CONSOLIDATION COMES TO TIER 2 ARENA WITH ALLTEL, SPRINT DEALS

Consolidation isn't just occurring among the national wireless players. The broad ranks of the Tier 2 providers have also begun to collapse as Alltel continues to pluck up its smaller neighbors and Sprint absorbs its affiliates.

Alltel this month announced its second major acquisition of the year, picking up Midwest Wireless for a cool $1 billion in cash. While Midwest Wireless is a significant regional carrier in its own right with 400,000 customers in a three-state footprint, it's nothing compared with Alltel, which has almost doubled its wireless subscriber base and footprint since 2000 through multiple acquisitions. It now has more than 10.4 million subscribers, still half the size of the smallest Tier 1 operator, T-Mobile USA, but double the size of its nearest Tier 2 competitor, U.S. Cellular.

“The Midwest Wireless business strengthens our position in the wireless industry by adding CDMA properties that are contiguous to existing Allel operations,” said Alltel CEO Scott Ford, in announcing the deal. Dennis Miller, president and CEO of Midwest Wireless, added that the Mankato, Minn., carrier's rural market customers will benefit from access to Alltel's much larger footprint. The acquisition is anticipated to close sometime in the first half of 2006.

Earlier this year, Alltel agreed to buy Western Wireless, picking up a huge swath of territory in the western states as well as its 1.4 million subscribers and international holdings, for more than $6 billion in cash and stock. That deal closed in August. Even before the Western Wireless buy, Alltel acquired smaller operators throughout the country as part of an acquisition spree that began with its purchase of CenturyTel's wireless assets in 2001.

Late last month, Alltel reported increasing strong revenue from its wireless operation during the third quarter, and Ford confirmed at that time that the carrier was in the process of considering the spinoff of its wireline operation. Another option, Ford said, is that Alltel could merge its wireline operation with that of another Tier 2 telco. As of press time, the company had not rendered a decision.

Meanwhile, Sprint last week continued its own acquisition spree in the Tier 2 and smaller markets, announcing that it would acquire another of its own wireless affiliates, Alamosa Holdings, for about $3.4 billion.

That company, based in Lubbock, Texas, has a growing customer base of 1.48 million users. In the last several months — while closing its own huge merger with Nextel Communications and immediately after that deal closed — Sprint previously agreed to buy IWO Holdings, US Unwired and Gulf Coast Wireless. Those three companies, plus Alamosa Holdings, represent four of at least seven wireless affiliates of Sprint that have filed suit against Sprint because its new Nextel territories encroached on their turf. Alamosa, however, is the largest of the affiliates to be acquired so far, and was one of the companies to hold out longest in negotiations. Alamosa initially filed a lawsuit against Sprint in early August.

In a related issue, Sprint also still is engaged in an ongoing legal battle with its Nextel Partners affiliate over the fair market value of that company.