Sprint Decides to Spin Off Cellular Division : Telecom: Company will press ahead with new wireless service. Analysts say move may weaken remaining corporation.
Pressed by a federal rule to choose between two ways to provide wireless communications, Sprint Corp. decided Wednesday to spin off its cellular business into a stand-alone company.
Sprint will instead press forward with a new type of wireless service, called personal communications service, or PCS, that it has joined with several cable TV companies to develop.
The decision will let Sprint comply with Federal Communications Commission rules after its purchase of PCS rights with the cable companies. Sprint last month said it was considering options for the cellular division, including a tax-free spinoff, to meet the FCC requirements.
Analysts said the spinoff would immediately benefit Sprint shareholders, but might weaken the remaining company.
The division, called Sprint Cellular, is the nation’s eighth-largest cellular company, with more than 1.24 million customers in 14 states. It had revenue of $823 million for the 12 months ended June 30.
“Through a spinoff, both the cellular unit and the Sprint Telecommunications Venture can pursue their own growth strategies and develop separate marketing identities and technological infrastructures,” William T. Esrey, Sprint’s chairman and chief executive, said in a statement.
Sprint has a joint venture with the cable companies Comcast, Cox Communications and Tele-Communications Inc. in PCS.
When the FCC auctioned PCS licenses earlier this year, the joint venture paid $2.1 billion for licenses in 29 markets. The FCC rules prohibit PCS license winners from holding more than a 20% interest in cellular providers that serve the new wireless markets.
Sprint would have had to divest itself of cellular holdings in four markets: Philadelphia, Dallas-Ft. Worth, Des Moines-Quad Cities in Iowa, and Detroit.
“As far as Sprint shareholders, they’re going to have a very attractive holding, at first blush, in the cellular piece,” said Bruce Thorp, an analyst for PNC Investment Management & Research in Philadelphia.
“I probably would plan to be pretty cautious about the remaining Sprint business because of the high expenditure required for PCS, which still has to be considered an unproven service,” Thorp said.
Connie Luecke, an analyst for Duff & Phelps in Chicago, said the spinoff made sense.
“The big wireless play Sprint is making is PCS,” Luecke said. “It seems logical to me, especially when they were going to have to sell part of it [anyway].”
Analysts have estimated Sprint and its partners need as much as $5.4 billion to build their PCS network. Esrey said the spun-off Sprint cellular operation would be well-capitalized and have 1995 revenue near $1 billion. It would not use the Sprint name.
The spinoff is subject to regulatory approval, including a favorable ruling on its tax-free nature. But Sprint said it expects to complete the spinoff in the second quarter of 1996.
Pacific Telesis Group last year spun off its cellular unit, now known as AirTouch Communications.
