Dallas, Texas, December 12, 2008 - AT&T Inc. (NYSE:T) today announced the close of its Wayport, Inc. acquisition. The Wayport resources significantly advance AT&T's strategy for deploying consumer Wi-Fi services that provide broadband access across devices, personalized for the user and location, and innovative business Wi-Fi applications designed to reduce operating costs and increase productivity. Read More ...

Verizon received its last regulatory hurdle to acquire Alltel when the FTC recently gave its blessing. Verizon will now become the largest wireless carrier in the U.S. with over 80 million+ subscribers (AT&T will be a close second, at right around 75 million subs, after their Centennial acquisition closes). Alltel joins a growing list of rural wireless carriers who have been swallowed by either AT&T or Verizon. Rural Cellular, Dobson Cellular, Centennial Wireless, and a host of other smaller wireless players are now a part of the Verizon and AT&T duopoly. Rural mobile carrier acquisition is an “easier” way for larger players to feed their insatiable need for growth. Their alternative, so called “organic” growth, is much harder and in a market approaching saturation, basically means taking customers from competitors. As a result, rural wireless carriers look like an endangered species.

So who’s next? Lots of speculation that U.S. Cellular is next in line. There also remain numerous smaller wireless carriers across rural America. Those smaller carriers probably don’t get as much interest from the big boys right now, but once all of the larger rural carriers are gone, that may change. It presents somewhat of a dilemma for small rural wireless carriers, who face very tough business challenges. Should they try to position their rural wireless company to be acquired, or do they try to fight the good fight, and march on independently? Unfortunately for them, no easy answer. Probably more than any other telecom business, wireless requires significant scale to be the most successful. I’ve talked with some rural wireless carrier managers who have recently sold and the response I’ve heard consistently is that despite decent subscriber growth for their wireless business, the CAPEX and OPEX was simply too much to handle, resulting in losses that had no end in sight. Add to that business case challenge, an intense competitive marketplace where national carrier’s marketing budgets are in the nine figures, and you can see why many rural wireless carriers, large and small, are selling.

It’s a tough decision for many, particularly those rural wireless carriers who have ties to a wireline company. Those rural companies recognize, just like AT&T and Verizon do, that wireless represents the future of telecom (along with broadband). Small rural carriers would like to emulate the strategies of Verizon and AT&T, which have both wireless and broadband bases covered. But in a world where 4G is already on the horizon, despite the millions it takes to get a network 3G capable, maintaining a competitive wireless network with limited scale presents enormous challenges.

NEW YORK (AP) — The Federal Trade Commission has removed the last regulatory hurdle for Verizon Wireless' purchase of Alltel Corp., which will create the country's largest wireless carrier, the agency said Wednesday. Read More ...

NEWTON, Iowa, Nov 21, 2008 (BUSINESS WIRE) -- Iowa Telecommunications Services, Inc. announced today that it has reached an agreement to acquire substantially all of the assets of Sherburne Tele Systems, Inc. for $80.6 million, subject to certain balance sheet and tax adjustments. Sherburne Tele Systems is a closely held telecommunications company serving nine communities adjacent to the Minneapolis/St. Paul Metropolitan Area. Sherburne's operations include its ILEC services, marketed as Connections, Etc., and CLEC services provided through its wholly-owned subsidiary, Northstar Access. Read More ...

In a second major acquisition this week, AT&T announced it will buy Centennial Communications for $944 million. Centennial provides GSM wireless services to 1.1 million subscribers in primarily rural markets throughout the Midwest and Southeast U.S. It also has some wireline operations in some Caribbean markets. Assuming the deal is approved, Centennial’s subscriber base will push AT&T’s total subscriber count to just shy of 75 million. Even with the acquisition, AT&T will still lose its top spot to Verizon when the Verizon – Alltel deal closes. A combined Verizon – Alltel will have 83 million+ subscribers.

This acquisition is illustrative of the continuing interest in rural wireless carriers. Centennial joins Alltel, Dobson Cellular, and Rural Cellular as recent “big” rural carrier prizes for both Verizon Wireless and AT&T. Rural carrier acquisitions represent the easiest way for their larger national brethren to grow subscriber counts and fuel the growth that national wireless companies so desire. An extra incentive to rural carrier acquisition is the reduction in roaming expenses it brings to its suitors. It appears as if rural wireless carriers are increasingly becoming an endangered species. Who’s next?

Consolidation among telephone companies continues with the announcement by CenturyTel of their pending acquisition of Embarq. CenturyTel will buy Embarq in an all stock transaction valued at $11.6 billion, including the assumption of $5.8 billion of Embarq debt. Based on the closing stock price for CenturyTel on October 24, 2008, this consideration values Embarq shares at $40.42, a 36% premium over Embarq’s closing share price as of October 24th. The new combined entity, whose name has not been chosen yet, will have a presence in 33 states with approximately eight million access lines and two million broadband customers. “The combined company is expected to have pro forma revenue in excess of $8.8 billion, pro forma EBITDA of approximately $4.2 billion, pro forma leverage of 2.1 times EBITDA and pro forma free cash flow of approximately $1.8 billion, based on anticipated full run-rate synergies and operating results for the twelve months ended September 30, 2008,” says CenturyTel in a company statement. The current financial downturn has made telecom stocks more attractive, price wise. Embarq’s shares have fallen close to 40% since August, making an acquisition more palatable.

The combined company will still hold Embarq’s current placement behind Qwest as the fourth largest traditional telco in the U.S. We suspect it will put pressure on other large independents like Windstream and Frontier to look for merger partners. With the continuing struggles of core telecom services like switched access, companies are looking towards consolidation to strengthen balance sheets and weather the sometimes painful transition to broadband and wireless. Embarq has been focusing on strengthening its core wireline service, while CenturyTel is exploring next generation services, including limited IPTV trials and investing in 700 Mhz spectrum for a potential future wireless play. It will be interesting to watch how the priority of these new initiatives line up in the new entity.

Decisions made at the upcoming FCC meeting on November 4th could significantly impact telecom’s competitive landscape. The tentative agenda includes two huge wireless merger approvals, a vote on the “whitespace” unlicensed spectrum order, and revamping of the intercarrier compensation system used among telecom carriers. The wireless merger decisions include the Verizon – Alltell and Clearwire-Sprint sprint deals. The “whitespace” inititiave uses spectrum in the “whitespaces” between television channels that will be freed up upon the digital TV transition. This spectrum is prized because of its good propogation and the significant amount of spectrum that will be available. There is significant opposition from broadcasters and established wireless carriers, including T-mobile, who argue that the use of this spectrum will create serious interference problems for their services. Here’s a breakdown on some of the potential implications if these initiatives pass muster on the Nov. 4th meeting.

Implications from the Verizon-Alltel deal include:

• A combined Verizon-Alltel will create the largest wireless carrier in the U.S., surpassing the current number one carrier AT&T
• As a condition of the merger, the new entity will have to shed numerous rural markets (approx 100 at last count), opening the door for potentially new competitors in those markets

Implications of the Sprint-Clearwire deal include:

• Formation of a true nationwide WiMAX operator, who could potentially offer a third broadband pipe option into the home
• Empowerment of several large cable companies to offer their own branded broadband wireless service
• A first to market lead of months (maybe years) over other 4G competitors

Implications of the “whitespace” initiative include:

• The potential empowerment of numerous competitors who can offer yet another broadband wireless option, who some call Wi-Fi on steroids
• Potential interference with existing wireless carriers and broadcasters that will have to be resolved
• Potential for a plethora of new wireless devices and applications that are designed to take advantage of the new connectivity.

The implications of intercarrier compensation (ICC) reform are really too complex and lengthy to list in a blog post. ICC is a set of rules that dictates how telecom carriers compensate each other for interconnecting calls. It’s a myriad of state and federal rules that is so complex that the reality of this being resolved at this upcoming FCC meeting is laughable. There are billions of dollars at stake and entrenched special interests of large and small wireline carriers, wireless, Internet, and cable companies, most of whom have powerful influence in Washington. If there ever were a contentious issue in telecom policy, this is it. It’s going to take real leadership to reform the system, and with a new administration on deck, it’s highly unlikely that this issue will be dealt with in any meaningful way until next year. If reform does happen, and that’s a big if, it could fundamentally change the telecom system as we know it, with winners and losers, and probably a lawsuit or two to boot. Should be an interesting meeting

With the tumultuous fall in the global financial markets, stock prices of prized telecom companies are looking relatively cheap these days. RIM, the maker of the venerable BlackBerry, has fallen from a high of $150/share, to a recent trading range of $55 - $70/share. That precipitous decline is fueling rumors that Microsoft may make a bid for RIM. Light Reading’s Unstrung speculated on Monday that Microsoft may make a move if RIM’s shares fall to the $50/share range. Such a move would catapult Microsoft into the role of the number two global smartphone supplier, behind only Nokia. But in the important U.S. market, Microsoft would be smartphone king, since Nokia’s global lead comes from European and Asian markets. A RIM acquisition would also help Microsoft counter their current arch nemesis, Google, and the upcoming G1 smartphone.

Of course this is all wild speculation. Neither Microsoft nor RIM is commenting. I could envision rampant opposition from both RIM and the Canadian government. If a deal does eventually happen (which is probably remote), let’s all prey that Microsoft engineers are barred from Canada and there is absolutely zero attempt to integrate Windows Mobile with the BlackBerry operating system. Leave a good thing alone, please!

Fairpoint announced a delay in the complete takeover of Verizon properties they purchased in the northeast. The official cutover is now scheduled for the end of January 2009, which is a 60 day delay from the previous announced cutover date. Fairpoint is trying to “transition to about 60 new, fully integrated state-of-the-art systems which will replace the more than 600 systems currently being utilized by Verizon to support the acquired operations.” Fairpoint is still utilizing Verizon resources during the transition.

No real surprise here. The transition is indeed complex, and Fairpoint won’t publicly say it, but I’d be willing to bet the Verizon plant they’ve inherited has seen better days. It probably needs serious rehab work. I can say that from experience, having previously worked in network ops of a large bell company. Even the markets (i.e. large urban centers) that have the attention of bell companies can leave a lot to be desired from a physical plant perspective. Smaller, less densely populated markets receive even less attention. This Fairpoint delay can be spun as a smaller, less capable company trying to inherit more than it can handle – in fact I’ve seen commentary supporting this view already. I’m sure there are some scale challenges for Fairpoint. But the reality probably has more to do with trying to absorb network assets that need some serious rehab.