Updated: Confirmed: Verizon Wants Alltel

5 Comments

A statement released today by Vodafone has confirmed that Verizon Wireless is in advanced talks to buy Alltel for about $27 billion. Vodafone and Verizon jointly own Verizon Wireless.

Update: The deal has been confirmed: $28.1 billion — of which $5.9 billion will be for Alltel’s equity and the rest for Alltel’s projected net debt of $22.2 billion. The deal will be concluded by the end of 2008. Ivan Seidenberg, Verizon’s chairman and CEO, was quoted as saying:

“This is a perfect fit, with Alltel’s high-value post-paid customer base, its solid financials, our common network technology, and significant, readily attainable synergies.”

AllTel went private in the fall of 2007, when private equity investors TPG and Goldman Sachs bought the company for $27.5 billion. The rumors of Verizon and Alltel merging have done the rounds for a while. Some notable things about this deal:

  • If concluded, it would makeThis makes Verizon the largest mobile company in the U.S., with about 80 million subscribers.
  • Stifel Nicolaus Telecom Equity Research’s Christopher C. King estimates that the annual cost savings between the two companies will be around $1 billion, with a majority coming from the elimination of roaming charges.
  • In comparison with AT&T ($51.10) and Verizon ($52.40), Alltel has an ARPU of $53.64 a month.
  • Analysts believe that Verizon can afford the deal, despite having to spend a lot of money on buying the 700 MHz spectrum. Vodafone’s two-line statement doesn’t indicate if Vodafone, which owns 45 percent of Verizon Wireless, will kick in something.
  • The deal is part of a wave of consolidation being brought on by a slowing wireless market. UBS Research estimates that wireless subscriber growth in the U.S. decelerated to 8.6 percent in the first quarter of 2008 from 9.2 percent in the fourth quarter of 2007. Wireless penetration is over 84 percent. Wireless has been a big driver of earnings for the likes of Verizon and AT&T.
  • Verizon would have to divest about 20 percent to 30 percent of Alltel’s points of presence in order to get the regulatory go-ahead. UBS Research thinks AT&T and T-Mobile might be interested.
  • This deal doubles Verizon’s debt to about $42 billion

5 Comments

Concentrated_HHI

This will cause catostrophic coverage limitations for the smaller carriers – Leap, Metro, US Cellular and others who use Alltel Roaming. Prices for customers will go up.

Recall, a Recent order from the FCC that carriers no longer have to provide “Home on Home” Roaming. Meaning, if MetroPCS or Leap or anyone else for that matter has spectrum, say AWS spectrum, in Topeka, KS (a state capital or some other city), but has not deployed towers or equipment in that city, Verizon can legally shut off Leap and Metro Roaming due to this FCC order. The guys at the FCC say this order was intended to encourage investment in towers and network deployment to increase competition, but unfortuneately, the smaller guys simply can’t afford to build network in these markets, but are expected to offer service through roaming.

Second, I’ve got it from a good source at another large wireless company that Verizon’s roaming rates are DOUBLE that of Alltel’s. So, if Alltel is eleminated, the cost of roaming will double and thus, will be passed onto the customer. Or, this monopoly will get so large, it will become uneconomical to compete and thus, prices still rise. Competition is driving the unlimited plans. Now, there is one less person in the game to keep prices low.

Kudos to Verizon! They picked up Alltel for a relative steal.

Interesting times, let’s see what happens.

John A Arkansawyer

One other notable thing about the deal:

Anyone who’d like to take advantage of a highly-skilled workforce about to be at loose ends (including those already cut from Acxiom) might consider opening an office here in Little Rock.

Comments are closed.