Ntelos to split wireless, wireline operations

Rural telecom operator Ntelos Holdings Corp. (NTLS) said it plans to split up its current operations into separate wireline and wireless businesses in an attempt to maximize the value of both organizations. The transaction is structured as a tax free distribution of the newly-named “The New Wireline Company” shares to Ntelos shareholders at some point next year. Both companies will then be publicly traded.
Ntelos, which is a network partner with Sprint Nextel Corp. (S), said its wireless business will include its retail business providing services in parts of Virginia and West Virginia and a wholesale business that caters to Sprint Nextel’s CDMA operations. Ntelos’ wireless business served 433,698 retail customers at the end of the third quarter with a network covering 5.6 million potential customers with an average of 23 megahertz of spectrum. The wireless operations also posted $89 in income over the past four quarters and adjusted earnings before interest, taxes, depreciation and amortization of $149 million.
The New Wireline Company will consist of two traditional ILEC businesses and a competitive business unit offering CLEC, high-speed data and wholesale services over an approximately 5,700 route-mile fiber network. The competitive segment provides IP and data services for markets in western Virginia and West Virginia, central and western Pennsylvania, and portions of Maryland. Ntelos also recently closed on its acquisition of FiberNet from One Communications Corp. as well as an acquisition late last year of a 2,200 fiber mile network from Allegheny Communications Connect Inc.
NTELOS noted that over the past four quarters its wireline operations have generated approximately $214 million in revenues and $105 million in adjusted EBITDA.
Under its new structure, Ntelos’ current CEO James Hyde will remain as CEO of both operations for what he said was at least a “period of time.” Conrad Hunter will serve as COO and Michael Moneymaker as CFO of the wireless operations.
Explaining the reason for the move, Hyde noted that beyond creating value for shareholders the transaction will allow both operations to compete in their respective markets without the constraints of being tied together. This was highlighted by Hyde saying the wireless operations would be free to offer wholesale services to wireline companies that might be directly competing against Ntelos’ wireline operations.
In addition, Hyde said the move will free both operations from “capital investment conflicts.” Those would include internal decisions as to whether deploying higher-speed mobile broadband services would have a negative impact on wireline broadband growth. As part of this, Ntelos noted in a presentation tied to the transaction that it was looking at making capital investments in LTE technology for its wireless operations.
The move to break up its operations could also lower the market capitalization for both organizations that one analyst on the company’s conference call could allow for a more appealing acquisition target. Ntelos’ Hyde said that possibility was not a motivation for the move and that is plans for a tax-free transaction would preclude either entity from being acquired for at least two years without garnering significant investigations from the Internal Revenue Service.
Ntelos’ stock was trading up more than 2% on the news at $18.67 per share.