Tricia Duryee
mocoNews.net
Friday, June 6, 2008
1:00 PM
Verizon Wireless's ( NYSE: VZ) $28.1 billion acquisition of Alltel will create the largest U.S. wireless carrier, but at the same time, it will eliminate one of the most innovative carriers in the country, which begs the question: Is Verizon buying Alltel for its towers and subscribers, or also for its forward-looking approach to the market?
As a regional carrier, Alltel may only serve 13 million subscribers in limited territories, but that gives the company a level of comfort and flexibility to quickly roll out new services without the constraints larger carriers face. It doesn't worry that millions of users will start using a new service overnight that may crash the network, and it doesn't have to train as many customer service and retail representatives every time it launches a new phone or application. So, the concern is that once apart of Verizon this attitude will fade. Some of it probably will, but if the merger gains regulatory approval, will companies lose an important petri dish, or gain a larger one?
As an example, Alltel was Seattle-based Ontela's first customer. CEO Dan Shapiro said he heard about the potential merger yesterday while in a board meeting. Immediately, the topic of conversation focused on how it would affect the industry. "There's two different thoughts," he said. "There's the conventional wisdom that the big carrier eats smaller carriers, and all good things come to the end," he said. But they came up with a second scenario: "They are buying a hard asset with towers and subscribers?that's 80 percent of the truth. Another piece is that Alltel has been a pioneer that experiments with the way to bring value to its subscribers, outside of text and voice services, and that's valuable. They have a full-time business development person in Seattle to make sure that everything gets back to Little Rock. I strongly suspect that Verizon sees that culture of innovation and that skill-set as a way to maximize innovation and minimize risk to its customers."
In addition to Ontela, which makes software that uploads photos from the phone to the Web, the list of advanced services Alltel has implemented is long. The Little Rock, Ark.-based company has launched a social-video service from Transpera, an area-code identification service from Cequint, and was the first U.S. carrier (before T-Mobile) to launch a plan that allowed users to identify 10 people they want to speak to for unlimited minutes at a set price. Alltel also was one of the first to launch JumpTap's white-label search service, which was notable at the time because it included advertising and provided one-click access by designated hard key on the phone. Alltel's push towards innovation has paid off, too, a point Verizon has likely not overlooked. In the first quarter, Alltel saw data revenues increase 74 percent to $123.8 million compared to the year ago period. In particular, it said revenues increased from popular data services, such as text and picture messaging and other applications, but also a voice and data bundle, which it launched a year ago. Alltel also posted the most significant month-over-month growth in mobile content to outperform the four major carriers across multiple categories, according to comScore ( NSDQ: SCOR) M:Metrics. For instance, between the months of March and April, it recorded a 28.2 percent jump in the number of subscribers who watched a video, beating Verizon's increase 6.5 percent increase.
To be sure, there will be benefits. Verizon said today it will expand the in-network calling to the combined customer base, and will offer advanced services to Alltel customers, such as over-the-air music downloads. Alltel will also join Verizon's 4th-generation path to LTE, and participate in its Open Development Initiative. And, by having a larger customer base, cost efficiencies will be created. And, it can't be underestimated that both carriers use CDMA and Qualcomm's ( NSDQ: QCOM) Brew technology. But what will be important going forward is to see is if the benefits go both ways. Shapiro said he believes Verizon is leaning in that direction with recent conversations he's had with the carrier being focused on lowering the walls and widening the gates. "I'm not fearful or apprehensive. There's a good opportunity for both parties to make something great out of it. Time will tell," he said.
But the consolidation is not just limited to Alltel ( NYSE: AT). In the not so distant past, T-Mobile USA bought SunCom; AT&T ( NYSE: T) acquired Dobson Communications and Edge Wireless; and Verizon Wireless bought Rural Cellular Corp. Although the purchases are small?especially in comparison to Cingular's $41 billion buyout of AT&T Wireless?it remains to be seen whether the impact of these little ones will be more lasting.
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