CenturyTel Offer Highlights Wireline Profits.
And Allied didn't become Alltel by ignoring prevailing business trends.
The company's relentless pursuit of CenturyTel Inc. gains perspective when viewed, against a comparison of rural local exchange provider stocks and those of the Dow Jones telecom sector as a whole. While the broader index is down 8 percent since 1997, the Legg Mason Rural Local Exchange Carrier Index rose 24 percent in the same period.
While Alltel has become primarily a wireless provider, CenturyTel, a $525 million company based in Monroe, La., is mainly in the wireline business, maintaining rural and small-market service in 21 states.
Though Alltel recently denied that it plans to leave the wireless sector altogether, it clearly wants to expand into the more profitable landline business.
So does CenturyTel. In fact, it was while Century Tel was shopping for a buyer for its wireless segment that the company first met with Alltel about the gapossibility of a deal. Alltel quickly decided CenturyTel's wireless business was only worth taking if the rest of the company came with it.
Profitable Phone Poles
Wireline, around since Alexander Graham Bell, has become more profitable mainly due to the intense competition in the wireless field. While wireless companies must fight multiple global corporations with expensive advertising and rate-cutting, the rural exchanges labor in relative peace.
And, in order to assure universal telephone access, the federal government subsidizes much of the rural companies' costs.
CenturyTel's wireline revenue more than doubled its wireless business last year, the company's annual report stated. And, while wireline accounted for 67.99 percent of CenturyTel's total revenue, the profit picture is even more stark. The Louisiana company's wireline division provided 71.6 percent of total profit, while wireless accounted for only 22.4 percent.
Meanwhile, Alltel's wireline operation dropped a point in 2000, to 24 percent of total revenue for the Little Rock company, increasing the urgency, to expand the more profitable business this year.
The company's annual report reveals a key advantage to the wireline segment: "To date, competition has not had a significant adverse effect on the operations of the Company's local exchange subsidiaries."
"We think it's perhaps the most attractive business in telecom today," said Kurt Funderburg, an analyst at Harris Associates of Chicago, a major CenturyTel stockholder.
Selling its wireless operation, therefore, would be a great idea for CenturyTel, analysts believe, if the company can remain independent long enough to do it.
"A sale of the wireless business, which would net proceeds that could potentially be used for additional access line purchases, would fit with the company's longer-term strategy of becoming a pure-play local wireline provider," said Christina Zaloun of ABN AMRO in Chicago.
Tim Horan of CIBC Worldmarkets, in a recent analysis, agreed.
"We think such a move is intelligent and should help to realize [CenturyTel's] sum-of-the-part valuation, should the hostile [Alltel] bid fail."
Ailtel has offered to buy CenturyTel three times recently, offering up to $43 per share -- a premium, initially, of about 40 percent. The dealings have stalemated, at least publicly, with Alltel president Scott Ford trading polite but increasingly tense letters with CenturyTel CEO Glen Post III.
CenturyTel, livid that Alltel executives had revealed the smaller company's plans to sell its wireless unit, filed a lawsuit against Alltel Aug. 18, charging that in addition to the disclosure, the Arkansas company "falsely and fraudulently" told CenturyTel shareholders that the Louisiana company had not seriously considered the offer.
Neither will comment except through its leader. CenturyTel's Anne Marie Sauter did not return a call for this report, and Alltel's Andrew Moreau said only Ford was authorized to talk about the issue. Ford was on vacation last week, Moreau said.
Horan, in an analysis, doubted Alltel's ultimate success, if only from a regulatory standpoint.
"We note that such a hostile wireline merger has not previously occurred, due largely to prohibitive regulatory reasons," he said.
For the time being, both companies are in pretty good shape, analysts agreed.
"[CenturyTel] is moving forward with plans to separate its wireless and wireline businesses," wrote analysts John L. Bauer and Joshua R. McIntyre.
"This will presumably increase the market value of both operations. As a result, management is on good ground to reject a modestly higher offer by arguing that its planned separation would accomplish the same ends for its shareholders.
"A meaningfully higher bid might be accepted, but the associated dilution would likely hurt the combined company's valuation. As a result, we think the odds of a merger occurring are low."
A quick resolution may not be forthcoming, Zaloun said.
"[CenturyTel] will continue to pursue the possible sale of its wireless properties," Zaloun said, "which could generate proceeds that could then be redeployed toward additional access line acquisitions, which could generate incremental revenue and earnings growth going forward."
CenturyTel stock, traded on the New York Stock Exchange, closed Sept. 5 at $35.14 per share, up 19 cents from the previous close. Alltel stock, also traded on the New York market, lost 91 cents to close at $57.90 per share.
Alltel Names VP to Deal With Nebraska Complaints
LITTLE ROCK TELECOM-munications giant Alltel Corp. has named a vice president to do only one thing -- oversee customer service in Nebraska.
The Nebraska Public Service Commission found Aug. 21 that Alltel "has failed to provide the quality of service required by the standards of the commission's ... rules and regulations and has also failed to meet the industry standards [recently set by the Commission.]"
The ruling followed numerous customer complaints about Alltel service since the Little Rock company acquired Aliant Communications Inc. in 1999.
Bill Ashburn, a veteran of 27 years in the Nebraska telephone industry, will work with the Nebraska PSC "to fulfill customer standards."
"Bill Ashburn is ideal for this job -- he has a long history of working successfully to make sure our customers receive the highest level of service, and he has been one of the top operational vice presidents in the entire Alltel system," said Leo Perreault, Alltel's market area president for Nebraska. "We're committed to showing our customers, as well as the PSC, that we will address the issues that have been raised over the past few months."
The commission opened an inquiry March 6, in part to review Alltel's service level after almost two years of dealing with former Aliant customers. In the Aug. 21 report the PSC concluded that Alltel had fallen short and will be required to file monthly reports "indefinitely" detailing the company's performance in, among other areas:
* Directory-assistance calls;
* Speed of answering service calls;
* Timely repairs; and
* Repair appointments kept.
"My top priority will be to make sure our customers continue to receive quality service from Alltel," Ashburn said. "1 have been involved in the communications business for nearly 30 years and my plan is to use that experience to benefit our customers."
|Printer friendly Cite/link Email Feedback|
|Title Annotation:||Alltel Corp.'s interest in CenturyTel Inc.|
|Comment:||CenturyTel Offer Highlights Wireline Profits.(Alltel Corp.'s interest in CenturyTel Inc.)|
|Article Type:||Statistical Data Included|
|Date:||Sep 10, 2001|
|Previous Article:||Little Rock Highway Sign Company Dominates the Interstate Landscape.|
|Next Article:||It's ASU Vs. San Jose State.|