Wednesday, November 5, 2008

Verizon/Alltel-The Next Phase

Verizon Wireless gets to acquire Alltel, but at what cost? The FCC chose Election Day to release some of their most controversial approvals. Were they hoping we wouldn't notice? Even though Verizon offered to divest 100 markets, the FCC asked for 5 more. They also asked Verizon to extend roaming agreements to at least 4 years, and to maintain Alltel's existing GSM roaming network "indefinitely." With that stipulation, AT&T may see the need to offer a premium price for the Alltel spin-offs as unnecesary.

Some people look at this as a positive move, but losing Alltel, a carrier with such a large area of coverage, is a significant loss to cellular choice. An excellent statement by FCC chairman Michael Copps outlines many of the concerns of losing competition over such a wide area of the country, and he notes this may "put some smaller carriers out of business". We have posted a map of the 100 markets Verizon will divest, and, as soon as we can find it, will add the additional 5 markets the FCC requested, one of which is Johnson County, TN.

For now, we still recommend Alltel as an excellent choice of carriers. If you are eventually acquired by Verizon, you will be able to keep what we see as a better value in wireless plans, at least for the near future. If you are among those customers who are divested, you may be able to keep those plans even longer, and will either become a customer of the newest hot cellular carrier, or end up with the number 2 or number 5 cellular operator. That's not a bad choice. But this is a limited time offer. Grab a great Alltel plan before the end of the year and enjoy.

3 comments:

Offthegrid said...

Verizon is paying $28 billion for 14 million Alltel customers ($18 billion plus $9 billion in debt).

Sprints current market value is about $6-6.5 billion along with $22 billion in debt with 50 million customers.

I realize that Verizon buys a huge roaming area and cuts roaming costs substantially but the dynamics of this deal do not make sense in the current financial environment.

Alltel debt was trading at junk levels prior to the Verizon offer and Alltel is leveraged to the roof by Goldman Sachs and TPG.

I see Verizon taking advantage of the market and GS/TPG weaknesses especially by renegotiating this deal for a lot less. They pay a $500 million dollar breakup fee so any discount more than that is a bonanza for Verizon.

Bill Radio said...

There is a lot beyond what Verizon is publicly saying, and we can only hope it's all good. Are they taking advantage of 'economy of scale', or just want to be 'bigger than AT&T'?

They got this one in under the wire before a new FCC is appointed who may look at the situation much differently.

Offthegrid said...

This is a mistake if purchased at $28.1 billion when Goldman is now worth about 40% of what they were when they leveraged the hell out of themselves to buy Alltel. TPG is lucky to survive at all after getting burned by their big Wamu loss.

I can't see Verizon being this stupid.

They pay the $500 million penalty and renegotiate the deal at todays value. Goldman gladly accepts any cash and getting Alltel off their books.

It'll happen soon but if Verizon were to back off what would GS do with Alltel? Those bonds weren't trading at junk levels for no reason believe me.