Is the Verizon-Alltel deal good for consumers?

The $28.1 billion merger on its own won't likely impact pricing, but if the market continues to consolidate, prices could stagnate, especially for data services.

Verizon Wireless' plan to buy regional cell phone company Alltel will make it the largest cell phone operator in the country with more than 80 million subscribers. But for consumers, is a behemoth Verizon a boon or a beast?

That's the question that regulators will ultimately decide. The biggest fear for consumer advocates when companies merge is that consolidation means fewer choices for consumers, and fewer choices often leads to higher prices.

So far consumer advocates seem split on the issue.

"If the deal goes through, two companies, Verizon and AT&T, will control about 150 million of the 260 million wireless customers in the U.S.," Gigi B. Sohn, president and co-founder of Public Knowledge, said in a statement. "With Sprint in a weakened condition, this deal will speed the unfortunate trend of giving consumers fewer, rather than more choices in telecommunications services, while giving a few companies more control over the lives of consumers."

But other groups seem less concerned.

"Alltel being bought won't be enough to impact pricing. But if there is more consolidation that could eliminate some competition. And it could further slowdown future price drops."
--Tole Hart, Gartner analyst

"We'll ask for a careful review, but I don't see enormous antitrust problems," Gene Kimmelman of the Consumers Union told The Wall Street Journal.

The reason is that there are relatively few markets where Verizon Wireless and Alltel are the only two carriers offering service. And in places where there are the only two cell phone companies offering service, it's likely that regulators would force Verizon to sell off some of its assets to another provider.

For the most part, analysts say that the Verizon-Alltel merger by itself will have relatively little impact on pricing. But if the market continues to consolidate and other small players are gobbled up by bigger players, or one of the four major players buys another major player, then prices could stagnate, especially for data services.

"Alltel being bought won't be enough to impact pricing," Tole Hart, an analyst with Gartner said. "But if there is more consolidation that could eliminate some competition. And it could further slowdown future price drops."

Currently, the wireless industry is a poster child for competition throughout most of the U.S. There are four major nationwide wireless operators--AT&T, Verizon Wireless, Sprint Nextel, and T-Mobile USA--which operate in almost every major market in the U.S. Over the last few years, this four-player oligopoly has successfully forced down pricing on voice minutes.

But in the past year, prices have stabilized, with all of the major players offering similarly priced plans starting at about 450 to 500 minutes of talk time per month for about $39.99. Competition has also forced these players to offer unlimited talk plans for around $99 a month.

Differing on data plans
Where prices differ the most is in data plans for smartphone users. While Verizon offers 450 minutes of talk time and unlimited data for $79.99 a month, Alltel offers a similar plan for $69.99. Sprint Nextel also offers its Simply Everything plan with 450 voice minutes and unlimited data and messaging for $69.99. AT&T's lowest cost data and voice plan is comparable to Verizon's at about $75 a month.

But where consumers often get the best deals is in rural areas where smaller, regional players, such as Metro PCS and Leap Wireless operate. These providers offer all-you-can-eat plans for a low fixed price. For example, MetroPCS offers regional calling plans for $30, $35, $40, $45 or $50, depending on which features are selected.

While these operators are relatively small--MetroPCS only has 3 million subscribers--they are also the most likely to be gobbled up by bigger players. And if that happens, many of these low-cost, no-contract plans will go away.

The big cell phone operators have already shown interest in some smaller players. AT&T late last year completed its purchase of Dobson Communications. And Verizon Wireless is also in the middle of acquiring Rural Cellular.

But acquisitions of these smaller rural carriers will only affect a limited number of customers in small markets. The biggest impact on pricing from consolidation could occur if Sprint Nextel or T-Mobile USA, the No. 3 and No. 4 national carriers respectively, were to be bought.

Currently, these operators have been the ones putting the most pricing pressure on AT&T and Verizon to stay competitive with their cell phone plans. T-Mobile's MyFaves program allows callers to call any five numbers on any network without using their minutes. And Sprint has long offered competitive data pricing.

While AT&T and Verizon haven't responded to these pricing structures by lowering their prices, they have been trying to offer customers more services and features for the same price.

Right now it's hard to imagine either Sprint Nextel or T-Mobile being bought. Sprint is the most likely major wireless carrier to be acquired, but there aren't many potential suitors. Verizon is the only major carrier that uses its CDMA technology, and it has no reason to take on Sprint's mountain of problems .

T-Mobile's parent company Deutsche Telekom has supposedly been eying the struggling cell phone operator , but the two companies use different wireless standards that would make integrating the networks complex and expensive.

So for now, it doesn't appear that consumers have much to worry about when it comes to a Verizon/Alltel marriage. That said, consumers are anxious about consolidation. What do you think? Feel free to share your thoughts in the Talk Back section of this blog.

 

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