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July 31, 2007

Verizon Wireless Pacmans Rural Cellular

Chomp, chomp, chomp. The announcement that Verizon Wireless plans to buy the much smaller Rural Cellular Corporation and transition Rural Cellular’s GSM customers to Verizon’s CDMA network is bad news, especially here in Vermont. It’s also further evidence of rapidly disappearing communication competition in America. There’s something particularly arrogant (confident?) in Verizon Wireless making this announcement on the presumed eve of the FCC’s determination of the rules for auctioning 700MHz spectrum.

The deal is a good one for Rural Cellular stockholders – they receive a 41% premium over their company’s closing stock price lat week; can’t blame them for accepting. Verizon Wireless explains that it’ll reduce charges it has to pay when its customers roam into territories where Rural Cellular has a CDMA presence and Verizon doesn’t and that it’ll also save through other “operating synergies” (that’s corporate-speak for layoffs of redundant employees in a merger).

One problem with all this from a Vermont POV is that the only cellular competition we have here currently is between Verizon Wireless and Unicel (Rural Cellular). Both have done a pretty good job covering our rural areas. I have Verizon and Mary has Unicel and, in most places, one or the other of us can get a usable signal. Unicel’s EDGE network provides usable mobile data service. Verizon’s 1xRTT is slightly better and its EVDO, expanding out of its first deployment in Burlington, is quite good. It was good to have a choice; it was good to have competition; it’ll be bad if we have neither.

Note that at&t wireless (nee Cingular) does not operate here. That’s why you can’t get an iPhone with a Vermont address.

Another loss is in technology variety. In Vermont Rural Cellular operates a GSM network – the standard used through most of the world. Verizon operates CDMA as it does everywhere. Mary’s GSM phone can go to Europe and make calls; my Verizon phone can’t. Verizon says that it will continue to operate Rural Cellular’s GSM network but only for the roaming customers of other carriers and that it’ll “transition” its own new customers to CDMA (new handsets which won’t work in GSM countries).

Unlike the sale of Verizon’s landline assets to FairPoint, the Vermont Public service Board can apparently not say “no” to this merger and make it stop. Wireless is much less regulated than landline service. The FCC does have review authority – any guesses on how that’ll go? – and presumably the deal is subject to antitrust review by the Justice Department. A good outcome might be a requirement that Verizon divest the Rural Cellular assets in those areas where they are its only effective competition.

I’ve been critical of Verizon for attempting to divest its landline assets in Vermont and am being critical of Verizon Wireless (owned jointly by Verizon and Vodaphone) for wanting to buys assets partly located in Vermont. Is that inconsistent? Don’t think so. My concern is that the proposed Verizon/Fairpoint deal gives us a good preview of what’ll happen to the wireless assets in Vermont once there is no longer competition. Under-investment’ll lead to poor service and substandard returns and further under-investment. The successor to a landline monopoly which does not deliver good service to most of the state should not be a wireless monopoly.

Meanwhile, when the FCC votes today on auction rules, I hope that it notices that these must be set to prevent Pacmen at&t and Verizon Wireless from gobbling up the 700 MHz spectrum and preventing competition to both their wired and wireless duopolies.

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