Alltel Corporation Business Information, Profile, and History

Company Perspectives:

During a period of rapid expansion for the company, we have nonetheless continued to offer more services and better value within our geographically clustered markets. We are committed to offering customers value through a single point of contact, a single bundled service package, and a single communications bill. By focusing on customer value, our strategy has kept us on course: it continues to deliver results, and it will drive our business into the future.

History of Alltel Corporation

The ALLTEL Corporation is a telecommunications conglomerate that provides bundled services, including local telephone, wireless, long-distance, paging, and Internet services to over 10 million customers in 24 states. As the sixth-largest local telephone company in the United States, ALLTEL provides local service to more than 2.6 million customers in the Southeast and Midwest regions of the United States. The firm also operates as the nation's seventh-largest wireless concern with 6.6 million customers. Along with is telecommunication activities, the company provides financial services, operations management and networking solutions, and publishes telephone directories. ALLTEL got its start as a grouping of local Ohio telephone companies that branched out to other fields after the deregulation of the telephone industry in the 1980s. The firm then grew rapidly during the 1990s through a series of strategic acquisitions.

Early History

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.

The Formation of ALLTEL Corporation: 1983

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.

Growth Through Diversification: 1980s

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 non-regulated 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. 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 non-regulated 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 non-regulated 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.

Cellular Communications and Information Services: Early to Mid-1990s

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 1992. 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. In 1993, the firm opened its first wireless retail store.

The company continued to strategically position itself in the increasingly competitive telecommunications industry into the mid 1990s. Indeed, The Telecommunications Act of 1996 gave way to increased competition at the regional level. As such, the company bolstered its offerings, and in 1996 the firm branched out into providing long-distance services. The following year, the company began to offer its Little Rock customers bundled services by merging its long-distance, wireless, and Internet business operations into one unit, ALLTEL Communications. During 1998, it also began competing with regional Bell operating firms in various markets by offering local phone services to businesses as a competitive local exchange carrier (CLEC).

Strategic Acquisitions: Late 1990s and Beyond

The company also began to grow rapidly by making a series of key acquisitions. To further strengthen its wireless holdings, ALLTEL purchased 360 Communications Co. in 1998 for $4.2 billion. The deal gave ALLTEL access to wireless markets in certain parts of Virginia and North Carolina as well as in the Midwest, Nevada, and parts of New Mexico. A company spokesperson commented on the acquisition in an Arkansas Business article, claiming that the two companies fit "like hand in glove." Indeed, by combining assets, ALLTEL tripled its cellular customer base and became the seventh-largest wireless provider with revenues of nearly $5 billion.

The purchase attracted industry acclaim for both Ford and the company. Ford was named Arkansas Business magazine's "Newsmaker of the Year" while ALLTEL was ranked 49th in Business Week's "100 Best Performing Information Technology Companies in the World." Several acquisitions followed after the 360 deal. During 1999, Aliant Communications Inc. was purchased for $1.4 billion and added Nebraska to ALLTEL's growing list of states that it serviced. The firm also bought Georgia-based Standard Group Inc., BellSouth Mobility's Alabama-based wireless operations, Liberty Cellular of Kansas, and Colorado-based Durango Cellular Telephone Company. By now, ALLTEL's coverage area had grown to include 24 states and its revenues had reached $6.3 billion.

ALLTEL entered the new millennium on solid ground. During 2000, Bell Atlantic and GTE Corp. were forced to divest certain operations in order to complete their merger, which formed Verizon Communications Inc. As such, ALLTEL formed a wireless exchange with the two companies in 13 states, which added 690,000 new clients to its growing customer base. The firm also acquired additional wireless customers in Louisiana from SBC Communications Inc. in a deal that expanded its reach along the Gulf Coast. In 2001, ALLTEL acquired nearly 600,000 Verizon customers in Kentucky for $1.9 billion.

ALLTEL then made an ambitious and unsolicited attempt that year to acquire CenturyTel Inc., but the competitor privately refused the offer. ALLTEL then went public with its bid in hopes of promoting shareholder negotiation. CenturyTel however, publicly refused the offer a second time. Nevertheless, ALLTEL left its offer on the table in hopes that a deal would come to fruition and position ALLTEL as one of the leading telecommunications providers in the United States.

At that time, the telecommunications industry as a whole appeared to be ripe for consolidation and increased merger activity as the Federal Communications Commission (FCC) began to loosen regulations on the amount of spectrum a carrier could own in an area. According to a November 2001 Business Week article, "Many wireless service providers have been bumping up against the capacity limits of their systems within existing spectrum allocations. This electromagnetic spectrum used to transmit voice calls and data is getting crowded. The result: service glitches that result in dropped calls and service complaints." New FCC rulings would bump current spectrum allocations from 45 megahertz (Mhz) to 55 Mhz. This had the potential to entice wireless providers to combine forces to increase their spectrum holdings, especially as wireless data applications--including e-mail, text messaging, and wireless Web access, which required increased spectrum--became increasingly popular and attractive to those customers who had typically been using wireless phones for voice applications. In fact, Morgan Stanley predicted that the U.S. wireless industry would grow from $53 billion in 2000 to $98 billion in 2003 as more customers demanded wireless data services.

While ALLTEL continued to look for promising alliances and lucrative acquisitions, many analysts began to speculate that ALLTEL itself would become a takeover target. Its revenues were climbing towards the $8 billion mark after it had substantially increased its holdings through merger and acquisition activity over the past several years. Whether ALLTEL would continue to grow independently through acquisition or by way of a merger or takeover, however, remained to be seen.

Principal Subsidiaries: ALLTEL Alabama, Inc.; ALLTEL Arkansas, Inc.; ALLTEL Carolina, Inc.; ALLTEL Communications, Inc.; ALLTEL Communications Service Corporation; ALLTEL Florida, Inc.; ALLTEL Georgia, Inc.; ALLTEL Georgia Communications Corp.; ALLTEL Kentucky, Inc.; ALLTEL Mississippi, Inc.; ALLTEL Missouri, Inc.; ALLTEL Mobile Communications, Inc.; ALLTEL Mobile Communications of the Carolinas, Inc.; ALLTEL New York, Inc.; ALLTEL Ohio, Inc.; ALLTEL Oklahoma, Inc.; ALLTEL Pennsylvania, Inc.; ALLTEL South Carolina, Inc.; ALLTEL Wireless Holdings, L.L.C.; 360 Communications Company; 360 Communications Company Investment Company; 360 Paging, Inc.; Aliant Cellular, Inc.; Aliant Communications Co.; Aliant Wireless Holdings, Inc.; Baton Rouge Cellular Telephone Company; Cellularfone, Inc.; Centel Cellular Company of Laredo; Empire Cellular, Inc.; Georgia ALLTELCOM Co.; Georgia ALLTEL Telecom, Inc.; Georgia Telephone Corporation; KIN Network, Inc.; Liberty Cellular, Inc.; Louisiana Cellular Services, Inc.; Radiofone, Inc.; Standard Group, Inc.; Teleview, Inc.; The Western Reserve Telephone Company; Wireless Telecom, Inc.; ALLTEL Communications Products, Inc.; ALLTEL Communications Products International, Inc.; ALLTEL Corporate Services, Inc.; ALLTEL Distribution, Inc.; ALLTEL Holding, Inc.; ALLTEL International Holdings, Inc.; ALLTEL Investments, Inc.; ALLTEL Management Corporation; ALLTEL Mauritius Holdings, Inc.; ALLTEL Publishing Corporation; ALLTEL Publishing Listing Management Corporation; ALLTEL Information Services, Inc.; ALLTEL Information Services Limited (United Kingdom); ALLTEL International Resource Management, Inc.; ALLTEL Mortgage Solutions Limited (United Kingdom); ALLTEL Wholesale Banking Solutions, Inc.; Advanced Information Resources UK Ltd.

Principal Competitors: BellSouth Corp.; SBC Communications Inc.; Verizon Communications Inc.

Chronology

• Key Dates:
• 1960: Weldon W. Case forms Mid-Continent Telephone Corporation.
• 1983: The company merges with The Allied Telephone Company; the new company is named ALLTEL Corporation.
• 1985: ALLTEL continues expansion efforts and acquires MCI Airsignal Inc.
• 1992: ALLTEL buys Computer Power Inc. and begins mortgage processing.
• 1996: The Telecommunications Act of 1996 is passed; the company begins offering long-distance service.
• 1999: ALLTEL completes its $1.8 billion purchase of Aliant Communications Inc.
• 2001: ALLTEL buys 600,000 telephone lines in Kentucky from Verizon Communications Inc.