Verizon Wireless and Alltel are merging in a $28.1 billion deal that analysts said could have a ripple effect through the U.S. wireless industry -- if the integration goes smoothly.
Verizon Wireless' acquisition crowns it king of the carriers in the U.S., dethroning AT&T and possibly signaling an eventual acquisition of Sprint Nextel, analysts said. Verizon will add 13 million clients in 34 states and save about $9 billion from the purchase. Synergies are expected to generate incremental cost savings of $1 billion in the second year after closing.
"This merger adds a significant number of customers to Verizon's strong and rising total. Alltel has common network technology, though Verizon has somewhat higher data rates. Alltel fills in-coverage gaps in rural areas and it's got some good cost synergies," said Michael Gartenberg, an analyst at JupiterResearch. "This is a merger, at least on the surface, that seems to make a lot of sense. You can certainly understand the logistics and we now have a new king of the hill in terms of carriers."
Can Sprint Compete?
The multimillion-dollar question, though, is what does the Verizon-Alltel hookup mean for Sprint? T-Mobile benefits from economies of scale, thanks to its corporate parent in Europe. But does Sprint have enough scale to be cost-competitive with the other carriers?
"T-Mobile also benefits by the fact that it is not into the local, long distance, TV infrastructure service offerings that AT&T and Verizon are in," Gartenberg said. "At this point, WiMAX is still just a Sprint thing. It will be very interesting to see how this plays out."
WiMAX (Worldwide Interoperability for Microwave Access) is designed to provide wireless connections over long distances and is faster than today's 3G networks. With embedded WiMAX chipsets in laptops, phones, PDAs, mobile Internet devices, and consumer electronics equipment, WiMAX is expected to allow users to wirelessly access a range of multimedia applications such as live videoconferencing, recorded video, games, large data files, and more -- anywhere in the network coverage area.
The WiMAX Question
In May, Sprint Nextel and Clearwire announced a $14.5 billion initiative to combine their wireless broadband businesses and form a new wireless communications company. Named Clearwire, the new company will focus on expediting deployment of the first nationwide WiMAX network for widespread mobile broadband. Intel, Google, Comcast, Time Warner Cable, and Bright House Networks invested $3.2 billion into the new Clearwire.
"I don't see Sprint staying CDMA, and I don't see it going WiMAX. What are you going to do with the WiMAX? Are you going to use it for mobile data or mobile voice? With only one carrier using WiMAX it's going to be hard to convince the handset makers to start putting WiMAX chips in their phones," said Mike Disabato, a senior analyst at The Burton Group. "So it's going to end up being a data-only ploy. What you are going to find is it's going to have to be one heck of a data-only ploy with really good coverage for people to start buying into it."