ALLTEL GRABS MORE PROPERTY BUT STILL WANTS CENTURYTEL; Acquisition of Verizon access lines is one part of ongoing expansion

ALLTEL GRABS MORE PROPERTY BUT STILL WANTS CENTURYTEL; Acquisition of Verizon access lines is one part of ongoing expansion

Alltel acquired 600,000 access lines in Kentucky from Verizon Communications last week, just one week after CenturyTel bought 675,000 Verizon lines in Missouri and Alabama. Both purchases could be easily perceived as posturing, since Alltel wants to acquire CenturyTel to expand its rural holdings but has been repeatedly rebuffed.

According to Alltel President and Chief Operating Officer Scott Ford, however, CenturyTel’s expansion hasn’t scared Alltel off, and the CenturyTel merger offer is “still on the table.”

“There’s no material impact one way or another in terms of our interest in merging with CenturyTel,” Ford said. Alltel expects its newly acquired lines to generate annualized revenues of $445 million to $465 million and cash flow of $245 million to $255 million in the first full year of operation and drive revenue through voice mail, long distance, DSL and Internet access, he said.

That will be Alltel’s first challenge because the acquired lines have lower penetration levels for enhanced services than Alltel’s existing lines. However, Kevin Beebe, Alltel’s group president for communications, said the company was confident it could quickly improve those levels.

According to Robert Saunders, an analyst for the Eastern Management Group, rural telcos such as Alltel and CenturyTel need to protect themselves from carnivores such as fixed wireless and cable companies – and even the Bell companies. “The rural telcos can’t stay in the same backyard,” he said. “They have to be more aggressive and acquire neighboring properties wherever it makes sense.”

That’s exactly the plan, said Beebe. “The transaction is yet another step toward growing our business in markets that cluster with our existing operation,” he said.

But Christopher King, an associate analyst for Legg Mason, thinks there’s more to the deal than a simple footprint expansion. “The deal demonstrates a strategic shift. There is only so much they will be able to do on the regional wireless platform.”

Rex Mitchell, telecommunications analyst for BB & T Capital, believes the recent flurry of activity by both carriers lessens the chance of a merger. “This might be at least a slight indication that Alltel has given up on the deal,” Mitchell said.

Alltel will finance its transaction through short- and long-term debt, while CenturyTel had yet to announce its financing strategy for its $2.2 billion buy.

With additional reporting by Amalia D. Parthenios in Chicago.


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