AT&T (NYSE: T) has bought Dobson Communication (NASDAQ: DCEL), a provider of wireless services to rural areas. The big telco spent $2.8 billion to reach the farmlands.
It is an odd deal. Telephone companies have been trying to pull away from offering landline service to remote areas because they have to keep up an infrastructure that reaches very few people over a large geographic area. It would seem that cellular service would have the same financial challenges. Since Dobson has over $2 billion in debt, the deal is very pricey.
But, viewed from two other angles, the deal looks smart. Dobson trades for about 1.5 times sales. AT&T trades for 3.3 times. On that basis, AT&T is getting a fairly large discount.
In addition, Dobson collects roaming fees from companies like AT&T and Verizon Wireless (NYSE: VZ) when their customers need service within the smaller company's service footprint. AT&T will no longer have to pay those fees for their subscribers.
If farmers buy a lot of iPhones, it becomes a very good deal.
Douglas A. McIntyre is a partner at 24/7 Wall St.
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Reader Comments (Page 1 of 1)
6-30-2007 @ 12:41PM
Michael Schneider said...
AT&T says the deal will not have a material impact on earnings this year but it will be accretive next year and going forward. It looks like a good deal as they will add 17 million wireless subscribers and there is some growth in rural areas now due to the agriculture revival. A good move for AT&T.
Michael Schneider runs several Web sites including http://www.Barrelomoney.com.
7-02-2007 @ 9:27PM
angie said...
Wondering if with this newest merge of Dobson to AT&T, if there could be a chance that AT&T might be bringing into the rural area's high speed internet service to the area's where only dialup is available.