asked not to be named.
Last week, Verizon CEO Ivan Seidenberg changed his tone slightly on the consolidation issue. Normally dismissive of swirling merger speculation, Seidenberg acknowledged the pressure to
"We look at everything every day," Seidenberg said on a conference call with analysts.
As for the likelihood and success of a deal between Verizon and Sprint, analysts say regulators might make the process fairly difficult. If combined, Verizon Wireless and Sprint would have more than 50% of the cell-phone market in cities like New York. Antitrust officials would probably argue that there are some anticompetitive effects from that sort of market dominance.
But as observers point out, regulators could OK a deal and simply require network divestitures in given markets.
And though one source says the due diligence work between Verizon and Sprint has heated up this week in the wake of the SBC and AT&T announcement, he wasn't expecting any major developments soon.
One reason could be Sprint and Verizon's competing bids in a federal wireless spectrum auction.
To avoid potential collusion, the auction rules prohibit bidders from having strategic business discussions with other bidders. Some industry watchers don't expect Verizon to start more advanced merger discussions with Sprint until the auction is over.
One person involved with the bidding said he expected the conclusion of the license sale to be "days away."