VERIZON WIRELESS’ PLAY for Alltel Communications L.L.C. may not necessarily trigger a classic battle over whether the government should block the deal, but rather could ignite considerable controversy over whether roaming, divestiture and other conditions should be imposed on a merged entity already boasting a muscular market presence in the wireless, wireline and broadband sectors.
Moreover, the intensity of scrutiny given to the $28.1 billion transaction – $5.9 billion equity and $22.2 billion assumed debt – could change over time, especially if Democrats win the White House and strengthen their grip of Congress in the November elections.
“The political optics of approving another merger that further consolidates spectrum resources and independent regional firms could be difficult for the FCC to navigate in the next six months,” said Jessica Zufolo, an analyst at Medley Global Advisors L.L.C. “Numerous leaders on Capitol Hill are likely to have deep reservations about increasing the amount of spectrum assets controlled by Verizon Wireless, particularly in light of the recent 700 MHz auction, which left many Democrats frustrated.”
Roaming impact
In addition to possibly requiring the sale of overlapping wireless assets controlled by the two wireless carriers in the Southeast, Southwest and the Mountain West – which could benefit mid-size and small wireless carriers – federal authorities could scrutinize the proposed merger’s potential impact on mobile-phone roaming. Alltel is a major roaming partner of national and rural cellular carriers around the country.
“Before approving a merger of two of the five largest U.S. carriers, the commission should investigate the practices of Verizon Wireless with regard to terms and conditions of automatic roaming agreements with other wireless carriers,” said a knowledgeable industry source. “There are reports that 3G roaming agreements for voice services have not been available or implemented with smaller carriers even where systems are technically compatible. If the commission consents to this transaction, it should be conditioned upon accountability to the commission with regard to progress with negotiation and implementation of automatic roaming agreements with other carriers.”
The Verizon Wireless-Alltel tie-up requires the approvals of the Justice Department and the Federal Communications Commission. The 700 MHz auction dominance of Verizon Wireless, the No. 2 cellphone operator, and No. 1 AT&T Mobility prompted key House Democrats to renew criticism of the FCC’s 2003 decision to eliminate the spectrum cap and to call into question the utility of the agency’s 95 megahertz spectrum screen that’s employed in merger analysis.
One of those Democrats, House telecom subcommittee Chairman Edward Markey of Massachusetts, called for careful examination of the Verizon Wireless-Alltel deal because of the many issues he said it raises.
“This proposed merger merits the utmost scrutiny by antitrust officials and telecommunications policymakers to ensure that competition and consumers are fully protected,” said Markey. “Policymakers should carefully weigh the impact of a Verizon-Alltel merger on pending policy issues including on wireless roaming issues, special access rates, universal service, openness for wireless devices and applications, increasing concentration in the wireless marketplace, as well as eligibility restrictions for the so-called D Block re-auction.”
The D Block – configured as a national public-safety/commercial license – did not get claimed in the 700 MHz auction because no bidder met the $1.3 billion reserve price. The agency is considering rule changes for the D Block. The wireless industry opposes license conditions and eligibility restrictions in spectrum auctions.
Potential complications flagged
Analysts at Stifel, Nicolaus & Co. Inc. predicted the Verizon Wireless-Alltel merger will ultimately win the government’s blessing, but flagged a couple dynamics that could complicate matters. The analysts said the political atmosphere has changed as a result of 700 MHz bidding by Verizon Wireless and AT&T Mobility, which accounted for most of the $19 billion in total winning bids. “We also note the possible departure of FCC Commissioner Deborah Taylor Tate with the expiration of the current congressional term later this year, creating the possibility for a 2-2 FCC deadlock as the merger comes up for a vote at the commission,” Stifel analysts stated. Tate is one of three Republicans that comprise the majority at the five-member FCC.
Public-interest groups wary
Public-interest groups view the planned Verizon Wireless-Alltel combo with trepidation.
“The deal raises serious concerns for consumers. The wireless industry is rapidly being taken over by the same companies that dominate the broadband and DSL marketplace,” said Ben Scott, policy director of Free Press.
Public Knowledge agreed.
“The Verizon Wireless purchase of Alltel raises serious questions for consumers that will have to be addressed through antitrust analysis, and through public-interest conditions by the Federal Communications Commission,” said Gigi Sohn, president and co-founder of Public Knowledge. “If the deal goes through, two companies, Verizon and AT&T, will control about 150 million of the 260 million wireless customers in the U.S. Verizon will have about 80 million alone. With Sprint [Nextel Corp.] in a weakened condition, this deal will speed the unfortunate trend of giving consumers fewer, rather than more, choices in telecommunications services, while giving a few companies more control over the lives of consumers.”
Sohn said federal officials should use the merger review process to advance policy goals previously advocated by the organization.
“Should the Justice Department approve, the FCC should impose conditions that would require that the combined network be open to outside applications and devices, extending the policy the commission started in the recent spectrum auctions,” Sohn said. “The commission should also make clear that, as Public Knowledge asked in our pending complaint against Verizon, text messaging is protected by the Communications Act, and that actions such as Verizon’s denial of text-messaging short codes to NARAL will not be permitted.”
“We think there needs to be a very careful review,” said Bob Williams, a telecom expert at Consumers Union. “At a minimum, we believe that consumers should not have less choice as a result of the deal.” Williams said CU favors the sell-off of wireless assets in markets where Verizon Wireless and Alltel together have strong positions.
