Assessing Alltel's Allure

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Soon-to-be-private regional wireless carrier Alltel (NYSE: AT) dispelled any notion of a "take the money and run" attitude with its second-quarter results yesterday. The company continues to forge ahead in a highly competitive market dominated by companies such as Sprint Nextel (NYSE: S) and AT&T (NYSE: T) that are five or 10 times its size.

Alltel reported income from current businesses of $261 million on a 12% year-over-year increase in revenue to $2.18 billion. For current businesses, operating income ticked up 18% to $460 million, for an operating-margin boost of 1.1% above the year-ago quarter.

The company credits its solid operational results to innovative new service offerings that are resonating with customers and leading to improved operational metrics. While total net customer additions of 181,000 marked a sequential decline, it's still 46% above the same quarter in 2006. Customer churn and average revenue per user (ARPU) metrics broke new records for the company and continued a nice trend that investors have enjoyed over the past several quarters:

Metric	12/05	03/06	06/06	09/06	12/06	03/07	06/07
Net Additions (Internal)	147K	165K	146K	101K	228K	236K	181K
Churn	2.2	2.0	1.9	2.2	1.9	1.8	1.7
ARPU	$52.36	$51.23	$52.78	$53.76	$52.84	$52.49	$54.10

Source: Alltel.

Performance like this makes Alltel stand out among regional carriers such as Leap Wireless (Nasdaq: LEAP) and MetroPCS (NYSE: PCS). Considering that these operational achievements are happening while management is distracted with a major buyout, the numbers look even more impressive.

Speaking of which, management said the merger is progressing well and that shareholders will vote on the planned acquisition by TPG Capital and Goldman Sachs' (NYSE: GS) private-equity unit on Aug. 29. To help alleviate any fears that TPG and Goldman may get cold feet or be unable to come up with the cash, the company pointed out that the merger is not conditioned upon financing and that several large financial institutions have backed the obligation. With investors feeling jittery lately about stability in the credit market, these fears have resulted in Alltel's being priced around $67 per share, well below the $71.50 cash-buyout offer.

Market sentiment aside, Alltel's management expressed confidence that the merger will close by the end of the year. One thing is certain, though: Alltel continues to show why anyone would want to pony up $27.5 billion for the company in the first place.

Related Foolishness:

• Alltel's New Private Equity Plan
• All's Well With Alltel
• Foolish Fundamentals: Service Provider Metrics

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Fool contributor Dave Mock still enjoys molding with Play-Doh from time to time, but he refrains from eating it anymore. He owns no shares of companies mentioned here. Dave is the author of The Qualcomm Equation. The Fool does an end-run around Hugh Hefner and bares all in its disclosure policy.