The industry has seen AT&T Wireless Services Inc. pick up smaller cellular carriers in order to fill in gaps and avoid paying high roaming fees, and Vodafone AirTouch plc’s acquisition of rural cellular carrier CommNet Cellular Inc. indicates other carriers are feeling the roaming-fee pinch as well.
“This combination is a great way to deal with roaming costs,” said Jonathan Marshall, spokesman for Vodafone. “A significant share comes from AirTouch since we are on the same band. Thirty percent of CommNet’s revenues are from roaming.”
Analysts say other rural carriers like Rural Cellular Corp. and Dobson Cellular may begin to look extremely attractive to larger operators. Since AT&T Wireless introduced its Digital One Rate plan, which eliminates roaming and long-distance fees nationwide regardless of which network customers use, other carriers have followed suit. But to make such plans work, carriers must have a large nationwide footprint and the ability to negotiate lower roaming rates with rural cellular carriers, which traditionally relied on revenues from the high roaming fees they charge.
“Carriers are finding these one-rate plans are leading customers to use their phones in rural areas where they wouldn’t have before,” said Perry Walter, wireless analyst with Robinson-Humphrey Co. “Carriers with one-rate plans have to evaluate the cost of buying the carriers in those areas or dealing with the costs of roaming in those areas. Some people making the decision decide that it’s cheaper to buy.”
Intelligent roaming-the ability to move minutes from one carrier to another in a given market-is one tool carriers are using to negotiate lower roaming fees. AT&T Wireless has said this capability is key to executing the DOR plan. Many carriers today have yet to implement the technology, and operators have a difficult time negotiating roaming rates if only one carrier uses their technology.
“Yes, [intelligent roaming] technology is available in some number of handsets. However, when one looks at the alternatives in terms of where direct traffic is going, it’s not solely a price decision,” Kenneth Meyers, executive vice president of finance with rural carrier United States Cellular, said during the company’s recent earnings conference call. “When you sell the customer base on quality of service, you have problems when you start crossing technology bands.”
Vodafone’s deal with CommNet also gives the carrier a more contiguous footprint in the Western region. CommNet offers service in rural service areas covering most of Colorado, Montana, North Dakota, South Dakota, Utah and Wyoming as well as parts of Idaho, Iowa and New Mexico.
Vodafone is purchasing CommNet for $764 million in cash, plus debt, which is expected to be about $600 million at the close of the transaction. CommNet is controlled by Blackstone Capital Partners II, a private equity fund of the Blackstone Group. The deal is expected to close in five months, and shareholders of CommNet will receive $31 per share in cash, plus 8 percent annual interest from July 18 until closing.
