Verizon Wireless Moves to Acquire Rural Operator, RCC

| August 2, 2007 | Wireless Services - U.S. | Competitive Intelligence Report

| Analyst: Bill Ho

Current Perspective: Positive
Vendor Importance: Very High
Market Impact: Very High

Event Summary

On July 30th Verizon Wireless announced it would buy Rural Cellular Corporation (RCC) for $2.67 billion in cash and assumed debt of which the equity price was $757 million. RCC serves 15 states in five regional territories with about 4.7 million in POP coverage serving approximately 716,000 subscribers. Pending regulatory approval, the acquisition is expected to close by the first half of 2008.

Analytical Summary

• Current Perspective: Positive on Verizon Wireless’ move to acquire operator Rural Cellular Corporation (RCC) with a service area of 6.6 million POPs and 716,000 customers, because the purchase will position Verizon Wireless for new growth in markets where it previously had no presence, reduce its roaming cost burden and at the same time bring in GSM roaming revenue by leaving the existing GSM network in place.

• Vendor Importance: Very high to Verizon Wireless because RCC’s territories are under penetrated and represent future subscriber and service growth. In certain RCC markets, Verizon Wireless will now have to maintain CDMA and GSM networks moving forward in order to support existing RCC agreements.

• Market Impact: Very high on the wireless services market segment because the RCC provides roaming services to GSM competitors AT&T and T-Mobile. Now that Verizon Wireless is buying RCC, both AT&T and T-Mobile will be paying roaming agreements to Verizon Wireless. In the long run, the potential exists for Verizon Wireless to sell off the RCC GSM assets to either of those carriers.

Recommended Vendor Actions

• Down the line, Verizon Wireless should consider selling the GSM piece. Although roaming revenue may be good, it will be operating non-core technology and the same low cost equipment deals may not be as great.

• Verizon Wireless will need to learn the lessons of Alltel in converting Western Wireless customers from regional plans with more minutes to Alltel national plans (understanding that Alltel also offers local calling plans). Further lessons can be learned from the conversion of West Virginia Wireless subscribers over to America’s Choice plans.

Recommended Competitor Actions

• All competitors should note that like any merger or corporate takeover, there is a period of instability and it will eventually hit Unicel. Competitors should question transitional customer service and the disappearance of Cellular One plans once AT&T/Cingular integrates Cellular One.

• T-Mobile should forge a new roaming agreement ahead of its December 2007 expiration. It should also explore what 3G future possibilities there are with RCC ahead of Verizon Wireless.

• AT&T should start negotiations with Verizon Wireless once it takes over RCC officially by mid-2008 on extending its roaming agreement that expires in December 2009 to ensure future access. It should also discuss a future 3G growth path of the RCC GSM equipment so that it can have uniform HSPA coverage, which it enjoys today with its EDGE network.

Recommended End User / Customer Actions

• When the transaction is complete and the new CDMA network built, Unicel customers will most likely see their existing plans replaced with standard Verizon Wireless America’s Choice plans. Verizon Wireless plans provide better national coverage, including full mobile-to-mobile roaming, unlike Unicel plans that carry restrictions to home territory.

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