Alaska’s wireless landscape is in for a shake up as former rivals General Communications and Alaska Communications Systems Group said they will combine their operations under a new entity dubbed Alaska Wireless Network.
The deal calls for GCI to control two-thirds of the venture and manage operations, with ACSG controlling the remaining one-third. GCI will also purchase $100 million in wireless assets from ACSG that will then be turned over to AWN. GCI said it will secure the $100 million through a refinancing of its current senior credit facility, with ACSG using the proceeds to pay down current loans and strengthen its cash position.
GCI had previously snapped up rival Alaska Wireless in 2007.
The firms also noted that during the first four years of AWN’s operations, ACSG “will be eligible to receive preferential cash distributions totaling $190 million,” with GCI receiving all remaining available cash distributions over the same period. Following the four-year period, GCI and ACSG will receive distributions proportional to their ownership interests in AWN.
The two firms noted AWN would design and operate a statewide wireless network to provide “next-generation” services to GCI and ACSG customers, with both companies continuing to market and sell services independently. GCI and ACSG will contribute their respective wireless assets to the venture, including spectrum licenses, cell sites, backhaul capabilities, switching systems and other assets. Wireless licenses will include spectrum across the 850 MHz, 1.7/2.1 GHz and 1.9 GHz bands. GCI currently operates across GSM/EDGE/HSPA+ and CDMA technologies, while ACSG relies on CDMA and is in the process of rolling out LTE services.
AWN is expected to provide coverage to more than 95% of Alaska’s population and provide service to more than 250,000 customers across both operators. The company said it expects to post $120 million in first year earnings before interest, taxes, depreciation and amortization with capital expenditures of approximately $40 million. The combined operations are forecast to generate $30 million in savings beginning in year two, with sources split between capital and operating expenses.
Current GCI COO Wilson Hughes will serve as AWN’s president and CEO, and will be replaced by current SVP Greg Chapados. The AWN deal still needs to run through various government reviews, with an expected closing in early 2013 should everything be approved.
The deal is expected to provide fiscal relief for both operators that are seeing increased competition in the Alaskan market by a expected launch from Verizon Wireless. Verizon Wireless previously relied on a roaming agreement with ACSG, and picked up a 700 MHz spectrum license covering Alaska from Triad in 2010. Verizon Wireless is relying on its 700 MHz spectrum holdings to roll out LTE services.
“The wireless business is capital intensive, requires scale to compete successfully against national carriers and demands more spectrum than either company individually owns,” noted ACSG CEO Anand Vadapalli and GCI CEO Ron Duncan, in a combined statement. “By combining our respective wireless assets, GCI and Alaska Communications can provide a state-of-the-art Alaska wireless network owned and operated by Alaskans for Alaskans. We believe that The Alaska Wireless Network will provide the fastest, most geographically extensive, and most reasonably priced wireless services for Alaska subscribers, allowing us each to compete more effectively in the retail market.”
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