Verizon Wireless agreed Thursday to buy Alltel Corp. in a $28.1 billion deal that would create the nation's largest cellular carrier, catapulting it ahead of rival AT&T Inc.
Alltel, with service mainly in the South and Midwest, has more than 13 million customers in 34 states, including the Carolinas. The carrier also serves 57 mainly rural markets that Verizon does not.
Alltel customers should see no changes until the merger is finished at year's end, experts said.
Adding Alltel's customers would return Verizon to the top spot with more than 80 million subscribers. AT&T, based in San Antonio, Texas, has 71.4 million.
Digital Access for only $0.99
For the most comprehensive local coverage, subscribe today.
Under the deal, Verizon Wireless, a joint venture of New York-based Verizon Communications Inc. and the British Vodafone Group PLC, would pay $5.9 billion for Alltel plus assume $22.2 billion in debt.
“This provides Verizon with markets it doesn't reach,” Forrester Research analyst Charles Golvin said. “Alltel customers will benefit by greater national coverage, a greater selection of phones and converged devices and access to future services.”
Verizon executives, noting that they've been eyeing Alltel for a long time, said the deal would mean a more seamless experience for customers with less wireless roaming.
The companies said they expect to complete the deal by the end of the year if regulators approve. Analysts say approval is likely, although Verizon may be required to sell some assets where coverage overlaps.
The deal will require the “utmost scrutiny” by policy makers to ensure it doesn't hurt competition or consumers, U.S. Rep. Edward Markey said. Antitrust officials and the Federal Communications Commission should study the deal's impact on wireless roaming agreements, said Markey, a Massachusetts Democrat who heads the House subcommittee that oversees telecommunications issues.
The deal would give Verizon bragging rights as the top wireless carrier again, said Jeff Kagan, an independent telecommunications analyst.
However, he said, big changes in the overall marketplace are unlikely, since “both AT&T and Verizon are huge players.”
Competition is likely to heat up in markets where AT&T faces off with Alltel but where Verizon has not been a player, Golvin said.
Verizon said the deal will mean about $1 billion in savings in the first two years from administrative cuts and reduced roaming expenses.
While Alltel is large among the second tier of carriers, it is a “small enough thing for Verizon to bite off” and make the merger work, said Jupiter Research analyst Julie Ask.
The Alltel deal provides Verizon with a growth opportunity at a time when the wireless market is increasingly saturated.
AT&T and Verizon have recently benefited at the expense of Sprint, which has faced financial troubles and millions of defecting subscribers.
“Growth now comes from wireless data, winning customers from each other and mergers,” Kagan said.
With the biggest players having gone through mergers, the Alltel deal signals the start of a second wave among smaller carriers, he said.
Verizon Communications CEO Ivan Seidenberg called the Alltel deal a “perfect fit,” noting Alltel's valuable customers, solid financial situation and a common wireless network technology, allowing for a smoother transition.
The deal comes just seven months after TPG Capital and a unit of Goldman Sachs Group bought Alltel, which is based in Little Rock, Ark. They paid $24.7 billion for the stock and took on $2.7 billion in debt.
Seidenberg, speaking on a conference call with analysts, said he approached those partners with an initial proposal in April and negotiations began in earnest two weeks ago. Bloomberg News contributed.