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Wireless Consolidation: AT&T Buying Leap Wireless/Cricket in $1.2 Billion Transaction

Phillip Dampier July 12, 2013 AT&T, Competition, Consumer News, Cricket, Public Policy & Gov't, Wireless Broadband 6 Comments

att cricketAT&T announced late Friday it was acquiring Leap Wireless for almost $1.2 billion — a premium of 88 percent over Leap’s stock price.

Creditors may be pleased. Leap Wireless had $2.8 billion of net debt which is expected to be retired by AT&T as part of the buyout.

The Cricket prepaid brand is expected to survive the acquisition, at least for now. Unlike many other prepaid providers, Leap Wireless owns and operates its own CDMA and LTE cell network in its “home service” areas. The Cricket brand is best known for its PCS prepaid service, which is targeted almost exclusively in urban areas. Leap has an extensive roaming agreement with Sprint to provide service where its own cell network does not reach.

AT&T has not said if it will eventually convert Leap’s CDMA network to the standard AT&T uses — GSM. It may not be as important in the future as LTE becomes available to five million Cricket customers. AT&T said the purchase would open Cricket users to roaming on AT&T’s cellular and data networks, which cover a larger service area than Sprint. The biggest impact may be felt by Cricket’s dealer network. AT&T is likely to move the Cricket brand “in-house” and market it within AT&T stores.

Both AT&T and Verizon Wireless have been strongly urging on consolidation in the wireless provider market. Executives at both companies and several Wall Street analysts predict America will eventually have three major carriers, presumably Verizon, AT&T, and a consolidated Sprint, which could eventually acquire T-Mobile. These predictions all assume federal regulators will accept the wireless industry’s premise that fierce competition will remain with fewer providers. A handful of small independent providers may continue to exist as outliers, but most do not believe they will have any significant impact on the market share of the top three.

leap-logoMany wireless industry observers believe AT&T is not interested in Leap/Cricket because of its business model. It is Leap’s spectrum holdings in large urban markets that makes it an attractive takeover target.

AT&T expects no problems with regulator approval and anticipates the acquisition will be complete by early 2014.

“The combined company will have the financial resources, scale and spectrum to better compete with other major national providers for customers interested in low-cost prepaid service,” AT&T said in a release on Friday.

Currently there are 6 comments on this Article:

  1. me says:

    How is this deal different than the t-mobile one that fell thru last time?

    • Ian L says:

      Leap is a troubled operator (the transaction’s dollar count is overshadowed 4x by CricKet’s debt load), they’re one-sixth the size, and they cover less markets and generally are a less stable competitor than T-Mobile ever was. So it was a matter of who would buy them, not if they would be bought. Particularly since, in the last couple of years, both MetroPCS and CricKet have gone from being the only cellular carriers with inexpensive unlimited voice service (centered around metro areas) to also-rans with too little spectrum in most areas to effectively compete in the 4G space (CricKet LTE maxes out at 7 Mbps from what I’ve seen).

      It’s a bit surprising that AT&T is buying them rather than Sprint, since AT&T and CricKet have even less network synergy than MetroPCS and T-Mobile (though more than Sprint and Nextel…which is saying very, very little). But they want the spectrum, and CricKet is the last primarily urban operator out there that isn’t one of the Big Four.

      All that said, it’s sad to see another carrier go, in a race to consolidation that I think will end up with three 100 million subscriber nationwide players (Verizon, AT&T, Sprint + T-Mobile), until Dish or some other provider starts building a new network (which is very, very difficult to do at scale). But, getting back on topic, the last three or four years have seen a few markets lose two competitors for wireless service, once this transaction goes down anyway.

      In central/south Texas (San Antonio area), CricKet’s heavy competitor Pocket Communications merged into CricKet a few years back, and now CricKet is being folded into AT&T. Which is ironic since Pocket Communications was built on a sliver (5×5 MHz) of PCS spectrum that AT&T had to divest when Cingular bought AT&T Wireless back in late 2004. Of course, no one would think of starting a wireless carrier at this point on only 5×5 of spectrum, in the US anyway, because VoLTE isn’t ready to go quite yet. Regardless, it hurts a bit that three carriers (one GSM, two CDMA) are getting condensed into one GSM based one…who also happens to own the majority of ALL wireless spectrum below 1GHz in San Antonio (both Cellular blocks, for 25×25 of spectrum, plus 12×12 in lower B + lower C 700, plus another unpaired 6MHz of 700…Verizon owns 11×11 and Sprint owns 7×7 contiguous in 700 and SMR, respectively).

      In Las Vegas, the two competitors were CricKet and MetroPCS. I believe both were AWS-only in that area, and likewise their CDMA networks will get shut down in favor of LTE in the next couple of years. On the plus side, the MetroPCS purchase makes T-Mobile stronger in LV.

      • It’s not a surprise to me. After the Justice Department slapped AT&T’s hands in T-Mobile’s cookie jar, it is a safe bet trying to buy one of the big four is a regulatory no-no, until we end up with another Republican in the White House.

        Leap has been on a “buy me, please” tour for at least a year, evident from the slowed investment and no boat-rocking by the management.

        If AT&T gets away with it, it will be open season on all but the four big carriers, and you can expect to see the end of C Spire, US Cellular, ACS/GCI’s wireless interests in Alaska (a Verizon target if there ever was one), nTelos, etc.

        The only deal between the big four I could ever see getting approved is Sprint and T-Mobile combining.

        • Scott says:

          Verizon is building out their own 4G towers here in Alaska, neither they nor AT&T have ever shown any interest in ACS – the local Telco. Buying GCI would be an excellent deal for someone since they have the highest rates anywhere plus the stingiest datacaps.

          The big issue for potential GCI buyers are the unique markets in Alaska like remote towns or villages that GCI serves plus the GSM/4G Wireless service which most national Cable Companies would have zero interest in dealing with after they backed off competing in exchange for retaining their monopoly with TV/Broadband against FiOS.

          Having worked for ACS when they were shopping around hoping to sell to AT&T and never getting any serious interest, I really don’t see either ever finding outside buyers, especially with Verizon having opted to build out from scratch (ACS has always run a compatible CDMA network and offered Roaming to Verizon phones in the past too).

          I agree, if AT&T gets the nod to scoop up Leap then its open season. I think other potential buyers like Spring will make a half hearted dispute over the purchase for a few concessions that they can wring out of it, but everyone will pretty much let it go through.

          AT&T has no real interest in Leap as a business, this is purely an overpriced acquisition to grab their spectrum then salvage what little they can from their customer base then lay off the employees and dismantle the majority of the company short of the brand name for the next couple years.

          • Verizon is the new entrant in Alaska and their network is not even close to being mature yet. Buying up an existing player with a track record of service in Alaska would be ‘very Verizon.’ AT&T is already there so Verizon has the most to gain with a buyout. I think they would only be interested in the wireless properties, not the wireline or cable services.

            Wall Street is fueling the players here to move on consolidation, so I think we’ll be reporting a lot of attempts in the near future.

  2. jr says:

    They can afford to buy Leap but can’t afford not to have data caps. Selective austerity on the march

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