The Department of Justice approved Thursday the $28.1 billion planned acquisition of Verizon Wireless (VZ) and regional cell phone operator Alltel Corporation. The acquisition, if approved by Federal Communications Commission [FCC] on November 4, will make Verizon Wireless the largest cell phone company operator in the U.S., stripping AT&T (T) of that title. By adding Alltel’s 13.2 million customers Verizon will bring the total of its subscribers base to some 80 million in 49 states, surpassing AT&T which at the end of last quarter had 71.4 million customers.
However, the Justice Dept.’s green-light on the merger, as noted in its statement – was based strictly on one condition, that of Verizon divesting assets in 100 local markets in 22 states. The divestitures include coverage of entire states of North Dakota and South Dakota; large portions of the states of Colorado, Georgia, Kansas, Montana, South Carolina, Utah and Wyoming; and portions of the states of Alabama, Arizona, California, Idaho, Illinois, Iowa, Minnesota, Nebraska, Nevada, New Mexico, North Carolina, Ohio and Virginia.
The Justice Dept. in its statement also mentioned that the transaction as originally proposed would have significantly lessened competition for consumers of mobile wireless services in those areas where the companies overlap, and would have resulted in higher prices and reduced network investments.
Thomas O. Barnett, Assistant Attorney General in charge of the Department’s Antitrust Division said:
The divestitures required are necessary to protect wireless customers and are among the most extensive required by the Department in a wireless case.
This acquisition makes sense for Verizon Wireless. The two companies are technologically compatible since they both use the code division multiple access cellular technology, so network integration should not represent a major challenge on combining the two carriers. In addition, the combination will allow subscribers to fully benefit from an expanded joint network.
In fiscal ’07, Verizon earned mobile wireless telecommunications services revenues of approx. $43 billion. Alltel, earned approx. $8.8 billion.
The $28.1 billion acquisition represents the purchase of $5.9 billion in Alltel’s equity from Verizon and the assumption of $22.2 billion in debt held by Alltel.