THE FEDERAL COMMUNICATIONS COMMISSION’S conditional approval of Verizon Wireless’ acquisition of Alltel Communications L.L.C. and the merger of Sprint Nextel Corp. and Clearwire Corp.’s WiMAX operations could have significant post-election policy and marketplace ramifications, including a private auction of sorts for more than 100 wireless licenses by the new No. 1 wireless provider.
Verizon Wireless, AT&T Mobility, Sprint Nextel and T-Mobile USA Inc. – often described as the big 4, but increasingly looking like the big 2 and the smaller 2 – are now poised to control more than 90% of the nation’s wireless customers. Both transactions could close before the end of the year.
“With FCC and DoJ approvals, we continue to work to complete the transaction as soon as is practical,” said Robin Nichol, a Verizon Wireless spokesperson. The Department of Justice signaled to Sprint Nextel in August that merger approval was likely, but did not give the final thumbs-up until two weeks ago.
Licenses up for grabs
Among the 100 licenses that must be divested by Verizon Wireless are wireless assets throughout North Dakota and South Dakota, those in major sections of Colorado, Georgia, Kansas, Montana, South Carolina, Utah and Wyoming, and others in parts of Alabama, Arizona, California, Idaho, Illinois,
Iowa, Minnesota, Nebraska, Nevada, New Mexico, North Carolina, Ohio and Virginia. Verizon Wireless voluntarily agreed to sell an additional 15 licenses in Alabama, Arizona, Georgia, Iowa, Minnesota, Nebraska, New Mexico, North Carolina, South Carolina and Utah. It also promised to operate Alltel’s GSM systems indefinitely. Most mobile-phone networks operated by Verizon Wireless and Alltel use CDMA technology, though both operators have committed to deploying Long Term Evolution technology in the near future. The FCC tacked on another five licenses that must be shed by Verizon Wireless, but the agency has not yet disclosed the identity of the markets.
It is unclear which wireless carriers will vie for the 105 licenses being put up for grabs by Verizon Wireless as a result of government merger approvals. Big operators such as AT&T Mobility, Sprint Nextel and T-Mobile likely have enough capacity in the areas up for bid, but more is always better. More likely suitors include regional operators like Leap Wireless International Inc., MetroPCS Communications Inc. and U.S. Cellular Corp.
“It would be interesting to see which carrier will pick up those divested markets which include spectrum, infrastructure and subs,” said Bill Ho, analyst with Current Analysis. “CDMA carriers are a natural buyer. U.S. Cellular would be a prime candidate as some of the divested markets can complement USCC’s footprint. Even Leap and MetroPCS could be interested if the markets fall within their current or future operating footprint.”
Greg Lund, spokesman for Leap, did say that the carrier is well positioned to take advantage of strong organic growth and strategic opportunities, but would not directly comment on picking up any divested markets.
U.S. Cellular and MetroPCS did not return calls for comment.
Integration on hold
Verizon Wireless said it will wait until the deal closes to make any decisions regarding integration of Alltel’s business operations as well as what it plans to do with many of Alltel’s unique service offerings like its MyCircle plans and its circuit-switched push-to-talk service. The carriers’ more traditional pricing plans and handset line-ups are already nearly identical and both carriers offer data services using Qualcomm Inc.’s BREW platform.
There is also no word yet as to whether the divested markets will include just overlapping licenses or if the FCC will also force Verizon Wireless to give up Alltel customers in those markets. Previous merger deals have typically given carriers limited abilities to try to move customers to the purchaser’s network.
Contention remains
While the FCC required additional market divestitures, the agency compromised on the hotly contested roaming requirements of the deal. Small, rural and regional wireless carriers – as well as Democratic Commissioners Michael Copps and Jonathan Adelstein – favored a seven-year roaming condition instead of the four-year extension required in the final decision. The carriers are also fighting for other voice roaming changes and an industrywide wireless data roaming mandate.
“Smaller carriers that rely on roaming contracts to provide nationwide service will see a critical partner eliminated in rural areas,” Copps stated. “This development may even put some smaller carriers out of business – thus further consolidating the wireless marketplace.”
Sprint Nextel-Clearwire
It is a bit trickier for Sprint Nextel and Clearwire. The day before last Wednesday’s FCC vote Sprint Nextel affiliate iPCS Inc. filed an emergency motion for preliminary injunction in the Circuit Court of Cook County, Ill., to block Sprint Nextel from completing its WiMAX deal with Clearwire until the court rules on pending litigation over affiliation agreements.
“The motion is unnecessary and an overreaction,” said Sprint Nextel. “Clearwire has generated national public interest and involves the buildout of a nationwide network, with iPCS territory amounting to an extremely small portion. Further, the launch of WiMAX in iPCS territory is not set to occur until well after a final decision by the court on this very issue, and we believe these issues can and should be addressed outside the scope of the Clearwire transaction closing.”
A Clearwire shareholder vote on the $14 billion tie-up with Sprint Nextel is set for Nov. 20. Sprint Nextel shareholder approval is not required.
The Sprint Nextel-Clearwire transaction, despite involving two wireless companies, was analyzed by telecom and antitrust officials largely in terms of two emerging broadband entities joining to compete against a high-speed Internet duopoly comprised of telephone and cable TV giants. The New Clearwire promises to offer wireless broadband to between 120 million and 140 million people by the end of 2010.
The FCC also imposed county-based E-911 location accuracy and universal service funding reform conditions on both the Verizon Wireless-Alltel and Sprint Nextel-Clearwire transactions.
