Wireless Mergers Spawn FCC Questions, Reseller Lawsuits

Telecom Policy Report, July 18, 2005

The proposed mergers involving Alltel-Western Wireless Corp. and Sprint- Nextel Communications are one step closer to competition, now that the FCC has approved the Alltel-Western Wireless asset transfer, and shareholders of both companies approved the Sprint-Nextel deal.

With select divestiture conditions already agreed upon by the U.S. Department of Justice (DoJ) a week earlier (TelecomWeb, July 7), the FCC disclosed it had approved the licensing transfer applications connected with the proposed Alltel-Western Wireless $4.4 billion cash-and-stock transactions.

In giving the green light for the transactions to transfer the control of licenses held by Belleview, Wash.-based Western Wireless and its subsidiaries to Little Rock, Ark.-based Alltel - being handled by Alltel's Widgeon Acquisition LLC subsidiary - the regulator also said it denied all of the petitions filed in opposition to the merger, although commissioners have expressed concern about the combined companies' E911 compliance progress.

The FCC said its action also included the transfer of select international licenses, and its staff competition analysis essentially concluded the Alltel-Western Wireless deal - which was first announced in January - "generally is not likely to cause competitive harm in most mobile telephony markets" and "the likely public-interest benefits of the merger outweigh the potential public interest harms."

The commission, however, conditioned its consent on Alltel's divesting Western Wireless' mobile CDMA cellular business units encompassing customers, infrastructure and cellular spectrum and involving mostly rural activities, including one market in Arkansas, six in Kansas and nine in Nebraska; this is basically the same agreement between the two companies and the DoJ. The FCC maintained it requires divestitures to preserve competition where consumers have fewer choices for wireless services.

In the same 16 markets, the FCC also approved Alltel's purchase of Western Wireless' PCS spectrum and the infrastructure needed to continue operation of its PCS-based GSM roaming business.

Still pending are approvals by the U.S. District Court in Washington, D.C., and Western Wireless stockholders, who are expected to vote on the proposal July 29. Once the deal is consummated, Alltel will obtain about 1.5 million new wireless customers along with 1.6 million customers in six foreign countries and 3 million wireline customers in 15 states. And when all is said and done, Alltel will become the country's fifth-largest domestic wireless carrier, covering about 25 percent of the U.S. population and 56 percent of the landmass in the contiguous United States.

In addition, as part the DoJ agreement, Alltel will divest the long- recognized "Cellular One" brand currently used by Western Wireless.

What The Commissioners Think

According to Commissioner Kathleen Abernathy, concerns regarding compliance with future E911 deadlines are more appropriately addressed in other FCC proceedings, while Commissioners Michael Copps and Jonathan Adelstein said they are "troubled" by the combined companies' E911 outlook (it is likely to be unable in reaching a 95 percent penetration level goal by Dec. 31, 2005, and the FCC says if the company fails to meet its E911 deployment responsibilities, the commission will take enforcement action).

"While that is positive, I believe we should have gone beyond this assertion to insist that the merged company immediately get itself on a path to full public-safety compliance," added Copps. "Because we do not, we could lose valuable time and E911 deployment might suffer. I am disappointed that we do not do more today to ensure compliance with our public-safety deadline."

While Adelstein also believes issues regarding Alltel's compliance problem "can be addressed through our existing rules and regulations," he expressed concern about the overall trend of consolidation in mobile wireless.

"During the past year, we have regularly heard from smaller mobile wireless companies that are concerned about their ability to negotiate automatic roaming contracts with the larger regional and nationwide carriers," he said. "I think the time is right for the commission to accumulate a full record on the roaming issue to determine what, if any, action may be needed." Having said that, Adelstein pointed out that Chairman Kevin Martin has agreed to initiate a proceeding that will explore the issue of roaming and the effects of consolidation on the ability of smaller carriers to negotiate access to larger networks.

More Details On Sprint-Nextel

Early July 13, first Nextel and then, minutes later, Sprint shareholders voted overwhelmingly to approve Nextel's $35 billion acquisition by Sprint, as had been widely expected. Nextel and Sprint wanted to counter the perception that Sprint is "buying" Nextel by having both players call the deal a "proposed merger of equals."

A final tally of its shareholder vote, Nextel says, showed that 71.3 percent of the shareholders casting ballots had voted in favor of the deal, a total that represents almost 70 percent of all Nextel outstanding shares. At Sprint, the tally of those voting who approved the deal was an even more- resounding 97 percent of the votes cast, representing about 74 percent of all Sprint share-voting power.