Alltel Corp. continued its rural expansion by gobbling up privately held Midwest Wireless for $1.075 billion in cash. The acquisition comes just months after Alltel closed on its $6 billion purchase of Western Wireless Corp. and follows its 2002 acquisition of CenturyTel Inc.’s wireless assets for $1.6 billion.
Alltel said the Midwest Wireless deal includes the carrier’s 400,000 wireless customers, network assets, and 850 MHz and 1.9 GHz spectrum licenses covering southern Minnesota, northern and eastern Iowa and western Wisconsin. Both carriers operate CDMA-based networks and rely on Qualcomm Inc.’s BREW platform to deliver content.
Midwest Wireless recently began to deploy high-speed wireless data services using CDMA2000 1x EV-DO technology and also offers a fixed broadband Internet service in select locations, which the carrier said offers network speeds of up to 768 kilobits per second for $100 per month.
Alltel noted that the deal will add new markets contiguous to its existing operations and that Midwest Wireless’ highly coveted 850 MHz spectrum covers approximately 1.9 million potential customers in the region. Alltel would remain the nation’s fifth-largest carrier with the acquisition.
“The Midwest Wireless business strengthens our position in the wireless industry by adding CDMA properties that are contiguous to our existing markets in the Midwestern U.S.,” said Scott Ford, president and chief executive officer of Alltel. “The company has a very strong post-pay customer base and its management team has built a business that has performed exceptionally well.”
The purchase should not significantly alter Alltel’s financial position. Analysts noted the company is lightly leveraged and still plans to spin off its wireline assets, as well as Western Wireless’ remaining international holdings. Alltel’s stock was up slightly following the announcement.
Midwest Wireless announced in late September that it was looking at potential strategic alternatives, including the sale of the company. The carrier hired Bear Stearns & Co. Inc. as its financial adviser.
Prior to Alltel’s acquisition announcement, published reports indicated that Midwest Wireless could garner up to $1 billion for its assets, which was substantially more than the value of the regional telecommunications companies that control Midwest Wireless. Analysts listed Alltel and Verizon Wireless, which also operates a CDMA/BREW-based network, as the most likely buyers.
Alltel said it expects the Midwest Wireless deal to close in the second half of next year, pending regulatory approval. Analysts noted that Alltel might be forced to divest a handful of 850 MHz markets that overlap its operations. Cingular Wireless L.L.C. and U.S. Cellular Corp.-which also operate a CDMA/BREW network-are the most likely buyers for those assets.
Alltel’s decision to buy Midwest Wireless highlighted an exciting week for rural operators as T-Mobile USA Inc.’s parent company, T-Mobile International, said that it planned to bolster its U.S. operations through the acquisition of smaller U.S. operators and participation in upcoming spectrum auctions.
T-Mobile International recently quashed rumors that it was looking to sell its rapidly growing U.S. subsidiary, and has reportedly set aside several billion dollars to fund expansion plans. Analysts expect T-Mobile USA to be aggressive in the upcoming auction of 3G spectrum set for next summer in an attempt to strengthen its modest spectrum position, which today is preventing T-Mobile USA from launching next-generation services.
T-Mobile USA also has been linked with the possible rollup of regional GSM operators that have been struggling to add subscribers in an increasingly competitive environment. Those regional operators include Dobson Communications Corp., SunCom Wireless Inc. and Centennial Communications Corp.
The regional acquisitions would help T-Mobile USA expand its footprint geographically, with Dobson possessing a strong network in the Midwest, South and Alaska; SunCom strong in the Southeast and Puerto Rico; and Centennial offering service in the upper Midwest and South.
“It’s just a question of mathematics to figure out this, but it will be a combination of both,” said Thomas Winkler, T-Mobile International’s chief financial officer, at the UBS Warburg Global Communications Conference.
However, T-Mobile International parent company Deutsche Telekom AG’s CEO Kai-Uwe Ricke tried to downplay the rural acquisition angle of Winkler’s remarks, noting the company was more focused on the 2006 spectrum auctions.
Analysts noted the spectrum auctions would boost the carrier’s spectrum position in larger markets, where it lacks enough capacity to launch UMTS services.
“We believe that T-Mobile is unlikely to buy rural 850 MHz assets given its substantial capital needed to build a 3G network,” said Bear Stearns analyst Phil Cusick.
T-Mobile USA is the industry’s fourth-largest operator, though it has less than half the subscribers of its three larger competitors.
