VZW could give up 15% of Alltel customers through proposed merger: Divestitures could include 85 markets in 18 states

Verizon Wireless, positioning itself to regain the top spot in the mobile-phone industry, agreed to initial divestiture requirements by the Department of Justice and offered roaming concessions in hopes of winning government approval of its proposed $28 billion purchase of Alltel Communications L.L.C. But it remains unclear whether the No. 2 wireless provider will have to take additional steps to seal the deal before year’s end, when Republicans at the Federal Communications Commission could lose their majority edge with the possible departure of Republican Commissioner Deborah Taylor Tate.
In a new FCC filing, Verizon Wireless informed the agency it had consented to sell wireless properties in 85 cellular markets in 18 states to satisfy antitrust concerns after early discussions with DoJ. Verizon Wireless said the markets – mostly rural service areas – encompass wireless assets that overlap with those of Alltel throughout North Dakota and South Dakota as well certain areas in California, Colorado, Georgia, Idaho, Illinois, Kansas, Minnesota, Montana, Nevada, New Mexico, North Carolina, Ohio, South Carolina, Utah, Virginia and Wyoming.
The divestitures represent about 15% of Alltel’s 13 million subscribers, according to analysts at Stifel, Nicolaus & Co. They said possible candidates for those wireless assets include AT&T Mobility, Leap Wireless International Inc., MetroPCS Communications Inc. and rural carriers.
Even with the divestitures and roaming provisions it could be tricky getting the Verizon Wireless-Alltel deal through the FCC before next year, when a new administration and Congress will be in place.
“The major risk factor, in our view, is timing at the FCC, which, depending on the relative focus and aggressiveness of lobbying, will likely consider additional conditions related to roaming, special access or ‘open access,'” stated Stifel analysts. “In a move designed to anticipate the roaming issue, Verizon yesterday made two commitments to the FCC to maintain the terms of existing roaming agreements with Alltel. The possible departure of Commissioner Tate at the end of the year would create a 2-2 deadlock, which puts a premium on timely FCC review.”
Verizon Wireless announced the Alltel acquisition last month. Public comments on the transaction, which if approved would enable Verizon Wireless to surpass AT&T Mobility as the nation’s largest cellular carrier, are due July 25 at the FCC. Meantime, the FCC is scheduled to rule Aug. 1 on Verizon Wireless’ $2.67 billion play for Rural Cellular Corp.
The combination of the two acquisitions and Verizon Wireless’ big spectrum winnings at the 700 MHz auction earlier this year has prompted competitive concerns among key Democrats in Congress and roaming angst among lawmakers and small, medium and large carriers.
Moreover, a group of rural wireless providers recently petitioned the FCC to reinstate the spectrum cap, which was axed by the FCC in 2003.
Verizon Wireless and Alltel, both CDMA operators, pledged in their merger applications to honor existing CDMA and GSM roaming agreements with wireless providers.
Verizon Wireless went further in its latest FCC submission, offering two commitments upon the closing of the deal.
“First, each regional, small and/or rural carrier that has a roaming agreement with Alltel will have the option to keep the rates set forth in that roaming agreement in force for the full term of the agreement, notwithstanding any change of control or termination for convenience provisions that would give Verizon Wireless the right to accelerate the termination of such agreement,” the carrier told the FCC. “Second, each such regional, small and/or rural carrier that currently has roaming agreements with both Alltel and Verizon Wireless will have the option to select either agreement to govern all roaming traffic between it and post-merger Verizon Wireless.”
However, Leap raised some concerns about the move.
“Verizon’s commitment to honor either Verizon’s or Alltel’s existing agreement to govern roaming traffic for the full term of the agreement is like a man telling his new wife that next month he has the right to date another woman,” said Laurie Itkin, director of government affairs at Leap. “Verizon’s commitment fails to mention the fact that many roaming agreements have a 30-day right to termination by either party. Furthermore, this commitment does not move the ball forward even one inch on the issues of importance to non-nationwide carriers: eliminating the in-market exception and including data in the automatic roaming obligation.”