Verizon Pushes for One More Mega-Merger with Alltel Buy

Those risks include trying to close the deal by the end of the year, Zufolo explained. For that to happen, Verizon must file its license transfer application with the FCC before the end of June. After that, the FCC would start its six-month merger review period.

“If history is any guide for anyone who has followed the approval process for a merger or leveraged a buyout transaction at the FCC, achieving approval in six months is not common,” Zufolo said.

Plus, if the Department of Justice’s antitrust division needs to review the transaction, which it surely will, that will eat up even more time.

Other risks pertain to conditions that the FCC can impose on the transaction.

“Verizon will need to make concessions on issues they have largely resisted,” Zufolo said, such as specific network neutrality mandates and open-handset requirements for the C block spectrum; stricter buildout requirements in certain rural markets; concessions on early termination fees; and, possibly, spectrum divestitures.

Despite those predicted requirements, the chances of the Verizon-Alltel deal falling apart are slim, analysts say. So, Verizon is preparing to become the No. 1 wireless carrier in the United States. AT&T Inc. will fall to No. 2, since Verizon will be able to claim more than 80 million customers with the addition of Alltel; AT&T had 71.4 million as of its last quarterly report.

“This business is all about scale and AT&T has had an edge recently in that department,” said Dawson. Acquiring Alltel should “right the balance again, from Verizon's perspective.”

Indeed, Verizon gets complementary geographic coverage and more roaming territory, Ayvazian said. And now that Verizon plans to use the Long Term Evolution (LTE) protocol to upgrade to 4G, Alltel’s network will receive that same improvement, he added. Alltel was struggling with how to migrate to 4G within four years, to keep up with its Tier 1 rivals — it no longer has to worry about that. But above all, Verizon took away Sprint Nextel Corp.’s obvious option for growth.

“We’ve been saying all along that one of the ways to move Sprint ... would be for Sprint and Alltel to merge,” Ayvazian said. Sprint would have leap-frogged to the No. 2 spot, had it bought Alltel instead of Nextel. And considering Sprint’s woes, its desperate need for a competitive edge, “this is quite preemptive for Verizon to have stepped in front of Sprint.”

To that end, Medley Global expects Sprint to be one of the carriers that will fight the Verizon-Alltel move, alongside T-Mobile USA.

“This deal could rekindle their campaign to get the FCC to revisit the current special access pricing and provisioning regime that they view as unreasonable,” Zufolo said. “The FCC may be hard-pressed not to consider this issue.”

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