Alltel is the fifth largest provider of wireless communication services in the United States. In 2006, the fixed line component of Alltel was spun-off and merged with Valor Communications Group, Inc. to become Windstream (WIN), allowing Alltel to focus on the wireless business. Alltel is concentrated in smaller and rural markets and has a direct coverage area of more than 50% of the continental United States including about 77 million people . Through agreements with other major wireless services providers, Alltel is able to offer wireless services covering approximately 95% of the United States population .
As can be seen in the chart below, both revenue and operational income have increased steadily over the past five years.
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The table below demonstrates that Alltel has and is expected to continue to attract more customers. However, as the U.S. mobile phone markets reach saturation point, the number of people gained from year to year is expected to decrease. Furthermore, because of increasing competition within markets leading to the decline in prices, the ARPU (Average Revenue per User) is expected to decline across the industry.
Source: Company reports
Wireless Technologies CDMA-based technologies, which are favored by Alltel, Sprint Nextel (S) and Verizon Communications (VZ), account for only about twenty percent of wireless users worldwide. GSM-based technologies, which are predominate in the world, are favored by AT&T (T) and T-Mobile (DT). In the ever-changing world of wireless technologies, rapid and drastic changes could occur and may cause one sort of technologies to be favored more extensively. For a company that had previously favored the declining type of technology, this would require extensive capital investments.
Governmental Regulations: The telecommunications industry is one of the most heavily-regulated in the U.S. Depending on the tone that such regulations take, the wireless industry could react positively or negatively. Particularly pertinent to the wireless industry is the issue of wireless spectrums. Wireless companies are limited to certain spectrums over which they can broadcast their signals. By obtaining the ability to broadcast over a new spectrum, a wireless company can greatly increase the landmass it covers and the people it can reach as customers. In 2003, the FCC eliminated its rule limiting the amounts of spectrum that can be held by one company in a given market. In January 2009, there will be an auction for the 700MHz spectrum, the results of which could have a large impact on the broadcasting abilities of the winning bidders.
Maturing of U.S. Markets: As penetration into the U.S. mobile phone market approaches 100%, competition among leading service providers will undoubtedly increase. This will force down prices and consequently revenues and income as well. Note that penetration rates of over 100% are possible; in Hong Kong, wireless penetration is 127% (see here. An increase in competition in major urban areas may lead the other wireless service providers to search for new markets, including those rural and smaller markets currently dominated by Alltel.
In 2006, Alltel was the fifth largest wireless service provider serving roughly 12 million customers. Alltel distinguishes itself from its competitors by focusing on smaller and rural markets where there is less competition. However, due to Alltel's concentration in small markets, Alltel holds a small market share relative to its competitors as is demonstrated by the chart below.
After the recent split from the fixed line aspect of the company, Alltel is in a position to focus solely on wireless services, whereas many of Alltel's competitors must take into account their other holdings. The leading 5 competitors in the wireless services market are: