Justice Backs Verizon-Alltel Deal

By Cecilia Kang
Washington Post Staff Writer
Friday, October 31, 2008

The proposed merger between Verizon Wireless and rural carrier Alltel to create the nation's largest wireless company moved a step closer to reality yesterday after the Justice Department signed off on the deal.

Officials with the Justice Department said they would back the $28.1 billion merger on the condition that the combined company divest radio spectrum assets in 100 markets in 22 states where the two companies overlap. The merger must pass final regulatory approval by the Federal Communications Commission, which is scheduled to vote on the deal at its Nov. 4 meeting.

"It was a very long and thorough merger evaluation," said John Thorne, general counsel for Verizon. And the Justice Department "did it with terrific speed and thoroughness."

Public interest groups have criticized the plan to join Verizon, the nation's second-largest carrier, and Alltel, the fifth-largest carrier, saying the unified company would stifle competition and consumers would be have fewer choices among cellphone network operators. A combined Verizon-Alltel would create the largest wireless operator with 83.8 million subscribers. AT&T would be second with 74.9 million subscribers, followed by Sprint Nextel with 51 million and T-Mobile with 30.8 million.

"My most important concern is that you are removing a strong rural player who had an incentive to be a good guy with other rural players," said Chris Murray, senior counsel for consumer interest group Consumers Union. "With Verizon buying another 13 million customers, it's people with smaller carriers who need to worry."

To assuage those fears, the Justice Department is requiring Verizon to sell spectrum in 15 more areas than it had previously demanded. Verizon earlier had agreed to divest spectrum in 85 markets.

"The divestitures required are necessary to protect wireless customers and are among the most extensive required by the Department in a wireless case," said Thomas O. Barnett, head of Justice's antitrust division.

The addition of Alltel's network to Verizon Wireless would give Verizon greater access to hard-to-reach rural areas where it is expensive to build cell towers and other technologies to support the growth of high-speed wireless.

Last March, Verizon spent $9.4 billion at an FCC auction for valuable wireless radiowaves, which the company plans to use for high-speed wireless Internet access to compete with similar plans by AT&T and Sprint Nextel's WiMax technology.

Yet the speed of the approval is one criticism aimed at Justice and the FCC by public interest groups who have pressed for stronger rules to protect smaller carriers who have depended on Alltel for roaming services.

As part of its merger proposal, Verizon has said it would maintain Alltel's roaming contracts with other carriers for as long as two years or the term of the existing contract.

The acquisition would take place in a bleak economic environment where few corporations have had access to cash in capital markets for such ambitious and expensive purchases.

During a third-quarter earnings conference call earlier this week, Verizon Communications chief executive Ivan Seidenberg said that the tighter credit environment would eat into shareholder expectations of an additional 10 cents a share in the first year after combining the companies. But he reiterated Verizon's commitment to follow through on the deal.

The $28.1 billion acquisition represents the purchase of $5.9 billion in Alltel's equity and the assumption of $22.2 billion in debt held by Alltel.

"Our goal, of course, is to close the deal as fast as we can," he said.

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