Wireless rivalry may intensify as Verizon bids to buy Alltel
NEW YORK -- Verizon's vz proposed $28 billion acquisition of Alltel could help spur wireless competition in smaller markets across the USA, some telecom analysts say.
Alltel, based in Little Rock, has 13 million customers. Many live in smaller cities and rural areas where Verizon doesn't have a presence. Once Verizon enters those markets, competition with other national carriers such as AT&T t and Sprint s could heat up, says Roger Entner, a senior vice president at IAG Research.
"Outside the top 100 markets, competition will increase," he predicts. That could result in better deals and more choices for consumers, Entner says.
As expected, Verizon on Thursday announced plans to acquire Alltel in a deal valued at $28.1 billion. Verizon plans to pay $5.9 billion in cash and assume $22.2 billion in debt.
Alltel is owned by TPG Capital and GS Capital Partners of Goldman Sachs. The firms purchased the No. 5 wireless carrier in November for $27.5 billion. Alltel is not publicly traded.
Subject to regulatory approvals, the transaction is expected to close by the end of the year.
Assuming there are no snags and the deal goes forward, Verizon would leapfrog AT&T to become the largest wireless carrier in the country. AT&T has around 71 million subscribers; Verizon has 67 million.
Charles Golvin, a wireless analyst at Forrester, says he expects the Alltel name to vanish once the deal closes.
"Verizon Wireless is a powerful brand," says Golvin. "So they'll probably dump it pretty quickly."
Verizon Wireless doesn't disagree. "That's likely, yes," says spokesman Jim Gerace.
Another thing that might be going away: Alltel's popular "My Circle" calling plan.
The plan offers unlimited wireless calling to and from any five, 10 or 20 numbers in the USA, wireless or landline. Monthly fees start at $49.99.
Since most consumers don't call more than a dozen numbers regularly, "it's a de facto unlimited calling plan," Entner says — one reason it's so popular.
That said, the plan is not without hassles for Alltel, which has to pay roaming fees to carriers for any "circle" choice who isn't an Alltel customer.
For that reason, Entner thinks Verizon will table the plan "because it just doesn't fit into Verizon's rate structure." Golvin agrees.
Verizon's Gerace says he doesn't know if the plan will survive post-merger. "We'll have to look at the economics of it," he says.
Verizon already has a version of "My Circle" that offers free mobile-to-mobile calling with other Verizon customers, he notes. "Given that it's 67 million going to 80 million, we think that's pretty compelling," Gerace says, referring to the size of Verizon's customer base post-merger.
Golvin says the only reason Verizon offers that plan is because "those calls don't cost (Verizon) anything."
With "My Circle," he says, "you can't control the costs. If all your friends are on other networks, and you call a lot," that could cost Verizon a lot of money.