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A Rural Renaissance?

Alltel Corp.'s (NYSE: AT) $4.4 billion acquisition of Western Wireless Corp. (Nasdaq: WWCA) this week could signal a bout of consolidation in the rural U.S. cellular market, according to analysts.

"It's the next logical step for Alltel... to become the premier rural carrier in the U.S.," says The Yankee Group's director of mobile and wireless services, Roger Entner.

Following major acquisitions in the U.S. mobile market, Entner expects that the cellular country cousins could be planning a little spending spree of their own.

Just like the major cellular players, rural carriers see the advantages of reducing the number of competitors in a crowded market -- from grabbing more spectrum for wireless services, to consolidating customers and retail markets.

"It could really be the starting point for some consolidation," Entner opines.

IDC's research manager for the wireless and mobile network infrastructure program, Shiv Bakhshi, also expects to see more acquisitions in the rural market. "People are trying to build scale," he says.

Dobson Communications Corp. (Nasdaq: DCEL), Rural Cellular Corp. (Nasdaq: RCCC), and Centennial Wireless could all see some M&A action.

"There are myriad smaller carriers," Entner notes.

Now, some might think that that the larger rural carriers are just beefing up to become a fat and juicy target for the major players in the cellular market, but Entner doubts that.

"[Rural] is not profitable for larger operators," he says.

Indeed, rural operators frequently offer prepaid and low-cost calling plans over a hodge-podge of wireless technologies. For instance, Western Wireless operates CDMA and TDMA digital networks, along with older analog services.

IDC's Bakhshi says that part of the reason that operators will get together is to reduce the cost of upgrading their piecemeal networks. He expects that they have "a two-year window" to get on with the process.

"They are under pressure to update their networks to capture some of the roaming fees from these bigger carriers," Bakhshi says.

And, unlike Yankee's Entner, Bakhshi does expect that if the rural operators upgrade their networks -- making it easier for the larger carriers to integrate them with the 2.5G/3G systems they already have -- then they could potentially become acquisition targets.

But he thinks that the big boys -- particularly Verizon Wireless -- can afford to wait while this happens. "If I'm Verizon, I'm sitting pretty right now," he says.

— Dan Jones, Site Editor, Unstrung

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