The U.S. carrier market appears to be headed for further constriction on news that regional carrier Alltel Corp. is in advanced negotiations to buy Western Wireless Corp. for $4 billion. The report follows Cingular Wireless L.L.C.’s purchase of AT&T Wireless Services Inc. and Sprint Corp.’s recently announced plan to merge with Nextel Communications Inc.
Western Wireless’ stock shot up more than 15 percent on the news to close Thursday at $35.70 per share. Alltel’s stock dropped around 3 percent to about $56 per share.
A deal could be reached between the two carriers within a week, according to the New York Times, which broke the original story. Under the reported terms of the agreement, Western Wireless shareholders would get $40 per share, a premium from the carrier’s trading levels prior to the announcement. However, Raymond James analyst Ric Prentiss said the price could go higher as a combination of cash and stock.
A spokesman for Alltel said the carrier had no comment on the report. Representatives from Western Wireless did not return a call for comment.
A combined Alltel and Western Wireless would create a player with almost 10 million wireless subscribers in rural parts of the Southeast, Midwest and West-solidifying Alltel’s position as the largest of the nation’s second-tier carriers.
The deal would give CDMA carrier Alltel a solid footing in the western United States, as well as access to Western Wireless’ GSM operations. Aside from its own 8.4 million wireless customers, Alltel provides roaming services to other CDMA carriers, primarily Verizon Wireless. Western Wireless also offers roaming services to CDMA carriers, but around half of its network includes GSM technology. T-Mobile USA Inc. is Western Wireless’ primary GSM roaming partner, which makes sense because Western Wireless’ chief John Stanton headed VoiceStream Wireless. Deutsche Telecom purchased VoiceStream in 2001 and re-branded it T-Mobile. Thus, If Alltel purchases Western Wireless, it could diversify the carrier’s potential roaming partners.
Alltel recently has been working to expand its network by purchasing network assets from the likes of U.S. Cellular and Cingular Wireless. Indeed, when Alltel purchased CenturyTel Inc.’s wireless business in 2001, the company said at the time it was looking to expand into the West.
Alltel also has been rumored to be considering a match up with U.S. Cellular, the second-largest tier-two carrier. A combination of Alltel, Western Wireless and U.S. Cellular would create the nation’s fifth-largest carrier with about 15 million subscribers-just behind that of T-Mobile.
“All of the nation’s players are struggling to find out how much scale and scope is enough,” said Mitch Mitchell, vice president of the communications practice at consulting firm A.T. Kearney. Rural operators like Alltel “are struggling to compete with (nationwide) providers that in some cases have more than 10 times the subscribers.”
Mitchell said Alltel has formulated a successful strategy selling wireless and wireline services in rural areas. He said the carrier’s financial position surpasses that of some of the nation’s largest carriers. Mitchell said Alltel’s ultimate strategy is to become a “national rural carrier.”
Alltel’s reported discussions with Western Wireless fly against speculation that Verizon Wireless will purchase Alltel. Verizon, once the nation’s largest carrier, so far has stayed above the consolidation commotion.
“There’s always been lots of talk about Alltel being acquired by Verizon,” Mitchell said.
Alltel’s reported negotiations with Western Wireless mark the go or no-go line for Verizon, Mitchell said. If the nation’s largest CDMA carrier wants to acquire Alltel-and thereby regain its position as the biggest U.S. carrier-this is the time to do it, Mitchell said. Verizon lost the No. 1 spot to the combination of Cingular and AT&T Wireless.
Verizon may be hesitating due to Alltel’s wireline operations. Verizon Wireless has maintained a laser focus on wireless, letting its parent, Verizon Communications Inc., deal with the wireline side of the market. Verizon Wireless would have to find a way to deal with Alltel’s wireline business; the carrier could split Alltel between itself and Verizon Communications.
If Alltel manages to purchase Western Wireless, Mitchell said the move would lessen the chance that Verizon would buy Alltel. As Alltel continues to gain strength and customers, an acquisition becomes less likely.
The news of Alltel’s reported negotiations with Western Wireless served to boost the stocks of other rural players like Rural Cellular Corp. Investors appear to be geared for consolidation in the backwoods of America.
Mitchell said the current consolidation rage is partly driven by the industry’s imminent evolution to third-generation network technology. By combining with rivals, carriers are also consolidating the cost of 3G deployments-a savings that Alltel and Western Wireless may enjoy. As Verizon Wireless deploys its CDMA EV-DO network, a combined Alltel/Western Wireless could also upgrade to the technology to support 3G roaming.
For the nine months ended Sept. 30, Western Wireless reported revenues of $1.4 billion and a net income of $107.9 million. During the same period, Alltel reported revenues of $6.11 billion and a net income of $756 million.
