Rural Cellular Corporation

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Rural Cellular Corporation

3905 Dakota Street
Alexandria, Minnesota 56308
U.S.A.
Telephone: (320) 762-2000
Fax: (320) 808-2181
Web site:http://www.rccwireless.com

Public Company
Incorporated: 1990
Employees: 1,162
Sales: $356.09 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: RCCC
NAIC: 513322 Cellular and Other Wireless Telecommunications

Serving over 500,000 customers (and potentially five million) in 14 states, Rural Cellular Corporation (RCC) is the largest independent wireless company operating in a notably rural setting. RCC markets its products and services under the names Cellular 2000, CellularOne, Keypage, and Unicel. According to company sources, RCC was one of the first cellular services to make a profit, doing so just four years after its founding in 1990. Rural Cellular’s corporate history has been one of strategic rapid expansion through acquisition. By concentrating on rural areas with high tourist populations and large numbers of small businesses, RCC has been able to serve large numbers of cellular-equipped urban dwellers roaming within its regions. In 1999 alone, Rural Cellular made 27.7 percent of its revenue off of roaming charges.

Emergence of a Distinctively Rural Wireless Provider: 1990

In 1990, Richard P. Ekstrand organized a merger of five cellular partnerships that held the licenses of 40 rural telephone companies from the northern suburbs of Minneapolis, Minnesota, north to the Canadian border and as far west as Fargo, North Dakota. Ekstrand was looking to leave the fast-paced life of the Twin Cities metropolitan area and decided to look to the central Minnesota lakes region for his respite. Ekstrand, like many other former urbanites, was accustomed to the many conveniences that a large metro area had to offer. Wireless communications was a convenience that Ekstrand believed would play a very important role in rural areas. With long distances separating people and their destinations, rural areas were ripe for supporting the technology needed for a full service wireless industry. In a rural setting, furthermore, having a cellular phone provided citizens an added sense of safety. Amidst miles of infrequently driven highways, where motorists could become stranded, and miles of woodland trails and lakes, where quick assistance could make the difference between a safe and enjoyable vacation and disaster, the need for cellular technology seemed obvious.

One of the most important events in RCC’s history occurred when Ekstrand and the board of directors decided to take the company public. By 1996 the company, which began with one employee (Ekstrand as president and CEO), had expanded to 500 employees and was firmly in the black. According to an interview in smartbizmag.com, Ekstrand referred to RCC’s public offering in the following terms: “Our 1996 IPO of three million shares raised over $30 million gross dollars and enabled us to not only secure our 50% + share of cellular and paging marketing in rural Minnesota and border areas, but it also helped us link up with Wireless Alliance later in the year and begin improving service to our existing customers while we looked for new ones.”

Ekstrand appeared to revel in acquisition and, following the initial public offering, one acquisition followed another. RCC’s venture into the public arena clearly enabled the company’s aggressive expansion and at the same time made it a more competitive provider by increasing its services and enhancing its technology.

Growing Through Acquisition: Mid- to Late 1990s

Immediately following the IPO, RCC began to actively seek new acquisitions and partnerships. Rural Cellular’s first public move was to create Wireless Alliance, a partnership with Voice Stream Wireless, an affiliate of Aerial Communications. A deal was struck with RCC owning 70 percent and Voice Stream Wireless controlling the remaining 30 percent. Through this partnership RCC gained 708,000 POPs (or population served) and PCS (personal communication systems) licenses in the area bordering the Midwest region that was already served by RCC. This move was consistent with Rural Cellular’s plan to gain control of areas bordering ones in which it previously owned licenses, enabling the company to increase its service areas to customers already serviced by RCC.

PCS were a growing market in cellular sales and RCC’s ability to buy the licenses with the cash flow it earned in the IPO was key to RCC’s growth. PCS operated on a specific radio spectrum and were limited by the Federal Communications Commission to include at least six potential broadband PCS providers in each geographically designated service area. The Wireless Alliance deal allowed Rural Cellular to be at least one of the six key players in the upper Midwest.

In 1997 RCC looked eastward and acquired Unity Cellular Systems, Inc. (Unicel) in Maine and the related wireless and microwave licenses from Intercel, Inc. For $85.7 million, RCC once again nearly doubled its population served. In the acquisition RCC bought the licenses of 512,000 POPs. This region covered a large portion of the state of Maine, including five RSAs (rural service areas) and one MSA (metro service area) in Bangor.

In 1998 RCC continued by acquiring Atlantic Cellular, extending its service areas in the northeastern United States. Atlantic Cellular’s license areas included parts of Massachusetts, New Hampshire, New York, and Vermont. The purchase price was a reported $262.5 million, a far greater amount than any of RCC’s previous dealings. At the time of the purchase, RCC was criticized by some industry analysts for growing too quickly, limiting its cash flow and increasing its company debt to an uncomfortable extent. Atlantic not only added 1.1 million POPs to the RCC network, it also brought with it an established long distance business. Notwithstanding the critics, Rural Cellular Corporation was on its way to becoming a force to be reckoned with in the industry. It now held cellular POPs of 2.2 million and showed no signs of stopping. In the next few years, with other cellular licenses selling quickly and at much higher rates, analysts recognized that RCC had actually obtained a good bargain in its acquisition of Atlantic Cellular.

In August 1998 RCC increased its presence in Maine by acquiring Western Maine Cellular, Inc. Although a relatively small addition by previous standards, Western Maine’s service area was adjacent to RCC’s existing Maine market, making it a good strategic buy, particularly for its customer service, marketing, and distribution.

With its population served totaling over 2.3 million, RCC in 1999 added RCI Group, Inc., which serviced rural customers under the name Glacial Lakes Cellular 2000 in South Dakota, in a geographic area comprising 6,444 square miles.

Later in 1999, RCC acquired St. Cloud Minnesota Personal Communications Systems (PCS) licenses for $1.6 million, and 13 separate local multi-point distribution system (LMDS) licenses for $7 million, of which the company planned to use a portion “for testing new products, services and systems.” RCC saw these licenses as a technology to which every home in the future might subscribe.

By far the most impressive accomplishment during RCC’s short history was its acquisition in 2000 of Triton Cellular Partners, L.P. and its affiliates. Triton, with a combined total of 2.3 million POPs, was practically RCC’s equal. Triton’s properties included 20 rural service areas spread throughout Alabama, Kansas, Mississippi, Oregon, and Washington. The geographic regions in Triton’s ownership included approximately 152,000 square miles, many of those areas in market clusters surrounding large cities. In order to finance the $1.24 billion purchase price of Triton, RCC completed a $170 million follow-on offering of common stock and a $165 million preferred stock issue, raising the remainder through a new 1.2 billion line of credit.

Triton’s strongest asset was the digital technology it chose to invest in, known as time division multiple access (TDMA). This technology, one of three digital types used, was adopted and certified as standard by the Cellular Telecommunications Industry Association and used nationwide by AT&T Wireless and Southwestern Bell Mobile Systems. TDMA technology allowed the customer to obtain service from both digital and analog systems and because of this Triton benefited from a higher percentage of roaming traffic in its region primarily from customers of AT&T, GTE, and Western Wireless. The wireless customer was required to use a multi-mode phone, but was then able to access service from both a digital network or the more common analog system. The clear advantages to digital technology in the industry were better sound, increased system capacity, and lower costs in adding customers. It was projected that over time the industry would convert completely to digital radio technology.

Company Perspectives:

RCC serves rural areas where tourism, agriculture, and small businesses are prevalent. These areas are adjacent to metropolitan areas or include significant highway corridors. We have acquired companies with histories of strong operating results, superior network infrastructures, similar corporate cultures, and commitment to service excellence.

But RCC’s vision reaches beyond the geographic boundaries of our wireless footprint to include technology solutions and customer relationships. RCC is focused on generating sustainable value for our shareholders over the long run by investing in state-of-the-art technologies and tailoring our products and services to meet the needs of customers in each region we serve.

We are convinced that by providing innovative solutions through wireless technologies and maximizing customer satisfaction, RCC will continue to fuel its growth and Generale strong financial results.

In June 2000 RCC reached a definitive agreement to acquire Saco River Telegraph and Telephone Company. Saco River provided wireless and independent local exchange carrier (ILEC) services to southern Maine and eastern New Hampshire.

The licenses acquired included both those for cellular and personal communication systems (PCS). This purchase included 1.08 million POPs and the territories were contiguous to RCC’s existing service areas in the Northeast.

Expanded Services, Innovations, and a Potential Sale: 2000-01

Other new services begun by RCC included a new E911 wireless location system, expanded digital service in the Midwest region, and an increase in packaged services regionwide. In Maine RCC introduced Type Talk, which allowed customers to receive written messages and access the Internet by using cell phones.

In September 2000 RCC teamed up with National Telemanagement Corporation (NTC) to provide seamless nationwide roaming to RCC’s prepaid Smartpay Wireless subscribers. Other innovations that RCC incorporated into its services included an agreement with Preferred Voice, Inc. Preferred Voice offered a Safety-Talk service to dial specific parties using hands-free voice recognition.

To manage its service areas, RCC maintained a decentralized approach. Each region was independently controlled, meaning that the local office determined the channels of sales and distribution. This system differed from many other large wireless companies and according to RCC: “This decentralized management approach emphasizes our local presence and enhances our competitive position.” RCC believed that customer service was best when management stayed local, and that customer retention was directly related to customer service.

Rural Cellular Corporation, with its aggressive drive for growth and its willingness to partner with other corporations to improve its services, seemed destined to stay at the top of the list of successful rural wireless providers. By mid-2001, however, it was getting so large as to be attractive to companies with nationwide coverage and deeper pockets. A May 2001 Financial Times article announced that Rural Cellular was in fact seeking a buyer. Like other expanding rural carriers in an increasingly competitive environment, RCC “faced declining fees from roaming contracts and costly network upgrades,” not to mention a staggering $1.7 billion in debt. Possible suitors included AT&T Wireless, Verizon, Alltel, and Western Wireless. Whatever the future of RCC, it could be confidently said that founder Richard Ekstrand’s original vision had been impressively realized in a relatively short period of time, so much so that the appellation “rural” in 2001 seemed all too quaint and ill-suited to describe a company of such scope and ambition.

Principal Subsidiaries

RCC Holdings, Inc.; Wireless Alliance.

Principal Competitors

AT&T Wireless Services, Inc.; Verizon Communications Inc.; Western Wireless Corporation; United States Cellular; Alltel Corporation; Telepak, Inc.; Airtouch Cellular; Sprint PCS; Powertel Inc.; Voice Stream Wireless Corporation; U.S. West; Nextel Communications; Inc.; Panhandle Telecommunications Systems, Inc.

Key Dates:

1990:: Rural Cellular Corporation (RCC) is incorporated; Richard P. Ekstrand is named president and CEO.
1996:: RCC goes public, buys 70 percent of joint venture Wireless Alliance with Voice Stream Wireless.
1997:: Company acquires Unity Cellular Systems Inc. (Unicel) and related cellular and microwave licences from Intercel Incorporated for $85.7 million.
1998:: RCC acquires Atlantic Cellular for $262.5 million.
2000:: RCC acquires Triton Cellular for $1.24 billion.
2001:: Company reportedly seeks a buyer.