In Alltel deal, Verizon bolsters Western front

Deal will expand coverage of rural areas

In a move that will help it regain the top spot as the nation’s biggest wireless carrier, Verizon Wireless has announced that it has reached an agreement to purchase Alltel Wireless for $28.1 billion.

Now that Verizon Wireless has reached an agreement to purchase Alltel Wireless for $28.1 billion, two big questions remain: How will it impact current customers, and how like is the government to sign off on it?

The deal, which Verizon hopes to complete by the end of the year, will net the carrier 13 million additional wireless customers, and will push the company’s total number of subscribers in the United States to around 80 million. AT&T, which has mostly held the lead for total wireless subscribers since merging with Cingular in 2004, currently has an estimated 71 million subscribers.

So what will Verizon’s acquisition of Alltel provide for Verizon Wireless’ enterprise customers? Mostly, it will bring expanded network coverage into rural areas. As a wireless carrier based in Little Rock, Ark., Alltel has a network footprint in 34 states, with most of its coverage concentrated in Southeastern, Midwestern and Southwestern states, where Verizon’s coverage is spotty in some places.

However, as Gartner analyst Tole Hart notes, Verizon Wireless enterprise customers shouldn’t expect a sudden windfall of savings in rural roaming charges, since Alltel already gives Verizon customers roaming access to its network and Verizon already gives Alltel customers access to its nationwide network.

In addition to being a good fit coveragewise, the two companies also are a good fit for one another technologically. Since Verizon and Alltel both currently use the Code Division Multiple Access (CDMA) standard to deliver their 3G wireless services, and both plan on eventually switching to the GSM-based Long Term Evolution (LTE) for their 4G networks, wireless customers for both carriers will be able to keep the same handsets that they currently use and won’t have to switch over to a different kind of cellular technology.

“The big benefit of this deal is that it’s going to bring Alltel customers up to speed with Verizon’s nationwide coverage and services, and that’s good for them,” says telecom analyst Jeff Kagan. “It’s going to take some time and investment on Verizon’s part, but they’re going to be brought up to speed at some point.”

One potential hurdle for the deal, however, could come from regulatory pressures. Verizon acknowledges that any final deal  will be subject to obtaining regulatory approvals, and advocacy groups such as media reform watchdog Free Press are already urging regulators to strongly scrutinize the acquisition.

“The wireless industry is rapidly being taken over by the same companies that dominate the broadband and DSL marketplace,” says Ben Scott, the policy director of Free Press. “The proposed merger between Verizon Wireless and Alltel appears to hasten this consolidation.”

While Hart expects a lot of the regulatory issues to be minor – Verizon will have to give up some spectrum in cities such as Cleveland where Verizon and Alltel both have extensive coverage – a new administration in the White House could appoint new members to the Federal Communications Commission who have stricter standards for approving mergers. In their analysis of the proposed Verizon-Alltel deal, financial services firm UBS predicts that the two companies “will try to get the deal through by year-end based on worries about a potential Obama election,” although the firm also believes that the coming election will make it “difficult to get a deal done before a new administration takes over at the FCC.” While the firm believes that Verizon will have to give up overlapping spectrum regardless of when the deal is finalized, it also notes that potential divesture requirements are likely to be higher under a Democratic administration.

“During the last eight years we’ve seen a wide range of mergers that were pent up in the beginning,” says Kagan. “If you remember last time we had a Democratic administration, it was horror story for these companies to try to merge. The government tried to manage every change that was going on within this industry and they weren’t able to do it.”

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