Verizon And Alltel: Too Much Power In Two Sets Of Hands

Word from Vodafone (VOD), which owns part of Verizon Wireless, and other sources is that Verizon is looking at a purchase of Alltel, another cellular carrier. TPG Capital and Goldman Sachs Capital Partners own Alltel now.

According to the FT, "Adding Alltel’s 13.2m subscribers to Verizon Wireless’s 67.2m would create the largest wireless carrier in the country." The Justice Department, which spends its time vetting things like the Sirius (SIRI) merger and Microsoft’s (MSFT) antitrust activity, probably won’t look at the Verizon deal at all. But, maybe it should.

The wireless industry in the US is down to two companies–Verizon Wireless and AT&T (T). Earlier this year, both companies set $99.99 unlimited voice and data plans. Sprint (S) and T-Mobile had to come up with plans to best or match that, whether it was good for them financially or not.

For about $27 billion, Verizon Wireless can put the No.2 carrier and No.5 carrier together. Sprint’s entire market cap is $26 billion, which shows how much Verizon is willing to spend to further corner the market.

Verizon would make the argument that Sprint and T-Mobile are true competition. But, Sprint is on life support and loses customers every quarter, and T-Mobile is too small to matter in a market where Verizon and AT&T will have two-thirds of the market.

When competitors have no pricing leverage and one deal can take over 10% of the competitive capacity out of the market a duopoly is all that remains.

Douglas A. McIntyre