July 17, 2006 Alltel to End Local Service as a Spinoff Is Completed By KEN BELSON NY Times
http://www.nytimes.com/2006/07/17/technology/17phone.html?pagewanted=print Despite all the talk about the convergence of wireless and wired communications services, a growing number of companies are getting out of the traditional phone business. Alltel plans to announce today that it has joined that list by completing the spinoff of its local phone unit, which has 2.9 million lines and serves mostly rural customers, and merging it with Valor Communications, a smaller business that is publicly traded. The new company, Windstream, will have 3.4 million local phone lines sprinkled across 16 states from New York to New Mexico. Its stock will begin trading tomorrow on the New York Stock Exchange. Alltel announced the spinoff plan in December. Just a few years ago, the prevailing logic was that phone carriers needed to be telecommunications supermarkets to survive, selling bundles of local, long-distance and wireless calling plans as well as broadband and television services. AT&T, the country's largest phone company, still embraces that strategy. But others are starting to see it differently. In May, Sprint spun off its local phone group, now called Embarq, which has 7.26 million subscribers. Verizon has sold its local phone business in Hawaii and has expressed interest in selling off millions of phone lines in other states. Why now? Local phone businesses typically generate a steady stream of cash, and for years they gave their owners the money to build wireless networks. Now that those cellphone networks are largely complete, wireless companies are better able to operate independently, and slow-growing fixed-line units can actually be a drag on their performance. "We've reached the saturation point where wireless can stand on its own," said Todd Rosenbluth, an analyst at Standard and Poor's. Cellphone companies are also grabbing more customers from fixed-line phone companies. The number of wireless subscribers grew 14 percent last year, while the Bell companies are losing about 5 percent of their local phone lines each quarter. Last year, there were more mobile phone subscribers than fixed-line subscribers for the first time. Wireless companies, which are growing faster than traditional phone companies, are likely to attract investors interested in growth stocks. But investors looking for steadier returns are attracted to local phone companies, particularly those that operate in rural areas where competition is less fierce, because they usually pay big dividends. Alltel hopes to appeal to both of these types of investors by splitting itself in two. "Investors in the U.S. will pay for growth and not for cash, unless you pay a high dividend," said Scott T. Ford, the chief executive of Alltel, which will buy back $3 billion in stock after the Windstream spinoff. As a faster-growing wireless company, Alltel also stands a better chance of being taken over, financial analysts say. Verizon Wireless has most often been mentioned as the potential suitor, they say, because the companies already have roaming agreements and use the same wireless technology. It is far from clear whether investors will flock to Windstream. Embarq's shares have fallen 11.5 percent since they first started trading, a sign that investors think the company overvalued its subscribers. If Windstream suffers the same fate, Verizon could find it harder to get a good price for any local phone lines it tries to sell. "It's first come first served," said Daniel Berninger, a telecommunications analyst at Tier 1 Research. If Windstream shares perform poorly and Embarq continues to decline, "it's all bad news for Verizon because they are late to the party," he said. ================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 antunes at uh dot edu Reply with a "Thank you" if you liked this post. _____________________________ MEDIANEWS mailing list [email protected] To unsubscribe send an email to: [EMAIL PROTECTED]
