TDS under pressure to find big U.S. telecom buyer
NEW YORK (Reuters) - U.S. regional phone company Telephone & Data Systems Inc (TDS.N) could face pressure to sell itself to bigger rivals, which have been eroding the company's market share and outpacing it technologically.
TDS, which owns 81 percent of U.S. Cellular Corp (USM.N), the country's fifth-largest wireless operator, has grappled in recent months with investor dissent over what strategy it should follow.
It faces a potential proxy battle against Mario Gabelli's Gamco Investors (GBL.N), which owns a 14.8 percent stake, while activism from Southeastern Asset Management is also expected to increase in coming months.
Southeastern, which controls about a 15 percent stake in TDS, wants the company to put itself up for sale, according to four people with direct knowledge of the situation, none of whom were authorized to discuss the matter publicly.
"TDS is more valuable in the hands of a larger player," said one of the sources.
Verizon Wireless (VZ.N) (VOD.L), AT&T Inc (T.N), Sprint Nextel Corp (S.N) and Deutsche Telekom's (DTEGn.DE) T-Mobile USA are all squeezing more revenue out of cellphone users through exclusive contracts with handset makers or other partnerships.
At the same time, these well-capitalized companies are investing in new network technologies, such as LTE and WiMax, which enable high-speed downloads on cellphones.
As the large wireless companies expand their high-speed offerings, smaller independent phone companies could lose market share because they do not have the resources to build their own advanced technologies.
"TDS is one of the last regional carriers standing," said Blair Levin, a telecoms policy analyst at Stifel Nicolaus. The souring economy, coupled with slowing subscriber growth, will push the industry to consolidate even more, he added.
TDS spokesman Mark Steinkrauss said the company plans to be "a fairly aggressive follower" of Verizon's U.S. LTE network. "We've got $800 million in cash and cash equivalents, we're not being pressed financially," the spokesman said.
AGE OF MERGERS
Analysts say consolidation among U.S. wireless carriers is inevitable as the battle for market share intensifies, with four out of five Americans already owning cellphones.
Last year, Verizon Wireless bought rural carrier Alltel for $28.1 billion in June, and AT&T Inc bought Centennial Communications in November for $944 million.
"Any of the four national carriers would be interested in adding (U.S. Cellular's) 6 million customers," said Sergey Dluzhevskiy, a sell-side telecoms analyst at Gabelli & Co, referring to AT&T, Verizon Wireless, Sprint and T-Mobile.
He added that TDS's wireline phone business, which contributes about one-fifth of its total revenue, is also attractive because it generates steady cash flow. Continued...
