Dobson Communications Corporation

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Dobson Communications Corporation

14201 Wireless Way
Oklahoma City, Oklahoma 73134
U.S.A.
Telephone: (405) 529-8500
Fax: (405) 529-8515
Web site: http://www.dobson.net

Public Company
Incorporated: 1936 as The Dobson Telephone Company
Employees: 2,365
Sales: $631.5 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: DCEL
NAIC: 517212 Cellular and Other Wireless Telecommunications; 517110 Wired Telecommunications Carriers; 517910 Other Telecommunications; 551112 Offices of Other Holding Companies

Dobson Communications Corporation is the ninth largest provider of wireless services in the United States, serving 1.6 million subscribers in 16 states. Dobson Communications primarily serves customers residing in rural areas, ranking as the largest independent rural wireless provider in the country. The company also ranks as the largest wireless provider in Alaska. Dobson Communications offers a variety of services, including voice mail and voice messaging, as well as high-speed data functions such as wireless e-mail and Internet access.

Origins

Dobson Communications' role as a provider of wireless services in rural areas was adopted long after the company was founded. The company began operating in 1936 as the Dobson Telephone Company, starting with a single landline telephone exchange more than a half-century before the term "landline" entered the lexicon of telephony. Dobson Communications, at the turn of the 21st century, relied on technological innovations the original founders could not have conceived, but there were two similarities connecting the Dobson Telephone Company to the modern-day Dobson Communications. The Dobson family controlled the company throughout its existence, presiding over the two eras of its existence. In addition, the geographic orientation of both eras remained focused on providing service to customers residing in rural areas. The Dobson Telephone Company originated in Oklahoma, the home state for the company throughout its existence. Dobson Communications, in its cellular guise, began providing service to customers in Oklahoma, where the Dobson Telephone Company first offered its landline services.

The agent of change in the Dobson enterprise's business scope was Everett R. Dobson, who represented the third generation of the Dobson family's leadership. Dobson joined his family's company in 1980 after earning an undergraduate degree in economics at Southwestern Oklahoma State University. When Dobson joined the company, it was dependent entirely on its wireline business for revenues. Dobson began changing the company's strategic orientation roughly a decade after he joined the firm. In 1989, he formed Dobson Cellular Systems, the entity through which the Dobson family enterprise would navigate its way in the nascent cellular industry. The company's foray into the wireless sector was executed by acquiring cellular systems in clusters, beginning with the original system in Oklahoma and the Texas Panhandle, purchased between August 1989 and September 1991. Through Dobson Cellular Systems, the company commenced wireless operations in 1990.

When wireless service began, Dobson was appointed president and chief operating officer of the company and president of its cellular subsidiaries. Under Dobson's direction, the company executed an acquisition strategy that targeted rural and suburban areas; the underserved markets that provided fertile ground for Dobson Communications'financial and physical growth. The transition to wireless operations, which led to the discontinuation of the company's wireline business by the late 1990s, resulted in exponential financial growth, but the company did not begin to increase its revenue volume meaningfully until it began acquiring cellular systems in earnest. After acquiring the properties in Oklahoma and Texas, the company waited five years before completing its next cellular deal. In March 1996, the company paid $30 million to acquire cellular operations in Kansas and Missouri. The following month, Everett Dobson was named chief executive officer and chairman of the entire Dobson family enterprise, signaling the beginning of the company's rapid expansion in the cellular sector.

Increasing Cellular Interests During the Late 1990s

Dobson Communications' next cellular deal was completed a year after adding subscribers in Kansas and Missouri. Between February and March 1997, the company acquired cellular properties in rural Maryland and Pennsylvania. The acquisition represented a significant geographic leap for the company, taking it beyond its southwestern roots and establishing a presence in the eastern United States. The deal also marked a major expansion for the company, giving it 41,000 subscribers, which more than doubled its customer base. In a separate deal, the company also signed an agreement to acquire controlling interest in a rural Arizona licensee. The transaction was completed in October 1997, when Dobson Communications acquired a 75 percent interest in Gila River Cellular General Partnership, a wireless carrier serving a rural service area with 188,000 potential subscribers between Phoenix and Tucson.

By the end of 1997, the expansion of Dobson Communications' wireless business had fueled an impressive rise in the company's financial growth. The company generated $22.7 million in sales in 1993, a total that increased incrementally to $43.2 million by 1996 before nearly doubling to $85.1 million in 1997. From 1997 forward, Dobson Communications recorded vigorous growth, leveraging its expansion in the wireless sector to greatly increase its financial might.

In 1998, Dobson Communications achieved great strides on the acquisition front. During the year, the company bolstered its presence in Texas and entered the California market for the first time. The most significant addition to the company's portfolio of cellular properties occurred in December, when Dobson Communications paid $337.5 million to acquire Sygnet Wireless, Inc. and its subsidiary Sygnet Communications, Inc. With the assets acquired from the deal, a new subsidiary, Dobson/Sygnet Communications Company, was created. Through the new subsidiary, Dobson Communications owned and operated cellular systems covering a population of 2.4 million people in northeastern Ohio, western Pennsylvania, and western New York. By the end of 1998, with the assets acquired in the Sygnet purchase included, Dobson Communications' cellular systems covered a population of 5.7 million people in rural areas in Arizona, California, Kansas, Maryland, Missouri, New York, Ohio, Oklahoma, Pennsylvania, and Texas. For the year, the company generated $140.3 million in revenue.

Dobson Communications' tenth anniversary in the cellular business was marked by an acquisition of immense proportions. In February 2000, the company and AT&T Wireless Services, Inc. announced the acquisition of American Cellular Corporation. The joint venture deal, which was equally owned and jointly controlled by Dobson Communications and AT&T Wireless, was valued at $2.4 billion. American Cellular, operating under the Cellular One trade name, provided wireless service to markets in New York, Wisconsin, Minnesota, Michigan, Kentucky, Tennessee, West Virginia, Ohio, Pennsylvania, and Illinois. The company's markets covered a population base of 4.9 million people, of which 431,000 were enrolled as subscribers. In a February 28, 2000, interview with Cambridge Telecom Report, Dobson commented on the acquisition, saying, "This acquisition is a significant step in the growth of Dobson. The joint venture acquired one of the largest and fastest growing independent rural cellular operators in the United States and Dobson has expanded its strategic relationship with AT&T." With the addition of American Cellular, Dobson Communications' coverage area included markets in 18 states. Operating revenue by the end of 2000 reached $475 million, more than three times the volume recorded two years earlier.

A Rural Giant Emerging in the 21st Century

As Dobson Communications entered the 21st century, the company continued to record robust growth. Against the backdrop of the company's impressive financial gains, the wireless industry began to consolidate, prompting Dobson and his fellow executives to respond to the changing industry dynamics. In a November 1, 2001 interview with Mergers & Acquisitions Journal, Dobson Communications' vice-president of investor relations explained management's mindset. "We believe the industry is getting ready to go through another round of consolidations," remarked Warren Henry. "So basically, we want to be ready to pursue any alternative that's in the best interests of our shareholders." The review of strategic options, which included a possible sale of the company, led to a significant announcement made not long after Henry's comments to Merger & Acquisitions Journal. In late 2001, Dobson Communications revealed plans to sell a portion of the company to Verizon Wireless Inc., the nation's leading wireless operator. According to the agreement, Verizon agreed to pay $550 million for Dobson Communications' cellular properties in California, Arizona, Tennessee, Georgia, and Ohio.

Company Perspectives:

Dobson has stayed competitive by designing, on a market-by-market basis, rate plans that allow the company to maximize its competitive position. In addition, Dobson is continually introducing new products and services to our customers, which is another important aspect of our success. We provide a variety of cellular services and products to address a range of business and personal needs. The nature of the range of the services we offer varies depending upon the market area. Dobson has been a leader in deploying digital technology to rural and suburban markets. All markets have specialized digital rate plan offers. Our plans are designed to address a range of needs, from high volume to medium, basic, and economy users. Additional targeted plans are available, including our Clear Across America plans that offer no roaming and no long distance on our national network, and our Partner Plan, which lets family members share minutes.

As Dobson Communications charted its course during its second decade in the cellular business, significant events on the acquisition front positioned the company among the industry's elite. Although some of Dobson Communications' assets were divested in the deal with Verizon Wireless, a major addition to the company more than compensated for the loss. In August 2003, Dobson Communications became the sole owner of American Cellular. The transaction, which included a restructuring of American Cellular's debt, vaulted Dobson Communications onto the national stage. In a company press release dated August 19, 2003, Everett Dobson explained the importance of the deal. "With almost 1.6 million subscribers," he said, "the New Dobson Communications is now the ninth largest wireless operator in the United States and the largest independent rural wireless provider. The combined entity serves markets with a population of approximately 11.1 million. These are among the most strategically attractive markets in the United States with excellent growth potential and relatively low wireless penetration compared to the nation as a whole."

Dobson Communications' active role in the consolidation of the wireless industry continued after the American Cellular deal was concluded. In January 2004, the company signed an agreement to acquire the assets of NPI-Omnipoint Wireless LLC, a wireless provider with licenses covering northern Michigan. The $28 million deal gave Dobson Communications licenses and a network capable of serving one million subscribers. In 2002, NPI's 38,000 subscribers enabled the company to generate $20 million in revenue.

As Dobson Communications moved forward, the company's unique niche in the cellular industry dictated its acquisition strategy, directing it toward wireless properties in sparsely populated regions. Dobson Communications was expected to bolster its presence in rural markets either through acquisitions or by trading its ownership interests with those controlled by other wireless providers. Acquisitions, such as the purchase of American Cellular, delivered an easily discernible addition to the company's operations, but the benefits of swapping cellular properties with other operators were not to be ignored. In one such transaction, completed in June 2003, Dobson Communications became the largest wireless provider in Alaska by exchanging its properties in California for AT&T Wireless properties in Alaska. In another exchange of properties concluded in February 2004, Dobson Communications swapped its interests in Maryland for Cingular Wireless interests in Michigan, a deal that complemented the acquisition of NPI one month earlier.

In the future, further acquisitions were expected, as Dobson Communications worked to cement its position as the nation's leading provider of wireless service in rural areas. From the momentum built up during the late 1990s, the company's operating revenue increased at an exponential rate, nearly doubling during a three-year period. The pace of this growth, which saw revenue increase from $331 million in 1999 to $631 million in 2002, transformed Dobson Communications into a formidable national force. To maintain its lead, Dobson looked to flesh out its coverage map and to continue to play the part of a consolidator. By early 2004, Dobson Communications owned wireless operations in 16 states, operating in markets that were populated by 10.6 million people. Of these potential customers, the company served 1.6 million subscribers. In the years ahead, Dobson Communications' objective was to turn potential customers into subscribers and to add to the rural markets under its control.

Principal Subsidiaries

Dobson Cellular Operations Co.; American Cellular Corporation; Dobson Cellular Systems, Inc.; Dobson JV Co.; Dobson Operating Co.; Dobson Tower Co.; Dobson/Sygnet Communications Co.; National Telecom Inc.; Western Financial Services Corporation.

Key Dates:

1936:: The Dobson Telephone Company is founded.
1980:: Everett Dobson joins the family-owned company.
1989:: Dobson Cellular Systems is formed.
1990:: Dobson Communications commences wireless operations.
1997:: Cellular properties in Maryland and Pennsylvania are acquired, representing the company's first foray beyond the southwestern United States.
2000:: Dobson Communications and AT&T Wireless Services, Inc. form a joint venture to acquire American Cellular Corp.
2003:: Dobson Communications becomes the sole owner of American Cellular.