Is Sprint's wireline division heading for the auction block?

Sean Buckley, FierceTelecom

Emerging news that Sprint is considering selling off its struggling wireline business should be of no real surprise, particularly as its new owners at Softbank have made it clear that becoming a bigger threat to AT&T Mobility (NYSE: T) and Verizon Wireless (NYSE: VZ) in the wireless market is their key priority.

New CEO Marcelo Claure reiterated the theme during the third-quarter earnings call that the company is open to selling its struggling wireline assets, a move that would allow the company to focus exclusively on its wireless business.

"We are undergoing a pretty deep review of wireline and that's something that we are going to come out in the next few months and give you a latest status update on what exactly are we are going to do with the wireline business," Claure said during the earnings call, according to a Seeking Alpha transcript.

Despite the fact that the network is a bit older, there are some attractive elements to it. The service provider has been aggressively expanding into international markets, particularly in Europe.

Over the past three years, Sprint has expanded the reach of its wireline-based MPLS service in more than 155 countries while expanding its presence into new regions by building out a mix of its own facilities and establishing interconnection (network-to-network interconnection) agreements with other local carriers. It also offers Ethernet access in 118 countries.

On the Ethernet front, the service provider extended its service presence deeper into Europe by establishing new point of presence (PoP) with Interxion, a carrier-neutral colocation data center provider in both Madrid and in Russia.

Despite these moves, Sprint's wireline division revenues continue to lag, and the third quarter was no exception. Wireline voice and data revenues were $294 million and $53 million, down year-over-year from $333 million and $57 million, respectively, while Internet revenues were $340 million.

But the question is who would be interested in purchasing Sprint's wireline assets?

One possibility is Level 3 Communications. Although the service provider has its roots in the wholesale industry, it has been aggressively expanding its presence in the enterprise market. To enhance its metro and on-net fiber reach, the service provider recently completed its purchase of tw telecom.

"We see a sale-leaseback of (Sprint's) long-distance network as likely," said Oppenheimer analyst Tim Horan in a research report cited in an Investor's Business Daily article. "We suspect Level 3 would be the most likely partner, and it would be quite accretive to its FCF (free cash flow)."

The Oppenheimer analyst suggested that Sprint could get $4 billion for the assets.

However, other industry watchers like Rob Powell, the founder of Telecom Ramblings, contends the $4 billion price tag is too steep for the assets at a time when Level 3 is being faced with a long integration process of the tw telecom assets.  

Other service providers that could make a run for the Sprint wireline assets are CenturyLink and Windstream.

For CenturyLink, which purchased Sprint's former local telephone brother Embarq that Sprint spun out in 2005, purchasing the wireline assets could be a reunion of sorts. CenturyLink, which has been increasing its own cloud and Ethernet presence both domestically and in international markets like China and Europe, could use the Sprint assets as another platform to accelerate growth in these markets.

Finally, Windstream, which has been, like Sprint, targeting mainly the medium-sized business market, could use the long-distance assets to potentially deepen its domestic presence and perhaps establish a foothold in the international arena--one that it has yet to tackle.  

While it's clear that Sprint's key priority today is wireless, it's hard to overlook Sprint's influence on the wireline industry that dates back to the late 1800s, when it was known as Brown Telephone Company, and its later forays into packet switching and fiber optics. During the long-distance voice heyday in the late 1980s, Sprint would tout the fact that every call carried over its network was so clear you could hear a pin drop.

Whatever the outcome of the wireline unit is, it's clear that Sprint's wireline business is the product of a bygone era that the company has replaced with its more profitable wireless business, and it has no plans to turn back on that plan.–Sean

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