MCI Bails Out on $1.3-Billion Nextel Deal : Communications: Ambitious plans to build a nationwide wireless network along with Comcast are abandoned.
The information highway on Monday became littered with the wreckage of yet another deal gone bad as the nation’s second-largest long-distance phone carrier and two partners abandoned a promising pact to build a nationwide wireless network.
MCI Communications Corp. of Washington broke off plans to invest $1.3 billion in Nextel Communications Inc. of Rutherford, N.J., and join with Nextel and Comcast Corp. of Philadelphia to build a communications network available to about 95% of the U.S. population.
It is at least the fourth ballyhooed telecommunications deal to fall apart in recent months. The MCI-Nextel plan, which would have used a portion of the airwaves now employed mainly by taxi dispatchers, held special promise because it would have produced coast-to-coast competition with existing cellular services.
Its “specialized mobile radio” technology, employing hand-held devices similar to cellular phones, can be implemented quickly. But business and consumers may have to wait years for the arrival of more advanced wireless technologies such as personal communications services, which would provide wireless communications from devices as portable and unobtrusive as a wristwatch.
“The agreement we reached in February will not happen,” MCI spokesman Kevin Inda said tersely on Monday. “But we could do a new deal on new terms.”
No other details were provided by MCI; Nextel, a wireless dispatch service company, or Comcast, a leading cable TV and cellular phone provider.
News of the deal’s collapse further pummeled Nextel’s stock, which has lost nearly 50% of its value since its MCI-Comcast alliance was announced in February. In heavy trading on the Nasdaq exchange, Nextel lost $5.25 to close at $25.25. MCI eased 37.5 cents to $24, while Comcast voting shares lost 25 cents to $16.50.
Industry officials and analysts said MCI had become increasingly concerned that Nextel’s multibillion-dollar buying spree of specialized mobile radio wireless licenses was eroding MCI’s financial position in Nextel, which has $1 billion in debt.
In addition, MCI was said to be concerned about how its corporate name would be used in marketing the wireless technology and about technical glitches in the wireless service Nextel launched in Los Angeles and a few other cities earlier this year.
“Since the original deal, Nextel has continued to buy up properties, and MCI didn’t have any say in that,” said Mark Lowenstein, an analyst in the Yankee Group, a Boston consulting firm, adding: “We still believe there is a chance this deal can be rescued.” But if it is not, Lowenstein said, “it clearly is a setback” for the new wireless technology.
The failed pact is also another setback for the Clinton Administration’s efforts to increase American jobs and competitiveness by encouraging industry to modernize the nation’s electronic communications networks with advanced technology. The marriage of the new communications technologies with unproven markets has proven rocky.
Since the beginning of the year, three other major telecommunications deals touting such technology have collapsed: a proposed $33-billion merger between Bell Atlantic Corp. and cable giant Tele-Communications Inc., a $4.9-billion joint venture involving Cox Enterprises Inc. and Southwestern Bell Corp., and QVC Network’s failed bid to acquire Paramount Studios for $10 billion.
Strategically, MCI, Nextel and Comcast had hoped to get a jump on AT&T;, whose $12.6-billion acquisition of the nation’s largest cellular phone provider, McCaw Cellular Communications, is nearly complete.
MCI announced Feb. 28 it would invest $1.3 billion in Nextel in exchange for an 18% stake in the company. But the prospect of voting control evaporated earlier this month when Nextel said it would pay $2.4 billion of its stock for Dial Page Inc., one of Nextel’s biggest rivals, and for Motorola Inc.'s specialized mobile radio licenses. That gave Motorola 62 million Nextel shares--a 20% stake--worth about $1.7 billion.
In a recent interview, Nextel Chairman Morgan E. O’Brien acknowledged that there have been some early transmission service problems in the Los Angeles venture, but he said they have been resolved. He also said his company fully intends to launch nationwide wireless service by 1996.