Alltel Corporation Business Information, Profile, and History

History of Alltel Corporation

The Alltel Corporation is a telecommunications conglomerate that provides local telephone service to more than 1.2 million customers in 25 states. In addition to this core activity, the company provides cellular mobile phone services throughout the Sunbelt states, performs information processing for the financial industry through a subsidiary, and distributes telecommunications equipment through a nationwide network of centers. Alltel got its start as a grouping of local Ohio telephone companies and branched out to other fields after the deregulation of the telephone industry in the 1980s.

The company that became Alltel was founded in 1960 by Weldon W. Case, whose grandfather, Weldon Wood, had founded the Hudson Underground Telephone Company of Hudson, Ohio. Wood bought the town's two existing telephone companies with his savings and a $25,000 bond sold to local businessmen; he merged the companies in 1910. Case's father went into Wood's business, and Case's first job, in 1934, was as a member of a line construction crew. During World War II Case served in the Army Signal Corps, and upon his return he became manager of the family business, at that time called Western Reserve Telephone Company. While he was away, his family's holdings had been augmented by the West Richfield Telephone Company, whose owner had been unable to staff it adequately and had been forced to sell.

In the late 1940s, under Case's supervision, the Western Reserve Telephone Company introduced dial service in Aurora, Ohio. By 1954, the company had added automatic dialing for long-distance calls. Two years later the company made its first move to expand when it purchased 15 percent of the Elyria Telephone Company of Elyria, Ohio, a concern almost twice as large as Western Reserve. Case was put in charge of managing this company and served in that capacity for the next ten years.

In 1960 Case decided to merge the Western Reserve and Elyria holdings, creating a company with the explicit intention of purchasing other telephone properties. After the American Telephone & Telegraph Company (AT&T) objected to Case's idea of calling the new company the Mid-America Telephone System, the company was named Mid-Continent Telephone Corporation. The new enterprise kept its home base in Hudson, Ohio.

Mid-Continent joined five small Ohio telephone companies, which served a total of 50,000 customers. Although the new company assembled a central administrative staff of specialists in public relations, engineering, finance, and other fields, the bulk of the work of running the individual phone companies was left up to the local employees. The company's subsidiaries consequently were able to preserve their autonomy, and the build-up of a large central bureaucracy was prevented.

During the 1960s Mid-Continent multiplied by ten the number of phones it served, as the company's size doubled regularly at three-year intervals. Most of this growth came through acquisitions, as the company bought 90 other telephone companies in its first 20 years in existence. By the end of the 1970s, Mid-Continent served 700,000 customers in 13 states. It had become the country's fifth-largest independent telephone network. In addition, the company had acquired two small cable television concerns.

During the time that Mid-Continent was growing rapidly, another telephone company in the Midwest was also building a network of holdings. The Allied Telephone Company of Little Rock, Arkansas, had been founded by Hugh Wilbourn and Charles Miller, who had worked as contractors in the telephone business in the early 1940s. In 1943 they purchased the Grant County Telephone Company, which operated a toll line that ran from Sheridan to Pine Bluff, Arkansas, connecting 275 magneto telephones. After World War II Wilbourn and Miller put together a network of four small telephone operating companies in Arkansas. During the next 30 years a steady stream of acquisitions helped Allied expand to serve customers in six states.

Both Allied and Mid-Continent had entered unregulated areas of the telecommunications industry, and their activities fit well together. Given these factors, the companies decided to join forces. Mid-Continent and Allied merged on October 25, 1983, and the new enterprise was named the Alltel Corporation. Alltel began with assets of $1.35 billion, making it the fifth-largest American telephone company. The company expected consolidated revenues of $600 million. Case, who had been president of Mid-Continent, became chairman and chief executive officer of Alltel, and his counterpart at Allied, Joe T. Ford, became the company's president.

Alltel's formation came at a time of transition in the telephone industry. At roughly the same time that the company began, AT&T--the giant company that had dominated the American phone industry for much of its history--was broken up into eight smaller companies under court order. This opened up a broad spectrum of new opportunities and services, both regulated and unregulated, to companies in the telephone industry. In some ways, the transformation of the industry provided a more challenging business environment. Telephone companies now faced competition in areas where they never had before. For instance, the sale of telephone equipment and the sale of long distance service were now businesses hotly contested by a number of entrants in the field. In order to remain profitable and grow in the face of this encroachment into the company's traditional fields of operation, Alltel's leaders determined that the company must diversify its operations in the telecommunications field.

The company started out with some assets to build on. In addition to its fledgling cable television operation, Alltel got interests in the manufacture of telecommunications supplies from Mid-Continent and Allied; it also inherited Mid-Continent's $10 million investment in the Argo Communications Corporation, a new domestic and international telecommunications common carrier. With the greater financial strength that it commanded after its merger, the company planned to increase its holdings in nonregulated areas of the telephone industry, taking advantage of technological breakthroughs to offer services such as mobile phones based on cellular radio. The company looked to diversify its operations through acquisitions. 'We'll keep examining opportunities as they present themselves,' Case told the Wall Street Journal, 'either in the regulated or non-regulated part of the business.'

In making purchases, Alltel sought out properties in fields and geographical areas that the company already knew well--areas where it was confident that it could provide sound management and high-quality service. In addition, of course, Alltel sought out enterprises that would provide a good rate of return on its investment.

In the months following the company's creation, Alltel continued to make acquisitions in its traditional field of operation, buying three West Virginia local telephone companies to add to the service area of its subsidiary Mountain State Telephone Company. Also in 1984 the company bought three Pennsylvania telephone networks and merged them into its Brookville Telephone Company. Alltel thereby fostered growth in its local telephone operations, which are subject to regulation and are the unglamorous mainstay of its business. Alltel also continued to upgrade the quality and efficiency of its local telephone network, investing $160 million in switching equipment in 1985 alone.

By 1985, Alltel's nonregulated activities included its subsidiary Alltel Mobile Communications, which offered cellular phones and wide area paging in 11 major cities, including Cleveland, Ohio; Detroit, Michigan; Pittsburgh, Pennsylvania; and Charlotte, North Carolina. In September of 1985 this unit purchased the MCI Communications Corporation's MCI Airsignal, Inc., a radio paging system based in northern Ohio.

The company's most profitable subsidiary was Alltel Supply, Inc. Based in Atlanta, Georgia, this company acted as a distributor of telecommunications equipment across the country, dispensing the products of more than 500 manufacturers. In addition, Alltel profited from its Alltel Publishing unit. This company coordinated the sales, advertising, printing, and distribution of 119 local telephone directories in nearly 20 states.

Within three years of its founding, Alltel had also made major investments in several parts of the telecommunications industry with emerging technologies and fast-growth potential. By buying into these ventures instead of starting its own operations in these fields, or taking others over completely, the company minimized its risk by refraining from a large investment of capital. In addition to its holdings in the Argo long-distance company, Alltel became part owner of the Lite and Microtel long-distance companies, which made use of fiber-optic technology and satellite transmission. The company also purchased nine percent of the shares of Comdial--an enterprise in Charlottesville, Virginia, that used robots to manufacture phones--and eight percent of the stock of Telecom Plus International--an independent installer and supplier of business phone systems. In addition, Alltel owned a minority interest in ten of its competitors in the mobile cellular phone industry.

Although Alltel's president told a group of investors in late 1986 that the company was no longer aggressively seeking new businesses in nonregulated fields at that time, the company did continue to add to its current holdings. In 1987 Alltel acquired radio paging services covering Ohio and Kentucky, which it later sold. In the following year, the company bought CP National, a West Coast-based telephone operations and military communications firm, for around $300 million. With this extension of its services, the company now provided 1.2 million telephone lines in 25 states.

Also in that year the company added to its cellular holdings when it purchased Cellular America. In 1989 Alltel signed an agreement to merge with the HWC Distribution Corporation, an electric wire and cable supply concern. The company spent $143 million to acquire the property, which complemented its Alltel Supply, Inc., subsidiary. The steady pace of major purchases continued when Alltel branched out from its core telecommunications interests to buy into the information processing business, purchasing Systematics, a manufacturer of computer software for financial institutions, for $528 million in May of 1990. Ten months later the company announced that it would merge its own data processing functions into the new company. In addition to these expenditures, the company announced that it would spend more than $200 million to upgrade its local telephone operations.

In 1991, four years after company founder Case stepped down as Alltel's chief executive officer, making Ford its chairman as well as president, Alltel announced that it would switch its corporate headquarters from Hudson, Ohio, the small town that had been Case's lifelong home, to Little Rock, Arkansas, the historical base of Ford's company, Allied Telephone. By this time, growth in Alltel's core businesses had begun to slow, although the company's profits overall remained strong. The recession of the early 1990s reduced returns from Alltel's local telephone operations, in particular after the company suffered several negative regulatory decisions finding that Alltel had earned more than its allowed rate of return in several states. In addition, profits from the company's equipment distribution business slumped in 1991.

In response to these factors, Alltel began to look elsewhere for its future earnings growth. The company focused on two fields: cellular communications and information services. With Systematics, its subsidiary in information services, Alltel controlled the industry leader in software development and the management of data-processing services. In addition to its thriving United States business--running back-offices for banks--the company began to seek out clients overseas. To further enhance its activities in this field, Alltel purchased Computer Power, another data processing firm that specialized in mortgage processing, for $270 million in December of 1991. Although revenues from this sector of the company's business grew quickly, high costs associated with Alltel's entry into the field kept profits down.

In its cellular operations, Alltel continued to acquire new networks, and the company also moved to link the holdings it did have, joining areas of coverage in Sunbelt cities with the less populated areas around them. Since the company found that customers were less likely to make calls on their cellular car phones when they were deep within urban areas and coping with increased traffic and congestion, Alltel expanded its route along major interstates, finding success on the roads leading south from Atlanta to Florida, and from Little Rock to Dallas. Due in part to these moves, Alltel's number of cellular phone users increased dramatically in 1991. By the end of that year, operations outside the local telephone market accounted for more than half of Alltel's revenues. As the company moved into the 1990s, Alltel's combination of a stable core of local telephone operations and its fast-growing technologically advanced information processing and cellular phone units made it well suited to thrive in the ever-evolving telecommunications business.

Principal Subsidiaries: Alltel Distribution, Inc.; Alltel Mobile Communications, Inc.; Alltel Service Corporation; Alltel Supply, Inc; HWC Distribution Corp.; Systematics Information Services, Inc..