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January 6, 2005

Alltel considers $4 billion Western Wireless acquisition

Rural mobile and fixed-line service provider Alltel is said to be continuing its acquisition spree after The New York Times reported that it is in advanced negotiations to buy another rural mobile carrier, Western Wireless, for approximately $4 billion. Tom Jowitt reports...

By CBR Staff Writer

Citing executives close to the talks, the newspaper said a deal could be reached in the next week. However, it is understood that several points are still being negotiated including the final purchase price, and the talks could still collapse.

As part of the deal, Alltel would assume about $2 billion of debt from Bellevue, Washington-based Western Wireless, which provides mobile services in rural areas in the Western United States, mostly under the Cellular One national brand name. The operator has approximately 1.2 million customers in the US, but it also has a total of more than 7.2 million customers in Austria, Ireland, Slovenia, Georgia, Ghana, Ivory Coast, Bolivia, and Haiti.

The deal makes strategic sense because both companies use the same wireless technology, and it will give Alltel an international presence as well as beefing up its local US coverage.

Revenue at Western Wireless for the year ending December 31, 2003 was $1.50 billion, up from $1.18 billion in 2002. In 2003 it made a net loss of just $338,000, well down from a net loss of $186 million in 2002. A combined company would have annual revenue approaching $10 billion, and 9.8 million subscribers. Figures for full-year 2004 are expected next month.

Only a few days ago, Arkansas-based Alltel agreed to purchase wireless assets and properties from Public Service Cellular. The properties operate as PSC Wireless, and it means that Alltel will increase its customer base in western Georgia and eastern Alabama that covers a population of about 900,000. Terms of the transaction were not disclosed. Last November, Alltel also paid $170 million in cash for former AT&T Wireless properties in Oklahoma, Texas, Kentucky, Connecticut, and Missouri.

Alltel is the sixth largest wireless carrier in the United States, and provides mobile services in nearly 24 US states, mainly in the southeast and midwest. The potential deal with Western Wireless reflects the continued shrinking of the US mobile sector, as smaller regional players start to consolidate, following the big M&A deals of the main wireless players in the US last year, namely Sprint’s purchase of Nextel for $25 billion, and Cingular Wireless’s acquisition of AT&T Wireless Services for $41 billion.

The US has many small but profitable regional players that focus on specific regional markets, but the US market is reaching saturation, and most players realize they need scale in order to compete effectively.

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At the moment, small regional players play an important part in the US mobile landscape because they effectively allow customers of the larger national mobile operators to utilize their networks when outside the major metropolitan areas. Most regional and national players have partnership deals, and there has been speculation that Verizon Wireless, which is seeking to regain the number-one position in the US mobile market, could make a move for Alltel, which would allow it to become the largest US mobile operator again.

Verizon is already making advances into rural areas that companies such as Alltel and Western Wireless serve. Last November Verizon agreed to purchase airwave licenses in rural Pennsylvania from Ntelos, and in December agreed to buy Mountain Cellular to expand its network in northern California.

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