UPDATE: Few Snags Expected for Verizon Wireless, Alltel

Published on: 6th June 2008

WASHINGTON -(Dow Jones)- Verizon Wireless' bid to purchase Alltel isn't expected to hit major regulatory snags even though the merged entity would create the nation's largest cellphone company.

Before the deal is finalized, it will face scrutiny from the Justice Department and the Federal Communications Commission. The DOJ will examine whether the deal would violate antitrust rules, and the FCC will then determine whether the merger would harm the public good.

Verizon Wireless is jointly owned by Verizon Communications and Vodafone Group.

"We don't see significant problems with this deal getting through DOJ and the FCC," said Paul Gallant, an analyst with Stanford Group.

Gallant said areas where both companies have overlapping wireless airwaves can be remedied city by city if the merged company gives up some space. The FCC and DOJ both are expected to examine areas of dual coverage.

Verizon is expected to argue that the two companies' networks are complementary, with little serious overlap. Alltel has customers in 34 states, and its network is strongest in the Southeast and central parts of the country. Verizon's network is national, but it is strongest in the Northeast and on the West Coast.

Any city-by-city analysis of network overlap will take time, which could place the pending merger in the middle of an administration change and a new Congress.

The FCC, for example, could be down a commissioner in the early part of next year, Gallant and fellow Stanford analyst Paul Glenchur wrote in a Thursday bulletin on the merger. Republican Commissioner Deborah Taylor Tate's term ends when Congress adjourns this year if she is not reconfirmed.

If Tate is forced out, "the commission would be split 2-2 with the two Democrats having the power to block a deal or insist on larger concessions," the Stanford bulletin said.

Still, because Alltel is a relatively small player in the wireless market compared to Verizon, it is unlikely that the merger will pose significant problems even for a Democrat-controlled FCC.

"Maybe the conditions on the merger and the divestiture of spectrum get a little more onerous" under a Democratic administration, Gallant said.

A key Democrat in Congress said the merger proposal warrants careful consideration. "This proposed merger merits the utmost scrutiny by antitrust officials and telecommunications policymakers to ensure that competition and consumers are fully protected," said Rep. Edward Markey, D-Mass., who chairs the House Energy and Commerce Telecommunications Subcommittee.

Markey said the merger poses questions in several areas, including wireless roaming fees, special access rates, universal service, and openness for new wireless devices.

Rebecca Arbogast, an analyst with Stifel Nicolaus, said FCC and DOJ are likely to take a look at roaming fees. The merger could pose problems for small wireless carriers that would face a diminishing pool of companies with whom to negotiate, which could drive up roaming prices. "It eliminates one of those potential roaming partners," Arbogast said of the merger.

Consumer advocates sent up immediate warning signals about the deal. If approved, the merger would put Verizon in potent wireless competition with AT&T.

"It is troubling to watch the dominant providers of DSL, AT&T and Verizon, gain complete control of the wireless market by buying up all their competitors," said Ben Scott, policy director of Free Press, an advocacy group.

Scott said the expansion of wireless Internet could be squelched if the dominant companies in the wireless market also control the cable market, another broadband Internet avenue.

Verizon says it is committed to expanding its broadband Internet reach both through cable lines and wireless connections.

It is the wireless market, not cable, that has proved the growth engine for Verizon and AT&T in recent months, Gallant says.

Gigi Sohn, president of Public Knowledge, another advocacy group, criticized the merger, saying it will concentrate the wireless market. "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," Sohn said in a statement.

In making its case for the merger, Verizon will argue that its customers will have more choices. Alltel subscribers, for example, will have access to Verizon's vastly larger network and its stepped-up efforts to roll out high-speed Internet connections in rural areas.

A DOJ spokesman said the department is "interested in looking at the proposed transaction." FCC spokesman Robert Kenny said, "We look forward to reviewing their plan once they submit something to the FCC. We certainly cannot speculate on what the details are or how the commission may rule on the transaction."

-By Fawn Johnson, Dow Jones Newswires; 202-862-9263; fawn.johnson@dowjones.com

(END) Dow Jones Newswires

 

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