More Telecom Deals Hardly a Sure Thing

Verizon's (VZ Quote) $28 billion acquisition of Alltel may not spur the massive industry consolidation some investors are anticipating.

Instead of a radical reshaping of the U.S. telecom landscape, competitive dynamics and pricing will largely remain intact, analysts say.

Verizon will leapfrog AT&T (T Quote) to become the largest U.S. wireless carrier, with more than 80 million subscribers, but that doesn't necessarily mean the urge to merge will sweep the sector.

AT&T has its own challenges that would keep it from trying to one-up Verizon right away. As if relinquishing the top wireless spot wasn't enough of a stomach punch, AT&T is still trying to expand its broadband and U-verse video services amid intense competition from cable operators, such as Comcast (CMCSA Quote), offering triple-play packages of voice, video and Internet. This struggle is being played out against a backdrop of a swell in access line losses as customers abandon traditional landlines.

Smaller rivals Sprint Nextel (S Quote) and Deutsche Telekom's (DT Quote) T-Mobile unit, with 53 million and 29 million subscribers, respectively, have been left to fend for themselves in a fully saturated market that is showing signs of markedly slower growth.

"When you talk about consolidation, people usually refer to those at the top end of the food chain," says Sanford Bernstein analyst Craig Moffett. "There is not an easy deal to pull off, both from a technology perspective and regulatory perspective. It's hard to see the sense in it."

As acquisitions become the only quick fix to bump subscriber counts higher, it seems counterintuitive that the market would actually see fewer telecom tie-ups. Stifel Nicolaus analyst Christopher King notes, though, that the Verizon-Alltel transaction may not "necessarily be a harbinger for future near-term telecom consolidation," considering how challenging it is to tap the capital markets these days. Additionally, King views Alltel as a unique asset with motivated sellers and a likely single potential buyer in Verizon.