Is a closed deal a done deal? Reports of Alltel death greatly exaggerated

On one level, Alltel Communications L.L.C. ceased to exist after Verizon Wireless closed its $28 billion acquisition of the Little Rock, Ark., company in early January. Indeed, attention promptly turned to how some Alltel wireless assets would be integrated into Verizon Wireless and how $3 billion of divested assets – comprising 105 licenses – will be disposed of as part of a deal worked out with the Department of Justice and the Federal Communications Commission.
Some 30 parties reportedly approached Verizon Wireless about their interest in buying divestiture-designated wireless properties. It was speculated that the DoJ, supposedly finished with the Alltel-Verizon Wireless merger business, would be dragged back into fray when AT&T Mobility’s name surfaced as one of the suitors for wireless assets identified for divestiture.
All things considered, it sure looks like the train has left station. Then again, maybe not. In official Washington, few things are ever final. There always seems to be some other next step in endless legal and regulatory processes, some obscure avenue for yet another challenge to a policy decision.
The Verizon Wireless-Alltel transaction is no exception.
Even as Verizon Wireless moves forward to absorb those Alltel wireless assets it is allowed to keep and to sell off properties subject to the divestiture accord, red-hot embers of controversy remain aglow in challenges to the U.S. government’s approval of the tie-up – most related to merger conditions – at the Federal Communications Commission and the U.S. District Court for the District of Columbia Circuit.
Is the Verizon Wireless-Alltel deal at risk of unraveling? Probably not. But the changed political landscape – manifested in a now- Democratic-led FCC that must rule on challenges to merger stipulations approved by the agency when it was controlled by Republicans – makes an intriguing scenario with potentially unpredictable consequences in the near term and in the long run. But it’s more than that. The FCC’s two Democrats – Acting Chairman Michael Copps and Jonathan Adelstein – were not keen on the Verizon Wireless-Alltel deal when they were in the minority at the commission at the time of the ruling last November.
Copps: “Today’s merger is also seriously bad news for smaller carriers who rely on roaming – and their customers. The reason is that the new, merged network will be the only game in town when it comes to roaming in many regions of the country. Smaller carriers that rely on roaming contracts to provide nationwide service will see a critical partner eliminated in rural areas. This development may even put some smaller carriers out of business – thus further consolidating the wireless marketplace. The creation of an ever more dominant carrier will also have ripple effects in many other parts of the wireless marketplace – tipping the balance even more towards the network operator when it comes to dealing with handset manufacturers, content providers, application designers and the many other companies that will be forced to ask for “permission to innovate.”
Adelstein: “I am very concerned that the merger of these two entities will reduce competition in the wireless marketplace. I can not fully support this merger in the absence of reasonable conditions. Competition is essential to keeping consumer costs down and driving innovation. I am particularly concerned that a decrease in competition in this instance may have a dramatic effect on the roaming market, and hence on consumers of competing, and smaller, wireless service operators. With the loss of the largest regional CDMA carrier resulting from this transaction, and with only two available CDMA carriers nationwide, there is a real concern that smaller carriers may be unable to negotiate reasonable and nondiscriminatory roaming terms with national carriers. Not only does this threaten consistency in service across the country, with fewer carriers in each market, but roaming rates can easily rise and the costs may ultimately be passed on to consumers. This will undercut the remaining competitive carriers, potentially resulting in reduced competition in the local and national retail market. I would have preferred that the majority adopt transaction specific, pro-competitive conditions to address these very legitimate and specific competitive harms.”
Now Copps and Adelstein comprise the party in power at the FCC. However, it’s unclear – if not doubtful – that a decision will be made on regulatory challenges to the Verizon Wireless-Alltel merger before the arrival of presumptive FCC chairman Julius Genachowski. Petitions for reconsideration and/or clarification of the FCC merger order were filed late last year by The Rural Telecommunications Group Inc., MetroPCS Communications Inc., NTELOS Inc., U.S. Cellular Corp., Carolina West Wireless Inc., Viaero Wireless, Leap Wireless International Inc., Public Service Communications Inc., The Public Interest Spectrum Coalition and Chatham Avalon Park Community Council.
Verizon Wireless, which regained bragging rights as the No. 1 wireless carrier with the Alltel acquisition, said the petitions for reconsideration essentially amount to a rehash of arguments previously considered and rejected by the FCC. Perhaps, but today’s FCC is not the one that approved the Verizon Wireless-Alltel deal. Even if the Genachowski FCC decides that tampering after-the-fact with the deal would be too messy, the newly constituted commission could decide to make its mark in pending roaming, spectrum cap and handset exclusivity proceedings.
That’s the lay of the land at the FCC. The Verizon Wireless-Alltel merger also continues to play out – albeit just barely – in the federal court overseeing the proposed package of antitrust remedies enforced by the Justice Department and seven states. Only one company, Public Service Communications (one of the parties urging merger approval revisions at the FCC), took issue with the proposed final judgment in a recent court filing. The Justice Department’s merger analysis is narrowly tailored to antitrust issues, whereas FCC review of telecom deals is broader by virtue of its public-interest charter. The DoJ antitrust lawyers last week urged the court to reject PSC’s recommendations to expand wireless assets sales in Georgia and Alabama and to give final approval to the Verizon Wireless-Alltel divestitures as currently structured.
So much for Alltel riding quietly into the sunset.