Communications Crossroads - Fall 2008 - (Page 11)

TO MERGE By Amy Drew Thompson The telecom industry has seen a groundswell of mergers in the past few years. Recently, another major merger dominated the industry news wire as Verizon announced it would buy Alltel for $5.9 billion—and the assumption of $22.2 billion in debt—making it the biggest cellular phone operator in the United States, with some 80 million subscribers. Deals like this one, or even the AT&T/BellSouth merger, are examples of the moves by the biggest players in the telecommunication industry, but what does today’s business climate mean for the smaller mom-and-pop companies? Industry professionals don’t agree on everything, but many say most small and rural telecoms should be ready to identify partnerships and be prepared to buy, sell or merge with other operators. Especially if they’re not in a position to invest in the latest technology. “Right now, they’re all targets, to a degree,” says Francis X. Gallagher, Jr., a Baltimore, Md.-based managing director for Stifel Nicolaus, which has overseen a number of such transactions among the telcos. “The conceptual starting point is this: If managers’ jobs are to create value for their shareholders, they should consider acquiring or merging when that would be the best route [to the goal].” That’s the generic answer. “To apply that to the telecom world, what we’re ﬁnding is that it’s very difﬁcult to grow organically these days with competition being what it is, and so there are two ways to grow the bottom line: You can grow your revenues, or you can cut your expenses.” Easier said than done, of course. The competitive forces of cable and wireless make growing the revenue difﬁcult, to say the least. And there are limits to how leanly one can operate effectively in the face of telecom’s many ﬁxed costs. You can cut out the fat, Gallagher says, but you don’t want to cut out the muscle. “In other words,” he says, “you could save your way into oblivion.” Fire everyone in the company and sure—expenses go down—but how effective would your company be? As a consequence of a number of industry forces, he’s seeing many smaller telecommunications companies considering acquiring or merging. “You need to provide a triple-play of services and the network investment that goes into that is very difﬁcult for a small company to pull off on its own,” he says. Add in the competitive threats of wireless and cable, “and then the attacks on the regulatory revenue system—on universal service—and you can see that life is very different now for the small telephone companies than it was certainly 10, and even ﬁve years ago.” Staying the Same: “Not an Option” Walt Clay worked for 45 years at Hutchinson Telephone in the North Star state of Minnesota. His great-grandfather started the company 111 years ago. He was the fourth generation to oversee the company’s evolution and success. Fall 2008 COMMUNICATIONS CROSSROADS 11

Table of Contents Feed for the Digital Edition of Communications Crossroads - Fall 2008

Communications Crossroads - Fall 2008 Up Front Contents TeleBites The Urge to Merge The 700 MHZ Auction: Results and Speculation Industry Calendar Advertisers DotCom Index to Advertisers People Straight Talk

Communications Crossroads - Fall 2008

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