Alltel's $1.6 billion sale of Austrian unit reviewed.

THE EUROPEAN COMMISSION two weeks ago launched an antitrust investigation into the sale of an Alltel Corp. subsidiary in Austria.

In August, shortly after Alltel completed, its $6.5 billion acquisition of Western Wireless of Bellevue, Wash., the Little Rock company announced a deal with T-Mobile Austria to sell Austria-based wireless provider and former Western Wireless property Telering for $1.6 billion.

But a European Union regulatory commission said in a statement last week that its initial market investigation found that a merger between T-Mobile Austria and competitor Telering "may create significant competition problems."

Last month the commission extended its review of the deal by two weeks to consider divestments proposed by the operators aimed at clearing the way for the merger, but apparently their offerings did not allay the commission's concerns.

"This takeover is in a strategically important sector for the EU economy," Competition Commissioner Neelie Kroes said in a press release from the commission. "Market liberalization in the telecommunication sector produced good results giving consumers innovative services and lower prices. It is crucial that these benefits are preserved."

The commission also said Telering is currently one of the most active companies in the market for end consumers in terms of price competition and a merger might harm Austrian consumers through possible price increases.

The commission has up to 90 working days for the investigation and will then make a decision on the deal.

A successful merger would give T-Mobile about 35 percent of Austria's consumer wireless business. T-Mobile currently has the second-largest market share in the country among five competitors. Mobilcom is first with about a 42 percent market share.

Alltel previously said it expected the Telering deal to close in the first quarter of next year. A spokesman for the company would not comment on whether or not the company still expected the deal to close then, if at all.

Though Alltel picked up a handful of international operations with its purchase of Western Wireless, the company has indicated it has no interest in doing business overseas.

In September, the company completed the sale of Western Wireless' international operations in Georgia and Ghana, which brought in $50.6 million in cash.

And in July, before the Western Wireless merger was complete, Western announced an agreement to sell its Irish subsidiary, Meteor Mobile Communications Ltd., to the Irish fixed-line telecom operator Eircom for about $500 million. Eircom's shareholders still have to approve the deal, which would also require approval from Irish regulatory authorities.

Alltel also has former Western Wireless properties in Haiti and Bolivia that are on the block.

In Alltel's most recent quarterly report, the company valued those international assets, along with some domestic assets it plans to sell, at $2.7 billion.

Their sale would certainly bolster Alltel's war chest for buying more domestic operations.

Alltel currently is considering splitting its wireline business, the company's local telephone division, from its wireless segment. Such a split could put Alltel in a better position to acquire more wireless properties.

On Sept. 22, Scott Ford, president and CEO of Alltel, told investors that a wireless-wireline split that puts a good chunk of the company's debt on the wireline side would give the wireless business a better chance to make more acquisitions.

"If you come out on the backside of the spin with a wireless business that is largely unleveraged, we have the capacity to do a lot of those types of transactions," Ford said.

Alltel is already rumored to be interested in Midwest Wireless, which has 400,000 customers in small markets in Minnesota, Iowa and Wisconsin. Midwest is currently sounding out potential buyers and could fetch more than $1 billion.

Alltel could also be interested in Centennial Communications Corp., which has 1.25 million customers in Michigan, Ohio, Indiana, Puerto Rico and the Dominican Republic.

But acquisitions are not a sure thing, and Ford has said the company could instead use the cash for stock buybacks.

Alltel currently has $5.9 billion in long-term debt, but completing the sales of its Irish and Austrian properties would reduce its debt by a third--and could put the company in a better position to make acquisitions or buy back more of its stock.

A spokesman for Alltel said that unloading the company's international properties "certainly would be helpful" but not necessary for more acquisitions or stock buybacks.

CHIP TAULBEE

[e-mail]