And the Telecom consolidation continues: This time is Dobson

Rural wireless provider Dobson Communications Corp. is considering strategic options, including a sale of the company as deal activity among the telecom industry's smaller players continues to accelerate. The move comes as private-equity firms are increasingly looking for high-profile telecom deals, leading to higher share prices for some smaller telecom companies in recent weeks. In fact, two private-equity firms agreed last month to acquire Alltel, the nation's fifth-largest cellphone company by subscribers, in a deal valued at $26.3 billion.

Dobson, based in Oklahoma City, markets wireless services in rural and suburban areas under the Cellular One brand, serving about 1.7 million customers. Last year, Dobson got 22% of its overall revenue through roaming partnerships with major U.S. wireless operators such as AT&T Inc. T-Mobile USA Inc. However, it is becoming more difficult to sustain those partnerships as competition intensifies in rural markets and large carriers build out networks to previously underserved areas. The company focuses in several Midwestern states, parts of the Southwest, Alaska and upstate New York. Lately, it has expanded its reach by acquiring smaller operators. Dobson's competitors include such carriers as Alltel Corp., Rural Cellular Corp. and US Cellular.

So, why anybody would be interested in Dobson? For potential buyers, Dobson offers access to markets where cellular penetration is not as high as in major metropolitan markets, thus leaving more room for future growth. However, roaming partnerships with larger wireless carriers will be difficult to maintain. Further, Dobson receives funding from the federal government's "universal service" fund to finance its network build-out in high-cost areas and the FCC is considering a cap on how much carriers like Dobson could receive. That would seriously limit its expansion. In my opinion, this is a happy story for everybody. Dobson should sale the company for a considerable profit (especially in these market conditions), whereas any big wireless carrier that buy them would gain additional cellular coverage without making huge capital investments. More to come for sure.