Mergers

Verizon-Alltel Merger Provides Roaming Guarantees

Bernie — Tue, 04 Nov 2008 11:56:00 -0500

The “horse trading” effect was strong at the Portals, headquarters of the FCC, today. Today’s historic FCC meeting was delayed by over four hours as dealmaking between commissioners took place before their votes were counted on issues with significant competitive implications. One of those decisions will potentially create the largest wireless service provider in the U.S., as Verizon’s merger with Alltel was approved. Assuming it still makes financial sense, Verizon will surpass AT&T as the biggest wireless kid on the block, with 70 million+ subscribers. Conditions that were placed on the merger include divestiture of additional markets, including the entire states of North and South Dakota and guaranteed roaming requirements.

The roaming requirements are of particular interest because of their impact on the wireless sector competitive environment. Roaming revenue is crucial to the cash flow of smaller rural and regional wireless carriers. These same carriers feared that the market power of a company the size of the new Verizon could simply change the rules on roaming and dictate unfavorable, and perhaps crushing, terms. Those interests pushed for hardline roaming requirements to be attached to any merger approval. What they got was four years. The FCC’s approval of the merger is contingent on the new Verizon guaranteeing that both Verizon’s and Alltel’s current roaming agreements will remain in place for at least four years. The devil is in the details, and the exact terms of these contingencies won’t be fully understood until the final ruling is examined. Some will ask that while four years does provide some stability, what happens in year five?

Verizon/Alltel Divestiture Carries Competitive Implications

Bernie — Wed, 23 Jul 2008 17:25:47 -0400

Ahead of their Alltel acquisition regulatory review, Verizon filed a letter with the FCC outlining their wireless spectrum divestiture plans. In hopes of reducing “market dominance” fears, they plan on divesting of 85 markets, including all of North and South Dakota, and rural serving areas in California, Colorado, Idaho, Montana , Minnesota, Kansas, Illinois, Nevada, New Mexico, Utah, Wyoming, Georgia, Virginia, North Carolina, South Carolina, and Ohio. Larger markets in the divested territories include Billings, Great Falls, and Casper. The divested territories may include either Alltel or Rural Cellular territories. Verizon’s acquisition of Rural Cellular is expected to close later this year. Additionally, Verizon committed to maintaining all existing roaming agreements with “regional, small and rural carriers” for the length of those existing agreements. Of course, once those existing agreements expire, those regional, small and rural carriers will need to negotiate a new deal. Judging by most recent roaming agreements between large and small carriers, “negotiate” can be a very relative term.

This potential opening of 85 markets presents opportunities with competitive implications. The usual suspects of AT&T and T-Mobile will surely take a look at acquiring these markets, and so will smaller carriers like MetroPCS and Leap. But perhaps even smaller rural carriers may get an opportunity to gain a foothold in these markets and offer a true competitive option to the large national brands. Smaller carriers, many of whom currently lack wireless assets, probably have much more interest in serving these rural territories. Should public policy mandate that the divested properties be given preferential acquisition treatment to carriers other than the usual suspects? Or maybe a consortium of rural carriers (new or existing) should consider trying to gain these wireless assets. These are questions worth debating.

Sprint to be Acquired?

Bernie — Tue, 15 Jul 2008 16:36:47 -0400

Update - The Wall Street Journal is reporting that negotiations between Sprint and SK Telecom are for strategic partnership considerations, not a merger. The two are apparently looking at ways to collaborate on issues like handset and application development.

The rumor mill has started again on Sprint. There are reports that Sprint is in play to be acquired by SK Telecom of Korea. SK Telecom is one of Korea’s largest wireless providers and has tried to enter the U.S. market before. Several years ago they partnered with Earthlink on the failed Helio MVNO. The remnants of Helio were recently sold to Virgin Mobile. Sprint takeover rumors have been circulating for the past year, with other rumored suitors to have been Alltel, Verizon, and even Comcast. SK also tried an earlier investment in Sprint for $5 billion, tied to the insertion of former Nextel CEO (and former Sprint Chairman after the Sprint-Nextel merger debacle) Tim Donahue as CEO. That plan was rejected by Sprint’s board, and Dan Hesse, formerly of Embarq, was appointed CEO.

Fairpoint/Verizon Deal Finalized

Bernie — Wed, 27 Feb 2008 09:26:11 -0500

FairPoint’s purchase of select Verizon assets in the northeast, including territories in Maine, New Hampshire, and Vermont, cleared its remaining regulatory hurdles this week. The deal catapults North Carolina based Fairpoint into a top ten telecom carrier in the U.S. Fairpoint agreed to several regulatory mandates including expanding broadband to 75 percent of its telephone access lines within 18 months of closing the deal, 85 percent within two years and 95 percent within five years. The competitive implications of this transaction are somewhat unclear. Certainly Fairpoint will pay more attention to these markets than Verizon planned to, so I suspect FairPoint will be a more engaged competitor. FairPoint partners with DirecTV for the video portion of their triple play. As is the case with most transactions of this size, it will take some time for the dust to settle and the true competitive landscape to be defined.

Microsoft Bids for Yahoo

Bernie — Fri, 01 Feb 2008 09:34:39 -0500

In an attempt to meet Google’s competitive challenge head on, Microsoft has bid $44.6 billion dollars to acquire Yahoo. Yahoo, while still a premium Internet brand, has been battered by Google and is in probably its weakest position since it began. Microsoft offered $31 share, which represents a 62% premium over Yahoo’s last closing price. If approved, this would be one of the largest business takeovers in history. The implications of a combined Microsoft – Yahoo are enormous. Their combined leverage in software, search, Internet advertising, content, and mobile would create a behemoth of a company, quite capable of meeting Google’s growing dominance.

View a Microsoft PowerPoint presentation detailing the transaction here.

Paetec/McLeod Merger Creates Massive CLEC

Bernie — Mon, 17 Sep 2007 13:28:58 -0400

Paetec and McLeod reached an agreement over the weekend to merge. The combined company will create one of the largest CLECs in the country – one that can more competently compete with the likes of AT&T, Verizon, and XO. Paetec is buying McLeod for $557 million, including $65 million of McLeod debt. The combined company will have approximately 3.4 million access lines. Consolidation in the telecom sector continues. Carriers (and vendors) of all sizes are beefing up their scale in order to compete in the changing telecom landscape. We suspect these mergers to continue. The movement to an all Internet protocol (IP) world makes it much more difficult for carriers to operate as an “island.”

The TDM world allowed carriers to carve out their own footprint and operate as independently as they cared to. But the continuing migration to an all IP broadband network now makes such a strategy much more tenuous. IP opens all networks to competitors from far and near. Carriers will continue to look for ways to strengthen their position through strategic mergers, alliances, and coalitions.