Verizon Buys Alltel to Bolster User Base

(MoneyWatch)  Verizon Wireless said Thursday that it will buy Alltel to beef up its network for about $28.1 billion.

The deal surfaced on Wednesday via various press reports and Verizon Wireless just made it official (statement).

What's this deal about? Subscriber envy. Verizon Wireless wasn't going to sit around and be the second fiddle to AT&T.

Let's do the math:

• Verizon Wireless ended the first quarter with 67.2 million subscribers.
• AT&T had 71.4 million wireless subscribers at the end of the first quarter.
• Alltel brings 13 million subscribers to Verizon's table.
• Add it up and Verizon Wireless now has roughly 80 million wireless subscribers and can tout being the top dog?€"until another merger happens like the potential merger of Sprint and T-Mobile. If Sprint and T-Mobile were combined the companies would have about 82 million subscribers, but given Sprint's churn Verizon Wireless could make it a close call at the top.

Simply put, scale matters. In fact, the Verizon Wireless purchase of Alltel may make a Sprint and T-Mobile merger more likely. Enterprise Irregular Vinnie Mirchandani notes that the wireless market is becoming and a duopoly and wonders if the Feds will take a close look. My hunch is they won't care. Why start now?

Alltel and Verizon Wireless expect the deal to close by the end of 2008. Among the other takeaways:

• Verizon gets access to 34 states by acquiring Alltel including 57 rural markets that the company doesn't serve.
• The Alltel purchase will be immediately accretive to earnings excluding integration costs.
• Alltel CEO Scott Ford will stick around to head the company until the deal closes.
• Verizon Wireless reckons that it will save more than $9 billion in capital and operating expenses.

Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.
Credit: ZDNet