Dobson could be for sale

In another sign that the wireless industry may soon see another round of consolidation, Dobson Cellular (www.dobson.net) announced it will examine the company’s future, with a merger or sale of the carrier as possibilities. In a statement issued last week, Dobson said it has retained advisors Banc of America Securities (www.bofasecurities.com) and Lehman Brothers (www.lehman.com) to assist the carrier in “evaluating various strategic alternatives with the goal of maximizing shareholder value.”

Dobson is a rural carrier based in Oklahoma City. Through subsidiaries and a 50% ownership of American Cellular, the carrier has 1.3 million subscribers in 19 states. Dobson and AT&T Wireless (www.attws.com) acquired American Cellular (www.americancellular.net) in February 2000, with each carrier taking 50% ownership. Dobson, however, manages American Cellular’s licenses.

Although Dobson pointed out that no acquisition or merger may occur, the carrier believes it has never been financially stronger. And Everett Dobson, the carrier’s chairman & CEO, foresees consolidation in the industry’s future.

“With the U.S. wireless industry poised for another round of consolidation, we believe it is prudent to explore all of the company’s strategic options,” he said in the release."

The timing of the decision is curious, said Eric Pritchett, Adventis (www.adventis.com) wireless practice consultant. Pritchett expected Dobson to continue its close work with AT&T, particularly to develop the 14 licenses the two partnered to win in the NextWave re-auction, provided that NextWave doesn’t end up with those licenses of course.

“It’s a bit curious, because unless there is some imminent reason why the company needs an injection of capital or the family wants an exit, it’s unclear why they would want to sell or who they logically view as a buyer,” he said.

Recent carrier movements have included VoiceStream’s (www.voicestream.com) acquisition of Conestoga Wireless and Alltel’s (www.alltel.com) failed overtures to CenturyTel (www.centurytel.com). Alltel has failed to sell CenturyTel on a complete acquisition, as CenturyTel only wants to sell its wireless unit. Rural Cellular (www.ruralcellular.com) is rumored to be up for grabs as well. Many industry analysts have said that mergers and acquisitions will become more common should the FCC (www.fcc.gov) lift or raise spectrum caps.

As for a buyer of Dobson, AT&T could be a likely candidate, given AT&T’s approximate 12% stake in Dobson and the joint acquisition of American Cellular. An AT&T spokesperson declined comment on a possible acquisition of Dobson, but did confirm AT&T’s percentage ownership of Dobson.

Pritchett listed Alltel and U.S. Cellular (www.uscellular.com) as probable buyers of Dobson.

TDMA carriers are the realistic candidates to acquire Dobson, as the carrier predominantly operates on TDMA and analog. Dobson only has CDMA technology in isolated cases. AT&T and Cingular (www.cingular.com), the nation’s largest TDMA carriers, are migrating away from the technology as they move to 2.5G. In a recent E-911 Phase II petition for waiver, Dobson stated it currently has no plans to move away from TDMA.

“Such an upgrade would require Dobson to pass enormous costs along to its mid-sized subscriber base, while attempting to remain competitive with larger carriers providing national plans in the markets it serves,” the filing reads.

A GSM/GPRS overlay isn’t out of the question if the demand is there, according to Warren Henry, Dobson vice president, investor relations. Dobson would still serve it’s TDMA customers, but would offer more advanced services as well.

“We have been a fast follower, technologically speaking, of AT&T Wireless and Cingular over the past three to four years and we will continue to be,” Henry said. “If they build out their GSM/GPRS overlay and sales take off quickly and if those customers tend to roam quite a bit into our markets, then you will see us opportunistically overlaying GSM/GPRS in those markets and taking advantage of that revenue opportunity.”