Plans by Tele-Communications Inc., Comcast Corp. and Cox
Communications Inc. to sell down their stakes in Sprint PCS advanced last week, when
Sprint Corp. filed to take the wireless unit public.
The initial public offering -- which Sprint shareholders
will vote to approve on Nov. 13 -- is aimed at raising an estimated $603.8 million,
according to Sprint's filing at the Securities and Exchange Commission.
The filing didn't spell out many details, such as the
number of shares to be offered or the pricing, which will come later. But Sprint had said
that the IPO would cover 10 percent or less of the unit. The actual stock sale may not
happen until the first quarter of next year.
The three MSOs will end up owning a combined 47 percent of
Sprint PCS, down from 60 percent, under a restructuring deal that will see Sprint kick in
the value of personal-communications-services licenses that it bought separately. That
stake and Sprint's 53 percent equity will be diluted after the IPO.
Then, six months after Sprint PCS goes public, the MSOs can
begin to sell off their equity stakes in the venture, which had racked up pretax operating
losses of $3.3 billion as of June 30.
The MSOs -- which originally hoped that their Sprint
partnership would extend to wired phone services over cable plant -- want to cash in on
their investments and shed their share of Sprint PCS' ongoing capital requirements.
After TCI, which originally owned 30 percent of the
venture, merges with Sprint rival AT&T Corp., TCI will sell its Sprint PCS stock,
which, the IPO filing noted, could affect the stock's market price.
While the nationwide wireless venture has built out much of
its network, which serves about 1.3 million subscribers, it still expects to spend $3.2
billion to $4 billion on capital outlays between July 1, 1998 and Dec. 31, 1999 -- roughly
equal to the venture's capital expenditures since its inception in 1995. The venture
also laid out $3.1 billion for PCS licenses.
Sprint and the MSOs have agreed to lend Sprint PCS up to
$400 million, on a proportional basis, for capital requirements until the restructuring
closes. The MSOs will get $240 million in PCS preferred stock in exchange for that loan.
Going forward, Sprint intends to raise $3 billion by
selling debt securities at about the same time as the IPO occurs. Part of that will go
toward PCS capital expenditures. Sprint PCS' network build-out has largely been paid
for with financing from key vendors Nortel and Lucent Technologies, totaling $2.3 billion
as of June 30, according to the filing.
Sprint PCS will also include PhillieCo Partners, the
Philadelphia-area wireless business that is now 47 percent-owned by Sprint, with the rest
divided between TCI and Cox.
Cox separately owns 40.8 percent of Cox PCS, the Sprint PCS
affiliate that serves Los Angeles and San Diego under a license awarded to Cox. Over time,
Sprint will buy out that stake with cash and PCS stock.
The PCS stock that the MSOs receive will carry low voting
rights. But after the MSOs sell their shares, the stock will have the same voting rights
(one vote per share) as that offered initially to the general public.
Sprint PCS' revenue has grown to $468 million in the
first half of 1998, up from $258 million in all of 1997. Its net losses have also grown,
to $1 billion in the first half of 1998 from $556 million in the same period a year ago.
The Yankee Group analyst Mark Lowenstein said Sprint PCS
has been successful, but it probably won't be able to sustain its average of $60 in
monthly revenue per subscriber as competition increases.
"They have definitely come in and are already among
the price leaders among the PCS carriers, if not the price leader, in many markets,"
Sprint PCS also said in the filing that it has suffered
from more subscriber churn than the average cellular carrier, which it is trying to
address by expanding network coverage, improving call reliability and hiring more