Alltel’s move could alter rural outlook

The word that Alltel Corp. is putting itself up on the auction block sparked speculation about who a buyer might be-but generated little surprise in an industry where mergers and acquisitions are par for the course.
For rural carriers that have watched their numbers dwindle as larger carriers snapped them up, even as the big carriers themselves went through huge mergers, the change would be part of a continuing trend.
Asked if a sale of Alltel would impact rural carriers, Rural Cellular Association president Clay Dover said succinctly: “It depends on who buys them.”
“For the past couple of years, Alltel has been pretty aggressive in acquiring other, smaller markets,” Dover continued. “I don’t think it’s any real surprise that Alltel would now be selling themselves. For years, carriers have seen
mergers and acquisitions, and this is another one. So it’s not like it’s a shock-we’ve seen this many times. Our concern, if any, is with whoever buys them: that they would be able to have good roaming agreements in place, both voice and data.”
Although Alltel covers a large amount of rural territory (and boasts of being the “largest U.S. carrier” in terms of square miles of coverage), analyst Weston Henderek of Current Analysis called the No. 5 carrier (in terms of subscriber base) a “quasi-national” operator. Such a large business runs very differently than the tiny rural carriers, he noted.
As far as potential buyers for Alltel, the two carrier names that have come up are those whose networks would fit best: CDMA operators Verizon Wireless and Sprint Nextel Corp. Several analysts agreed that Verizon Wireless is the more likely suitor.
“Sprint, with all its problems, would have to come up with a serious chunk of cash to make that happen,” Henderek said. “Then they’d have more integration, more customer-care issues, the whole thing. It would just seem to be more of a mess for them-and then they’d probably start to lose Alltel customers, too.”
But Verizon Wireless might be reluctant, he said, because it is already benefiting from a relationship with Alltel. If Verizon bought the company, other competitors could benefit that Alltel is out of the market. And if Sprint is unlikely to buy Alltel, Henderek said, Verizon might not bother.
The other alternative appears to be a deal with private-equity companies-although as a successful company, Alltel may not fit private equity’s typical outline of purchasing floundering businesses and overhauling them to make a profit.
If Alltel gets consumed by a larger carrier, the gap between the largest and smallest carriers in the U.S. wireless space would widen even further, said Jan Dawson, VP of Ovum’s U.S. enterprise practice.
“If it happens, those players are really dwarfed even more than they are already today,” said Dawson. “They have some appeal to rural customers that stay within a narrow geographic area, but they’re really struggling increasingly to compete against the marketing muscle and more attractive rates that the national carriers can offer”-in addition to integrated offerings, he added.
As more small operators vanish, it becomes more difficult for small carriers to resist the consolidation trend, Dawson said. “Alltel going will be kind of a symbolic shift in the market, in that it has been one of the largest ones to continue to go it alone so far,” Dawson said. “To the extent that one of the last remaining strong, smaller carriers gets bought up by a larger carrier, it makes life even more difficult for the rural carriers.”