Verizon-Rural Cellular merger may result in divestments, source and banker say01 August 2007

Verizon Communications could sell assets as part of its merger with Rural Cellar, said a source familiar with the matter and sector banker. Verizon is a listed telecommunications services provider in New York. A Verizon Wireless spokesperson declined comment, and Rural Cellular did not respond to phone calls by press time. Verizon Communications owns 60% of Verizon Wireless. Earlier this week, Verizon Wireless announced it would acquire Minnesota-based rural wireless operator Rural Cellular for a total consideration of USD 2.7bn. According to the source, although Verizon is not anticipating asset sales, the Federal Communications Commission [FCC] is “unpredictable these days,” making it possible that the FCC mandates divestitures where the combined entity owns too much spectrum or market share. He said it’s difficult to pinpoint where the divestitures might occur. A sector banker explained that the FCC at one time required all wireless providers cap their level of spectrum at 50-megahertz in a market but lately, the commission has relaxed these standards. He said the FCC also considers the size of the spectrum itself and other factors related to market share when assessing concentration. Andrew Lipman, an antitrust lawyer at Bingham McCutchen, said, “as a general rule, any spectrum of 80MHz or more in any market should raise a red flag.” Michael Gary Nelson, analyst at Stanford Group, said questionable market concentration could result, as part of the merger, within Rural Cellular’s GSM network in the Northeast, South and Northwest, and more specifically in Vermont and Washington. He noted that Verizon Wireless does not overlap in Rural Cellular’s CDMA Midwest region. Thomas Watts, an analyst at Cowen & Co, speculated that possible buyers for these assets are Sprint Nextel in Virginia and GSM operator T-Mobile USA in Washington, as well as the rumored second bidder for Rural Cellular, AT&T in Texas. by Sarah Cohen and Mike Stone

Back to Editorial