Alaska Communications Systems Group, Inc.

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Alaska Communications Systems Group, Inc.

600 Telephone Avenue Anchorage, Alaska 99503 U.S.A.
Telephone: (907) 297-3000
Fax: (907) 297-3100
Web site: http://www.acsalaska.com

Public Company
Incorporated: 1998 as ALEC Holdings, Inc.
Employees: 1,001
Sales: $349.8 million (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: ALSK
NAIC: 517110 Wired Telecommunications Carriers; 517212 Cellular and Other Wireless Telecommunications; 518110 Internet Service Providers and Web Search Portals

ORIGINS

ACQUISITION OF PACIFIC TELECOM AND ANCHORAGE TELEPHONE UTILITY IN 1999

NEW LEADER IN 2003

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

ORIGINS

ACS achieved its dominance in Alaska through a series of pen strokes, turning overnight from a bold idea into the state’s largest and the United States’ 15th largest local exchange carrier. Hundreds of millions of dollars backed the effort to give the country’s largest state its first full-service, statewide telecommunications company, a company capable of providing the gamut of telecommunications services to Anchorage, Juneau, and Fairbanks, where 60 percent of the state’s population resided, as well as to the raft of rural communities dotting the state’s vast landscape. The company was the brainchild of Charles E. Robinson, but he was not alone in his effort. The creation of ACS called upon the managerial, financial, and technical expertise of a group of distinguished executives whose collective effort led to the signing ceremony that gave birth to ACS.

When Charles Robinson broached the idea of creating a statewide telecommunications company during a dinner conversation in 1998, he already had spent a lifetime working in Alaska’s telecommunications industry. Industry observers would have been hard pressed to find a more qualified executive for the task at hand. Robinson brought more than 40 years of experience in the telecommunications business to the formation of ACS, beginning in the 1950s when he took a leading role in creating the state’s long-distance communications system through his involvement with White Alice Communications System. Between 1979 and 1982, Robinson served as president of Alascom, Alaska’s largest long-distance carrier at the time, creating the first, statewide long-distance network by linking nearly 30 independent local companies. He also served as president and chief operating officer of Alascom’s parent company, Pacific Telecom, Inc., from 1981 until Pacific Telecom was sold to Century Telephone Enterprises, or CenturyTel, in 1997. Robinson stayed on at Pacific Telecom until February 1999, serving as chief executive officer as the first steps were taken toward creating ACS.

Pacific Telecom was a company of singular importance to ACS, providing the upper echelon of management to the new company. Robinson was joined by numerous Pacific Telecom colleagues, including Wesley E. Carson, Donn T. Wonnell, Michael E. Holm-strom, John Ayers, Benjamin L. Jarvis, and Dean A. Ryland. Carson, who was appointed ACS’s executive vice-president in July 1998, served as the vice-president of human resources at Pacific Telecom between 1989 and 1997. Wonnell, ACS’s general counsel and an executive vice-president, served as vice-president for legal, regulatory, and legislative affairs at Pacific Telecom until its merger with CenturyTel in 1997. Holmstrom served as Pacific Telecom’s vice-president of financial and business planning during the early 1980s, establishing connections that nearly 20 years later led to his appointment as ACS’s chief financial officer. Ayers, ACS’s senior vice-president of marketing and sales, served in a variety of executive-level positions during an eight-year stay at Pacific Telecom that ended in 1995. Jarvis, whose 35 years of involvement in the telecommunications industry rivaled the length of Robinson’s career, served in various operations management positions at Pacific Telecom between 1966 and 1982, earning the respect that led to his appointment as senior vice-president of local-exchange-carrier operations at ACS.

ACQUISITION OF PACIFIC TELECOM AND ANCHORAGE TELEPHONE UTILITY IN 1999

To turn from an idea into a reality, the subject of Robinson’s dinner conversation in 1998 needed management, capital, and assets. The idea of creating the first statewide, full-service telecommunications company took one step towards becoming a reality by tapping into the executive talent at Pacific Telecom. For the second step, capital, ACS turned to Fox Paine & Company, a Foster City, California-based investment firm founded by W. Dexter Paine III and Saul A. Fox, who were regarded as cofounders of ACS. Paine served as a senior partner of Kohlberg & Company before joining Fox, a senior partner at Kohlberg Kravis & Roberts & Co., in 1997 to establish Fox Paine & Co. With the capital provided by Fox Paine & Co., ACS possessed the financial means to go after its first target, the Alaska properties owned by CenturyTel, a Louisiana-based telecommunications company with interests throughout the United States. Under the terms of the proposed acquisition, ACS sought to purchase Pacific Telecom as well as CenturyTel’s other Alaska properties, including PTI Communications of Alaska, Inc., Telephone Utilities of Alaska, Inc., and Telephone Utilities of the Northland, Inc. Together, the properties provided local telephone service in Juneau, Fairbanks, and more than 70 rural communities, as well as Internet access to customers statewide. In 1998, the properties included in the proposed acquisition generated $124 million in revenue and posted $9.6 million in net income.

While the particulars of the CenturyTel deal were being negotiated, Robinson and his team turned to their next acquisition target. They submitted a bid of $295 million for Anchorage Telephone Utility (ATU), a diversified telecommunications provider owned by the Municipality of Anchorage. ATU ranked as the largest local-exchange carrier in Alaska, providing local and long-distance service primarily in Anchorage. Through a subsidiary named MACTel Inc., ATU provided cellular service statewide. Together, the landline and wireless telephone assets controlled by ATU generated $157 million in revenue and yielded $13.5 million in net income in 1998.

COMPANY PERSPECTIVES

We continue to transform ACS from a primarily incumbent local telephone voice company to a competitively-driven Wireless and Broadband company. Wireless and Broadband services are table stakes for successful telecommunications firms of the future and we have aimed our resources in that direction for the last three-plus years while strategically leveraging our customer and asset base in traditional wireline services. This transformation hinges on executing a proven business model of serving customers holistically, managing the business along processes rather than traditional functions, and focusing investment on fast-growing, strategically-innovative, high-payback initiatives.

With agreements in place to acquire CenturyTel’s Alaska properties and ATU, ACS was poised to become the largest telecommunications company in Alaska business history. Both deals closed on the same day in May 1999, turning Robinson’s bold vision into a behemoth befitting the size of the state it served. “We gained more than 1,000 employees and 400,000 customers overnight,” Wes Carson said in an April 2001 interview with Alaska Business Monthly. Once all the documents were signed, ACS ranked as the largest local-exchange carrier in Alaska, the third largest long-distance carrier, and the largest wireless provider, offering cellular telephone service, voicemail, paging, messaging, and prepaid cellular service through a state-of-the-art digital system. ACS operated as an Internet service provider (ISP), providing online access to subscribers scattered throughout the state, and its wireless cable operations were capable of providing pay-television service to more than half of the homes in Alaska. From its first day forward, the company held sway in the state’s three major cities and across the tundra, forests, and ice that presented enormous operational, logistical, and managerial challenges to the former Pacific Telecom executives who led one of the most significant ventures in the state’s history.

Robinson and ACS’s senior executives devoted their first months in charge to ensuring the smooth consolidation of the various assets into a single entity. The company, organized as a subsidiary of Fox Paine & Co., gained its independence in November 1999 through an initial public offering (IPO) of stock, when ACS stock debuted at $14 per share. Its next major move occurred in June 2000, when the company acquired Internet Alaska Inc., the second largest ISP in Alaska with more than 25,000 subscribers and $8 million in annual revenue. The acquisition more than doubled the size of ACS’s ISP customer base. The company also reached an agreement in the summer of 2000 to acquire Matanuska Telephone Association for $187 million, but Matanuska Telephone backed out of the deal before the end of the year. Although ACS management failed in its bid to acquire Matanuska Telephone, there were numerous achievements to celebrate. Carson rattled off a list of accomplishments in an April 2001 interview with Alaska Business Monthly. “It has been an exhilarating, but extremely demanding run for the last two years,” he said. “In that time, we completed the acquisitions; registered $150 million in bonds and $25 million in senior discount debentures; completed an IPO that raised $140 million in gross proceeds; established the ACS corporate infrastructure; consolidated work forces and established an ACS corporate culture; unified the brand names; deployed high-speed digital subscriber line service; digitized the cellular network; acquired and integrated Internet Alaska; and installed 15 major information technology systems.”

The achievements during ACS’s first two years of operation gave Alaska what it had never had before: a statewide, diversified telecommunications provider. By 2001, ACS employed 1,200 workers, operated 330,000 access lines, and served 75,000 cellular subscribers, 50,000 Internet customers, and more than 40,000 long-distance customers.

KEY DATES

1998:: Alaska Communications Systems Group, Inc., (ACS) is formed as a subsidiary of Fox Paine & Company.
1999:: The company acquires Pacific Telecom and Anchorage Telephone Utility and completes an initial public offering of stock.
2000:: ACS acquires Internet Alaska Inc., the second largest Internet service provider in Alaska.
2003:: Liane Pelletier is appointed president and chief executive officer.
2004:: ACS launches its code division multiple access wireless network.
2005:: The number of ACS wireless subscribers exceeds 100,000.
2006:: ACS introduces nationwide, wireless data- roaming service.

Upgrading of systems and expansion of services, particularly in the broadband and wireless arenas, continued as ACS progressed toward its fifth anniversary of operation. The period following the initial organization of the company included two notable events, one a regrettable setback and the other a significant change in leadership. In December 2001, ACS signed a contract with Alaska’s state government to provide voice and data communications services. The five-year, $100 million contract called for the installation of 20,000 voice-over-Internet-protocol (VoIP) telephones and for ACS to take responsibility for managing the state’s voice and data network, but the relationship between the two parties soon soured. By April 2003, only 239 of the VoIP telephones had been installed, prompting the state to terminate the contract in September 2003. ACS responded to the state’s announcement, as reported in the September 22, 2003, issue of Computerworld, by saying the state had not fulfilled its obligations, which made it “impossible for ACS to meet its performance objectives.” The two parties settled their differences in October 2003, when ACS agreed to pay the state of Alaska $3.4 million and relinquish ownership of selected capital equipment. “It was in the best interest of both parties to reach a quick settlement,” Robinson stated in an October 1, 2003, ACS press release. “This agreement helps ensure a smooth transition and provides ACS with an opportunity to bid on future state contracts.”

NEW LEADER IN 2003

At roughly the same time the state of Alaska terminated its contract with ACS, the company welcomed a new leader to its Anchorage offices. In September 2003, Liane Pelletier was appointed president and chief executive officer of ACS to fill the void created by the departure of Carson, who left four months earlier to become chief executive officer of ACS Media, LLC, and Robinson’s retirement from day-to-day management of ACS. Although Robinson stayed on as chairman, ACS became Pelletier’s company to run. She had spent the previous 17 years working for Sprint Corporation, serving in various executive-level positions, including as vice-president of several departments. Pelletier left Sprint as the company’s chief integration officer, overseeing its shift in focus from a products-oriented organization to a customer-oriented organization. “Liane is a proven problem solver and experienced executive who will bring fresh ideas and energy to ACS,” Robinson noted in a September 15, 2003, ACS press release.

With Pelletier at the helm, ACS continued to build on the technological capabilities of its system. In May 2004, the company launched its CDMA wireless network, the first in the state, enabling it to begin offering broadband wireless data service to customers the next month. The following year, after signing up its 100,000th wireless subscriber, ACS expanded its CDMA network to cover the Fairbanks area. “With 88,000 residents and tens of thousands more in visitors, the Fairbanks North Star Borough is the second most populated area in the State of Alaska,” Pelletier announced in a December 15, 2005, ACS press release. “We are working hard to bring the most comprehensive wireless mobile voice and data coverage to the most vital regions,” she added. At the beginning of 2006, the company launched nationwide, wireless data-roaming service, giving ACS subscribers coverage in all 50 states and coverage to tourists traveling in Alaska. Before the end of the year, further expansion of the company’s CDMA network was completed, extending service to the Ketchikan area in southeastern Alaska. In the years ahead, Pelletier’s commitment to enhancing the capabilities of ACS promised to lift Alaska to the forefront of voice and data technology, ensuring that Robinson’s vision of a premier, statewide telecommunications company would endure as a model of success well into the future.

Jeffrey L. Covell

PRINCIPAL SUBSIDIARIES

Alaska Communications Systems Holdings, Inc.; ACS of the Northland, Inc.; ACS of Alaska, Inc.; ACS of Fairbanks, Inc.; ACS of Anchorage, Inc.; ACS Wireless, Inc.; ACS Long Distance, Inc.; ACS Internet, Inc.; ACS Messaging, Inc.; ACS InfoSource, Inc.; ACS of Alaska License Sub, Inc.; ACS of Fairbanks License Sub, Inc.; ACS Wireless License Sub, Inc.; ACS Long Distance License Sub, Inc.; ACS Service, Inc.