THREE OF THE LARGEST REGIONAL wireless carriers are in the process of being acquired by national operators, as the nationals push further into rural and suburban markets and seek to expand their coverage and continue their growth in the face of high penetration rates.
T-Mobile USA Inc. announced last week that it will acquire regional operator SunCom Wireless Holdings Inc. for about $2.4 billion in cash and assumed debt. News of that acquisition comes in the wake of other rural roll-ups: in July, AT&T Inc. announced a deal to buy Dobson Communications Corp. for $2.8 billion, and not long afterward Verizon Wireless said it would buy Rural Cellular Corp. for $2.67 billion. Dobson has nearly 2 million customers, SunCom has around 1 million, and Rural Cellular has more than 700,000. All three of the regional carriers were roaming partners for their respective buyers.
“The strategic fit of the SunCom operations will make this a near-perfect acquisition,” said Robert Dotson, president and CEO of T-Mobile USA. “It will round out our domestic footprint, allowing us to serve 98 of the top 100 markets, and will significantly benefit our financial position by reducing roaming expenses.”
SunCom’s GSM/GPRS/EDGE network covers parts of the southeastern U.S. and the Caribbean; the carrier has provided roaming in its markets to T-Mobile USA since 2004, according to the national carrier. SunCom has markets and customers in the Carolinas, Tennessee, Georgia, Puerto Rico and the U.S. Virgin Islands.
Thanks to the deal, T-Mobile USA said it expects synergies of about $1 billion due to reduced roaming costs and operating expenses.
T-Mobile USA indicated that investment funds, which own more than 50% of SunCom’s issued common stock, have already agreed to vote in favor of the acquisition. The transaction is expected to close in the first half of 2008, the same timeframe in which Verizon Wireless estimates that its purchase of RCC will be completed.
T-Mobile USA expects the acquisition to boost its covered potential customers from 244 million to 259 million. Current Analysis analyst William Ho noted that the SunCom acquisition gives T-Mobile USA access to markets where it previously had no presence and offers the carrier new room for growth, “particularly . in the large city markets in North Carolina, South Carolina and Georgia that SunCom offers, without trying to mine smaller and rural markets from the likes of Dobson and Rural Cellular that AT&T and Verizon Wireless have moved to acquire.”
Turning tide
Roger Entner, senior VP of the communications sector at IAG Research, said that the wrap-up of rural providers isn’t inevitable from a competition standpoint, although he thinks that the turning point for the industry came a few years ago with Alltel’s purchase of Midwest Wireless.
“Do the little guys have a tough time? Yes. Could they outsmart the big guys? Yes. But the boards, the owners of the companies, have lost their will to fight,” said Entner. “I think where the tide really turned was when Midwest was sold to Alltel. . To me, that was when the horn was sounded that the hunt for the little guys has been opened, and they’re going to be an extinct species.”
The national carriers want to continue growing as well as offer more comprehensive coverage by removing the “white space” from their coverage maps, Entner added.
The deals reflect continuing consolidation within the wireless industry. Leap Wireless International Inc. and MetroPCS Communications Inc. have been jousting over the possibility of a merger; Sprint Nextel Corp. has rolled up most of its affiliates; and once the SunCom, Dobson and RCC deals go through, the largest remaining public wireless operator will be U.S. Cellular Corp. with about 6 million customers. (Alltel Corp., with about 12 million subscribers, is in the process of being purchased by private-equity companies.) Flat-rate operators MetroPCS and Leap have 3.5 million and 2.7 million customers, respectively. After that, the largest wireless provider is Centennial Communications Corp. with 1.1 million subscribers (about 700,000 of whom are in the U.S.), followed by Qwest Communications International Inc., which through an MVNO relationship with Sprint Nextel has more than 800,000 customers.
Although the recent deals involve relatively large regional carriers, the smaller ones have not been neglected in the past couple of years.
Carriers, Entner said, “are buying really little ones. . There’s nothing too small.”
Alltel snapped up First Cellular of Illinois, and Verizon Wireless has bought spectrum and network assets in a number of rural areas.
For example, in 2005 Verizon Wireless purchased Cellular 2000 of St. Cloud, which counted 42,000 customers. Seperately, Verizon Wireless announced in early August that it would acquire the spectrum and network assets of Ramcell, which provides service in southeast Kentucky and western Oregon and has licenses covering about 575,000 potential customers.
Financial terms of the small-carrier deals have typically not been disclosed.
