Here’s the rumor. Verizon to Become Largest National Carrier by Swallowing Alltel (Mobile Magazine):

The CDMA landscape in the United States may be set for a pretty significant change as Verizon Wireless is very interested in buying Alltel, effectively making it the largest national cellular phone carrier based on number of subscribers. If the merger goes through and is approved, the Verizon-Alltel conglomerate would “tower over Cingular by about 10 million” customers.

Here are the facts:

• The two companies already have a joint roaming agreement giving them favorable terms to allow their customers seamless service
• Any deal would have to get past Verizon’s wireless partner Vodafone
• Verizon has been working so hard to get liabilities off its balance sheet it is hard to imagine them putting new ones on
• However, given Alltel’s recent spin-off of its landline business it seems they want to do something, and the logical partners are CDMA carriers Verizon and Sprint/Nextel
• Verizon can’t seem to let AT&T make a deal without doing one of its own, and it is now Verizon’s turn

Do these add up to a deal? They shouldn’t, but they certainly might.

Last month, astute observers (defined as those with a pulse) could notice that there were an awful lot of companies in the wireless food chain announcing disappointing results. Last week Motorola joined the club, and yesterday we got news from the third-largest US wireless carrier. Sprint to Cut 5,000 Jobs; Stock Plunges: Financial News - Yahoo! Finance

Sprint Nextel Corp. reported Monday that its cell phone business suffered a net loss of 300,000 monthly subscribers in the fourth quarter and that the struggling wireless company will cut 5,000 jobs.The company’s stock plunged more than 8 percent after the financial update, which included a 2007 outlook shy of many Wall Street forecasts.

Last month we suggested that several high-multiple names might be worth avoiding. None of those stocks has since blown up, but that doesn’t mean they aren’t standing in a mine field.

Light Reading reports on rumors that Verizon is considering an acquisition of Qwest. The supposed rationale is that Verizon routes PacRim calls through Qwest, and would be in too weak a bargaining position for interconnection rights should AT&T make the acquisition instead. It would also give Verizon a big broadband backbone.
We are going to call bull on this one. Verizon would definitely like to make a wireless deal - preferably to buy out Vodafone and own Verizon Wireless outright. If it can’t take out VOD, it would probably take a look at Alltel (AT - Annual Report) once that company spins out its local access lines.  This would allow Verizon to increase its relative ownership and exposure to the wireless unit. It already has broadband backbone through the MCI acquisition and if T plays hardball on interconnect there could be antitrust implications at this point.

None of these arguments preclude an acquisition of Qwest, of course. It is just that we would view such a deal as a sign of weakness on Verizon’s part and it would definitely take away from the name’s appeal.