Dataquest Says Abandoned Merger Of WorldCom Injures Sprint.

The failed merger attempt by WorldCom and Sprint is a severe setback for both companies, while the big winner is AT&T, according to Dataquest Inc., a unit of Gartner Group Inc. (NYSE: IT and ITB). Dataquest analysts said Sprint is hurt most severely by the fact that many stakeholders had already made plans and commitments based on the merger going through and some senior managers and other key workers have already left Sprint in preference to working for the new WorldCom. Shareholders, including many employees, thinking their retirements were made secure by the deal, expected their Sprint stock to be worth what the WorldCom merger offer said it was. Lastly, the market has already adjusted to the prospect the Sprint brand is going away resulting in reduced advertising by Sprint and customer erosion/migration.

The called-off merger leaves WorldCom with the stiff challenge of acquiring ownership of wireless assets to fulfill its stated aim of becoming a full end-to-end communications provider. Dataquest analysts point out that continuing with wireless resale for small to midsize customers is not enough in the long term and will not raise WorldCom's valuation.

"Now matter how WorldCom looks at this, the price of entry has just gone up because the field of possible wireless acquisitions has narrowed. Takeover targets include Nextel, for which WorldCom has already made an unsuccessful bid," says Dave Rendall, group vice president for Gartner's Consulting Services. "A merger with Vodafone would be a coup, but not likely. However, it is not at all out of the realm of possibility that WorldCom would still have a shot at Sprint PCS assets as a partner in a three-way deal with a non-traditional acquirer." AT&T has gained the most from this failed merger. AT&T will continue to be the leader in many of the markets. AT&T currently accounts for 56 percent of US residential long-distance service, and in US international calling. AT&T is the leader with 45 percent of the market. AT&T holds nearly 50 percent of the market for data lines to international locations. Dataquest analysts said the called-off merger means AT&T will continue to lead these markets.