Verizon to replace Alltel in metro area

By Jim Stafford

Published: June 6, 2008

Alltel Wireless signs will come down at Oklahoma City area retail stores sometime later this year and be replaced by Verizon Wireless, a newcomer to the local market but the nation's second largest wireless telephone carrier.

Alltel Corp. agreed Thursday to a $5.9 billion buyout by Verizon Wireless that will create the nation's largest wireless telephone provider, eclipsing current No. 1 AT&T. When Alltel's 13 million subscribers in 34 states are added to the 67 million claimed by Verizon, the newly merged company will have more than 80 million subscribers.

The deal also includes assumption of $22.2 billion in debt by Verizon, bringing the total value to $28.1 billion, the parties said. The buyout is expected to close by the end of the year, pending regulatory approval.

Alltel operates 15 company-owned stores in Oklahoma and employs about 130 people. It launched its network in the Oklahoma City area and 10 surrounding counties in 2005 after taking over properties that formerly belonged to the old AT&T Wireless. When that company was bought by then-Cingular Wireless, federal regulators required Cingular to sell the Oklahoma City properties for competitive reasons.

Little Rock, Ark.-based Alltel is the nation's largest regional carrier and operates the same wireless technology that Verizon does.

The two companies have had a long-standing roaming agreement and the rumors of a Verizon buyout of Alltel have surfaced repeatedly over the past couple years.

In fact, Forrester Research telecommunications analyst Charles Golvin first predicted the Verizon-Atlltel deal when Cingular bought AT&T Wireless in 2004.

Alltel has distinguished its service by its "My Circle” calling plans. That program allows subscribers to call any of five, 10 or 20 designated numbers without costing any minutes from their monthly service plan.

"For the longer term, what (the sale) means for you (in Oklahoma) is you are likely to see advancement in the network,” said the Forrester Research analyst. "The next wave in advances in technology would likely come more quickly to you with Verizon than what Alltel could do on its own.”

In a news release issued by Alltel in the wake of the announcement, the company said no action is required by customers and that Alltel will operate as an independent company until the deal closes.

"There will be no immediate changes to local jobs,” Andrew Moreau, vice president for corporate communications said.

Atlanta-based telecommunications analyst Jeff Kagan said the industry consolidation among major players is largely over.

"We have finished with the major mergers with the Cingular-AT&T Wireless merger of a couple years ago,” Kagan said. "This is the first of the Tier 2 players, the smaller regional players. There may be several more of this type to go.”

The deal comes just seven months after Alltel was taken private by TPG Capital and a unit of Goldman Sachs Group. They paid $24.7 billion for the stock and took on $2.7 billion in debt, bringing the value of that deal to $27.4 billion.

The deal announced Thursday is likely to face scrutiny by the Department of Justice and the Federal Trade Commission, but analysts expect it to pass.

"It will take a while to get the deal approved and done,” Kagan said. "The next question is will this remain Alltel for a while or immediately change to Verizon Wireless. The next step (when) they merge the companies is to bring Alltel up to Verizon Wireless standards. That will take a while.”

Verizon Wireless expects that the deal to add immediately to earnings, excluding transaction and integration costs.

It expects the deal to generate "synergies” of more than $9 billion due to reduced capital and operating spending.

Analysts believe Verizon Wireless pays Alltel hundreds of millions of dollars a year in roaming fees, since Alltel provides coverage in many areas where Verizon Wireless service does not.

In a statement, Verizon Communications Chairman and Chief Executive Officer Ivan Seidenberg said Alltel is a "a perfect fit,” given its valuable customer base and solid financials. He also pointed to the fact that the carriers share the same network technology.

The $28.1 billion Verizon Wireless is paying, including debt, points to a small profit for the private-equity firms.

The buyout happened at a difficult time in the credit markets, and the banks that financed the deal reportedly ended up holding some of the debt on their books, rather than selling it. That put pressure on the buyout group to cash out.

Verizon operated only in fringe areas of Oklahoma before February 2007, when it launched service in the Tulsa area. The company opened a call center in Tulsa earlier this year.

Contributing: The Associated Press

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