Verizon, Alltel Merger - More Complicated Than You Think!

The list grows of who wants the FCC and other government regulatory agencies to block the merger between Verizon Wireless and Alltel: AT&T, Rural Cellular Association*, International Brotherhood Electrical Workers, Leap Wireless, and consumer advocacy groups to name a few. Moreover, the reasons why the stakeholders don't want the merger to go through range incredible:

Against Merger:

Verizon

Leap Wireless, Centennial Communications and other groups for their roaming contracts with Alltel Wireless. Although, this hurdle is easily over-thrown since Verizon has clearly stated they will continue to abide by Alltel's roaming contracts and the FCC has the authority - and current political momentum - to pass roaming regulations. AT&T Wireless is upset mainly because they will be over-thrown as the largest cellular coverage for any one provider. Moreover, the technology Verizon Wireless and Alltel currently use, CDMA, is superior compared to GSM (i.e. analog, not digital). If the merger goes through AT&T will have more dropped calls and less of a network coverage area then Verizon Wireless - a huge market value. Furthermore, with the contract of Apple's iPhone expiring in 2010 AT&T's fears start to increase expidentionally. Some consumer advocates, such as the Consumers Union, which believe having an even larger market share would make it harder for cell phone manufacturers to disregard exclusive contracts.

Verizon, Alltel Merger - More Complicated Than You Think!

Supporting Merger:

Sprint, you will not find on the list due to the popular Sprint-Clearwire merger; nor will you find T-mobile on the list either due to their head-hunting for weak companies to buy assets from, or possible mergers of their own; although, it could be debated that the possibilities of further mergers being approved by the FCC decrease substantially if the Verizon-Alltel merger is approved. Various other organizations, such as the Women Impacting Public Policy and the Pacific Research Institute for Public Policy believe the merger would be beneficial for all persons to get access to the wireless Internet and increase new Internet technologies for faster download speeds.

Alltel has more than 13 million wireless subscribers in 34 states - most importantly, including 57 primarily rural markets not served by Verizon Wireless. Verizon Wireless currently has 67.2 million subscribers - if the merger is granted they will surpass AT&T's 71.4 million customers. Stanford Group Co. in a research note that the swift passage of the merger is crucial due to the shift to Democratic control; although, they commented as the timeline as "tight" they agree it's doable.

The main obstacle from a political perspective is Republic Commissioner Deborah Tate which must leave the FCC at the end of the current session of Congress if the Senate does not confirm her to another term. If she is forced-out the Commission will be split on a 2-2 vote leaving a deal breaker on the table. Although, the Democrats would be (and probably are) wiser to push for the merger, using it as a bargaining chip to require net neutralities, open devices (i.e. universal cell phones such that are in Europe) and consumer protection requirements.

However, Gig Sohn, President of Public Knowledge, makes a valid point: Sprint being in a weakened position and Verizon Wireless controlling 80 million subscriber accounts out of the 260 million wireless subscribers in existence will leave consumers with fewer choices. The merger would leave Verizon Wireless with 31% of the market, AT&T with 27%, Sprint-Nextel with 21% and T-mobile with 11%.

Here are list of recent quotes by various research organizations:

Medley Global Advisors LLC said it best, "While it is almost certain the deal will be approved, the company will likely be forced to divest overlapping markets that could range from 20-30% of Alltel's POPs." UBS Securities LLC said, "We expect Verizon Wireless to try to expedite the transaction given that an Obama administration would likely create higher hurdles." Goldman Sachs said, further cellular market consolidations "could force others" such as Sprint-Nextel and T-mobile to structure a strategic combination.

*Sound-Science Wireless, LLC is listed in RCA's Buyer's Guide. Views and Opinions of RCA are their own. (http://rca.officialbuyersguide.net/Listing.asp?Show=All&page=6)

Verizon, Alltel Merger - More Complicated Than You Think!

The Future Calls Alltel and Verizon Wireless

Alltel was long considered the most attractive of the second-tier cellular companies. This makes its acquisition for .1 billion by Verizon Wireless something of a milestone. If the deal is consummated, the new entity will be bigger than AT&T and thus the nation's largest mobile operator. Of course, as with any acquisition this size, the precise ramifications won't be apparent for a long time.

In any context, this is a big deal. Alltel has 13 million customers in 34 states, mostly in the south and midwest. The combined entity will have more than 80 million subscribers, comfortably more than AT&T's 71.4 million.

Verizon

It's axiomatic to say that the success of any merger or acquisition largely depends upon how adroitly the new company handles integration and other corporate matters. Both companies use Code Division Multiple Access (CDMA). Starting with the same essential technical underpinnings builds on the economies of scale in purchasing and makes the combined entity more cohesive.

The wild card here is that the cellular industry is in the throes of great change. The market is shifting emphasis from voice to data. The network model limiting the phones people can bring to a particular network is beginning to fade. The industry still is figuring how it will utilize fixed mobile convergence (FMC) platforms. As we suggested earlier this week, FMC is getting hot again. Experts suggest, however, that there is real reason for optimism this time around.

The networking standard also is in flux, as deployment of 3G finishes and attention shifts to 4G. This is an extraordinarily important issue for the cellular industry. Increasingly, it looks as if LTE - Long Term Evolution - will win. It has been chosen by AT&T, Verizon Wireless and Alltel, so it is another area in which the coalescing companies are on the same page. It will be a long and challenging transition, however, since LTE is still relatively early in its development cycle.

The other carriers aren't standing still, of course. Perhaps by accident or perhaps to take at least a bit off the luster off the Verizon/Alltel announcement, AT&T said early last week that it had jacked up the speeds of its 3G services. The top downlink speed, this story says, increased by more than 20 percent and the top uplink speed accelerated by 50 percent. Far more detail is available in the release, but the bottom line is that the changes bring top downlink and uplink speeds to 1.7 Mbps and 1.2 Mbps, respectively.

Many mergers and acquisitions succeed or fail based on how the new entity deals with an essentially static industry. The Verizon/Alltel marriage may be a bit different in that its fate will hinge on how it reacts to changes that are only beginning to happen.

The Future Calls Alltel and Verizon Wireless