Verizon Wireless' plan to buy regional cell phone company Alltel will make it the largest cell phone operator in the country with more than 80 million subscribers. But for consumers, is a behemoth Verizon a boon or a beast?
That's the question that regulators will ultimately decide. The biggest fear for consumer advocates when companies merge is that consolidation means fewer choices for consumers, and fewer choices often leads to higher prices.
So far consumer advocates seem split on the issue.
"If the deal goes through, two companies, Verizon and AT&T, will control about 150 million of the 260 million wireless customers in the U.S.," Gigi B. Sohn, president and co-founder of Public Knowledge, said in a statement. "With Sprint in a weakened condition, this deal will speed the unfortunate trend of giving consumers fewer, rather than more choices in telecommunications services, while giving a few companies more control over the lives of consumers."
But other groups seem less concerned.
"We'll ask for a careful review, but I don't see enormous antitrust problems," Gene Kimmelman of the Consumers Union told The Wall Street Journal.
The reason is that there are relatively few markets where Verizon Wireless and Alltel are the only two carriers offering service. And in places where there are the only two cell phone companies offering service, it's likely that regulators would force Verizon to sell off some of its assets to another provider.
For the most part, analysts say that the Verizon-Alltel merger by itself will have relatively little impact on pricing. But if the market continues to consolidate and other small players are gobbled up by bigger players, or one of the four major players buys another major player, then prices could stagnate, especially for data services.
"Alltel being bought won't be enough to impact pricing," Tole Hart, an analyst with Gartner said. "But if there is more consolidation that could eliminate some competition. And it could further slowdown future price drops."
Currently, the wireless industry is a poster child for competition throughout most of the U.S. There are four major nationwide wireless operators--AT&T, Verizon Wireless, Sprint Nextel, and T-Mobile USA--which operate in almost every major market in the U.S. Over the last few years, this four-player oligopoly has successfully forced down pricing on voice minutes.
But in the past year, prices have stabilized, with all of the major players offering similarly priced plans starting at about 450 to 500 minutes of talk time per month for about $39.99. Competition has also forced these players to offer unlimited talk plans for around $99 a month.
Differing on data plans
Where prices differ the most is in data plans for smartphone users. While Verizon offers 450 minutes of talk time and unlimited data for $79.99 a month, Alltel offers a similar plan for $69.99. Sprint Nextel also offers its Simply Everything plan with 450 voice minutes and unlimited data and messaging for $69.99. AT&T's lowest cost data and voice plan is comparable to Verizon's at about $75 a month.
But where consumers often get the best deals is in rural areas where smaller, regional players, such as Metro PCS and Leap Wireless operate. These providers offer all-you-can-eat plans for a low fixed price. For example, MetroPCS offers regional calling plans for $30, $35, $40, $45 or $50, depending on which features are selected.
While these operators are relatively small--MetroPCS only has 3 million subscribers--they are also the most likely to be gobbled up by bigger players. And if that happens, many of these low-cost, no-contract plans will go away.
The big cell phone operators have already shown interest in some smaller players. AT&T late last year completed its purchase of Dobson Communications. And Verizon Wireless is also in the middle of acquiring Rural Cellular.
But acquisitions of these smaller rural carriers will only affect a limited number of customers in small markets. The biggest impact on pricing from consolidation could occur if Sprint Nextel or T-Mobile USA, the No. 3 and No. 4 national carriers respectively, were to be bought.
Currently, these operators have been the ones putting the most pricing pressure on AT&T and Verizon to stay competitive with their cell phone plans. T-Mobile's MyFaves program allows callers to call any five numbers on any network without using their minutes. And Sprint has long offered competitive data pricing.
While AT&T and Verizon haven't responded to these pricing structures by lowering their prices, they have been trying to offer customers more services and features for the same price.
Right now it's hard to imagine either Sprint Nextel or T-Mobile being bought. Sprint is the most likely major wireless carrier to be acquired, but there aren't many potential suitors. Verizon is the only major carrier that uses its CDMA technology, and it has no reason to take on Sprint's mountain of problems.
T-Mobile's parent company Deutsche Telekom has supposedly been eying the struggling cell phone operator, but the two companies use different wireless standards that would make integrating the networks complex and expensive.
So for now, it doesn't appear that consumers have much to worry about when it comes to a Verizon/Alltel marriage. That said, consumers are anxious about consolidation. What do you think? Feel free to share your thoughts in the Talk Back section of this blog.
The third time must have been the charm for Verizon Wireless and regional cell phone operator Alltel.
Verizon Wireless supposedly has looked at buying Alltel twice in the past three years. And on Thursday it finally pulled the trigger, announcing that it plans to buy Alltel in a deal valued at $28.1 billion. As part of the deal Verizon will pay $5.9 billion and assume $22.2 billion in debt. The acquisition will make Verizon Wireless the largest cell phone company in the U.S., stripping AT&T of that title.
The Verizon Wireless version of LG's voyager phone.
(Credit: Verizon Wireless)Verizon Wireless expects to close the deal by the end of the year, pending regulatory approvals.
Alltel was sold only last year for $27.5 billion to the buyout arm of Goldman Sachs and private equity firm TPG Capital. And, according to The Wall Street Journal, the banks that financed the deal, including Goldman Sachs, Citigroup, Barclays, and Royal Bank of Scotland Group, still owe about $24 billion in loans and bond financing. Alltel's sale to Verizon will eliminate this hefty debt burden, which has become more acute since the credit crunch started this year.
A takeover of Alltel by Verizon Wireless will create the largest cell phone operator in the country by adding Alltel's 13.2 million customers bringing the total to some 80 million subscribers. AT&T, which is currently the nation's largest cell phone provider, reported at the end of last quarter that it has 71.4 million customers. Verizon Wireless, jointly owned by Verizon Communications and U.K.-based Vodafone Group, would gain customers mainly in the Midwest and South where Alltel operates.
The merger will likely be carefully scrutinized by regulators in the Department of Justice and the Federal Communications Commission. And it's likely that Verizon will be asked to divest some of its assets in markets where the companies overlap.
Verizon Wireless was among the companies that considered buying Alltel last year when the company first started shopping itself around. And rumors had circulated back in 2005 that Verizon was interested in purchasing the regional cell phone operator. Both times the company didn't make its move.
In the first quarter of 2008, Alltel reported an 18 percent increase in earnings. Both Alltel and Verizon Wireless seem to be benefitting from troubles at Sprint Nextel, which has been bleeding customers since its 2005 acquisition of Nextel. As Sprint Nextel loses customers, Alltel and Verizon have been adding customers, which is has helped grow their bottom lines.
And the deal makes sense for Verizon Wireless. The two companies both use the CDMA (code division multiple access) cellular technology, so integrating the networks should not be a huge obstacle. The companies also share a similar technology road map. Earlier this year, Alltel said it would use a next-generation wireless technology called LTE to build its 4G network, the same technology Verizon has said it will use to build its 4G network.
What's more Verizon Wireless is in a good financial position to make such a purchase. Even though the company has just laid out $9 billion for new spectrum in the FCC's recent 700 MHz spectrum auction, it isn't carrying a heavy load of debt relative to its earnings. So the deal makes good sense for Verizon.
But the bigger question now is, who will be next? Acquisitions often occur in multiples. And given the current state of the economy, it's likely that more phone companies will merge in order to gain efficiencies and ultimately reduce costs.
Rumors have floated around that German-based Deutsche Telekom has been eying the struggling Sprint Nextel. I think this is a highly unlikely scenario since Deutsche Telekom's T-Mobile USA uses a different technology standard GSM. But perhaps there will be more consolidation among the smaller regional carriers. AT&T and T-Mobile USA could start gobbling up these smaller players, many of which use their GSM technology.
Verizon Wireless is taking another look at buying regional wireless operator Alltel, according to a story published Wednesday afternoon by The Wall Street Journal.
The deal, which could be valued at around $27 billion, is at a sensitive stage and could fall through over the next few days, the newspaper reported.
Alltel was sold only last year for $27.5 billion to the buyout arm of Goldman Sachs and private equity firm TPG Capital. And, according to the Journal, the banks that financed the deal, including Goldman Sachs, Citigroup, Barclays, and Royal Bank of Scotland Group, still owe about $24 billion in loans and bond financing. But the firms see a sale to Verizon as a way to cut their losses on the financing. The article said a person familiar with the deal said the banks would get a nominal return on their investment.
A takeover of Alltel by Verizon Wireless would create the largest cell phone operator in the country with some 80 million subscribers. AT&T, which is currently the nation's largest cell phone provider, reported at the end of last quarter that it has 71.4 million customers. Verizon Wireless, jointly owned by Verizon Communications and U.K.-based Vodafone Group, would gain customers mainly in the Midwest and South where Alltel operates.
A merged company of this size would no doubt be scrutinized by regulators in the Department of Justice and the Federal Communications Commission. And it's likely that Verizon would have to divest some of its assets in markets where the companies overlap.
But that said, Verizon Wireless is the most likely competitor to acquire Alltel. The two companies both use the CDMA (code division multiple access) cellular technology. And they also share a similar technology road map. Earlier this year, Alltel said it would use a next-generation wireless technology called LTE to build its 4G network, the same technology Verizon has said it will use to build its 4G network.
As for any other potential buyers, Sprint Nextel, the other CDMA carrier in the U.S., is in no position to make a big acquisition like this one. The company has seen its subscribers and profits plummet since the failed merger with Nextel in 2005. In fact, some analysts speculate that Sprint Nextel is also on the auction block. The company has already spun off its WiMax division to combine it with Clearwire's network assets. And rumors have floated around that German-based Deutsche Telekom has been eying it, although this seems highly unlikely.
T-Mobile and AT&T are unlikely bidders for the company since they use a different technology called GSM (Global System for Mobile Communications).
Verizon Wireless was among the companies that considered buying Alltel last year when the company first started shopping itself around. And rumors had circulated back in 2005 that Verizon was interested in purchasing the regional cell phone operator. Both times the company didn't make its move.
Verizon Wireless currently has the strongest network in terms of quality and customer base. It's highly profitable and has low levels of turnover, so there's no real reason the company needs Alltel. It seems to be doing just fine on its own. Still, a major move by Verizon could spark even more consolidation in the cellular market.
Alltel, the largest rural cell phone provider in the U.S., plans to use the same technology to build its 4G network that AT&T and Verizon Wireless have chosen, a move that should provide better coverage for next generation wireless users.
But don't expect a major 4G upgrade from Alltel overnight. The company said during its quarterly conference call on Thursday that it would likely take three to five years to deploy the new network.
Still, the fact that yet another wireless operator has committed to using Long Term Evolution or LTE, is a big deal. Since the cell phone operators deployed networks in the U.S., consumers have had to deal with two major cellular technologies: CDMA and GSM. Verizon, Sprint Nextel, and Alltel went the CDMA route. Meanwhile, AT&T and T-Mobile, along with a slew of regional carriers, deployed GSM.
This division in the market has resulted in cell phone manufacturers developing different products for each technology, which has led to delays in some products on certain networks. It has also meant that CDMA subscribers haven't been able to roam as much internationally. And it's resulted in fewer roaming agreements between major carriers domestically, which has led to some holes in coverage, especially in rural areas.
So it's significant that the two major CDMA players in the U.S.--Verizon Wireless and Alltel--plan to use the same technology that most GSM carriers throughout the world plan to use. With most major operators using the same technology, coverage should improve and so should the availability of cool new handsets. It should also make it easier for carriers to make their networks more open, allowing customers to take their phones or wireless-enabled devices from one network to another.
Alltel is the fifth largest carrier in U.S. with only 13 million subscribers, but the company covers some 34 states and has coverage in parts of Mexico and Canada. It also has roaming agreements in many markets throughout the U.S. and Canada.
"It is no surprise that Alltel chose LTE as its 4G technology, since the carrier usually mirrors choices made by Verizon Wireless," said Nadine Manjaro, senior analyst at ABI Research. "Alltel's choice of LTE will help to ensure greater rural coverage for small and mid-sized cities in the United States and Canada since the carrier already has data roaming agreements in place. This will complement other mobile operators' initial LTE build-outs in major urban areas."
Alltel's announcement that it will deploy LTE in some ways further alienates the Sprint-Clearwire WiMax network. Sprint and Clearwire announced last week they were combining forces to create a nationwide WiMax network. Even though these companies claim that their network will be at least two years ahead of any LTE deployments, it's clearer now more than ever that wireless operators are opting for that technology rather than WiMax. And that could mean a more aggressive and cost-effective ecosystem for LTE.
Alltel BlackBerry Pearl 8130
(Credit: Alltel)Alltel said today it will release its own version of the RIM BlackBerry Pearl 8130 in time for the holiday shopping season. The carrier didn't say exactly when the smartphone would go on sale, but you can register for more information on Alltel's Web site. The price will be $149 with a two-year contract.
Alltel's Pearl will offer the full slate of smartphones features including a Web browser, e-mail, text messaging, instant messaging, integrated GPS and mapping, a 2-megapixel camera, a media player, stereo Bluetooth, a 3.5-millimeter headset jack, speaker independent voice dialing, 64MB of internal memory and a MicroSD card slot. Alltel chose an amethyst color for its Pearl, but like the other 8130s, it features the navigation trackball and the familiar compact design with the SureType keyboard. Sprint and Verizon Wireless are also landing the Pearl. We'll have a review of the Verizon version next week, and we'll rate the Sprint and Alltel models as soon as we can get them. In the meantime, see our review of the T-Mobile Pearl for original assessment of the Pearl family.
Federal regulators late on Thursday slapped three wireless firms, including No. 3 operator Sprint Nextel, with a total of $2.83 million in fines for not meeting a long-passed deadline for equipping subscribers with enhanced 911 service.
The Federal Communications Commission had set a December 31, 2005 date by which all mobile carriers had to ensure that 95 percent of their subscribers had location-sensitive handsets--that is, those that allow emergency responders to pinpoint a caller's location upon connection to the 911 switchboard.
Sprint Nextel and large regional operators Alltel Corp. and U.S. Cellular Corp. "failed to meet this critical deadline by a significant margin, despite the clear requirements of the commission and the needs of their consumers," FCC Chairman Kevin Martin said in a statement (PDF).
In fact, Sprint Nextel recorded only an 81 percent penetration rate and, according to the FCC, still has not reached the required levels. It was hit with the largest fine, at $1.33 million.
Alltel, which admitted it had reached a penetration rate of only 84 percent by the deadline and did not achieve the target until 17 months later, received a $1 million fine. U.S. Cellular, which reported about an 89 percent penetration rate as of the deadline and reached full compliance eight months later, was ordered to pay $500,000. Each of the companies had applied for deadline waivers but had their petitions denied in January of this year.
Martin said he considers "facilitating the ability of the public safety community to help those in need" among his agency's highest priorities and said enforcement actions like Thursday's are "a valuable and necessary tool in achieving this mission."
Each of the companies now has 30 days in which to pay up or to petition for the fee to be reduced--or dropped entirely.
Update at 3:05 p.m. PDT: Apparently, compliance with the FCC's rules relies in part on the ability of wireless carriers to force their subscribers--through incentives and otherwise--to switch to compatible phones, which
Alltel spokesman Andrew Moreau said his company "took extraordinary measures to convince our customers to swap phones, (but) many just didn't want to make the change. We believe the FCC's timetable for compliance may have underestimated customers' willingness to exchange phones." He declined to comment specifically on the FCC order because the company was still reviewing it.
Sprint Nextel spokeswoman Stephanie Walsh said her firm has faced an extra setback. In July 2004, a "software glitch" rendered the location-tracking capabilities useless in 4.7 million Motorola handsets using then-Nextel's iDEN network. The pre-merger Sprint CDMA network, she added, was poised to be the first carrier to reach the 95 percent mark.
Right now, the carrier has reached 94.7 percent compliance, Walsh said, but she declined to comment specifically on what the company plans to do about the fine, except to "recognize" it has been levied. She also said that no other wireless carrier met the December 31, 2005 deadline--although she acknowledged her company was "farther behind" than the others.
U.S. Cellular representatives did not respond immediately to requests for comment.
Alltel wireless
(Credit: Alltel Wireless)Alltel has recently announced an enhanced caller ID feature that will display the location of incoming phone numbers by displaying the city and state assigned to it.
Alltel hopes the feature, known as City ID, will catch on with those who keep getting phone calls from unknown area codes and numbers. The application will be initially available on the LG AX275, with plans to roll it out on additional Alltel phones in the future.
There's a free seven-day trial to start, and it will eventually cost $1.99 a month.
Alltel wireless
(Credit: Alltel Wireless)Alltel Wireless has partnered with Frog Design and eMusic to offer Jump Music, a free application for transferring music from your PC to your cell phone.
Similar to the iTunes Music Store model, consumers can navigate to eMusic directly from the Jump Music interface and purchase songs from eMusic's vast catalog of DRM-free MP3s. New Jump Music users can take advantage of a special introductory offer of 35 free eMusic songs. All this, and you can transfer your existing music collection to your cell phone as well. It's initially compatible with only five Alltel phones: the LG AX8600, the Motorola Krzr K1m, the Motorola Razr V3m, the Samsung u520, and the Samsung Wafer.
Alltel hopes to add more phones to the list. You can purchase a Jump Music accessory kit--featuring a 256 MB memory card, a USB cable, and a stereo headset--for $49.99 from the Alltel store.
Samsung Wafer
(Credit: Samsung)Alltel scored a coup today when it became the first carrier to offer the Samsung SCH-r510, a handset we first saw earlier this year at CTIA. Also called "The Wafer," the r510 exemplifies Samsung's overt obsession for slim phones. The candy bar cell phone, which is just 0.33 inch thin and weighs only 2.7 ounces, bears a strong resemblance to the earlier Samsung Trace for T-Mobile. Though I get the meaning behind the "Wafer" name (it's wafer thin) I can't say I like it very much. I keep thinking of a vanilla wafer.
Inside, the wafer offers a respectable feature set, including a 1.3-megapixel camera, an MP3 player, an expandable memory slot, stereo Bluetooth, and support for Alltel's new Celltop application. You can get the Wafer for $49.99 with a two-year contract.
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