It's easy to understand why Alltel Wireless' private equity owners want to flip the company to Verizon Wireless for no profit less than a year after they bought it. Thanks to the credit boom's collapse, they'd have to search long and hard for any other buyer at any price.
But there's another reason for them to speed-dial this deal.
The next administration is likely to oppose such an anti-consumer combo no matter who is in the White House. Even at the merger-happy Bush administration, an Alltel-Verizon marriage faces "head winds" and is "vulnerable to challenge," Stifel Nicolaus analysts wrote to clients last week.
Which gives an idea of how troublesome it is. Instead of simply forcing a few divestitures, the Federal Communications Commission and the Justice Department ought to surprise everybody and block it.
Verizon Wireless, owned jointly by Verizon and Vodafone, is the No. 2 wireless-phone carrier. Merging with No. 5 Alltel would give it 80 million customers and the top spot, surpassing AT&T. Together, AT&T and Verizon would control about 60 percent of the U.S. market, facing an enfeebled Sprint/Nextel, T-Mobile and other, even smaller, fry.
Such market power threatens to slow or stop a steady decline in the price of wireless phone calls - down to 7 cents a minute in 2006 from 11 cents in 2002, according to the FCC. Verizon Communications stock rose almost $2 the day the deal was announced, as investors saw higher profits ahead.
If that's not bad enough, AT&T and Verizon just locked up another big piece of the airwave spectrum. Devoted to analog television signals that will cease next year, the spectrum gives the phone companies new opportunities to make money shipping wireless data at high speeds and volumes.
Consumer advocates hoped Google or some other outsider would win a big block and found a new company to battle the wireless incumbents, but no luck. AT&T and Verizon won most of the spectrum in a government auction and now are even more entrenched than before. Adding Alltel to the oligopoly would raise Verizon's anti-competitive battlements even higher.
Verizon missed a chance to buy Alltel a year ago, when two private equity groups bought the company for $28 billion, most of it debt. The resulting interest payments wiped out Alltel's profits, and the credit slump diminishes the owners' chances of reselling it to a financial buyer any time soon.
They had to come up with another plan: Find somebody already in the business, somebody with some actual cash flow. Not that this is exactly an all-cash deal, either. The plan is to assume Alltel's $22 billion in debt, which will not help Verizon Wireless' balance sheet. (Alltel bondholders, however are thrilled. It's always better to be owed money by an oligopoly partner than a regular company.)
Alltel is big in the Midwest and on the coast from Virginia to Louisiana. A combination with Verizon would fill the last remaining gaps in Verizon's U.S. coverage - Nebraska, Nevada and so forth. Alltel customers in much of Maryland have to use roaming agreements with other carriers.
Marriage with Alltel would give Verizon too much market power in parts of the Southeast and West for almost any regulator. Approval would require substantial divestitures in those areas to a third party - probably Sprint/Nextel or T-Mobile.
But the combination is a problem nationally, too. The wireless-phone market is already flashing amber on statistical monopoly indicators. Consolidation has gone far enough. You want to serve Nebraska, Verizon? Go build some towers.
Everything we know about Barack Obama suggests his administration would block this transaction.
"We're going to have an antitrust division in the Justice Department that actually believes in antitrust law," he said last month. "We haven't had that for the last seven, eight years."
But a John McCain regime might look askance, too. McCain likes to compare himself to Teddy Roosevelt, the original trust buster. McCain has said he doesn't know as much about economics as he does about defense, but he knew enough to oppose the Federal Communications Commission's approval of big media mergers under Bush.
He was even concerned about corporate combinations under President Bill Clinton, telling Business Week in 2000 that he would "update" antitrust laws.
"Second of all, I say to Corporate America: I am worried about these consolidations," McCain told the magazine. "These mergers are the biggest in history. I want them watched carefully and I want them carefully reviewed. I am a free trader and I am anti-regulation. But I do read history, and I know there have been times these consolidations have hurt consumers."
No wonder Verizon Wireless and Alltel have ants in their pants.
It's hard to believe that the current Justice Department, which approved the merger of XM Satellite Radio and Sirius Satellite Radio (as well as the marriages of AT&T Wireless to Cingular and Nextel to Sprint), wouldn't OK the Verizon-Alltel match. But with bipartisan skepticism of such combos, and the Alltel-Verizon matchup rushed by an obviously political deadline, this deal ought to be cut off like a cellular customer in Antarctica.