Alltel-Verizon Wireless Merger Demonstrates a Shifting Competitive Telecommunications Environment

• Posted: Monday, June 09, 2008
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• Author: pradhana
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• Filed under: Miscellaneous

An agreement announced this morning will, if approved, see Verizon Wireless acquire Alltel Corporation in a cash merger valued at $28.1 billion. The parties say they are targeting completion of the merger by the end of the year, subject to obtaining regulatory approvals. Alltel is currently the fifth-largest wireless operator in the United States.

What are the implications of this merger?

Alltel has more than 13 million customers located across 34 states. If the merger is approved the combined company will have nearly 80 million customers and become the largest mobile communications company in the United States.

According to ABI Research principal analyst Dan Shey, "Unlike the Sprint-Nextel merger where the ease of integration of two networks and associated systems was unknown and proved to be more challenging than predicted, Verizon and Alltel both use CDMA network technologies and have EV-DO networks. Customers should not experience any change in service since Verizon and Alltel have roaming relationships, and migration of Alltel customers will only require simple OTA handset updates and billing integration."

Alltel also provides Verizon with additional spectrum assets adding to their spectrum holdings and potentially helping with rollout of broadband LTE networks in a few years.

However, the broader implications are the impact on the competitive environment. Shey notes, "There is a trend towards growth-by-consolidation and acquisition by many operators in North America and Europe. This development has top line implications but more importantly continue to intensify the competitive environment both regionally and globally."

Regionally, with fewer operators, the combined company's negotiating position with mobile infrastructure suppliers and device vendors would be improved. As well, in Verizon landline footprint areas, Verizon is in a better position relative to cable operators who seek to add mobile to their portfolios when competing for triple and quadruple play services. Globally, Verizon stakeholder Vodafone has a stronger partner in the United States, providing it with stability as it seeks to expand in emerging markets elsewhere.

Other implications of a consolidating operator environment affect opportunities for fixed-mobile convergence. Will a more powerful mobile operator environment drive more fixed-mobile convergence activity, or will customers be happy with only mobile telecommunications services?

Shey adds, "LECs such as Qwest and Embarq, as well as rural LECs with no mobile capabilities, will need to evaluate their positioning as they face choices between consolidating with a mobile operator or becoming MVNOs."

No immediate customer implications flow from the Verizon-Alltel merger. However the merger is following consolidation and acquisition trends of major operators around the world, shifting the power balance in the mobile supplier environment, potentially affecting technology development and customer preferences. In the case of Verizon and Alltel, any future implications of this merger are in the hands of the FCC.

Journalists and other representatives of the media are invited to contact ABI Research to learn more about this significant development and to discuss its implications with our industry analysts. [ABI Research]

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