WHILE THE CARRIER’S COMPETITORS WORRY over a potentially greatly expanded customer base and network footprint, Verizon Wireless’ handset suppliers likely are cheering news that the carrier plans to acquire Alltel Communications L.L.C.
“The strongest (handset) players at Verizon Wireless are
probably the winners” in the merger, said Avi Greengart, an analyst at Current Analysis. “LG is probably the big winner.”
LG Electronics Co. Ltd. oversees a commanding slice of Verizon Wireless’ handset portfolio, and a merger between the carrier and Alltel would only serve to broaden LG’s handset prospects, according to the analyst. And from a logistical and technical standpoint, the fact that Verizon Wireless and Alltel share the same network technology – CDMA – only serves to smooth the situation.
“As for handsets and technologies, most of (their offerings) are very similar, which is one of the reasons this deal shocks and surprises no one,” Greengart said.
Verizon Wireless’ other handset vendors, such as Motorola Inc. and Samsung Electronics Co. Ltd., may also enjoy a boost from a combined Verizon-Alltel.
However, the larger customer base of a Verizon-Alltel may also present challenges to those same handset suppliers, according to Yankee Group analyst John Jackson. Jackson said that, through the addition of Alltel’s 13-million-strong customer base, Verizon Wireless will have added leverage over its handset suppliers, and will therefore be able to potentially extract better prices for itself. And Verizon’s handset suppliers likely would capitulate to such demands, based on the potentially enormous customer base it represents.
Who is in trouble?
While debate continues on the strategic positions of handset suppliers “in” with Verizon Wireless, the outlook for those that are not is more clear – and more dire.
“The one big fallout from this is Kyocera,” Greengart said.
Kyocera Wireless Corp. phones are absent from Verizon Wireless shelves, though the carrier is currently selling the company’s KPC680 ExpressCard. Kyocera does offer handsets through Alltel, but that may not continue if the Verizon-Alltel marriage is consummated.
Kyocera representatives did not immediately respond to a request for comment.
While concurring on Kyocera’s potentially troubled position, Yankee Group’s Jackson also named ZTE Corp. (which has deals with MetroPCS Communications Inc. and others), UTStarcom Corp. (which has deals with Virgin Mobile USA Inc. and others) and other smaller CDMA handset vendors as those that might feel a pinch due to the acquisition.
“It’s more of an opportunity loss than an actual loss,” Jackson said, explaining that such companies don’t have deals with Alltel and now, due to the acquisition, likely won’t have the chance to.
Rethinking strategies
The merger also raises the possibility that Verizon Wireless will rethink its handset strategies. Indeed, Alltel brings a number of innovative handset offerings to the table, including its well-received CellTop service.
However, Current Analysis’ Greengart said that, based on Verizon Wireless’ successes on the financial and marketing fronts, the carrier may be unwilling to deviate from its winning formula. Specifically, Greengart said Verizon Wireless likely will keep its branded user interface, and continue to require its handset suppliers to install the software on phones bound for the carrier.
“There are a lot of sound business reasons” for requiring a standard UI among handsets, Greengart said. “It solves a lot of customer support problems,” since customer service representatives – and customers themselves – need only learn one basic UI layout.
Jackson concurred.
“It may be the spirit of innovation at Alltel that may be the causality in all of this,” he said.
As for the retail landscape that a combined Verizon-Alltel would step into, Bill Ho at Current Analysis expects the carrier to retain Verizon Wireless’ commitment to “tight” resale relationships, with a preference for its own branded outlets.
Verizon Wireless currently maintains 2,400 branded stores, while Alltel counts 750. The carrier expects to pare down overlapping retail outlets to the tune of around 150 stores nationwide.
