Global Insight Perspective | |
Significance | AT&T has gained a viable operation that will bring it a significant rural GSM network, spectrum in the efficient 850 MHz range, and 1.7 million subscribers. |
Implications | AT&T will boost its leadership in subscriber numbers to maintain the number one spot, save funds from lower roaming expenses, and be able to provide increased on-net coverage. |
Outlook | This acquisition may spur Verizon to look for similar acquisition possibilities with Leap, MetroPCS, and U.S. Cellular viable prospects. |
The frenzy of mergers and acquisitions in the telecoms sector continued on Friday (29 June 2007) with Dobson Communications, the rural wireless carrier that last week reported that it is considering the strategic options available, announcing that it is to be acquired by AT&T, the largest wireless carrier in the United States (see United States: 25 June 2007: Dobson Communications Considers Strategic Options). AT&T will pay US$13 per share, a 16.9% premium on the closing price from 28 June 2007, for a total of US$2.8 billion in cash, and assume debts that will value the total transaction at US$5.1 billion.
AT&T will gain a large rural GSM/EDGE network operating in 17 states, as well as 850 MHz spectrum assets that compliment AT&T's network. Dobson is an existing roaming partner for AT&T and has significant spectrum in the 850 MHz range. AT&T describes the network as having minimal overlap with that of AT&T, with the rural and suburban operations in Alaska, Arizona, Illinois, Kansas, Kentucky, Maryland, Michigan, Minnesota, Missouri, New York, Ohio, Oklahoma, Pennsylvania, Texas, Virginia, West Virginia, and Wisconsin largely complementing and enhancing those of AT&T. Dobson brands include Cellular One and American Cellular, which will disappear as the company (with 1.7 million subscribers) is assimilated into the AT&T Mobility behemoth that recorded 62.2 million subscribers at the end of the first quarter of 2007.
Dobson has swung on the edge of profitability in recent years, but AT&T expects to benefit from net present value (NPV) of synergies to amount to US$2.5 billion, with significant annual savings arising from reduced roaming expenses, overheads, and operational expenses. The transaction will have an impact of US$0.03-0.04 dilution to earnings per share in the first year and a positive impact on earnings per share from the second year following closure of the acquisition.
The acquisition is subject to regulatory approval, which AT&T expects to gain by the end of 2007 due to the limited geographic overlap of the companies' networks and the existence of significant competition from other companies in the areas of operation, despite the existing market leadership position.
Outlook and Implications
AT&T will benefit significantly from this acquisition—the focus for operators currently is on expanding network coverage to improve service quality and reliability. While AT&T already had access to Dobson's extensive rural network through roaming agreements since 1990, it is now able to claim greater 'on-network' rural coverage. The 850 MHz spectrum network, with its superior range and propagation characteristics (affecting non line-of-sight/in-building coverage), facilitates lower-cost network deployments particularly suited to less-densely populated areas.
The acquisition will help AT&T, which added 1.2 million wireless subscribers in the first quarter of 2007, to take the total to 62.2 million in order to maintain its lead over rival Verizon, which added 1.7 million subscribers for a total of 60.7 million subscribers in the first quarter of 2007 (see United States: 1 May 2007: Verizon Delivers Strong Growth in Q1 and 25 April 2007:AT&T Doubles Q1 Net Profits on Synergies from Recent Takeovers). This could push Verizon to make its own acquisitions with compatible CDMA network carriers—US Cellular (6 million subscribers), MetroPCS (3.4 million subscribers in the first quarter), and Leap Wireless (2.5 million subscribers) are all viable targets (see United States: 16 May 2007:US Cellular Nears 6 mil. Subscribers; 15 May 2007: MetroPCS Boosts Revenue 63% Y/Y and Doubles Profits; and 28 February 2007: Leap Swings Back to Loss on Higher Costs).