GCI to buy ACS' wireless division for $300 million

A Marsh Creek employee dressed for the cold weather works on a cell tower along Channel Drive in Nov. 2013.

One of Alaska’s biggest telecommunications companies is getting smaller. Another is getting a bit larger.

 

On Thursday, Alaska Communications Systems (ACS) announced it will sell its cellphone operations to General Communication Inc. (GCI) in a deal worth $300 million.

The deal is not expected be final until early 2015, and until then, ACS cellphone customers will not see any changes, said spokeswoman Hannah Blankenship. “Until our wireless customers get notice that they are becoming a GCI customer, it is business as usual,” she said.

ACS cellphone customers will receive updates on the progress on the acquisition, she said, including through direct mailings. ACS customers currently on contract with ACS will be allowed to run them out, said GCI spokesman David Morris. As those contracts end, GCI will phase them out in favor of its own cellphone contracts.

Since July 2013, ACS and GCI have cooperatively operated Alaska Wireless Network, a joint subsidiary that was envisioned as a way for the two Alaska telecommunications companies to compete against national cellphone providers such as AT&T (which has the most Alaska customers of any cellphone company) and Verizon, which began operating in Alaska this year. GCI owns two-thirds of AWN, ACS owns one-third. The two companies combined serve more than 260,000 cellphone customers.

The creation of Alaska Wireless didn’t change things from customers’ perspectives — they still received bills stamped with the logos of ACS or GCI — but it radically altered the way the two companies operated behind the scenes. With pooled equipment and resources, they were supposed to become more efficient. It didn’t work out that way, Morris explained.

“There was a whole lot of negotiations taking place between the three entities, and it induced a great amount of tracking and accounting,” he said.

The switch to the Alaska Wireless Network also caused problems for some ACS cellphone customers, who reported weaker coverage under the new network.

According to ACS’ filings with the Securities and Exchange Commission, the company lost more than 3,000 cellphone customers between Sept. 30, 2013 and Sept. 30, 2014.

ACS spokeswoman Blankenship declined to say how long ACS has been considering the sale of its wireless division, but Morris denied the talks began before creation of the Alaska Wireless Network.

The question of timing is more than an academic one. When the Federal Communications Commission approved the creation of the Alaska Wireless Network, the FCC’s report concluded, “the assignment of licenses as proposed in the Application raises some competitive concerns.”

The FCC went on to say that those concerns would be mitigated by efficiency and “public interest benefits.”

Morris and Blankenship each said the regulatory implications of the latest acquisition aren’t fully known. In an email, Blankenship said the “primary consents needed are the lender consents for both parties. We are evaluating what approvals we will need from regulatory agencies.”

The FCC has been under intense pressure nationally to preserve consumer choice and equal access to the Internet, and it has the ability to act on the GCI-ACS purchase.

Since 2012, ACS has repeatedly stated that its primary business is providing broadband Internet access to businesses in Alaska, and the sale of its wireless division will allow ACS to focus more on that core business, Blankenship said.

Of the $300 million ACS will receive, about $250 million has been earmarked to pay down some of ACS’ $434.6 million in debt balance. (In comparison, GCI has about $1 billion in debt but is about three times as large as ACS in total assets: $2 billion against about $700 million.)

Paying down debt will mean more of ACS’ cashflow can be used for other purposes. “We’ll be able to invest more in our network,” Blankenship said.

On GCI’s end, “You don’t just reach into your back pocket and pull out 300 million bucks, so we’re going to have to do some financing … it’s principally going to be through additional debt,” Morris said.

Shortly after announcing its purchase of ACS’ wireless division, GCI announced that Searchlight General Partners of Delaware will invest $75 million in GCI and will receive a seat on GCI’s board of directors.

The biggest immediate impact is expected to be felt by ACS employees. Between 150 and 200 are expected to lose their jobs. GCI, Morris said, is hiring about 150 new employees, but many of those positions have already been filled.

Blankenship said many of the employees losing their jobs have been offered severance packages, and some have been offered different roles in the company.

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