In initiating coverage of Alltel Corp., W.R. Hambrecht + Co. said the telecommunications company should consider dumping its information services division, a leading provider of data processing services to banks.
In a report released Thursday Hambrecht analysts Peter C. Friedland and Neil A. Doshi argued that Alltel Information Services Inc. is not strategically aligned with the companys core communications businesses and should be sold or spun off in a public offering.
Alltel, the nations sixth-largest wireless provider, earned 78% of its revenues last year from telecommunications. The information services division, which supplies software and outsourcing to financial services firms and some telecom companies, has been a negative sticking point for the companys primarily telecom-focused investors, the report contended.
An IPO or sale might make Alltel a more attractive acquisition target by a telecom operator that was previously turned off by the presence of the seemingly noncore information services segment, the analysts wrote.
Alltel representatives did not return repeated calls seeking comment. But last week the company announced a joint venture with International Business Machines Corp. to offer a new core banking system to financial institutions in Europe, indicating Alltels continued commitment to financial services.
The information services division, however, has been plagued by poor management and lack of direction at the top, said M. Arthur Gillis, president of Computer Based Solutions Inc., a bank technology consultancy in Dallas.
Direction, leadership, strategy all those wonderful words were missing or were shallow or misdirected, Mr. Gillis said.
Since the 1996 retirement of chairman and chief executive officer John Steuri, a former IBM executive, the information services division has suffered from heavy turnover in its senior executive ranks, Mr. Gillis said.
Just last week, Susan Opitz, a 13-year employee of Alltel who was named president of its financial services division in November 1999, stepped down. James W. Milligan, who previously was president of the residential lending segment of the financial services division, has been named to succeed her. Ms. Opitz is now a consultant to the company.
Staffing issues aside, Mr. Gillis said Alltel is simply not performing as well as its competitors in outsourcing to the banking industry. Fiserv Inc. and Metavante Corp., he said, have reported revenue increases averaging about 20% in recent years.
Alltel Information Services revenue growth has remained in single digits, 7% from 1998 to 1999 and 3% the succeeding year. W.R. Hambrecht predicted 2001 revenue growth of 9%.
Mr. Gillis questioned why Alltel, which was formed in 1983 by the merger of two telephone companies, is in information services at all.
I dont really know what Alltel does for the information services company, and I dont know what the information services company does for Alltel, he said. If theres no benefit for both parties, then one has to ask why are they in the same annual report?