Tuesday, June 10, 2008
Chicago Tribune (MCT)
CHICAGO — Verizon Wireless' plans to buy regional carrier Alltel Corp. in a $28.1 billion deal has some telecom industry observers questioning whether other smaller regional wireless operators could soon be snatched up by larger players.
With subscriber increases reaching a plateau, acquiring smaller operators is one of the main ways bigger carriers can keep growing as they battle for new customers. Intense competition already prompted major companies to introduce flat-rate, unlimited-service plans within days of each other earlier this year, and the carriers also are eagerly pushing data services that make use of their more advanced networks.
"In telecommunications, profitability is built upon scale because the investment required to reach the first customer could be tens of millions, maybe hundreds of millions of dollars," said Robert Rosenberg, president of New Jersey-based Insight Research Corp.
Alltel's more than 13 million customers made it the No. 5 carrier in the U.S., and Verizon Wireless is No. 2, with 67.2 million. Their combined more than 80 million subscribers will push Verizon Wireless past AT&T, which has more than 70 million customers.
One regional carrier, U.S. Cellular, has held its ground as a smaller player. The company has 6.2 million customers in 26 states and is pushing forward with network upgrades and expanding coverage in existing markets. Mark Steinkrauss, a spokesman for U.S. Cellular, said the carrier is comfortable operating as a standalone company within its niche.
"We have competed against Verizon, AT&T, Sprint, T-Mobile — all the nationals — for years, and to a lesser degree, we've competed against Alltel," Steinkrauss said. "Is it going to be any different? I don't think so."
The biggest influence in U.S. Cellular's future may be its owners' reluctance to sell. Telephone and Data Systems Inc., a Chicago company controlled by its founding Carlson family, owns roughly 80 percent of U.S. Cellular.
"We're owner-operated. We always have been," Steinkrauss said. "We're doing a good job driving the company forward. We have all sorts of financial flexibility."
David Weissman, a telecom analyst at Zacks Investment Research, said he thought Alltel and U.S. Cellular might have teamed up at one point.
"But when you start going below No. 5 on a regional scale, it doesn't make sense anymore for the regional carriers to group together," Weissman said. "The only way they could really consolidate is with the major contenders."
Steinkrauss acknowledged that as a regional carrier, U.S. Cellular can't boast the largest network or the most sophisticated technology. But the company has focused on customer service and network quality, and it has seen "good, solid revenue growth" as a result, he said.
U.S. Cellular signed a five-year contract with equipment supplier Nortel Networks in March. The operator also has a bolstered cell phone lineup, offering smart phones popular with non-business subscribers. Mainstream adoption of these handsets is crucial for wireless carriers because they bring in more revenue.
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