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Could Alltel continue its shopping spree?

IN WHAT HAS BECOME A YEAR-LONG shopping spree for Little Rock's Alltel Corp., the company recently added a second $1 billion-plus item to its cart. Now investors are curious whether Alltel will try to add yet another wireless operation, this one a small regional player that is openly for sale, to its growing footprint.

On Nov. 18, Alltel announced a $1.08 billion deal to buy the privately held rural cellular provider Midwest Wireless, which has 400,000 customers in Minnesota, Iowa and Wisconsin.

Analysts generally agreed Alltel paid well, if not full price, for Midwest, which uses the same code division multiple access, or CDMA, technology as Alltel and has markets contiguous to those of its future owner.

The only recurring concern was the timing of the accord, just three months after Alltel finalized its $6.5 billion purchase of another rural telecom, Western Wireless of Bellevue, Wash.

Those two big-ticket items, along with a few of considerably smaller deals with Cingular Wireless of Atlanta, U.S. Cellular of Chicago and Public Service Cellular Inc. of Reynolds, Ga., might seem like enough for Alltel to digest in one year. In fact, some analysts are calling for Alltel to put away its checkbook.

But in a consolidating wireless business that is often likened to a game of dominos--once one company falls, or is bought out, so too will many others--the bigger players are getting never-before chances to buy the smaller carriers.

Another such opportunity popped up in September when regional wireless provider Centennial Communications of Wall, N.J., announced it had hired a pair of investment firms as financial advisers to explore "possible strategic and financial alternatives." In other words, the publicly traded Centennial would sound out offers to be bought.

Alltel has been rumored to be one of the possible suitors, an issue the company will not comment on, citing its policy not to talk about potential deals. Though Centennial could fill out some areas Alltel currently does not have, the company would come with baggage.

A simple comparison of Alltel's and Centennial's coverage areas in the continental U.S. would make the two companies seem like a good fit. (See map on Page 15.)

Centennial's Pros and Cons

A Centennial buy would give Alltel complete coverage of Louisiana and an adjacent small piece in Texas. Its properties in southwest Mississippi would fill one of Alltel's two holes in the state. Alltel could also pick up properties in northern Indiana, where it currently has none.

There would be some overlap in large parts of Louisiana and Michigan, along with a small area in Ohio, but Alltel could conceivably sell those properties or swap them with another wireless company.

The biggest conflict of wireless properties, however, is in the Caribbean, where Centennial makes most of its money. In its most recent quarter, Centennial reported U.S. revenue of $108 million and Caribbean revenue (which includes its wireless and broadband operations there) of $132 million.

Alltel has indicated it has no interest in operating international wireless properties, but various recent news reports citing unnamed sources say that Centennial will sell its U.S. and Caribbean properties separately. Digicel Ltd., the fastest-growing telecom in the Caribbean, has even been linked to a possible $800 million deal for Centennial's Caribbean operations.

Even if Alltel could bid solely on Centennial's U.S. properties, there remain several drawbacks to such a deal.

Centennial uses global system for mobile communications technology, or GSM, instead of the CDMA technology that Alltel uses. Centennial customers switching to Alltel would have to buy new phones in order to be on Alltel's system. Or they could keep their old phones and change to a wireless provider that uses GSM, such as Cingular.

Donna Jaegers, an analyst with Janco Partners Inc. of Denver, warns that such transitions are often rocky and could be bad for Alltel's churn, or turnover rate.

"It really seems that Alltel when they've had people change handsets and move over to a different network ... then the customer really starts reevaluating [their provider], then they shop around for all the other service offerings," Jaegers said.

Alltel encountered the same challenge with some former AT&T wireless properties it bought from Cingular in April and could be less inclined to make another investment in GSM properties.

Still, if the bidding stays reasonable, Alltel could still be enticed to make a move on Centennial.

T-Mobile USA, the nation's fourth-largest cellular provider; could be in the running. Just two weeks ago its parent company, Deutsche Telekom AG, indicated it wanted to bolster the network of its U.S. wireless venture by possibly acquiring new wireless airwaves and buying small U.S. cellular providers.

Digicel Ltd. reportedly has interest in Centennial, which has operations in the Dominican Republic and Puerto Rico along with Texas, Louisiana, Mississippi, Michigan, Ohio and Indiana.

And the nation's largest and second-largest wireless providers, Cingular and Verizon Wireless, could be bidders, along with smaller outfits Dobson Communications Corp. and U.S. Cellular Corp.

An announcement could be made the end of the year.

[ILLUSTRATION OMITTED]

CHIP TAULBEE

ctaulbee@abpg.com
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Author:Taulbee, Chip
Publication:Arkansas Business
Geographic Code:1USA
Date:Nov 28, 2005
Words:852
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