By BARBARA ORTUTAY
AP Business Writer
NEW YORK -- Investors eyeing more telecom acquisitions after the
Alltel Corp. buyout deal shouldn't hold their breath -- there is
plenty of speculation, but not too many serious prospects.
The Alltel deal, in which the wireless carrier agreed to be sold to a
pair of investment firms for $24.8 billion, has been widely
anticipated since at least February, when the company said it was
conducting a "strategic review."
The Little Rock, Ark.-based company is the country's fifth-largest
wireless service provider, but its geographic network, or "footprint,"
is bigger than that of its heavyweight rivals.
Of the four bigger mobile service providers, three (AT&T, Verizon
Wireless and T-Mobile) are owned by large telecom carriers. Only
Sprint Nextel Corp. stands alone as a wireless-only business, and as
such it has been the subject of buyout speculation on Wall Street. The
company says it does not comment on rumors, and Comcast Corp., the
cable company often cited as a potential buyer, has repeatedly denied
its interest.
"I personally would be shocked to see Comcast buy Sprint," said
SurTerre Research/Soleil Securities analyst Todd Rethemeier. "They
don't need it."
Comcast already offers "triple-play," or bundled TV, phone and
Internet services. But Rethemeier said few customers want wireless
services added to the package.
"They see it as a separate product," he said.
With a market cap more than twice the size of Alltel's, Sprint may
also be too big of a bite for potential buyers.
"While not inconceivable, we question whether private equity capacity
could fund the deal," wrote Cowen and Co. analyst Thomas Watts in a
note to investors.
A more likely takeover target could be Leap Wireless International
Inc., a small, San Diego-based wireless service provider offering
unlimited voice and data services for a flat rate, with no required
contract.
Rethemeier said MetroPCS Communications Inc., which went public in
April, could arise as a possible buyer. The companies cater to the
same market - people with imperfect credit - something larger carriers
have more or less avoided. But the subprime market is growing, since,
as Rethemeier put it, there aren't too many adults with good credit
who don't already have a cell phone.
Dobson Communications Corp., which provides wireless service to about
1.7 million, mostly rural customers, would be an attractive target for
either AT&T or T-Mobile, said Stanford Group analyst Michael Nelson.
Both companies use Dobson's network to provide roaming service in
areas they do not cover.
In contrast, tiny Rural Cellular Corp. may just be too small to
bother. The company had just 715,632 customers at the end of March.
There may be more surefire deals brewing north of the border. BCE
Inc., Canada's largest communications company, is in negotiations to
be taken private. The company confirmed last week it began talks to be
sold to Cerberus Capital Management LP and a group of Canadian
investors. Cerberus recently agreed to buy 80 percent of Chrysler
Corp. for $7.4 billion.
Goldman Sachs analyst recently highlighted BCE, Sprint and Telus
Corp., another Canadian telecom carrier, as the "most logical other
targets" among the companies he covers.
The analyst called the Alltel deal as "positive for the entire
industry, but in particular, companies with majority wireless
exposure."
He added that despite speculations, he is "highly skeptical that
majority wireline companies in the U.S. would make good targets."
Copyright 2007, Associated Press
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Barbara Ortutay, Associated Press (ap@telecom-digest.org)