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NTELOS (NASDAQ:NTLS) is a pure play wireless company operating in Virginia, W. Virginia, and portions of Maryland, North Carolina, Pennsylvania, Ohio and Kentucky. A few years ago they separated from the wireline portion of their company, so they're now a pure play wireless operation, with no legacy copper-wire assets weighing them down. This provides a greater degree of stability to their business, and previous readers will know I am a big fan of spin-offs. [See my article on the upcoming Murphy Oil (NYSE:MUR) spin-off].

The main component I'll be using to value this business is their very high current dividend yield. The current dividend of 42 cents per quarter equates to a yield of just over 10% at their current stock price. In the current zero-interest-rate-policy world, that yield is very attractive. All that is required for this to be an excellent investment is for that yield to be covered by a stable business.

There is no question that the business is currently profitable enough to support the dividend. In Q1 2013 it had adjusted EBITDA of $37.4 million, and the dividend was only $9 million. Even adding the interest of $7.3 million and capital spending of $16.9 million (mostly network upgrades), the dividend is still covered. In addition, the company has a $99 million dollar cash balance which provides financial flexibility.

This business is also growing, with sequential EBITDA increases. In the most recent quarter, revenues were up 8% year over year. This revenue increase was driven by higher retail subscriber numbers and a higher average revenue per user, or ARPU. The remainder of NTELOS revenue is wholesale revenue from Sprint (NYSE:S) (see below) which grew at 1% year over year.

NTELOS operates in a less competitive region for wireless generally, with Leap (LEAP), Metro PCS, and US Cellular (NYSE:USM) all not competing with them, and T-Mobile not competing in West Virginia. Their churn of postpaid customers was under 2% in the most recent quarter, and has been decreasing, proving the value of their service to their customers. Their current capital plan provides full roll-out of 3G EVDO by summer 2013 and 70% covered population with 4G LTE by the end of 2014, securing their competitive position in the marketplace.

NTELOS provides national service to its customers through roaming agreements with Sprint and Verizon (NYSE:VZ). It also collects inbound roaming fees from Sprint when Sprint customers use its network, and this agreement extends until July 2015. At that time, Sprint would have the option of building out its own network, but it has historically chosen to extend these agreements or buy out the regional carriers. This is even more likely once Sprint becomes better capitalized through either the DISH (NASDAQ:DISH) or Softbank (OTCPK:SFTBF) transactions.

In fact, a potential NTELOS acquisition is exactly the kind of accretive use of cash that makes a merger so attractive for Sprint. They have many similar opportunities, but are currently capital constrained due to 4G rollout costs. Getting access to either Dish's cash flow or Softbank's war chest would allow them to pursue this or other value added opportunities.

One potential upside to the NTELOS business is a recently announced partnership with Dish, where they will build and operate a fixed-mobile broadband service. This will be used to provide high speed Internet access to the underserved and under-penetrated rural areas where NTELOS operates. This should allow them to grow EBITDA by cross selling to both their existing customers and the captive base of users who have no other broadband access. There should be significant pent up demand for this resulting in a strong start. This will also allow the DISH/NTELOS combination to offer a triple play of NTELOS phone, DISH TV, and the joint venture broadband.

Other potential catalysts are increased smartphone penetration and 3G/4G build out improving data revenue. The 3G network gets more data revenue from Sprint due to higher speeds, and 27% of NTELOS' postpaid base is now using an iPhone, lower than competitor smartphone penetration but gaining fast. These factors should increase data revenue going forward. The completion of the 3G build-out this summer and the 4G build-out reaching maturity in 2014 also provide a potential catalyst in lower capital spending increasing free cash flow and increasing the company's valuation multiple.

Another potential source of additional value is the 20 MHZ of AWS spectrum NTELOS holds over a 1.2 million population area in Virginia. This spectrum is currently undeveloped and worth about $17 million based on the price per covered population of Verizon's purchase of AWS spectrum from a cable company joint venture.

The biggest risk to the company is a Sprint non-renewal of their wholesale agreement post 2015. That would put at risk their wholesale revenue, but would provide them the opportunity to steal customers from Sprint while they try to migrate their subscribers to a new network they'd need to build. Should this happen their dividend would be at risk, but lower capital expenditures post 4G roll-out should mitigate that risk.

A potential transaction with Sprint and/or DISH is also the biggest potential catalyst. Both companies have business with NTELOS, and both would likely benefit from moving their supplier in house. One major reason that has not happened so far is that a purchaser would lose tax benefits from a previous NTELOS corporate transaction if they buy it before October 2013. It is very logical for a combined Dish/Sprint to buy NTELOS, and if they do not merge they might bid against each other for control of it.

There is also significant downside protection here, as the company's enterprise value is approximately 5.5X its most recent 12 month EBITDA. This is close to a level where private equity would be interested, not just strategic buyers.

Disclosure: I am long S. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. I have sold in-the-money covered calls to close out that position for future reinvestment.