Western Wireless Corporation Business Information, Profile, and History

Company Perspectives:

Our domestic strategy is to be the premier rural communications company in the United States. We have created the largest regional wireless operation in the continental United States. In contrast to the strategies of national carriers that focus on breadth, we focus our resources on meeting the vast range of communication needs in the communities we serve. In all areas of our operations, from our distribution to our products and approach, our focus on rural areas differentiates us from our competitors. Fundamentally, our strategy is to increase the utility of our wireless service. We will continue to invest aggressively in our network, staying ahead of our customers' demand for usage. We believe this increases the utility of our product and, compared to urban market economics, further insulates us from competition.

History of Western Wireless Corporation

Western Wireless Corporation is a leading operator of wireless cellular telephone systems, marketing its service under the Cellular One brand name. Western Wireless operates in 19 states west of the Mississippi River, primarily serving rural areas. The company's cellular systems provide service to approximately 875,000 customers through licenses covering 83 Rural Service Areas and 18 Metropolitan Statistical Areas. Through its subsidiary Western Wireless International, the company owns interests in mobile telephone joint ventures in Iceland, Ireland, Ghana, Haiti, Croatia, Georgia, Latvia, Bolivia, and Côte d'Ivoire, serving approximately 320,000 customers.

Origins

John W. Stanton's professional career was steeped in cellular communications, as were the careers of many of the executives who joined him in developing Western Wireless. A graduate of Whitman College, Stanton continued his education at Harvard Business School, finishing his studies in 1979. Professionally, Stanton earned a name for himself at McCaw Cellular Communications, a Seattle-based company headed by John McCaw. Stanton joined McCaw in 1983 when the company was involved primarily in the cable television business. McCaw saw a brighter future for his company in cellular communications, however, and selected Stanton to execute his vision. Stanton, who served in various capacities under McCaw, ultimately becoming vice-chairman, led the charge into the new and unknown field of cellular communications. He persuaded British Telecom to help finance McCaw Cellular's aggressive expansion, snatched the highly prized New York cellular market from a host of rival suitors, and guided the company through its initial public offering (IPO) of stock--the largest IPO in the state's history. Stanton spent eight years building McCaw Cellular into a formidable cellular heavyweight. The value of his contributions was evident when the company completed the largest merger in the history of the telecommunications industry. With assets exceeding $9 billion, McCaw Cellular merged with AT & T Corp. in 1994, a transaction valued at $11.5 billion that created AT & T Wireless Services.

For Stanton, news of the historic merger arrived while he was busily involved creating a new force in the fast-growing cellular communications industry. He left McCaw in 1991, but before his departure he already had begun his career as an entrepreneur. In 1988, he founded Pacific Northwest Cellular and a predecessor company. Subsequently, he and his wife, Theresa Gillespie, who served as Pacific Northwest Cellular's chief financial officer, acquired another cellular concern. Fairfield, California-based General Cellular Corporation, which had filed for bankruptcy in 1992 after accumulating more than $100 million in losses, was Stanton's target. He joined investment bankers Goldman Sachs and San Francisco-based Hellman & Friedman in buying the senior debt of General Cellular, which then was converted to equity to bring the company out of bankruptcy. In July 1994, Stanton doubled the size of Pacific Northwest Cellular by combining it with General Cellular, at the time valued between $240 million and $275 million, according to documents filed with the Securities and Exchange Commission. The merger created Stanton's new vehicle for expansion, Western Wireless Corporation.

Western Wireless, which operated under the banner Cellular One, began with a coverage area that included 89 markets in 16 western states. The demographics of the company's markets revealed its distinctive quality and the essence of Stanton's strategy. The markets were in rural areas, so-called second- and third-tier communities that had been passed by, or in some cases shunned by, the rapidly growing list of cellular operators. The fierce battles, as Stanton had experienced in his fight for the New York cellular market years earlier, were being contested in the nation's largest metropolitan markets. The vast expanses of territory in between the heavily populated cities were, in large part, ignored. Although cities such as Los Angeles and New York contained millions of potential cellular subscribers, Stanton's supporters pointed out that there were far more small, rural markets than there were major cities. Further, as Stanton set his sights on communities such as Poplar Bluff, Missouri, and Aberdeen, South Dakota, the capital needed for licensing fees would be far less than the funds required to secure licenses in large markets. 'The rural business is a better place to be than in the urban business,' Stanton explained in a May 31, 1999 interview with Wireless Review. 'Not because of the number of competitors, but because of the fundamental utility of the product. A rural customer is someone who is always a long way from a pay phone and spends more time in their car than an urban customer ever does.'

As Stanton established a name for Western Wireless in rural markets, he also steered the company in another direction, one that demonstrated the talent of the management team he had assembled. Many of the executives working with Stanton had arrived from McCaw Cellular, where, under Stanton's tutelage, their abilities were borne out in the execution of Craig McCaw's vision. The same expertise would be shown in Stanton's new venture, a Western Wireless subsidiary named VoiceStream that was formed in 1994. While Stanton pursued rural markets with his Cellular One service, he also tapped into urban markets with VoiceStream to utilize a new piece of the wireless spectrum dedicated to personal communications services, more commonly known as PCS. Stanton decided to pursue urban PCS licenses because the technology represented an advancement over the analog technology used by most cellular carriers. PCS, a completely digital service, offered better operating capacity for cellular carriers as well as features such as paging, text messaging, and caller identification (caller ID).

Beginning with Western Wireless's first year of business, the expansion of Cellular One's rural cellular business and VoiceStream's urban PCS business occurred simultaneously. In 1994, Stanton pursued rural licenses, continuing with the $38 million acquisition spree he had conducted under General Cellular earlier in the year, when the company secured markets in South Dakota, Nebraska, Texas, Kansas, and Missouri. He also prepared for the multimillion-dollar bidding on PCS licenses, scheduled for auction by the Federal Communications Commission (FCC) in November 1994. Stanton applied to bid in 12 markets, including Seattle, Phoenix, Portland, San Antonio, and Des Moines, Iowa.

As Stanton earmarked millions of dollars for purchasing PCS licenses, he built one of the largest cellular operators in the country. Sales by the end of 1995--the company's first full year in business--reached $146 million. The cost of obtaining rural cellular and PCS licenses, however, was quickly taking its toll on the company, leading to a $56 million loss for the year, half of which was attributable to high interest costs and financing expenses. Debt was a consequence of Stanton's strategy, but not long after announcing the company's loss in 1995, Stanton could point to tangible results that justified the millions in investment dollars. In the spring of 1996, Western Wireless surged past many of the companies scrambling to deploy PCS by becoming operational in two major trading areas: Honolulu and Salt Lake City. Stanton had become one of the first operators to deploy PCS, and with licenses in hand for five other major trading areas, he would soon add to Western Wireless's network. First, he sought to reduce some of the company's mounting debt.

1996 Debut on NASDAQ

In May 1996, Stanton turned to the public securities market as a means to pay down debt and to inject his company with a fresh supply of capital. He sold 16.2 percent of the company for $23.50 per share, raising $258 million. The IPO ranked as the second largest in the state's history, trailing McCaw Cellular's 1987 IPO by $27 million. Stanton also sold $200 million in publicly traded debt, however, giving the company a total of $458 million, which ranked as the largest debut into the public securities market in Washington's history.

During the months immediately following the IPO, Western Wireless unveiled VoiceStream PCS in Albuquerque, New Mexico, and in Portland, Oregon. The company concluded the year by deploying service to two more trading areas, for a total of six by the end of 1996, before deploying the last of its initial seven networks in early 1997. Because of this expansion, the company's PCS operations extended to Des Moines, Iowa, Oklahoma City, and Seattle. Not only did Stanton win praise for his speed to market, but he also earned applause from industry pundits for an astute technological gamble. He built VoiceStream's system around a wireless communications standard different from what a majority of his U.S. competitors used, choosing the European standard called GSM, which was destined to become the most widely used standard in the world. One industry analyst noted as much in the December 24, 1999 issue of the Puget Sound Business Journal. 'They moved into GSM when others weren't,' the analyst explained, 'and it's really paying off for them. They've ended up with the largest GSM footprint in the United States.'

Late 1990s and VoiceStream's Spinoff

Western Wireless's success with VoiceStream stole the limelight as the company entered the late 1990s, but meaningful progress was achieved in the company's cellular operations as well. The company began developing a presence internationally through its subsidiary Western Wireless International Corporation (WWI). Beginning in 1996, the subsidiary commenced building and launching wireless networks abroad, aided by a number of mobile telephone joint ventures. Over the course of the next three years, WWI began operating cellular networks in Latvia, Georgia, Iceland, Croatia, Ghana, and Haiti. In January 2000, WWI, through a joint venture with the Modern Africa Growth and Investment Company, completed the acquisition of Comstar in Côte d'Ivoire. Concurrently, an operating joint venture of WWI was in the midst of constructing a cellular network in Bolivia. WWI also held a 67 percent interest in a company that was granted a cellular license in Ireland.

Domestically, Western Wireless's cellular operations continued to follow the strategy embraced at the company's formation. Licenses to provide service to rural areas were acquired by the handful, fueling the company's expansion. In 1996, Western Wireless maintained 74 properties with combined territory that included 6.1 million potential customers. By 1999, the company offered service in 101 properties with licensed coverage of 9.1 million people.

As Western Wireless prepared to exit the 1990s, it did so without the fast-growing business developed by its VoiceStream subsidiary. By 1999, VoiceStream had acquired PCS licenses for an additional 23 markets in 13 states, enabling it to increase its number of subscribers to 1.7 million. Stanton had immediate plans to rapidly expand VoiceStream's subscriber ranks, but he did not believe VoiceStream could attract the attention it deserved while operating under Western Wireless's corporate umbrella. He decided to spin off the subsidiary to Western Wireless shareholders, thereby creating two separate companies. Although entirely distinct entities, Western Wireless and VoiceStream Wireless Corp. shared one common characteristic. Stanton served as chairman and chief executive officer of both companies. Whether he would continue to serve in these dual capacities remained to be answered as Western Wireless and VoiceStream Wireless pursued their development in the 21st century.

Principal Subsidiaries: WWC Holding Co., Inc.; Western Wireless International Corporation; Meteor Mobile Communications (67%).

Principal Competitors: Rural Cellular Corporation; Verizon Wireless; ALLTEL Corporation; SBC Communications Inc.

Chronology

• Key Dates:

• 1988: Stanton forms Pacific Northwest Cellular.
• 1992: General Cellular Corporation files for bankruptcy and subsequently is acquired by Stanton.
• 1994: Pacific Northwest Cellular and General Cellular are combined to form Western Wireless Corporation.
• 1996: VoiceStream PCS service becomes operational in six markets.
• 1999: VoiceStream is spun off from Western Wireless.