Verizon told to sell assets with Alltel merger

[October 31, 2008]  WASHINGTON (AP) -- The Justice Department on Thursday effectively gave Verizon Wireless the go-ahead to buy Alltel Corp. in a $28 billion deal that would create the nation's largest wireless carrier.

Verizon Wireless, a joint venture between Verizon Communications Inc. and Britain's Vodafone Group PLC, already has agreed to the government's condition that it sell assets in 22 states.

"We're pleased that the Department of Justice has granted approval," said Robin Nicol, a Verizon Wireless spokeswoman. "It's another step in the right direction."

The Federal Communications Commission is slated to vote on the merger on Tuesday.

Andrew Moreau, an Alltel spokesman, said the company is "looking forward to the FCC meeting scheduled for next week."

Justice Department lawyers joined seven states in a lawsuit filed Thursday to block the merger, but also filed a proposed settlement that would require Verizon Wireless to divest assets in 100 markets. Without that action, the Justice Department said, the deal would hurt competition, drive up consumer prices and likely produce a lower-quality network.

"The divestitures required are necessary to protect wireless customers and are among the most extensive required by the department in a wireless case," Assistant Attorney General Thomas O. Barnett said in a statement.

Under terms of the deal, Verizon Wireless plans to buy Little Rock, Ark.-based Alltel Corp. for $5.9 billion plus the assumption of $22.2 billion in debt.

To win regulatory approval, Verizon must sell assets in 100 areas, including holdings in the entire states of North Dakota and South Dakota and large portions of Colorado, Georgia, Kansas, Montana, South Carolina, Utah and Wyoming. Verizon also must sell assets in Alabama, Arizona, California, Idaho, Illinois, Iowa, Minnesota, Nebraska, Nevada, New Mexico, North Carolina, Ohio and Virginia.

Rebecca Arbogast, an analyst with Stifel Nicolaus, estimates the combined company will have about 78 million subscribers nationwide following the divestitures. Verizon Wireless had 70.8 million customers as of the end of the third quarter. Alltel has more than 13 million customers.

Arbogast said Verizon was proactive in identifying 85 markets for possible divestiture to order to quickly win regulatory approval, before the Bush administration leaves office. The Justice Department then identified another 15 markets for divestiture, she said.

The proposed merger has raised concerns about the impact on competition in the mainly rural, inland markets that Alltel serves. Consumer advocates also fear Verizon Wireless won't have the same incentive as Alltel to strike roaming agreements with other regional and small wireless carriers that rely on the company to provide service in areas where they lack operations.

"The wireless market is quickly becoming less competitive, which likely means less innovation in phones and Internet services," said Christopher Murray, an attorney with Consumers Union. "The FCC needs to protect the ability of smaller carriers to roam onto Verizon's network for both voice and data services, and ensure this merger doesn't result in higher phone prices."

Jessica Zufolo, an analyst with Medley Global Advisors, believes the FCC could address the roaming issue when it votes on the merger next week. She added that the commission also could require Verizon Wireless divest assets in five additional markets before signing off on the deal.

[Associated Press; By JOELLE TESSLER and LARA JAKES JORDAN]

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