At last fall's CTIA I.T. & Entertainment Show in San Francisco, I chided Verizon Wireless CEO Lowell McAdam on being the No. 2 carrier behind AT&T Wireless in terms of total subscribers. I knew this was a topic of contention. After Cingular bought AT&T Wireless back in 2006 and moved into the No.1 U.S. operator slot, Verizon had been gunning to get its crown back. And with today's announcement of its $28.1 billion acquisition of Alltel, it has accomplished that task. The new Verizon will have nearly 80 million subscribers while AT&T, currently the largest U.S. operator, has about 71.4 million customers.
This acquisition isn't a big surprise. The rumors of Verizon possibly purchasing Alltel have been circulating for more than four years. The most recent possible hookup occurred last fall, just days before Alltel was purchased by private equity investors TPG Capital and the private-equity arm of Goldman Sachs Group, GS Capital Partners.
Of course, the merger is subject to regulatory approval. With Verizon's recent win in the 700 MHz spectrum auction, I wonder if this acquisition will be looked at more carefully. Ken Hyers, analyst with Technology Business Research, believes that Verizon will successfully argue that if you look around the world, most countries have just three or four major operators. "That's the optimal number to have and still be a profitable company. And you can still offer enough competition so that consumers won't be hurt," Hyers says.
He also speculates that Verizon probably was incented to snatch up Alltel now because if someone like Deutsche Telecom or another major player is really interested in acquiring troubled operator Sprint, that could inflate the price of Alltel. "This could be a good time to do it," Hyers says.
While I'm sad to see another regional operator get snatched up, I think that Alltel should be happy about this acquisition. Verizon is a smart company and the two firms have shared many similarities. --Sue [1]
Links:
[1] mailto:sue@fiercemarkets.com