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http://www.forbes.com/2001/10/08/1008topnews.html
Archived: 10/09/2001 at 02:32:04
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Management & Trends
AT&T Wireless Swallows Largest Affiliate NEW YORK - Places like Des Moines, Iowa, and Louisville, Ky., may be dismissed as "fly-over" territory by coastal snobs, but to AT&T Wireless, the nation's third-largest cellular provider, they represent the future. AT&T Wireless (nyse: AWE - news - people) said Monday that it was buying its largest affiliate, TeleCorp PCS (nasdaq: TLCP - news - people), for $4.7 billion. TeleCorp, based in Arlington, Va., provides wireless service to 914,000 subscribers in 14 states in the South and Midwest in addition to Puerto Rico. 
AT&T Wireless currently owns 23% of TeleCorp and will pay approximately $2.4 billion for the remaining shares. The Redmond, Wash.-based firm will also assume $2.1 billion worth of TeleCorp's debt. The deal works out to be a 20% premium over recent closing prices for TeleCorp shareholders, who will get 0.9 shares of AT&T Wireless for each share of TeleCorp they own.
TeleCorp's network ranges across 14 states and includes population centers like New Orleans; Des Moines, Iowa; Memphis, Tenn.; and Louisville, Ky. The company currently has 914,000 subscribers. The affiliate system made a lot of sense when the nation's cellular system was being built 15 years ago. Not having to cover secondary markets saved the major carriers the costs of acquiring spectrum licenses for places like Reno, Nev., and the additional expense of building the cellular infrastructure to service those markets. But with subscriber growth slowing in their major markets, the majors are now eyeing their affiliates as a quick way to boost subscriber growth. And as the majors roll out new cellular services, more subscribers means more revenue from voice traffic plus the chance to sell high-margin add-ons like wireless e-mail and web-browsing capabilities down the road. "Buying its affiliates is a no-brainer for AT&T Wireless," says telecommunications analyst Eddie Hold of Stirling, Va.-based Current Analysis, "They already walk and act like AT&T Wireless." After TeleCorp., AT&T's next largest affiliate is Triton PCS (nyse: TPC - news - people) of Berwyn, Pa., with 502,000 subscribers. Sprint PCS might also eventually wind up buying its affiliates, which include Lubbock, Tex.-based Alamosa Holdings (nasdaq: APCS - news - people) with 316,000 subscribers and AirGate (nasdaq: PCSA - news - people) of Atlanta, with 300,000 subscribers. With $10.4 billion in revenue and 16.4 million subscribers, AT&T Wireless is the third-largest U.S. wireless carrier, behind Verizon Wireless (28 million subscribers) and Cingular (21 million subscribers). Verizon Wireless is 55% owned by Verizon Communications (nyse: VZ - news - people) (built out of Bell Atlantic Mobile and GTE Wireless), with Vodafone Group (nyse: VOD - news - people) owning the rest (thanks to Vodafone's acquisition of the AirTouch territories in 1999). Cingular is a joint venture springing from the merger of the wireless assets between SBS Communications (nyse: SBC - news - people) and BellSouth (nyse: BLS - news - people) in November 2000. (BellSouth owns 40% and SBC 60% of the joint venture.) The TeleCorp deal is the first major move by AT&T Wireless Chief Executive John D. Zeglis. AT&T Wireless was spun off from AT&T (nyse: T - news - people) in July 2001. "Strategically, this is the single most important move we could make to enhance long-term shareholder value," Zeglis said in a statement. More From ForbesCarrier Consolidation ComingFalse Dawn
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