NEW YORK – Verizon Wireless' deal to buy Alltel Corp. for $5.9 billion was applauded by investors and should mean a greater range of choices for Alltel subscribers, but some worried that Alltel's commitment to rural coverage will get lost.
Dan Yahro in Bishop, Calif., close to the border with Nevada, has two options for wireless service: Alltel and Verizon Wireless. Now that one is buying the other, he wonders what will happen.
"Alltel has twice the coverage of Verizon here. When you get into Death Valley National Park, which is where I spend a lot of time, Alltel is the only game out there," Yahro said.
Alltel's wide-ranging rural coverage in 35 states has given it 13.2 million subscribers and plenty of fans.
In its area, mainly in the interior of the country and in the Southeast, it provides an alternative to the four big national carriers: Verizon Wireless, AT&T Inc., Sprint Nextel Corp. and T-Mobile USA.
John Wilfong, 29, of Alexander, Ark., said he had service on his Alltel phone everywhere when he worked as a deliveryman.
"When I used to go into a lot of fringe areas, it got a better signal," Wilfong said. "When I was living at home before I got married, my dad had Cingular and he couldn't get a signal in the house, but I could."
Having the No. 2 carrier, Verizon Wireless, swallow the No. 5 carrier, Alltel, would catapult it beyond 80 million subscribers and past AT&T Inc. to become the largest carrier in the country. It could also reduce competition in areas where Verizon Wireless and Alltel overlap.
A Justice Department spokeswoman Thursday said the agency "would be interested in looking at the proposed transaction."
Rep. Edward J. Markey, Massachusetts Democrat who chairs the House Subcommittee on Telecommunications and the Internet, said the deal "merits the utmost scrutiny by antitrust officials and telecommunications policymakers to ensure that competition and consumers are fully protected."
The deal would also mean that Verizon Wireless, along with AT&T, will pull further away from the competition. No. 3 Sprint is in financial disarray and is losing subscribers. T-Mobile USA is a distant fourth.
"Anything that makes Verizon ... bigger will draw regulatory attention," said Rebecca Arbogast, an analyst at Stifel Nicolaus.
Analysts said a likely outcome of a regulatory review would be an approval of the deal, on the condition that Verizon Wireless sells off spectrum licenses in areas where its coverage overlaps Alltel's.
Ideally, that would let it maintain Alltel's coverage, while allowing another carrier to enter the market by taking over the divested license.
Verizon Wireless did not specifically address coverage questions, but spokesman Jeffrey Nelson said, "The great benefit of this relationship is to bring the best of each company together. For consumers, that means improved network coverage and reliability."
Verizon Wireless and Alltel already allow each other's customers to roam on their networks for voice calls, but they only switch over to the other network if there is no coverage at all on the home network — a weak signal is enough to keep the phone on the home network.
Alltel Chief Executive Scott Ford said customers will not see their rates or plans immediately change due to the Verizon Wireless takeover.
Alltel has a popular My Circles option that provides unlimited calls to 5, 10 or 20 numbers for a monthly fee. Verizon Wireless lacks that option, but its customers actually pay slightly less on average: $51.40 per month compared to $53.64 at Alltel.
"My bill would be astronomical without My Circles," said Steve Cuccia, in Jefferson, Ohio.
In addition, he likes Alltel's "truly unlimited" wireless data plan, which he uses for home Internet access. His plan is to get the best Alltel plan he can find, and hope that Verizon Wireless lets him keep it after the acquisition.
Alltel subscribers would reap some tangible benefits from the deal, like a wider range of handsets available through Verizon Wireless.
The deal could also speed the buildout of faster wireless broadband.
Building out a fourth-generation network would have been a big task for Alltel. Verizon Wireless, on the other hand, has the scale to build out 4G and has unexploited spectrum licenses that cover nearly the entire country.
Getting access to Alltel's cell sites will make that buildout faster and cheaper, Verizon Wireless Chief Financial Officer John Townsend said on a conference call.
On Wall Street, the deal went over well. Shares of New York-based Verizon Communications Inc., the controlling parent of Verizon Wireless, rose $1.98, or 5.4 percent, to close at $38.96, unusual for a company spending $28.1 billion including assumed debt on an acquisition. Verizon Wireless' other parent is Vodafone Group PLC of Britain, with a 45 percent share of the joint venture.
Alltel was public until November, when it was taken private by TPG Capital and a unit of Goldman Sachs Group.
A group of banks financed the deal, with a view to selling the debt to investors. But the corporate credit market seized up much like the mortgage market, leaving the debt on their books.
"The banks couldn't move their paper. Because they couldn't move their paper, the debt traded at a discount," Alltel CEO Ford told reporters at the company's Little Rock headquarters. Verizon taking over the debt "puts liquidity back into the banking system. I think this is one of those things where federal regulators ... will all look at this and say, 'Thank goodness.'"
The private equity firms came out slightly ahead on the deal, but nowhere close to the huge gains that are the goal for such investments. They paid $24.7 billion for the stock and took on $2.7 billion in debt, bringing the value of that deal to $27.4 billion.