Sprint Nextel (NYSE: S) and Level 3 Communications (NasdaqGS: LVLT) are discussing the possibility of a joint venture involving their long-haul networks, according to the Wall Street Journal.
The two have been talking in “recent weeks,” which is about how long it’s been clear that Qwest Communications was not going to find a buyer willing to pay the price it wanted for its long-haul network.
When asked at an investor conference yesterday whether Qwest had considered divesting its long-haul network through a spin-out in combination with Sprint’s network, Qwest’s chief financial officer Joe Euteneuer said, “We entertained all possibilities.”
In fact, because the list of those reportedly examining Qwest’s long-haul assets included several seemingly unlikely bidders (including Cogent Communications and XO Communications), some have speculated that a number of cross-carrier combinations might have been proposed.
A Sprint/Level 3 joint venture –which perhaps didn’t exist during Qwest’s asset auction — might theoretically be able to pay more for Qwest’s assets than individual bidders would have by themselves.
However, Donna Jaegers, senior analyst with D.A. Davidson & Co., is skeptical of the wisdom of a Sprint/Level 3/Qwest combination, citing integration challenges. “With Sprint and Level 3, you get one level of synergies,” she said. “Add Qwest, and you could get another layer of synergies or you could get a mess. It might be too much.”
Jaegers thinks Sprint would do well to get rid of its long-haul network in exchange for guaranteed discounts on its use and perhaps other priveleges, which may be what results from its talks with Level 3.