Veritell or Allzon?

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Short term challenges apart, the Verizon-Alltel merger, seems worth the wait; By Savreen Gadhoke

Honchos at Verizon Communications and Alltel Wireless could now spare some time contemplating as to what name is best suited for the entity formed by their merger. The duo earned a breather when the proposed merger, worth a sterling $28.1 billion, which was until now held back by Department of Justice (DoJ) and the Federal Communications Commission (FCC), finally got a total clearance on November 4. The deal was struggling to get past the regulatory nod since June 2008 (when Verizon made its first attempt to acquire Alltel). But was the wait worth it?

DoJ and FCC had raised objections regarding the existing roaming contracts in rural areas. Explains Declan Lonergan, VP, Consumer Research, Yankee Group, “The merger may bring down competition and raise prices in future as it will reduce the number of roaming partners, which the local carriers can tie-up with.” And therefore, FCC has granted approval to the merger only on the basis of a commitment from Verizon that it will not play around with the roaming rates in the next four years. In addition, FCC has also demanded that Verizon divests its services in as many as 100 markets that overlap with the services of Alltel, to which again Verizon has happily agreed. And why not, as post-merger, Verizon will win over the 15 million plus subscriber base of Alltel, in addition to some 70 million of its own; hence leaving behind AT&T, with a subscriber base of approximately 75 million. Adds Lonergan, “Since both carriers are CDMA-based, combining the technical infrastructure should be hassle-free.”

Certainly the wait was worth the effort as Verizon has been catapulted to the first position in the US wireless carrier space, leaving behind arch-rival and seemingly irreplaceable AT&T Wireless at the first runners up position. Not only has Verizon tremendously increased its customer base, the merger will also make it one of the top US ad spenders. Now that the deal has finally got the green signal, what takes priority with Verizon is aggressive advertising and promotion to announce to the world that Alltel is now officially a part of Verizon. Camilla Armstrong of Brand Finance says, “Verizon will have to make an extra effort to reach out to the rural areas and explain to local roaming carriers why the merger is a good business opportunity for them.”

Objections raised by FCC may have left the local carriers unhappy with the deal. Industry experts peg the entire rebranding campaign to be worth $100 million, which could last for over six months; which makes it more challenging when coupled with the 4-year clause. So in essence, the ‘breather’ isn’t going to stay for long!

Savreen Gadhoke

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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