The rumor du jour is that Alltel, the largest rural mobile operator in the U.S., is up for sale. But at least two experts are split over whether the company widely mentioned as the likely buyer, Verizon Wireless, is the most logical suitor.
Rumors about a Verizon-Alltel marriage are nothing new. Two years ago, Wall Street was buzzing that the two might hook up. The rumor mill got churning again last week when Alltel executives said during the company's fourth-quarter conference call they were exploring several strategic "options." Analysts and investors on Wall Street have taken this to mean that the board of directors is looking to sell the company.
Verizon Wireless could be the most logical competitor to buy Alltel because the two companies both use the CDMA (code division multiple access) cellular technology. Sprint Nextel also uses CDMA, but many on Wall Street believe that Sprint is saddled with its own problems integrating Nextel's network. T-Mobile and AT&T's Cingular Wireless are unlikely candidates, because their networks are built using a different technology called GSM (Global System for Mobile Communications).
Albert Lin, an equities analyst with American Technology Research, said this week that this time around a merger between Alltel and Verizon Wireless makes sense on several levels. With the Alltel network and subscriber base, Verizon Wireless would become the largest mobile operator in the U.S.
But Alltel's price tag would likely be pretty hefty. A recent Reuters article estimated it could be close to $30 billion.
That's why Michael Nelson, an equities research analyst at the Stanford Group, said it's far more likely that Alltel would be bought by a private equity firm. He said that Verizon is better off waiting for the Federal Communications Commission's 700MHz spectrum auction, which is expected to get under way later this year, to buy some spectrum in rural areas and build its own network.
"Verizon has had a significant amount of success growing organically," he said. "I just don't see any reason why they would need to buy Alltel. They can build their own network for a lot less than $30 billion."
Nelson said, however, that he could see Verizon Wireless buying Alltel if the company fears it will lose the asset to a competitor. Right now, Verizon leases capacity from Alltel's network to provide service in rural regions of the country. Alltel has significant coverage throughout the Midwest and the southeastern U.S. If Sprint were to buy Alltel, Verizon would likely be forced to work with other rural carriers in those regions or build its own network in those areas.
But Nelson said he thinks the chances of that happening are pretty slim.
"Verizon is simply not a willing buyer," he said. "And Sprint is in no position to be making a move of this size right now, so it's really up to private equity."