Match Made In Heaven: Alltel, 360 degrees combine forces with minimal overlap

Alltel and 360 degrees Communications plan to merge as part of a $6 billion marriage of like strategies, complementary services and markets that fit together like pieces of a puzzle.

While Alltel's focus primarily has been wireline and 360 degree's wireless, both have heavily touted bundled services.

"We believe the winning companies will be those that can offer a broad array of services," said Joe Ford, Alltel's chairman and CEO.

Dennis Foster, president and CEO of 360 degrees, made similar comments: "One of our core strategies is to be a total communications service provider," he said.

Alltel's and 360 degree's territories fit together with virtually no cellular overlap to build a combined communications presence in 22 states. Currently, Alltel offers cellular service to 27% of its 1.8 million wireline customers, according to Scott Ford, president of Alltel and son of Joe Ford. This merger, combined with Alltel's PCS territories, will increase the overlap to 62%, furthering the company's ability to offer bundled wireline and wireless services.

Offering a range of services minimizes the impact of eroding profit margins in any business. "You can't put all your eggs in one basket," said David Roddy, chief telecom economist for Deloitte & Touche.

For carriers choosing a diversification strategy, minimizing risk may be more important than consumer demand for bundled services, he said. "'One-stop shopping' is one of the most overused buzzwords of the century."

Both Alltel and 360 degrees have sought to establish a strong regional presence in medium-sized and small cities, and the combined company will continue to push this strategy. "I'm glad we're not in the top 30 markets," Foster said. "They have more competition, they're harder to serve and a strong local presence doesn't work there."

The focus on small to medium-sized cities has kept competitors at bay so far. Officials at 360 degrees said the company's largest competitor represents only 15% of its total markets. "Now we've solidified our presence in the Southeast and Midwest," Foster said. Future geographic expansion for the company will occur only when it strategically can enhance its footprint.

Hopes for the combined company include greater economies of scale and increased sales from offering bundled services to a broader market. In fact, Alltel expects to save more than $100 million by 2000 because of economies of scale in purchasing, network operations, information technology and administration. However, employee layoffs are not imminent, the companies said.

To change the 360 degrees name to Alltel, the company will build on the $50 million that 360 degrees once dedicated to branding and advertising, when Sprint Cellular spun off to become 360 degrees. Foster said 360 degrees will pursue the name change with the same vigor as seen in the initial launch of the company, but the established brand will help. "We already have a brand that needs no introduction," he said.

The merger joins the "new wave of deals among second-tier companies," said Mark Lowenstein, vice president of wireless research for The Yankee Group. It indicates a move away from consolidation among the big companies toward the medium-sized players.

The current abundance of spectrum may encourage mergers, as the surplus affects all aspects of the industry.

"It's good news for consumers because prices go down but bad news for carriers trying to make a profit," Roddy said. "The smaller wireless carriers will get hit first."

Joe Ford will continue as chairman and CEO with Foster reporting to him as vice chairman. Scott Ford will remain president. The merger is expected to close this summer.