Alltel to buy 600,000 local-access lines from Verizon

Alltel has agreed to pay Verizon Communications $1.9 billion in cash for about 600,000 local-access lines in Kentucky. The transaction increases the total access lines owned by Alltel by 25%, to more than 3 million.

Currently, Alltel provides wireline, wireless and long-distance service to more than 40,000 customers in the state. Robert Saunders, an analyst with the Eastern Management Group, said $1.9 billion is a reasonable price for Alltel to pay to significantly strengthen its position in the region.

Rural telcos such as Alltel need to innovate, or they will run the risk of having their customers “swiped” by cable, fixed wireless and even the Bell companies, Saunders said.

“They have to be more aggressive, they can’t stay in the same backyard anymore,” he said. “They have to acquire properties where it makes sense.”

Saunders said the $3205 Alltel paid per line compares favorably with the $3300 paid to Verizon by CenturyTel a week ago for about 675,000 local-access lines in Missouri and Alabama. He said the deal with Verizon should pose no financial risk to Alltel given the carrier’s healthy balance sheet.

“Pulling this together wasn’t much of a challenge,” he said.

Alltel today announced third quarter 2001 net income from current businesses of $230.7 million--74¢ per diluted share--on revenues of $1.9 billion. Net income increased year over year by 8%, while revenues increased by less than 2%. Earnings before interest, taxes, depreciation and amortization (EBITDA) were $742.6 million for the quarter--a 7% increase year over year--while operating cash flow was $652 million, an 8% increase compared with the same quarter last year.

However, on an as-reported basis--including merger and integration expenses, as well as gains on the disposal of assets--the picture wasn’t as rosy. By this measure, net income for the quarter was $221.4 million--71¢ per diluted share--a 54% decline compared with the $484 million posted in the same quarter last year.