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Alltel's Joe Ford Predicts More 'Huge Opportunities'.

Two Years of Deals Turn Also-Ran Into Wireless Giant

IN TWO YEARS, ALLTEL Corp. has gone from being just, another player in the booming wireless business to being the fourth largest -- with the size and power to find its way through the shifting sands of the telecommunications industry.

Wireline and long-distance services, along with financial products and Internet access, are now almost sidelines to Alltel's core wireless business.

By the time the latest deal with Bell Atlantic Corp. and its merger partner, GTE Corp., closes around midyear, Alltel will have added more than 4.8 million wireless customers since the end of 1997 just before the merger with 360[degrees] Communications Corp. was announced. Its market region will cover more than 46 million Americans, compared with fewer than 10 million two years ago.

Joe Ford, Alltel's chairman and CEO, talks of the growth simply as Alltel taking advantage of "great opportunities" with even more "huge opportunities" in the future.

But can the dizzying climb continue?

"And if we could pick the opportunities we'd like to have, we can't always get those. So we have to be prepared to take them as they arise."

"I don't think we've, reached a plateau," Ford says. "I think we'll always try to take advantage of opportunities. The unfortunate thing is we don't know when those opportunities are going to present themselves.

Investors and Wall Street have also responded to Alltel's growth, sending the company's stock price to an all-time high late last year, closing at $91.05 a share on Dec. 6. Although the stock price has since dropped -- closing Feb. 9 at $67.37 and generating numerous theories about the drop -- company officials are still upbeat and Alltel is rated a "buy" by 19 of the 21 brokers who follow the company.

One broker currently sets the stock's one-year target price at $115.

The company's earnings growth has outperformed its peers as well as the Standard and Poor's 500, according to Yahoo! Finance, which charts Alltel's earnings growth at 13 percent over the past five years. During the same period, S&P 500 companies grew 10.3 percent and the more than 90 telecommunications companies' monitored saw earnings growth of 9.4 percent.

In comparing the company prior to the 360[decrees] merger and where it will stand after the Bell Atlantic/GTE deal is complete, Ford says Alltel has. followed a process that emphasized its belief both in the increased value of the wireless business and its need to grow in order to pull off bigger deals.

"The 360[decrees] merger strategically gave us size in the wireless business to make us a very competitive company," Ford says. "People started recognizing us as an investment opportunity, and it really positioned us to go forward and to be able to do what we're doing here with this deal."

The next step could be to capitalize on the 10-year roaming agreement that was a main element of the Bell Atlantic/GTE deal to offer some form of national or regional "one-rate plan" for customers. That agreement will allow the companies' wireless customers to talk on each of the other's networks at reduced rates across a footprint that covers about 95 percent of the country.

Some analysts don't think it's a question of if Alltel will do something like that. They say it's a question of when.

Alltel officials are mum about how they could redo the wireless cost structures, promising' only that the roaming network will give them the chance to "price competitively with anybody in the business."

Finding power in clusters

Alltel last week announced the formation of five operating regions for marketing communications products and services, an organization that shows off the result of two years of deal-making. The merger with 360[decrees], the acquisitions of Aliant Communications, Liberty Cellular Inc. and Durango Cellular, and the property swap with Bell Atlantic and GTE allow Alltel to organize itself into the five balanced clusters.

Kevin Beebe, Alltel communications group president, notes that each of the regions will average more than $1 billion in telecommunications revenue and 1 million' customers. Each of the regions, if taken individually, would rank in the top 10 wireless companies in the United States, he says.

The property swap aspect of the Bell Atlantic/GTE deal allowed Alltel to consolidate its wireless territories and offload some loose-fitting markets that weren't near other properties.

Prior to the deal, Beebe says, Alltel had solid clusters in some regions but only a smattering of Alltel presence in other areas. The property swap allowed Alltel to plug some holes, he says, picking up vital areas adjacent to properties already held, such as adding Cleveland to its Ohio coverage area, picking up a chunk of Florida properties, and adding the population centers of Arizona and New Mexico.

On the other hand, Alltel gave up some high-roaming --and high-revenue -- areas, such as Las Vegas and parts of Pennsylvania. While some observers have questioned the wisdom of giving up a "cash cow" in Las Vegas, Beebe says it made the most sense.

Industry wide, improvements in technology have driven down the cost' of roaming, and thus the revenue wireless companies receive from roaming. Las Vegas was a high-roaming area, Beebe says, mainly because of a high number of people traveling in from Los Angeles, a property that will belong to the wireless company formed by the Bell Atlantic/GTE/Vodafone Air Touch merger.

"It was an island for us," Beebe says of Vegas. "'It was not a cluster."

Beebe expects roaming revenues, which have traditionally made up about 15 percent of Alltel's wireless revenue, to continue to dive. The property swaps will reduce reliance on roaming revenue even further, he says.

Roaming rates on the new network will come down over the next couple of years. After that happens, Beebe says,. Alltel will "have a cost structure for a minute of traffic that-is very close to being equal, whether that customer is in a local network of Alltel's or whether that customer is in New York City."

Beebe won't reveal how Alltel would approach restructuring its Wireless rates, saying only that customers can expect more value because of the roaming agreement.

"They can expect there will be some value delivered that will knock their socks off both in terms of the new markets we're getting and the markets we have today," Beebe says.

And just as each merger or acquisition gave Alltel the size to move to the next, the latest deal -- with the large roaming network--lets Alltel "sweeten the deal" when it moves to offer bundled communications services to business and residential customers.

Alltel began going head-to-head with the regional Bell operating companies in some markets in 1998, offering local phone services to businesses as a competitive local exchange carrier (CLEC). With the bundling concept it unveiled in early 1999, business --and some residential -- customers can get local phone,' long-distance, Internet, wireless and paging services with all charges consolidated onto one bill.

Also in 1999, the company rolled out local phone service in some markets, including Little Rock and other parts of Arkansas, with plans for more in the coming years. Beebe says the CLEC 'business rollouts are ahead of initial projections.

"We've achieved at least 1 percent market share in six to nine months in all of those markets," Beebe says of the 20 or so CLEC markets.

Alltel estimates it has more than half of the 70,000 to 80,000 business access lines in the Little Rock market. By the' end of 2000, the company plans to offer CLEC services in 47 cities across 11 states.

What the latest deal allows Alltel is access to even more market's for CLEC services, Beebe says. Not every wireless market will see a CLEC rollout, he says, but, in many places, Alltel will try to use an established relationship as a wireless provider to offer additional telecommunications services.

AIS Vital to Success

One thing that riles Alltel officials is any suggestion that slower income growth by its information services division was a major factor in the recent erosion in Alltel's stock price from its December high. The erosion sharpened with the release of the company's quarterly earnings report on Jan. 25, and the stock bottomed out at a $64 close on Jan. 28.

Analysts and Alltel-watchers came up with several possible reasons for the downturn, even amid positive financial news and continued growth. Some pointed to profit-taking, others to the industrywide effects of the drop-off "in 'roaming revenue. Some suggested that investors were turned off by single-digit growth by Alltel Information Services compared to double-digits by the wireless and wireline businesses.

AIS provides information systems for financial and telecommunications clients worldwide.

"We've gone through that discussion With people before," Joe Ford says. "You know, a lot of people would love you to just be a wireless company because they don't have to think.

"You just grab a [financial] model and here's the investment," he says. "Our business makes people think, 'What all are we and why are we doing the things that we're doing?'

"And if you're just a person interested in having a simple model out there that you just put four or five factors into and you got it go somewhere else, because we're going to be a business that's trying to make money for our shareholders and doing what we think is right for this business."

Hurt in recent years by bank consolidation, which cost some contracts for the financial services MS provides, the division also saw a slowdown in revenue due to 'the Y2K glitch. As AIS officials expected, some financial customers delayed purchases of software upgrades as they shifted some spending to address the fear of problems caused by computers unable to recognize the year 2000.

AIS revenue was up 19 percent in 1998, the highest jump in four years, according to Jeff Fox, information services group president. For the year ended Dec. 31, 1999, AIS revenue grew just 8 percent, which Fox thinks may mean clients accelerated spending into 1998 or delayed spending until 2000.

He argues, though, that if double-digit growth is the goal, MS achieved that between 1997 and 1999. He also thinks' the growth will get back on track 'as financial customers ratchet their spending back up and as the division continues moving to take advantage of opportunities in electronic commerce.

Plus, AIS's biggest customer --Alltel Communications -- is obviously growing rapidly. It is MS's billing system that makes the bundling of telecommunications services possible.

Ford is adamant about the importance of MS to Alltel.

"I don't think any company can compete effectively in the future in the communications business if they don't have good systems and we have good systems."
 Alltel by the Numbers
 Year-End Year-End
 1997 1999 [*]
Annual Revenues: $3.3 billion $6.3 billion
Total Assets: $5.6 billion $10.8 billion
Market Capitization: $7.7 billion $26 billion
Communications $3 million More than 8.5 million
Customers:
Wireless Customers: 1,009,566 5,018,614
Employees: 16,522 24,678
POPS: Almost 8.8 million More than 39.3 million
(Population Served)
 Estimated number
 after Bell Atlantic/GTE
 transactions
Annual Revenues: n/a
Total Assets: n/a
Market Capitization: n/a
Communications More than 9.2 million
Customers:
Wireless Customers: Almost 5.8 million
Employees: 25,598
POPS: 46.2 million
(Population Served)
(*.)After mergers/acquisitions of 360[degrees] Communications, Aliant
Communications, Liberty Cellular, Inc., Durango Cellular, Standard Group,
Inc. and others.
Source: Alltel
COPYRIGHT 2000 Journal Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2000 Gale, Cengage Learning. All rights reserved.

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Title Annotation:ALLTEL Corp.
Comment:Alltel's Joe Ford Predicts More 'Huge Opportunities'.(ALLTEL Corp.)
Author:PARHAM, JON
Publication:Arkansas Business
Geographic Code:1USA
Date:Feb 14, 2000
Words:1921
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