Alltel’s wireless growth slows

(Telephony) Rural wireline and wireless carrier Alltel reported lower fourth quarter profits today amid slower wireless customer growth, causing analyst downgrades and a 12% drop in the company’s share price.

Alltel reported fourth quarter net income of $195.3 million, or 62¢ per diluted share, excluding merger expenses and other special charges, down from $206.3 million, or 65¢ per share, a year ago. Analysts had expected earnings of 61¢, according to First Call/Thomson Financial, an estimate that was slightly lowered in the fall.

Alltel added 291,000 wireless customers in the quarter through internal growth and acquisitions, bringing its total customer base to more than 6.3 million. However, net customer gains, excluding those added through acquisitions, totaled 142,475, 20% below the company’s plan, according to executives, and down from the 160,767 adds in 1999’s fourth quarter. Some analysts had projected net adds as high as 191,000.

“Softer gross sales resulted from our decision not to match the free digital phone promotions offered by our principal competitors,” said Kevin Beebe, group president, Alltel Communications. “We continue to review our retail phone pricing weekly with a view to maintain our desired mix of customer and earnings growth.”

More of Alltel’s new and existing customers are opting for the carrier’s regional calling plans, which stimulate minutes of use growth within Alltel’s expanded calling areas but also lead to higher interconnection and long-distance expenses, said Jeffery Gardner, Alltel’s chief financial officer. “As we enter 2001, our challenge will be to aggressively manage our cost structure to offset the margin pressure resulting from these items,” he added.

Wireless revenues increased 21% in the fourth quarter to $883 million, while Alltel’s consolidated revenues rose 12 percent, to $1.84 billion. Wireline revenue grew 4%, while revenue from emerging businesses such as long distance and CLEC operations was up 33%.

In the wake of the report, Dan Reingold, analyst at Credit Suisse First Boston, lowered his 2001 earnings per share estimate to $3.00 from $3.08 due to “a lower wireless subscriber starting point, some degree of slowing economy and a tick up in competition.”

In addition, William Power, analyst at Robert Baird, downgraded the stock to “market outperform” from “strong buy” based on the fact that Alltel’s wireless subscriber growth “was lower than anticipated.”

Alltel will not provide guidance on 2001 numbers until a conference call in mid-February.