Jun 5th, 2008

We’d heard that Verizon was interested in purchasing Alltel before… but nothing ever materialized. But after a CNBC article yesterday claimed they were in “deep talks” it only took 24 hours to close the deal. Verizon has officially purchased Alltel (read the full press release at the bottom of this article).

The deal should be complete by years end with the contingency that it meets regulatory approval – $28.1 Billion dollars exchange hands in the deal.

Before the deal, THESE were the top 5 American carriers:

  • AT&T: 71.4 million subscribers
  • Verizon Wireless: 67.2 million subscribers
  • Sprint-Nextel: 52.8 million subscribers
  • T-Mobile: 30.8 million subscribers
  • Alltel: 13.17 million subscribers

But it will soon be:

  • Verizon Wireless: 80.37 million subscribers
  • AT&T: 71.4 million subscribers
  • Sprint-Nextel: 52.8 million subscribers
  • T-Mobile: 30.8 million subscribers
  • All remaining under 10 million

Imagine if the rumors of T-Mobile purchasing Sprint actually succeed… you’d have 3 HUGE, MEGA companies with around 70-80 million subscribers each and all the other subscribers would be left in the dust.

So how does this bode for Android and for consumers? Those are two very different questions…

It delivers a pretty irritating blow to Android and Google officials are probably wishing Alltel would have held out a little longer. We already know that Sprint and T-Mobile are founding members of the Open Handset Alliance, so they will undoubtedly embrace Android to some degree. But it is companies like Alltel who stood to gain most from Android.

While other companies such as AT&T and Verizon are worried about protecting their proprietary mobile products, companies like Alltel are looking for a competitive advantage against the big guys. Android would have been A FREE advantage since none of the big boys are likely to offer a phone that is 100% open. Android could have quite literally, saved Alltel.

Having a company like Alltel embrace the full openness of Android might not be crucial, but every bit counts when you’re trying to start a new phenomenon. Whats worse is, Alltel’s 13+ million subscribers fall into the hands of Verizon, who has recently been in fierce disputes with Google and seems to be making moves simply to spite Android.

Why Alltel… Why?

We know that Android enabled handsets are coming later this year. Are your finances hemorrhaging so badly that you couldn’t pass up the deal? Lets face it, the deal couldn’t have financially blown them away – Alltel was purchased less than a year ago for $29 billion, so they’re taking a LOSS on the deal.

I would be EXTREMELY interested to know if Google met with Alltel at all? Did they try to convince them to make things work? Because if I was Google, thats what I would have done. I would have told them to wait for Android, open their sails completely and allow it to be the breathing wind behind them.

And what about consumers? This obviously ensures consumers will have less choice and with more and more wireless companies being bought out, it seems like it won’t be long until only the big guys exist. And then, you’ll be able to complain about your mobile problems but have virtually no asylum with a smaller company.

More consolidation will occur – thats for sure. And Android is opening the door to consumers, allowing choice regardless of carrier. Isn’t that part of Android’s purpose or result to begin with? Tearing down the walled gardens of mobile carriers and the limited services they provide for consumers? I believe so…

Android in many ways remedies the very problem this purchase of Alltel could impose. But had it gone to AT&T or Sprint or any other company, it would have posed less of a threat.

And we don’t mean to say “threat” as in Verizon Wireless is bad because, the author of this article is long-time, faithful and loyal Verizon Wireless customer who loves the network and the service. But, we know they have been on shaky ground with Google… and the relationship of VZW with GOOG is one of the biggest mystery as Android pushes forward.

So what do you think – will this purchase have a positive or negative effect on mobile consumers?

Here is the full press release:

June 5, 2008

VERIZON WIRELESS TO ACQUIRE ALLTEL; WILL EXPAND NATION’S MOST RELIABLE WIRELESS NETWORK

Verizon Wireless has entered into an agreement with Alltel Corporation and Atlantis Holdings LLC, an affiliate of private investment firm TPG Capital and GS Capital Partners, to acquire Alltel Corporation in a cash merger. Verizon Wireless is a joint venture of Verizon Communications (NYSE: VZ) and Vodafone (NYSE and LSE: VOD).

Under the terms of the agreement, Verizon Wireless will acquire the equity of Alltel for approximately $5.9 billion. Based on Alltel’s projected net debt at closing of $22.2 billion, the aggregate value of the transaction is $28.1 billion.

The parties are targeting completion of the merger by the end of the year, subject to obtaining regulatory approvals.

Once this transaction closes, customers of both companies will have access to an expanded range of products and services, including a premier lineup of basic and advanced devices and an expanded IN Network calling community. Alltel customers also will benefit from advanced services including over-the-air downloadable music from a three-million-song library, and a network that is nationwide, for a uniform coast-to-coast experience. They also will be able to take advantage of industry-leading consumer policies, including Test Drive and Worry Free Guarantee®.

“This move will create an enhanced platform of network coverage, spectrum and customer care to better serve the growing needs of both Alltel and Verizon Wireless customers for reliable basic and advanced broadband wireless services,” said Lowell McAdam, Verizon Wireless president and chief executive officer.

Alltel serves more than 13 million customers in markets in 34 states. This includes 57 primarily rural markets that Verizon Wireless does not serve. The transaction puts the Alltel markets and customers on a path to advanced 4th generation services as Verizon Wireless deploys LTE technology throughout its network over the next several years. Alltel’s customers also will reap the benefits of Verizon Wireless’ Open Development initiative, which welcomes third-party devices and services to use the Verizon Wireless network.

Verizon Communications, the owner of the majority stake in Verizon Wireless, expects that the transaction will be immediately accretive, excluding transaction and integration costs. “This is a perfect fit, with Alltel’s high-value post-paid customer base, its solid financials, our common network technology, and significant, readily attainable synergies,” said Ivan Seidenberg, Verizon chief executive officer and chairman of the Verizon board. “Verizon Wireless’ acquisition of Alltel clearly provides opportunities for enhanced value for Verizon shareholders.”

Alltel President and Chief Executive Officer Scott Ford will continue in his current position as head of Alltel until the merger is completed.

“Both Alltel and Verizon Wireless have long track records of delivering a high-quality customer experience in the marketplace,” Ford said. “The combination of our two companies will continue and improve upon that heritage as, together, we can more quickly deliver an expanded range of innovative products and services to our customers.”

Verizon Wireless expects to realize synergies with a net present value, after integration costs, of more than $9 billion driven by reduced capital and operating expense savings. Synergies are expected to generate incremental cost savings of $1 billion in the second year after closing.

Alltel and Verizon Wireless both use a common network technology, which provides advantages of a seamless transition for Alltel customers, ease in integrating the two companies’ networks, and scale efficiencies in operating the larger integrated network.

Morgan Stanley acted as financial advisor to Verizon Wireless on this transaction and is providing bridge financing. Debevoise & Plimpton LLP acted as legal advisor to Verizon Wireless.

Citibank, Goldman Sachs and RBS advised the sellers on the transaction. Wachtell, Lipton, Rosen & Katz acted as legal advisor to Alltel, and Cleary Gottlieb Steen & Hamilton LLP and Ropes & Gray LLP acted as legal advisors to the sellers.

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