AT&T’s Purchase of Alltel Good News for Some – Bad News for Others

AT&T has announced plans to purchase wireless spectrum and the domestic retail wireless business operated under the Alltel name by ATNI’s subsidiary Allied Wireless Communications Corporation, a subdivision of the Atlantic Tele-Network, Inc. (ATNI)

In total, ATNI’s network currently covers 4.6 million people in the U.S. and abroad, and the proposed agreement with AT&T includes Alltel’s U.S. retail wireless operations in six states, predominantly in the rural areas of Idaho, Ohio, Illinois, Georgia and North and South Carolina.

The Alltel network purchased in the agreement provides wireless services to 585,000 customers. The announced procurement includes spectrum services in the 700MHz, 850 MHz and 1900 MHz bandwidths.

Allied Wireless Communications Corporation, based in Little Rock, Arkansas, serves approximately 585,000 customers in rural areas of six states – Georgia, North Carolina, South Carolina, Illinois, Ohio and Idaho, and generated revenues for the first nine months of 2012 of approximately $350 million. In ATNI’s public filings, these operations are consolidated within its U.S. Wireless segment. These operations generated operating income estimated to be approximately $34 million, which is net of depreciation and amortization expense of approximately $42 million, for the first nine months of 2012.

“We are pleased that AT&T recognizes the value of our U.S. wireless retail operations and is acquiring these assets,” said Michael T. Prior, Chief Executive Officer. “Alltel’s customers will benefit from access to a nationwide 4G network, a larger device selection, additional retail locations and a broader range of product offerings. Additionally, many of our employees should benefit from new career opportunities within AT&T. We will work closely with AT&T to close the transaction and to ensure a smooth transition for our customers and employees.”

While the acquisition of the Alltel network will compliment AT&T’s current network, as AT&T does not currently have spectrum in these areas, it may present problems for current Alltel users.

One problem for AT&T and the Alltel users currently under contract is CDMA vs. GSM. CDMA and GSM are the 2 major wireless radio operating systems in use today by the 5 major cellular providers.

CDMA is an acronym for Code Division Multiple Access, and GSM is an acronym for Global System for Mobiles. AT&T currently uses GSM and Alltel uses CDMA. The two networks are not interchangeable, and AT&T will have to upgrade the Alltel network to GSM technology.

AT&T does not foresee any problems with the upgrade, and integration costs for the conversion of the Alltel network from CDMA to GSM are not expected to dilute earnings per share or have any effect on day-to-day cash flow.

The agreement and any subsequent transactions with relationship to AT&T’s purchase of the Alltel network are subject to review and approval by the Federal Communications Commission (FCC) and the Department of Justice (DOJ).

Jim Donahue

Sources / Links / References

http://www.att.com/gen/press-room?pid=23674&cdvn=news&newsarticleid=35955&mapcode=corporate|financial