Alltel, Verizon Merger Gets Go-Ahead From FCC

Experts Expect Telecom to Spend $100M in Campaign to Educate Consumers About Deal

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SAN FRANCISCO (AdAge.com) -- Verizon Communications can now say it's the largest U.S. wireless carrier, having cleared the final major regulatory hurdle for its proposed $28.1 billion acquisition of Alltel Wireless. The Federal Communications Commission yesterday gave the nod to the deal that catapults Verizon ahead of former No. 1 AT&T and raises the competitive stakes a few notches.

Bringing Alltel into the fold would give Verizon improved economies of scale, an enlarged footprint in rural and small-market metro areas and likely more leverage in negotiations with handset makers. Verizon will also see its wireless subscriber base rise to more than 80 million. "With AT&T's 75 million customers, it'll take [rivals] a while to catch up to Verizon, if they catch up at all," said Bill Ho, wireless research director at research firm Current Analysis.

No. 1 spender may change
AT&T and Verizon are also now likely to swap their rankings as the second- and third-biggest U.S. advertisers. Not accounting for efficiencies, simple math finds that an Alltel-Verizon combination would result in a giant that spends some $150 million more than AT&T.

Verizon declined to comment about its plans, but marketing executives expect a campaign to educate consumers about the merger that could cost $100 million or more.

"The big cost is the integration campaign," said Karl Barnhart, partner at CoreBrand. "They'll have to do a campaign that says Alltel is a part of Verizon now," he said. Such a campaign could last up to six months, and is expected to take on a regional focus in order to explain to Alltel customers why the merger is good for them, said an executive who worked on the Sprint-Nextel integration campaign.

Pre-acquisition scorecard
  Verizon Alltel AT&T
Ranking 2 5 1
Subscribers
(in millions)
70.8 13.5 74.9
No. of operating states 49 34 50
Co. operated stores and kiosks 2,600 750+ 2,200
2007 revenue
(in billions)
$93.5 $8.8 $118.9
Total churn rate 1.3% 2.0% 1.7%
2007 ad spend
(in billions)
$3.0 $0.36 $3.2
Advertising agencies
(not comprehensive)
Interpublic Group of Cos.' McCann Erickson Worldwide
R/GA
Universal McCann, New York

Publicis' Moxie Interactive, Atlanta

Zenith Media, New York

GlobalHue, Southfield, Mich.
Campbell-Ewald Omnicom's BBDO, Atlanta and New York

DDB Worldwide, Chicago

GSD&M's Idea City, Austin, Texas

WPP's Mediaedge:cia, New York
Sources: Company reports and Ad Age's Power Players issue

Verizon could also get a fresh opening to reinvent its brand, made famous by the successful "Can you hear me now?" catchphrase that zeroes in on the carrier's network reliability. But brand experts said now that mobile phones have become the nerve center of daily communication, it's time for the carriers to move beyond technical benefits and stake a new positioning.

Bigger and better
"If you look at the ads and brand-building, it's all been about functionality," said Eric Zeitoun, president at brand consultant Dragon Rouge USA. "If they want to own the space, [the messages] have to be more lifestyle-driven."

"I'd try to go somewhere more emotional so consumers get a better connection than simply the functional benefit of 'we're big,'" said Mr. Barnhart. "If you think about wireless technology, it really is your life's remote control now. No one in the cellular industry has talked about that."

Though analysts expect the Alltel brand to disappear into Verizon's, one wrinkle is the integration of Alltel's popular My Circle calling plan, which lets subscribers choose as many as 20 people to call for free. Verizon currently does not offer anything similar.

Keeping customer base
Analyst said that in the current belt-tightening climate, Verizon would likely extend My Circle to Alltel customers with a view to migrating them to a standard Verizon plan in the future. "My Circle has been the bright star for [Alltel]," said Mr. Ho of Current Analysis. "A good chunk of their customers are signed up with this program. If I were the product planner at Verizon, I wouldn't want to lose these people."

Indeed, Alltel sought to reassure its customers on its website that the My Circle program still stands.

Separately, Alltel yesterday reported a third-quarter loss of $55.2 million on revenue of $2.5 billion, due primarily to significantly higher interest, depreciation and amortization expenses from its merger with TPG Capital and GS Capital Partners. As Alltel gives up its standing as the No. 5 U.S. carrier, US Cellular will move up to take that spot.
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