LITTLE ROCK — Alltel was supposed to go away.
At least, that was the assumption after the Little Rock based brand and the nation’s fifth-largest wireless carrier was sold to Verizon Wireless in January 2009 in a $28.1 billion deal.
But “Chad” is still appearing in new Alltel ads, customers in several states still receive Alltel bills, and some 200 workers in Little Rock continue to map out the brand’s future.
Little Rock-based Allied Wireless Communications Corp., a subsidiary of Atlantic Tele-Network Inc. of Salem, Mass., is keeping the Alltel name alive, after licensing the brand this spring from Verizon for up to 28 years.
In April, Allied completed its $223 million purchase of Alltel assets that included about 895,000 wireless customers in Georgia, North Carolina, South Carolina, Idaho, Illinois and Ohio. The deal included about 45 retail stores and about 850 cell sites.
The nation’s ninth-largest wireless carrier, Allied operates out of a former Acxiom Corp. building in the Chenal Valley area, although none of its customers are in Arkansas, said Chief Executive Frank O’Mara.
“The main reason that [Allied’s] headquarters is in Little Rock is because there were unemployed ex-Alltel people available,” said O’Mara, who was the former Alltel Corp.’s marketing chief and a three time Olympic distance runner for his native Ireland.
Little Rock Alltel workers had the advantage of being “familiar with the brand, familiar with the assets and how we ran our stores and all the different elements of how that brand was run over the past number of years,” O’Mara said.
Allied expects corporate employment, the majority of which will be based in Little Rock, to grow to 350 by late April. Most of the leadership team already has been hired, so Allied will mostly be hiring managers and analysts, O’Mara said.
Because it reports its finances as a unit of Atlantic Tele-Network, O’Mara said he is limited in what he could say about the company’s profitability, although “enormous” startup costs will weigh heavily on the company’s performance.
One common measure of financial performance - earnings before interest, taxes, depreciation and amortization - in Allied’s first year will “be well below industry standardsand we aspire to getting it up closer to industry standards for our peer group, which is regional wireless carriers, by 2012,” O’Mara said.
‘SPIRIT OF ALLTEL’
More than half of the employees at Allied’s headquarters in Little Rock are ex-Alltel workers, O’Mara said.
In all, Allied employs 756 people, including 210 in corporate positions and 546 to handle retail sales and network operations, which are outside of Arkansas.
To help compensate for being so far away from their customers, Allied has a mock store in its headquarters, a clone of Alltel shops in the field, so employees can understand what customers experience.
O’Mara in August told RCR Wireless News, a news site for the wireless industry, that “a lot of people” want to be part of Allied because it “enshrines the Alltel spirit and beliefs.”
While the company continues to use Alltel’s Chad character in its ads, the character is going to change.
Even though Allied could continue to use the cast of supporting characters in the Chad commercials, who had represented Alltel competitors Verizon, AT&T, T-Mobile and Sprint, they have been abandoned, O’Mara said.
“At some stage, Chad’s got to evolve into something different,” O’Mara said.
Chad now visits locationssuch as his former high school to show people how Alltel’s services can help them.
Allied has so far produced two new Chad ads, which O’Mara described as having more of a “reality TV” style.
“We like what [Chad] has done for the Alltel brand over the years and our hope would be to continue working with him once we’re off on our own completely,” O’Mara said.
COMPLICATED RELATIONSHIP
In late April, that’s exactly where Allied will find itself.
Until then, Allied will continue to be helped by a cadre of ex-Alltel workers who remain employed by Verizon and form the “buyer services organization.” Services provided by the Little Rock-based Verizon workers include marketing, network services and running the old Alltel billing system.
Allied’s relationship with Verizon is complicated.
The reason the company exists in the first place is because Verizon was forced by government regulators to sell off Alltel properties in markets where the companies’ territories overlapped.
Therefore, Allied will operate exclusively in markets in which it will directly compete with Verizon.
In December, Verizon sought a court order to stop a former Alltel Corp. and Verizon executive, Lewis Langston, from working as Allied’s chief information officer. Verizon argued that Langston violated the Arkansas Trade Secrets Act and that he couldn’t perform his new job without violating his confidentiality agreement.
But a federal judge denied the request, saying that Verizon failed to prove Langston’s new job posed a real and immediate threat to its trade secrets.
Despite the tension that has been created with Verizon’s corporate apparatus, O’Mara heaps praise on the local Verizon workers who will support Allied’s operations until April.
“They’re not a competitor of ours,” he said. “They are simply a service provider. And they have done Trojan work in supporting not only our existing platforms, to keep them alive and well during this transition, but they help us prepare for our migration plans to the new systems.”
UPHILL BATTLE
According to a report by the U.S. Government Accountability Office in July, more than 140 U.S. companies offer wireless services.
But four carriers - Verizon Wireless, AT&T, Sprint and TMobile - serve more than 90 percent of wireless subscribers, the report said.
Many smaller wireless carriers make a profit by operating in areas in which the larger players like Verizon or AT&T have gaps in their network, but Allied bought markets that overlap with Verizon’s, said Dave Novosel, a telecommunications analyst for Chicagobased Gimme Credit.
Allied faces distinct disadvantages when going head to head with the giants of wireless, including being a startup and choosing more than 200 technologies to provide picture messaging, voice mail and other services.
Unlike most startups, Allied immediately faced servicing nearly 900,000 customers, O’Mara said.
The size of Verizon and AT&T give them advantages, including the ability to offer exclusive handsets such as the iPhone.
Ping Zhao, an analyst for CreditSights, said perhaps the biggest size-related factor affecting a wireless company’s profitability is the price of handsets, which are sold to the customer at deep discounts that carriers make up by signing customers to twoyear contracts.
Verizon and AT&T buy handsets at lower prices. Since Allied’s prices must be competitive, it will be limited in how much of its higher handset costs it can pass along, Zhao said.
“[With] every aspect, if you happen to have to compete against the big guys, you really have a cost disadvantage,” Zhao said.
Despite the obstacles, O’Mara said, he’s hopeful there’s a market for companies that cater to people wanting to do business with smaller firms.
“Not everybody wants to be part of a big enterprise,” he said. “I think that’s true of employees, that’s true with customers, it’s true of a lot of partner vendors that you work with.”
O’Mara compares it to the smaller banks, such as Bank of the Ozarks, which has the tag line “You have a friend here.”
“We believe that our opportunity is to be an advocate for the customer, to feel like we’re more local than the big guy, to give our customers choice control and convenience over their service, give them the ability to customize the service to their needs,” O’Mara said. “There’s always an opportunity for someone like that in the marketplace.”
Zhao said Allied’s potential for growth depends on how well it can compete against companies like Verizon.
If they manage to offer services for much cheaper, she said, “I’m sure they can grow.”
“Everything is possible,” Zhao said. “It’s just difficult.”
Business, Pages 75 on 10/03/2010