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Dobson's Bad News Is Verizon's Good News

Verizon Wireless, already the number-one wireless digital phone company in the U.S., wants to solidify that standing with its $550 million announcement Monday afternoon to buy up services in five states from failing Dobson Communications.

A Verizon Wireless spokesperson said both sides are still working on the details and expects the deal to be finalized by the end of the year. Both sides have already gained conditional approval from board members.

With its purchase of Dobson wireless POPs in Arizona, California, Georgia, Ohio and Tennessee, Verizon Wireless brings another 1.5 million Americans under its wireless wing, filling in its already-extensive rural and suburban footprint. The wireless phone giant already has a coverage area of 112 million.

Dobson, on the other hand, gets some breathing room from creditors and investors who are seeing little profit from the fourth-largest rural wireless phone provider. Last week, the troubled phone company authorized a stock repurchase up to $80 million and hired investment bankers Lehman Brothers and Banc of America to look at an exit strategy. The money raised from the sell off will go towards paying off its debt.

Many expected AT&T Wireless to pick up Dobson's leavings, since Ma Bell's wireless arm already has a significant ownership stake in the company. In February, AT&T bought up $200 million worth of Series AA preferred stock, over and above the 4.5 million common shares the phone giant already owned.

But Verizon came through with a better offer, one that analysts at Goldman & Sachs believe is fair for both sides.

"We view this transaction as a positive as it lowers Dobson's leverage and places a value on its properties that is higher than the company's current trading level," its report to investors stated.

Goldman & Sachs values Dobson wireless POPs at $441 apiece. Verizon's deal, they say, comes close to the mark at $406. The only caveat is the Tennessee POPs, which Verizon is paying almost half of the total deal, $202 million or $697 a POP.

Tennessee POPs come at a higher cost than the others because of AT&T Wireless' joint ownership of the cell sites, pushing the price tag up. Officials have already signed off on the sale of the sites, which account for 290,000 potential customers. They are also in talks to sell off Dobson's entire stake in Tennessee.

The investment firm rates Dobson an "outperformer" in its stock rating system, something it is considering changing in light of the sell off, however necessary it might have been to company executives.

"Our concern is that if Dobson continues to sell off pieces of its footprint to 'cherry pickers', rather than sell the company as a whole, the remaining property will come to be comprised of generally undesirable pieces and could prove hard to sell," the report said. "A secondary concern is the diminution of Dobson's coverage area and the possible effects it will have on precious roaming revenues, which represent over 40% of total revenues."

Verizon Wireless is the result of a merger between the largest wireless provider in the world, U.K.-based Vodaphone, and Verizon Communications. The company provides wireless digital telephone services to 49 of the 50 Unites States, covering 90 percent of the country.

The company was scheduled to go public last August, hoping to raise as much as $15 billion to pay for its 3G network upgrade. But officials got nervous after the high-tech sector continued to crumble, forcing a delay. Officials say an initial public offering (IPO) is on the books, but haven't announced a date.