It’s rugged sufficient for David to take on Goliath.

Now imagine Goliath countering David’s slingshot with a cannon.

That’s roughly the challenge facing Alltel, the No.5 cell phone carrier, as it battles its two largest national competitors, AT&T and Verizon Wireless.

In a recent federal auction of wireless airwaves, AT&T and Verizon combined for $16 billion of the record $19.6 billion in winning bids as they stockpiled more spectrum to improve coverage and turbocharge their broadband services.

“The big guys got bigger,” says Stifel Nicolaus analyst Rebecca Arbogast, noting the top two carriers widened their lead in spectrum.

Alltel, which was taken private in a $27.7 billion buyout last year, is the auction’s most notable loser. It bid hundreds of millions of dollars for airwaves in prospective and existing markets but came away empty-handed. Sprint and T-Mobile didn’t participate.

The outcome raises a pointed question: Can a scrappy second-tier carrier survive in an increasingly saturated cell phone market when it’s losing ground in the race for airwaves — the most vital building block of a wireless network?

“At a assured price, enhancing our spectrum holdings would have been a fair thing to do,” says Alltel Chief Operating Officer Jeff Fox. But he adds, “I feel like we’re in position to continue to execute our business plan for our customers.”

Fox’s confidence is borne of Alltel’s success in leveraging its underdog status. With 13 million subscribers, Alltel is a hybrid: Its footprint largely encompasses rural and midsize markets, but it plus serves cities such as Tampa, Phoenix, Cleveland and Charlotte.

The company has stayed competitive in bigger markets by having innovative calling plans, offbeat advertising that pokes fun at its larger rivals and attentive service that taps deep consumer frustrations with wireless carriers.

Alltel said last week it notched record customer growth in the first quarter. Its churn, customers who quit…

Original post by Chase Higgins