Sprint learns the hard way

IN THE LAST COUPLE OF MONTHS, Sprint has received a pair of lessons in the complexity of doing business in Latin America that are entirely unrelated to its long-distance service.

The first came in Brazil shortly after the company's January win of a long-distance license from the government. The U.S. telecom owns a fourth of the new Brazilian venture along with France Telecom and National Grid, a British electric company. The consortium successfully bid the equivalent of almost US$46 million in local currency just before the first Brazilian devaluation on January 12, then paid the reduced price of $42 million days later, only to lose money on the currency's continued weakness as it ultimately finished down about 50%.

Devaluation brought good and bad news, as well as some hard decisions. "The devaluation makes it cheaper for them to invest," says Kansas City Federal Reserve Bank economist Ricardo Gazel. "But if there are further devaluations, it will lower their returned profits."

Sprint has, for now, decided that Brazil is too big a market to ignore, whatever its problems may be. "We're not big on the crystal ball business," says company spokesman Sydney Shaw. The partners are going ahead with this year's plans to link 38 cities and provide long-distance telephone and data services within Brazil and overseas. The network is expected to expand to most of the country within three years. Sprint is installing equipment now to be ready for when the economy rebounds and telephone demand hits a rapid clip--only one in 10 Brazilians have a phone today.

The second lesson came just a few weeks later, when Cuba's phone company, Empresa de Telecomunicaciones de Cuba (Etecsa) cut off five U.S. long-distance companies in a payment dispute.

The five--AT&T, MCI, LDDS Communications, IDB Communications Group and WilTel--voluntarily withheld $19 million pending a decision in a U.S. federal lawsuit. A judge has yet to rule on whether the phone companies' payments to Etecsa can be used to compensate the families of four people on two planes shot down by Cuban jets three years ago. The families sued for damages in a Florida federal court and won $187 million; however, the Cuban government refuses to pay. Sprint and another long-distance provider escaped Cuba's retaliation by paying what they owed.

AT&T alone controlled half of the 1,000 phone circuits previously linking the two countries; Sprint ran just a tenth of the total telephone traffic prior to the February cut-off. As the other companies struggled to reroute calls, Sprint's traffic volume spiked, creating a small bonanza and forcing the company to add more capacity to handle the bottleneck.

COPYRIGHT 1999 Freedom Magazines, Inc.
COPYRIGHT 2000 Gale Group