Sprint Corp. addressed its financial future Friday in the face of dwindling
stock value and lowered expectations in its FON Group.
Company officials announced their intentions to move away from the long
distance market and re-focus the group’s energies on the rapidly-expanding
Internet data services industry. The move, however, comes at the cost to
its successful wireless communications PCS Group in the form of equity sell
offs.
The Sprint FON Group, a subsidiary of the Sprint Corp.,
has seen its stock
plunge from a 52-week high in January at about 75 to this month’s results
in the mid-20s. It dropped even more, to $21 per share, when the company
reported projected earnings per share of $1.80 to $1.90 for 2000, below
analyst projections for the year.
William Esrey, Sprint chairman and chief executive officer, said the FON
Group is a work in progress but still one of the best in the
business. That, coupled with the success of its PCS division, assures
Sprint’s future.
“Our goal is straightforward — deliver superior shareholder returns,”
Esrey said. “To achieve this we must continue to build PCS into a wireless
powerhouse and transition FON Group into a high-growth, data driven
business. Our competitors have pieces but none has the breadth and depth
of network assets across all the industry segments that Sprint possesses.
With capital investment in targeted areas, our portfolio of assets provides
a solid platform to accelerate revenue growth.”
Sprint officials say its switch in the FON Group from voice services to
data will rebound its stock value. By 2003 the group plans to derive 50
percent, or $5 billion, of its earnings from its Internet backbone, mainly
through the efforts of its ION program.
“My optimism is driven by the customer demand we see everyday,” Esrey
said. “Demand for bandwidth is nearly insatiable. Customers want fast
access at work, at home and on the go. Whether business or consumer, it
boils down to access to bits and bytes moved at ever-faster speeds, the
ability to access that information at ever-faster speeds, and the ability
to access that information, anytime, anywhere.”
To meet that demand, officials are pumping $900 million, or nearly
one-fifth of the total budget in 2001, into network upgrades to
packet-switching technology. Paying for the upgrade comes at a cost, in
part, to the PCS Group, which is selling off $3 billion in equity next year.
Ironically enough, it’s the PCS Group’s success that makes Sprint an
attractive takeover candidate, made easier by the FON Group’s low stock
value.
The PCS Group manages the nation’s only nationwide wireless
platform. Sprint officials predict that nearly all its business users will
taking advantage of its wireless Web services, more than making up for
losses in the voice data arena.
One analyst noted that Sprint only relied on 44 percent of its revenues on
long distance, compared to 52 percent by AT&T Corp. and 64 percent by
Worldcom, Inc. AT&T and Worldcom have already announced their intentions
to move away from long distance and focus on data services.
Sprint’s Internet backbone, coupled with the built-in infrastructure of its
incumbent local exchange carriers located throughout the U.S., make it a
prime target for companies like Qwest Communications and Bell South Corp.
Bell South, for example, doesn’t have an Internet backbone of its own, and
is currently in the process of building a network access point in southern
Florida. An acquisition would give the telco an already-built NAP, among
other things, in New York.
