The Future Calls Alltel and Verizon Wireless

Carl Weinschenk

Alltel was long considered the most attractive of the second-tier cellular companies. This makes its acquisition for $28.1 billion by Verizon Wireless something of a milestone. If the deal is consummated, the new entity will be bigger than AT&T and thus the nation's largest mobile operator. Of course, as with any acquisition this size, the precise ramifications won't be apparent for a long time.


In any context, this is a big deal. Alltel has 13 million customers in 34 states, mostly in the south and midwest. The combined entity will have more than 80 million subscribers, comfortably more than AT&T's 71.4 million.


It's axiomatic to say that the success of any merger or acquisition largely depends upon how adroitly the new company handles integration and other corporate matters. Both companies use Code Division Multiple Access (CDMA). Starting with the same essential technical underpinnings builds on the economies of scale in purchasing and makes the combined entity more cohesive.


The wild card here is that the cellular industry is in the throes of great change. The market is shifting emphasis from voice to data. The network model limiting the phones people can bring to a particular network is beginning to fade. The industry still is figuring how it will utilize fixed mobile convergence (FMC) platforms. As we suggested earlier this week, FMC is getting hot again. Experts suggest, however, that there is real reason for optimism this time around.


The networking standard also is in flux, as deployment of 3G finishes and attention shifts to 4G. This is an extraordinarily important issue for the cellular industry. Increasingly, it looks as if LTE -- Long Term Evolution -- will win. It has been chosen by AT&T, Verizon Wireless and Alltel, so it is another area in which the coalescing companies are on the same page. It will be a long and challenging transition, however, since LTE is still relatively early in its development cycle.


The other carriers aren't standing still, of course. Perhaps by accident or perhaps to take at least a bit off the luster off the Verizon/Alltel announcement, AT&T said early last week that it had jacked up the speeds of its 3G services. The top downlink speed, this story says, increased by more than 20 percent and the top uplink speed accelerated by 50 percent. Far more detail is available in the release, but the bottom line is that the changes bring top downlink and uplink speeds to 1.7 Mbps and 1.2 Mbps, respectively.


Many mergers and acquisitions succeed or fail based on how the new entity deals with an essentially static industry. The Verizon/Alltel marriage may be a bit different in that its fate will hinge on how it reacts to changes that are only beginning to happen.

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