Verizon and Alltel Merger – More Complicated Than You Think!

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

Against merger:

1. Leap Wireless, Centennial Communications and other groups for their roaming contracts with Alltel Wireless. However, this hurdle is easily overcome as Verizon has clearly stated that they will continue to comply with Alltel’s roaming contracts and the FCC has the authority, and current political momentum, to pass roaming regulations.
2. AT&T Wireless is upset primarily that they will be surpassed as the largest cellular coverage for any carrier. Additionally, the technology currently used by Verizon Wireless and Alltel, CDMA, is superior compared to GSM (ie analog, not digital). If the merger goes through AT&T, there will be more dropped calls and less network coverage area than Verizon Wireless, a huge market value. Also, with Apple’s iPhone contract expiring in 2010, AT & T’s fears are starting to rise exponentially.
3. Some consumer advocates, like the Consumers Union, who believe that having an even larger market share would make it harder for cell phone makers to ignore exclusive contracts.

Support Fusion:

1. Sprint, you won’t find it on the list due to the popular Sprint-Clearwire merger; You will also not find T-mobile on the list, either because of its search for weak companies to buy assets or because of possible mergers of its own; however, it could be argued that the chances of the FCC approving new mergers will decrease substantially if the Verizon-Alltel merger is approved.
2. Several other organizations, such as Women Impacting Public Policy and the Pacific Research Institute for Public Policy, believe that the merger would be beneficial for all people to have access to wireless Internet and to scale up 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 that are 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 speedy approval of the merger is crucial due to the shift toward Democratic control; although they commented that the timeline is “tight” and agree that it is feasible.

The main obstacle from a political perspective is the Commissioner of the Republic, Deborah Tate, who must leave the FCC at the end of the current session of Congress if the Senate does not confirm her for another term. If she is expelled, the Commission will split in a 2-2 vote, leaving a deciding factor on the table. Although, Democrats would be (and probably are) wiser to push for the merger, using it as a bargaining chip to demand net neutralities, open devices (i.e. universal mobile phones like those found in Europe), and requirements for Consumer protection.

However, Gig Sohn, president of Public Knowledge, makes a valid point: Sprint is in a weakened position and Verizon Wireless controls 80 million subscriber accounts of the 260 million wireless subscribers that exist, leaving consumers with fewer options. 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 is a list of recent citations from various research organizations:

1. Medley Global Advisors LLC said it best: “While the deal will almost certainly be approved, the company will likely be forced to sell overlapping markets that could range from 20% to 30% of Alltel’s POP.”
2. UBS Securities LLC said: “We hope that Verizon Wireless will try to accelerate the transaction as an Obama administration would likely create greater obstacles.”
3. Goldman Sachs said further consolidation of the cellular market “could force others” such as Sprint-Nextel and T-mobile to structure a strategic combination.

* Sound-Science Wireless, LLC is listed in the RCA Buyer’s Guide. RCA’s views and opinions are his own. (http://rca.officialbuyersguide.net/Listing.asp?Show=All&page=6)