Conceding that no carrier wants to offer islands of coverage, U.S. Cellular Corp. and Alltel Corp. swapped assets in rural America to fortify their geographic footprints and shed nonstrategic assets.
U.S. Cellular paid $50 million and gave up two rural Idaho licenses in exchange for Alltel’s 15 rural markets in Nebraska and Kansas. Alltel acquired the 15 licensees when it purchased Western Wireless Corp. earlier this year.
Specifically, Alltel will receive cellular licenses covering 500,000 potential customers in Idaho RSAs 5 and 6; 91,000 retail customers; 84 cell sites; six company-owned retail locations; and 32 authorized agents. The carrier said the pair of markets comprises 20 counties in southeastern Idaho that are adjacent to existing Alltel operations. U.S. Cellular will receive cellular licenses covering 1.4 million potential customers, roughly 125,000 retail customers, 193 cell sites, 15 company-owned retail locations and 89 authorized agent locations. U.S. Cellular already offers service in 25 counties in southeastern Nebraska, including Omaha and Lincoln, and in 10 counties in northeastern and southeastern Kansas, as well as an option to purchase licenses for Wichita and Lawrence.
U.S. Cellular President and Chief Executive Officer John Rooney said the deals were a win-win for both companies, a sentiment echoed by analysts.
“We believe this transaction is a good fit for both companies as it allows Alltel to expand its footprint in the Northwest and U.S. Cellular to expand its core Midwest cluster while divesting itself of markets which were not contiguous with the rest of its Pacific Northwest operations,” said Raymond James & Associates telecommunications analyst Ric Prentiss.
Alltel said it will retain ownership of the Lincoln, Neb., market that was owned by Western Wireless, as well as ownership of all of the properties in Kansas and Nebraska that it operated prior to its acquisition of Western Wireless. The carrier also said the deal meets a substantial portion of the divestiture requirements related to its acquisition of Western Wireless.
Alltel added that it expects to divest a rural market in southwest Arkansas and the Cellular One brand name, which was controlled by Western Wireless, within the four-month time frame required by the government. Several regional carriers use the Cellular One brand, including Dobson Communications Corp. and Rural Cellular Corp., so they are likely to buy the rights to the brand.
For U.S. Cellular, the deal strengthens its Midwest footprint and removes peripheral markets that the carrier said were not contiguous to its current market clusters in the Northwest, Northeast, Southeast and Midwest.
“In this day and age, it’s difficult to run an island,” said U.S. Cellular’s Rooney. “The Idaho properties were not adjacent to our Northwest operations and not crucial to our operations.”
During the past several years U.S. Cellular has made several similar consolidating moves to boost its Midwest footprint or add much-needed cash for its buildout plans.
The carrier and parent company, Telephone and Data Systems Inc., sold spectrum in Florida, Ohio, North Carolina, Mississippi and Wisconsin to Alltel last year for $143 million; sold a Florida 1.9 GHz spectrum license to MetroPCS Holdings Inc. last summer for $8.5 million; and pocketed $95 million in early 2004 by selling its south Texas markets to AT&T Wireless Services Inc., which subsequently was acquired by Cingular Wireless L.L.C.,
U.S. Cellular has used proceeds from those sales to fund buildout and service launches in several markets, including St. Louis; Portland, Maine; Lincoln, Neb.; and Oklahoma City. The carrier also was active in the Federal Communications Commission’s Auction 58 earlier this year, where it partnered to pick up spectrum in several new markets, including Indianapolis, Minneapolis and Charlotte, N.C.
Although Rooney noted that the company would never rule out any future deals, he did say he was happy with U.S. Cellular’s current footprint.
“You can never say never about another deal,” Rooney said. “If something came along that was too good to pass up, we would of course have to take a look at it. But we are not interested in starting a new cluster.”
