Alaskan Telecoms Pool Resources to Fight Verizon and AT&T

AT&T (NYSE: T  ) entered the small Alaskan telecom marketplace in 2007 when it bought Dobson Communications. Verizon (NYSE: VZ  ) shoved its foot in that door when it purchased spectrum licenses in 2010, and just last month it turned on its 4G LTE network.

But to say the Alaskan market for wireless services is small would be an understatement. It is minuscule. The state has only around 723,000 residents, and more than half of them, 393,000, live in and around Anchorage.

For what that means to a telecom operating in the 49th state, read what Alaska Communications (NASDAQ: ALSK  ) CEO Anand Vadapalli touted during his company's second quarter 2012 earnings conference call after it got the iPhone:

"Our net subscriber adds of about 2,900 was the highest subscriber growth we've had in four years."

For comparison, Verizon (NYSE: VZ  ) added 1.2 million and AT&T (NYSE: T  ) 1.3 million net subscribers during that same period.

The indigenous Alaskan telecoms, such as Alaska Communications, had, of course, been dreading the entrance of the mainland duopoly into their turf, and the two largest of those -- before the entrance of AT&T and Verizon -- have finally closed on an agreement that they hope will help them survive.

Alaska Communications and General Communications, (NASDAQ: GNCMA  ) , or GCI, today signed the network sharing agreement they proposed last summer.

That deal has both companies pooling their wireless infrastructure, their spectrum licenses, and whatever wireless assets they have, to design, build, and operate the statewide 4G LTE wireless network they're calling the Alaskan Wireless Network, or AWN.

"The wireless business is capital intensive, requires scale to compete successfully against national carriers, and demands more spectrum than either of our two companies individually owns," said Alaska Communications CEO Vadapalli and GCI CEO Ron Duncan.

"By combining our respective wireless assets, we can provide a state-of-the-art Alaska wireless network owned and operated by Alaskans for Alaskans. We believe that The Alaska Wireless Network will ... [allow] us to compete more effectively in the retail market."

The AWN will be owned one-third by Alaska Communications and two-thirds by GCI. Alaska Communications will get $100 million in cash and could get up to $190 million in preferred distributions over the first four years of the network's operations. GCI will get whatever distributions are remaining during that time period. After that, all distributions will be made on an ownership percentage basis.

However, even though the two companies will be using the same network, they will remain separate companies and competitors for the retail market. The deal could work, but it still leaves four companies fighting over a very small pie.

Actually, I think in this case, we'd have to call it a cupcake.

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