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GTE Sprint, US Telecom To Be Merged In Long-Distance Joint Venture

January 17, 1986

NEW YORK (AP) _ GTE Sprint and US Telecom, long-distance services that have fared badly against AT&T in the battle for customers, will be merged by their parent companies in a joint venture to be known as US Sprint Communications Co.

GTE Corp. and United Telecommunications Inc. announced Thursday their joint venture would have 2.2 million customers, or 4 percent of the market, and a better chance of gaining ground against American Telephone & Telegraph Co.

″There’s no question that the new company will be a more formidable competitor″ than the two separate businesses, said Theodore F. Brophy, GTE’s chairman and chief executive.

AT&T has nearly 85 percent of the U.S. long-distance market, while runner- up MCI has about 10 percent. Consolidation is the best hope for the rest of the pack, analysts say.

″I think it increases the viability of both companies,″ said Edward Greenberg, an analyst at Morgan Stanley & Co. He said he thought that together, the money-losing operations might turn a profit by 1987.

Other analysts were more skeptical. ″Whether they’re going to get to the critical mass that would make them profitable, the jury’s still out on that,″ said Efrem Sigel, president of Communications Trends Inc. of Larchmont, N.Y., a research company.

In addition to long-distance services, the joint venture will include the parent companies’ data-communications subsidiaries, GTE Telenet and US Telecom Data Communications Co., according to a letter of intent signed by executives of both companies. All profits and losses will be split evenly between the parent companies.

The companies said the deal requires approval of the Federal Communications Commission and the Justice Department, but they expect no opposition from them and should complete the deal by June 30.

In New York Stock Exchange trading Thursday, GTE rose $1 a share from Wednesday’s close to $48.121/2 . United Telecommunications closed at $24.871/ 2 , up from $24.25 Wednesday. AT&T fell to $23.121/2 from $23.50 Wednesday.

William T. Esrey, president and chief executive of US Telecommunications, said the new joint venture might turn profitable by the end of 1987, although he said it is too soon to tell for sure. He said the venture could be ″extremely profitable″ if it achieved a market share of 6 to 8 percent.

GTE lost about $190 million and US Telecommunications lost about $45 million on their long-distance services through the first three quarters of 1985, said Joel Gross, an analyst at Dean Witter Reynolds Inc. He said it was hard to tell when the joint venture might turn a profit.

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