GCI, Alaska Communications team up on wireless
In a bold move announced the morning of June 5, Alaska’s largest state-based telecoms announced they are teaming up to create a single network that will reach 95 percent of the population and create a customer base of about 257,000.
General Communications Inc. and Alaska Communications Systems Group Inc. have formed The Alaska Wireless Network, combining the infrastructure assets of both companies into a single entity to be run by current GCI Chief Operating Officer Wilson Hughes.
GCI will own two-thirds of The Alaska Wireless Network and Alaska Communications the remaining third. The deal is subject to regulatory review and is expected to close by second quarter 2013. Hughes will serve as executive vice president of GCI until then and will lead the transition team.
According to the joint statement from the companies, GCI will refinance its senior credit facility in order to purchase $100 million worth of Alaska Communications assets, which it will then contribute as its own to the new company.
Alaska Communications, in turn, will use the $100 million to pay down its own sizeable long-term debt that stood around $660 million at the end of the first quarter.
The release from the companies states that Alaska Communications will be eligible to receive preferential cash distributions totaling $190 million during the first four years of Alaska Wireless Network operations. GCI will receive all remaining available cash distributions over the same period, and following the initial four-year period, GCI and Alaska Communications will receive distributions proportional to their ownership interests in AWN.
“GCI and Alaska Communications are pleased to reach these agreements,” said Alaska Communications president and CEO Anand Vadapalli and GCI president and CEO Ron Duncan in a joint statement. “The wireless business is capital intensive, requires scale to compete successfully against national carriers, and demands more spectrum than either company individually owns. By combining our respective wireless assets, GCI and Alaska Communications can provide a state-of-the-art Alaska wireless network owned and operated by Alaskans for Alaskans.
“We believe that The Alaska Wireless Network will provide the fastest, most geographically extensive, and most reasonably priced wireless services for Alaska subscribers, allowing us each to compete more effectively in the retail market.”
The retail customer experience will not change, as Alaska Communications and GCI will still operate independent stores and have their own offerings of wireless and internet services.
Although AT&T Alaska does not release specific numbers for the state, GCI spokesperson David Morris said the combined wireless base of 257,000 for The Alaska Wireless Network likely still trails AT&T.
At the end of the 2012 first quarter, Alaska Communications had 117,400 wireless customers; GCI had about 140,000.
The timing of the anticipated closing date for the arrangement also coincides with the expected entry of Verizon Wireless to the Alaska market. Alaska Communications currently carries roaming traffic in the state for Verizon that will steadily decline as Verizon turns up its own network.
“Verizon is the largest company in the U.S. in terms of subscribers,” Morris said. “They measure their customers in the millions, and they have the purchasing power that comes with that. To effectively compete against that, the Alaska-based providers decided to pool their capital expenditures to compete against the big boys.”
Verizon is building out a 4G LTE network in Alaska, as is Alaska Communications. ACS slowed those plans upon receiving the Apple iPhone 4S in April. The iPhone 4S is not compatible with 4G LTE.
The pooling of wireless assets will give GCI access to the 4G LTE spectrum now owned by ACS.
Morris said negotiations for the deal began last fall, and noted another catalyst for the partnership was the Federal Communications Commission decision to reallocate $4 billion in Universal Service Fund high cost support payments to support rural broadband build-outs.
The cuts impacted revenue for both providers in late 2011, and are expected to reduce revenue by at least $4 million for ACS and $5 million for GCI in 2012.
ACS cut its dividend in response to the USF reductions, and in anticipation of lost revenue in the future as Verizon moves its customers to its own network next year.
In early trading June 5, Alaska Communications was up 22 cents, or 11.7 percent, to $2.10 per share.
GCI was trading up 10 cents, or 1.67 percent, at $6.68 per share.