MCI WorldCom and Sprint have agreed to merge - and now face the enormous challenge of convincing users that they can pull it off without the usual period of post-merger chaos.
Under the deal announced on Tuesday, MCI WorldCom will pay $US76 for each share of Sprint, and MCI WorldCom will also take over the separate tracking stock of Sprint PCS. The total value of the deal is $US115 billion in stock plus $14 billion in assumed equity.
MCI WorldCom says it hopes to achieve $1.9 billion to $3.0 billion in annual savings "from better utilisation of the combined networks and other operational savings". But at least at first, the merger would combine MCI WorldCom's continued largely unintegrated and duplicative networks with yet more similar networks from Sprint.
And while the deal may be leaving Wall Street giddy, it has merger-weary users apprehensive. Some MCI WorldCom users in particular are nearly apoplectic at the prospect of riding out yet another merger.
"Nothing could confuse things more than a merger with Sprint," says Andrew Stratford, telecomms director at Congress Financial, a specialised lender from New York.
Stratford, a legacy WorldCom user and current president of the Communications Managers Association, recited a now-familiar litany of billing and customer-service problems that he attributes to the MCI WorldCom combination.
"Do you know that MCI personnel are still trying to sell me long-distance?" he asks. "I've had to ward off at least five to 10 sales pitches, and I say to them, 'Don't you people ever look at your own database?'"Other MCI WorldCom customers are fearful that a Sprint deal could multiply the acquiring company's already daunting network integration problems. For example, MCI WorldCom has four frame relay networks and Sprint has two. And they point out that MCI WorldCom's recent frame relay failure has already forced the company to scale back plans to integrate frame relay systems around an upgrade of the legacy WorldCom network.
Sprint's internet backbone also would either have to be integrated with MCI WorldCom's or sold off, depending on what regulators decide.
MCI WorldCom won the battle for Sprint after fending off a last-minute challenge from BellSouth. A BellSouth/Sprint combo would have provided fewer overlapping facilities - Sprint, for example, has been notably lacking in local access lines in major metropolitan areas. But such a merger would likely have come with regulatory restrictions against combined local/long-distance services until BellSouth gained independent government approval for long-distance entry.
The MCI WorldCom/Sprint combination will also require regulatory approval. But with the Federal Communications Commission seen likely to approve the pending SBC/Ameritech merger later this week, many observers are betting that the regulators no longer are scaring telecom executives - such as MCI WorldCom's hyperacquisitive CEO Bernard Ebbers - away from once unthinkable megadeals.