Verizon to dump 85 markets to close Alltel deal

In a letter filed with the FCC on Tuesday, Verizon Wireless proposed to divest itself of 85 markets dispersed throughout Alltel’s operating territory in order to meet the Commission and the U.S. Department of Justice’s competitive requirements for merger approval.

The 85 markets lie in 18 states from Georgia to California, including the entirety of South Dakota and North Dakota. Most of the other divestitures would be for small and rural markets scattered throughout the plains and western mountain states, the southeast and the southwest. According to an analysis by Stifel Nicolaus, the markets comprise roughly 15% of Alltel’s 13 million-strong subscriber base—about 2 million customers. Stifel also pointed out that several of the proposed markets are in Rural Cellular’s territory, which Verizon is poised to acquire in August for $2.67 billion. Instead of divesting Alltel markets, Verizon could choose to dump to Rural Cellular territories in Minnesota, Kansas and South Dakota to keep more of the Alltel footprint intact.

In his letter to the FCC, Verizon Wireless deputy general counsel John Scott said that the Alltel acquisition “promises tremendous consumer benefits,” but he noted that both Alltel and Verizon Wireless are prepared to address any competitive issues that arise in specific markets due to the combination of both companies’ vast network and spectrum resources. Scott’s letter also said Verizon arrived at the 85 markets through consultation with the U.S. Department of Justice, but Stifel Nicolaus noted that such consultation doesn’t necessarily mean that the deal is done. The DOJ’s antitrust division could require Verizon to unload additional markets especially considering the spectrum haul Verizon took in the 700 MHz auction, Stifel said. Then there are political considerations.

Stifel’s research note said the upcoming presidential and Congressional elections loom over the deal, as any new President would likely change the makeup of the FCC as well as appoint a new Attorney General. “This creates a climate where any but the most trivial acquisition by Verizon and AT&T is vulnerable to challenge,” the analysis concluded. “Despite this, however, applying the criteria the government developed in recent merger reviews, we believe the merger will pass antitrust scrutiny, with divestitures required by the DOJ and potentially some additional conditions required by the FCC.