Analysis: Is Alltel A Cellular Takeover Target?Analysis: Is Alltel A Cellular Takeover Target?

Regional cellular operator Alltel Wednesday reported another strong financial quarter, once again fueling speculation that it could become a takeover target, particularly by Verizon Wireless.

Alltel, which provides cellular service in 36 states, said that it had revenues from its cellular operations of $1.8 billion for its most recent quarter, a 30 percent increase compared to the same quarter a year ago. It said it added about 165,000 new wireless customers during the quarter and increased its average revenue per user (ARPU) by about four percent. It also recorded a low 1.66 percent "churn rate," which measures the rate at which customers defect to other carriers.

These are just the most recent strong quarterly results posted by the Little Rock, Arkansas-based company and one analyst thinks that, eventually, the operator could become an attractive takeover target.

"It's a well-run, well-executed company," said Tole Hart, a research director for Gartner. "They've spun off their local (wireline) exchange company and they're focused on wireless. That makes them something of a pure play, which makes them an easier takeover target." He also noted that the company has been aggressive, particularly given its rural customer base, about bringing new technologies, such as push-to-talk, to market.

While Alltel operates in 36 states, it covers relatively few large cities, which is where the largest growth is, Hart noted. Of the possible matches in the U.S., Verizon is the strongest because it and Alltel use the same underlying CDMA technology for their networks and their coverage maps don't overlap much, Hart added. Rumors have emerged over the last couple of years about such a merger.

"If Verizon were looking to cement their position, Alltel would be attractive," Hart said. The two companies already are working together with a comprehensive roaming agreement, Hart noted.

He added, though, that Verizon Communications, which owns 55 percent of Verizon Wireless, is probably more interested at present in buying out Vodafone, which owns the other 45 percent. Verizon Wireless has the second largest number of subscribers in the U.S. behind Cingular. Vodafone operates primarily in Europe and Japan but has ownership interest in cellular carriers in a total of 26 countries.

Another possible merger partner would be regional cellular operator U.S. Cellular, a Chicago-based company that operates in 25 states. Hart noted that U.S. Cellular also is both a CDMA operator and doesn't have a lot of service overlap with Alltel. However, while rumors have long floated around about a possible acquisition of Alltel by Verizon Wireless, Hart acknowledged he had heard no rumors of a merger with U.S. Cellular.

Hart guessed that Alltel is more focused on executing its business plan than finding a company to merge with or to acquire it. "They're focusing on their value and growing that value," Hart said. "At the end of the day, if that means somebody is buying them, that's what the market would dictate. But I don't know if that's in their immediate plans."