Number of Telecom Targets Shrinks


NEW YORK -- Investors eyeing more telecom acquisitions after the Alltel Corp. buyout deal shouldn't hold their breath -- there is plenty of speculation, but not too many serious prospects.

The Alltel deal, in which the wireless carrier agreed to be sold to a pair of investment firms for $24.8 billion, has been widely anticipated since at least February, when the company said it was conducting a "strategic review."

The Little Rock, Ark.-based company is the country's fifth-largest wireless service provider, but its geographic network, or "footprint," is bigger than that of its heavyweight rivals.

Of the four bigger mobile service providers, three (AT&T, Verizon Wireless and T-Mobile) are owned by large telecom carriers. Only Sprint Nextel Corp. stands alone as a wireless-only business, and as such it has been the subject of buyout speculation on Wall Street. The company says it does not comment on rumors, and Comcast Corp., the cable company often cited as a potential buyer, has repeatedly denied its interest.

"I personally would be shocked to see Comcast buy Sprint," said SurTerre Research/Soleil Securities analyst Todd Rethemeier. "They don't need it."

Comcast already offers "triple-play," or bundled TV, phone and Internet services. But Rethemeier said few customers want wireless services added to the package.

"They see it as a separate product," he said.

With a market cap more than twice the size of Alltel's, Sprint may also be too big of a bite for potential buyers.

"While not inconceivable, we question whether private equity capacity could fund the deal," wrote Cowen and Co. analyst Thomas Watts in a note to investors.

A more likely takeover target could be Leap Wireless International Inc., a small, San Diego-based wireless service provider offering unlimited voice and data services for a flat rate, with no required contract.

Rethemeier said MetroPCS Communications Inc., which went public in April, could arise as a possible buyer. The companies cater to the same market - people with imperfect credit - something larger carriers have more or less avoided. But the subprime market is growing, since, as Rethemeier put it, there aren't too many adults with good credit who don't already have a cell phone.

Dobson Communications Corp., which provides wireless service to about

1.7 million, mostly rural customers, would be an attractive target for either AT&T or T-Mobile, said Stanford Group analyst Michael Nelson. Both companies use Dobson's network to provide roaming service in areas they do not cover.

In contrast, tiny Rural Cellular Corp. may just be too small to bother. The company had just 715,632 customers at the end of March.

There may be more surefire deals brewing north of the border. BCE Inc., Canada's largest communications company, is in negotiations to be taken private. The company confirmed last week it began talks to be sold to Cerberus Capital Management LP and a group of Canadian investors. Cerberus recently agreed to buy 80 percent of Chrysler Corp. for $7.4 billion.

Goldman Sachs analyst recently highlighted BCE, Sprint and Telus Corp., another Canadian telecom carrier, as the "most logical other targets" among the companies he covers.

The analyst called the Alltel deal as "positive for the entire industry, but in particular, companies with majority wireless exposure."

He added that despite speculations, he is "highly skeptical that majority wireline companies in the U.S. would make good targets."

Copyright 2007, Associated Press

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Barbara Ortutay, Associated Pr
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