Verizon looking to buy Alltel, again?

Alltel, which was sold to private equity firms a year ago, could be up for sale again--and Verizon Wireless may be in talks to buy it.

Verizon Wireless is taking another look at buying regional wireless operator Alltel, according to a story published Wednesday afternoon by The Wall Street Journal.

The deal, which could be valued at around $27 billion, is at a sensitive stage and could fall through over the next few days, the newspaper reported.

Alltel was sold only last year for $27.5 billion to the buyout arm of Goldman Sachs and private equity firm TPG Capital. And, according to the Journal, the banks that financed the deal, including Goldman Sachs, Citigroup, Barclays, and Royal Bank of Scotland Group, still owe about $24 billion in loans and bond financing. But the firms see a sale to Verizon as a way to cut their losses on the financing. The article said a person familiar with the deal said the banks would get a nominal return on their investment.

A takeover of Alltel by Verizon Wireless would create the largest cell phone operator in the country with some 80 million subscribers. AT&T, which is currently the nation's largest cell phone provider, reported at the end of last quarter that it has 71.4 million customers. Verizon Wireless, jointly owned by Verizon Communications and U.K.-based Vodafone Group, would gain customers mainly in the Midwest and South where Alltel operates.

A merged company of this size would no doubt be scrutinized by regulators in the Department of Justice and the Federal Communications Commission. And it's likely that Verizon would have to divest some of its assets in markets where the companies overlap.

But that said, Verizon Wireless is the most likely competitor to acquire Alltel. The two companies both use the CDMA (code division multiple access) cellular technology. And they also share a similar technology road map. Earlier this year, Alltel said it would use a next-generation wireless technology called LTE to build its 4G network, the same technology Verizon has said it will use to build its 4G network.

As for any other potential buyers, Sprint Nextel, the other CDMA carrier in the U.S., is in no position to make a big acquisition like this one. The company has seen its subscribers and profits plummet since the failed merger with Nextel in 2005. In fact, some analysts speculate that Sprint Nextel is also on the auction block. The company has already spun off its WiMax division to combine it with Clearwire's network assets. And rumors have floated around that German-based Deutsche Telekom has been eying it, although this seems highly unlikely.

T-Mobile and AT&T are unlikely bidders for the company since they use a different technology called GSM (Global System for Mobile Communications).

Verizon Wireless was among the companies that considered buying Alltel last year when the company first started shopping itself around. And rumors had circulated back in 2005 that Verizon was interested in purchasing the regional cell phone operator. Both times the company didn't make its move.

Verizon Wireless currently has the strongest network in terms of quality and customer base. It's highly profitable and has low levels of turnover, so there's no real reason the company needs Alltel. It seems to be doing just fine on its own. Still, a major move by Verizon could spark even more consolidation in the cellular market.

 

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