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.