Local Story By Tommy Stafford
Nelson County Life Magazine Â©2008
Nelson County, Virginia
This past week the terms of a buyout of Alltel by Verizon Wireless have been revealed. VW will buy Alltel for 28.1 Billion Dollars. This should be good news for folks living in Nelson County, Virginia because it will eventually enhance cellular service here, and, make broadband wireless internet services available to a wide range of subscribers in the future. The only option thus far is expensive satellite internet or dialup service outside of the relatively small DSL or cable service areas. Neither satellite or dialup are very attractive choices.
Verizon Wireless has been quietly working out long term land leases in Nelson over the past year with many of them already approved. Within the past month three such sites have been given the nod by the Nelson County Planning Commission as indicated in the minutes recorded by Rural Nelson. Current Alltel sites already in Nelson, will eventually become part of the VW system. Right now the local Verizon Wireless territory reaches the top of Afton Mountain at I-64 and US 250 and on the western slopes of Devil’s Knob Mountain at Wintergreen. Currently Verizon users are on the Alltel extended network for much of the rest of Nelson. Eventually that will become local territory for both Alltel and VW customers.
You can read much more about the merger details in the story below.
Verizon Wirelessâ€™s purchase of Alltel Communication L.L.C. is leaving many gasping for breath. The $28.1 billion purchase of the nationâ€™s fifth-largest U.S. mobile operator seems to make sense for Verizon Wireless, both strategically and financially. However, for the private-equity investors who purchased Alltel less than a year ago, the payoff isnâ€™t as sweet. TPG Capital and GS Capital Partners purchased Alltel for $27.5 billion last November. Verizon Wireless has become some what of the Goldilocks in this ongoing purchase of Alltel. Verizon Wireless has wanted to purchase the carrier for sometime, saying no the first time and no the second time (the same time that TBG and GS did go through with the purchase). But the third time, the price was juuusst right.
Verizon Communications Inc. CEO Ivan Seidenberg said during a conference call that he had approached Alltel in April regarding a possible deal and that negotiations turned serious a few weeks ago.
When and if the deal closes, Verizon Wireless will end up paying $5.9 billion in equity for Alltel, leaving TPG Capital and GS Capital Partners with around a $1 billion profit. Yes, it is a billion dollars, but itâ€™s much lower than the normal profit equity firms receive in these deals. It basically boils down to the equity investors making little or no more than what they paid for Alltel last year.
Seidenberg said the price was similar to what the Verizon was willing to offer for Alltel last year prior to being acquired by private equity, but with the benefit of Alltel having grown its business over the past months.
Where to roam
And equity investors might not be the only group left financially frustrated because of this purchase. Verizonâ€™s purchase of Alltel breeds a huge list of potential problems for the other big carriers with roaming issues near the top of the list. The nationâ€™s four largest operators as well as a number of small carriers rely on Alltel to fill out their footprints and had established partnerships for roaming across what Alltel proclaimed was the largest geographical network in the country.
Now that Verizon Wireless is in control of those areas, the big question is whether Verizon Wireless will be forced to sell off some of that spectrum or if Verizon Wirelessâ€™ competitors will have to pay more in roaming charges.
Alltel acquired an established GSM roaming network when it acquired Western Wireless Corp. specifically to serve the needs of AT&T Mobility and T-Mobile USA Inc., so now those carriers may have to pay substantial roaming charges to Verizon Wireless.
Alltel noted in a recent Securities and Exchange Commission filing that itâ€™s currently operating under a reciprocal roaming agreement with Verizon Wireless that is set to expire in 2010; and that it signed a 10-year roaming agreement in 2006 with Sprint Nextel Corp. and extended its GSM roaming agreement with AT&T Mobility through 2012.
Ken Hyers, senior analyst at Technology Business Research Inc., foresees Verizon Wireless being forced to sell spectrum in those overlapping areas.
â€œWhat itâ€™s going to come down to is where exactly those markets are as to who will purchase them,â€ Hyers said.
Hyers said he sees AT&T Mobility as a viable candidate, but believes purchasing certain secondary markets would be a smarter move for T-Mobile USA in its continuing efforts to increase its network reach.
Hyers said a big reason for this purchase is a trend lately for carriers to gain savings through reducing roaming costs and obviously now, Verizon Wireless will rarely rely on other carriers for roaming.
Keith Mallinson, founder of Wise Harbor, agrees Verizon Wireless will be putting some spectrum up for sale in order to make sure everything remains on the up and up in the world of roaming.
â€œWhen [a carrier] is dominant in a certain region it becomes the monopoly of wholesale supply for roaming and it might be deemed that they could abuse that position,â€ Mallinson said.
Price plan tweaks
Verizon Wireless will also have to decide what to do with Alltelâ€™s pricing plans. While the carriersâ€™ current offerings are close enough to require only minor tweaking, Alltelâ€™s MyCircle plans could prove a challenge. Alltel has noted the great customer response to the plans that allow customers to make unlimited calls to off-network numbers without incurring additional charges, and have proven a competitive response to the greater leverage larger carriers have with their own on-network options spread across larger customer bases.
Avi Greengart from Current Analysis said he thinks the MyCircle option will likely be a casualty of the deal.