Verizon, Alltel Invoke Crash in Arguing for Merger

Lawyers for Alltel and Verizon had different financial warnings for FCC commissioners and their advisors, discussed in recent filings and meetings at the agency. Martin cited the financial markets’ state in comments on the merger during a Wednesday press conference.

The investors who bought Alltel cannot build out its network given the credit crunch, the companies warned. Last year, in a very different market, TPG Capital and the buyout arm of Goldman Sachs took Alltel private. Lawyers for Alltel and the two investment firms met last week with FCC officials to explain Alltel’s predicament. The investment group “had every intention of further developing Alltel’s business when it acquired Alltel,” they said. “Due to the financial pressures from the ongoing credit crunch that has plagued the U.S. economy since the fall of 2007, however, Atlantis Holdings [Alltel’s parent] believes that it will be difficult to raise the capital to make the necessary future investments in the company.”

In addition, we've learned, Alltel and Verizon officials also told FCC officials at recent meetings that TPG and Goldman Sachs face financing problems. The woes arose because they had to borrow billions, including some short- term financial instruments, to pay for the privatization. An FCC source said Alltel officials indicated that financially they are “over a barrel” and need quick approval of the merger. Those concerns were not articulated in follow up filings at the FCC.

Meanwhile, attorneys representing small carriers said Friday that they will press hard in asking the FCC to approve an overhaul of automatic roaming rules before approving the merger. Martin said the merger order proposes no roaming obligations for Verizon beyond what the company promised to win approval of the deal.

FCC officials said Friday that they have seen nothing from Martin since he pulled an order addressing complaints about home market exclusion prior to the August FCC meeting. Other commissioners said they were not pleased to hear Martin blame them during Wednesday’s press conference for the delay in a vote on the roaming rules. Agency officials noted that Martin has yet to respond to a roaming counterproposal by Commissioners Michael Copps and Jonathan Adelstein or to circulate anything else on roaming since he pulled the item. “We were hoping he'd put it back on the September meeting agenda,” an official said.

Rural and regional wireless carriers “upset about the lack of action on the in-home roaming exception will continue to keep the issue alive while the merger … is still pending,” Medley Global Advisors predicted. Added the firm in a research note: “Martin might be pressured by the FCC’s two Democrats to add provisions that address this issue or deal with it separately prior to the commission’s approval of the transaction.”

“There is going to be a huge push and if the chairman doesn’t deal with it he is not going to get the votes he needs,” said an attorney for small carriers. But David Nace, counsel to the Rural Cellular Association, is not optimistic, he said. “To be practical, there is only so much small and regional carriers can do after repeatedly making known the problem in petitions and meetings with the FCC and members of Congress,” Nace said. “It defies logic that the FCC and DoJ would bless this merger without conditions or the completion of a separate rulemaking to provide for voice and data roaming so as to preserve whatever competition is left in the wireless industry. But for reasons we can understand only as political there appears to be a rush to a decision that will allow this merger to occur without assurances that the public and smaller carriers will have the benefits of roaming service.”

The FCC is sending a mixed message, Nace said: “One day our government says they want competition and the next they act in a way clearly detrimental to that goal.”