The proposed merger of Verizon Wireless and rural carrier Alltel has garnered a mixed reaction among industry observers and customers.
Two things everyone does agree on, however, is that the $28.1 billion acquisition will happen and will certainly benefit the carriers involved.
But it’s debate 101 when it comes to other issues, including consumer impact, the need for regulatory controls and future telecom innovation.
For sure, today’s dominant carrier, AT&T (NYSE: T), can’t be too thrilled, nor can Sprint-Nextel (NYSE: N), though neither wireless vendor is showing any fear at this point.
“We’re confident that Congress, the Department of Justice (DOJ) and the Federal Communications Commission (FCC) will give this transaction the thoughtful, careful and thorough scrutiny it warrants,” a Sprint spokesperson told InternetNews.com.
If approved by regulatory agencies, the acquisition would make Verizon Wireless the largest U.S. carrier as it would add Alltel’s 13.2 million subscribers to its 67.2 million customer list for a total of 80.4 million customers. AT&T has 71.4 million subscribers.
AT&T will remain focused on delivering the best customer experience to our subscribers,” Jenny Parker, the company’s spokesperson, told InternetNews.com.
She said the carrier would “continue to compete for consumers to bring them the most innovative wireless services.”
Parker noted that AT&T has had seven consecutive quarters of revenue growth, due in part to exclusive distribution of the iPhone and the soon to be available 3G BlackBerry Bold.
In announcing the deal yesterday, Verizon Wireless, a joint venture of Verizon Communications (NYSE: VZ) and Vodafone (NYSE and LSE: VOD), said the merger will boost customer service.
“We believe customers would get access to more products and services, better calling plans [including expanded IN calling and less roaming] and a great network,” a Verizon Wireless spokesperson told InternetNews.com.
Verizon said those benefits would be achieved through enhanced network coverage, spectrum and customer care.
Alltel serves more than 13 million customers in markets in 34 states, including 57 rural markets that Verizon Wireless doesn’t serve. The vendors hope to have the deal signed and delivered by year’s end following regulatory review by the DOJ, which oversees antitrust regulations, and the FCC.
While both agencies are expected to green-light the merger, more than a little wiggle room exists for restrictions. It’s regulatory rules that one public advocacy group wants as part the approval process.
“The purchase raises serious questions for consumers that will have to be addressed through antitrust analysis and through public-interest conditions by the FCC,” Gigi B. Sohn, president and co-founder of Public Knowledge, said in a statement.
The group wants the FCC to require that the combined network be open to outside applications and devices, similar to the policy the agency initiated in the recent spectrum auctions.
Sohn said the Alltel deal speeds the “unfortunate” trend of providing consumers with fewer choices in telecommunications services, while giving a few companies more control.
The group’s communications leader was more blunt about the merger’s impact on the industry.
“Antitrust has gone out of style,” Art Brodsky, communications spokesman for Public Knowledge, told InternetNews.com. The big question, Brodsky said, is how quickly the deal will fly through DOJ and FCC review processes.
“We have no delusions that the DOJ will raise any antitrust issues, but the FCC does have some heavy lifting to do,” he said.
But just how much lifting is tied to the political makeup of the FCC when the deal comes before the agency.
Given the upcoming presidential election and the fact that a Republican FCC commissioner is leaving in October, political party control is a big unknown at this point, Brodsky explained. That aspect relates to whether the deal will get deep scrutiny or a quick pass, he said.
“I’m assuming they [Verizon] will try to rush this into the FCC before the possibility of a Democratic administration as Democrats tend to put more restrictions in place on mergers like this,” he said.
As competitors, consumers and watchdog groups track the merger’s progress, one pundit warned that it won’t be the last acquisition in the wireless industry.
“We have said that there will be more competition as WiMAX gets deployed, and as consumers have other alternatives,” Jack Gold, analyst, J.Gold Associates, told InternetNews.com.
Such business mergers will “eventually” drive down data and even voice costs, and the Verizon deal doesn’t see any bad side for customers, Gold said..
“I don’t see this as much of a negative for customers of Verizon or Alltel,” he added. “Each will get broader coverage, and Verizon will now be able to extend the reach of its data network, which is something it needs to do and may have been the primary driver of this acquisition.”
While analyst Carmi Levy agrees with Gold’s assessment and said market growth is a necessity even for current leaders in an industry, he believes there will be a consumer price to pay in the future.
“The big need to get bigger, and the only way to protect yourself in a turbulent market is to grow,” Levy told InternetNews.com. “And it’s easier to grow by buying than through organic customer acquisition,” he said, adding that the inherent danger of an industry having just a few big market leaders is that consumers end up paying the price.
“When there are fewer players there is less competition, and less competition means less incentives and benefits for consumers,” Levy said.