AT&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.

Many 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.

Cricket wants to convince you that paying AT&T or Verizon $90-120 a month for a cell plan with unlimited calling, texting and a 1-3GB data plan is too much, because it can sell you an “all-unlimited plan” for $45.

Cricket this week launched its “Half Is More” marketing campaign online, as well as in print and television advertisements.

“When we go out and talk to a lot of consumers, we hear a lot of angst from post-paid subscribers,” Cricket senior vice president Tyler Wallis told CNET. “They’re not happy with the service they’re getting and they’re feeling like they’re getting gouged.”

They also might not like finding out their “unlimited use” data plan actually comes with a barely disclosed speed throttle that kicks in after only 1GB of usage, reducing speeds to near dial-up for the rest of the billing cycle.

Cricket defends the claim they offer “unlimited” data service by stating they do not completely sever a customer’s data connection when they reach the limit, or charge them overlimit fees. They just slow the service down… a lot. Cricket customers tell Stop the Cap! Cricket’s wireless Internet becomes almost unusable once they are placed in the usage penalty box.

Cricket also depends heavily on Sprint for roaming coverage outside of the small number of home markets where Cricket owns and operates its own network. For many customers, that means frequent roaming on Sprint’s 3G network, which is not rated well for its speed and performance.

Once throttled, customers are stuck in the slow lane until their next billing cycle begins.

Customers with light data needs might find Cricket’s plan an option, assuming they have good coverage either from Cricket itself or roaming on Sprint’s network.

Cricket’s campaign noticeably avoids comparing their plan against T-Mobile, which offers a $70 monthly truly unlimited plan or for ten dollars less, a 2GB plan with unlimited calling and texting.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Cricket Ad Unlimited 5-13.mp4[/flv]

How easy can you read the white fine print disclaimer on the white background in Cricket’s ad? Cricket advertises unlimited data but keeps its speed throttle mostly to itself. (1 minute)

An industry orphan?

Sprint CEO Dan Hesse probably rues the day his Board of Directors pulled the plug on a merger deal that would have combined MetroPCS and Sprint back in February. The merger was abandoned after board members openly worried the transaction would distract Sprint from its network improvement project — dubbed Network Vision — then just getting underway.

The deal with T-Mobile and MetroPCS may have limited Sprint’s takeover options, although analysts say a hostile counteroffer for MetroPCS could still take the small carrier away from T-Mobile.

Hesse himself is a proponent of additional wireless industry consolidation. He believes the current market has too many wireless carriers and the two dominant providers — AT&T and Verizon — enjoy economy of scale Sprint cannot hope to achieve in its current position.

Hesse

Wall Street was more pessimistic about Sprint after the T-Mobile/MetroPCS merger was announced, suggesting they may be an industry orphan, pushed into a corner and running out of options.

Shares of Leap Wireless, the owner of Cricket, rose as much as 17 percent after the T-Mobile deal was announced, signaling Cricket is likely an endangered species. Leap’s cellular network is similar in scope to MetroPCS, although the two companies largely serve different markets. Wall Street’s favorite dance card has Sprint and Leap Wireless as future partners, and Sprint may be forced to acquire the smaller carrier to save face. Leap operates its own modest network of cell towers and has plans to roll out LTE 4G service to its customers. That spectrum could become important to Sprint, especially in the larger urban areas Cricket targets.

An endangered species.

Some Wall Street analysts say deals with MetroPCS, Leap, and other small regional carriers are small potatoes. Many advocate for a much larger merger between Sprint and T-Mobile to more realistically confront the de-facto duopoly of AT&T and Verizon Wireless.

Regulators under the Obama Administration may take a dim view of a merger that combines the third and fourth largest nationwide carriers, but nobody expects much regulatory resistance approving mergers that wipe out MetroPCS and Cricket.

“The problems that Sprint and T-Mobile have are they are not as big as AT&T and Verizon,” Piper Jaffray’s Chris Larsen told Bloomberg News in a phone interview. “They don’t have the scale so therefore it is harder to compete. Increasing your size 25 percent, it helps. But when you are less than half as big as your rival, getting 25 percent bigger narrows the gap, but it does not close the gap.”

[flv]http://www.phillipdampier.com/video/CNBC MetroPCS Down on Merger Reports 10-3-12.flv[/flv]

CNBC reports the T-Mobile/MetroPCS deal reignites wireless consolidation and leaves Sprint in a potentially difficult position.  (5 minutes)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg Sprint Left Behind as MetroPCS Joins T-Mobile 10-3-12.flv[/flv]

Bloomberg News reports T-Mobile needs more subscribers, but some Wall Street analysts think the company is making a mistake focusing on the prepaid market.  (1 minute)

Another face in the crowd.

For customers uncomfortable being seen anywhere near a Cricket store, Radio Shack’s No-Contract Wireless may be just what you were waiting for.

The electronics chain today unveils two Cricket-powered mobile phones as part of their new “no-contract” prepaid wireless offering.

• The Huawei Mercury Ice is exclusive to RadioShack for the next 30 days and appears to be a slight makeover of the original Huawei Mercury… in white. For $149.99, the Android 2.3 phone is powered by a 1.4 GHz processor, a scratch-resistant 4-inch FWVGA screen and 8MP camera. With Muve Music® included in the $50 a month unlimited data plan, the phone delivers unlimited song downloads, ringtones and ringback tones.
• The $39.99 Huawei Pillar feature phone works with plans that start at $25 a month, includes a QWERTY keyboard, camera, and rudimentary mobile Web access.

Cricket’s own cell coverage is more limited than most carriers, and an extensive roaming agreement with Sprint covers the rest of the country where Sprint provides service. If Sprint does not cut it in your area, Cricket will not either. Cricket emphasizes its home coverage in urban and near-suburban areas and across major highways. Their rural coverage is extremely lacking.

Once you reach the specific data limit, Cricket throttles your connection speed to something comparable to dial-up.

Unfortunately, Radio Shack does not bring anything new to the deal except additional retail stores where customers can buy phones and activate the service. Cricket customers can choose these plans and a wider array of phones directly from Cricket, its website or one of its authorized dealers or resellers. But if your nearest Cricket store is in a sketchy neighborhood or you don’t want your friends to catch you walking out of one, Radio Shack offers a potentially safer alternative (although nobody under 40 probably shops at Radio Shack either).

That being said, Cricket offers respectable service when you live and travel in areas where it provides service. In suburban Rochester, N.Y., your author’s personal experience is that voice coverage is comparable to that offered by Sprint. Their 3G network performs better than Sprint, but falls far behind AT&T, T-Mobile, and Verizon Wireless. Data roaming over Sprint’s 3G network is painfully slow in this area.

Cricket is planning on upgrading to 4G LTE service in additional cities next year. Currently, its coverage map only shows LTE service in Tucson, Ariz.

Won first place nationally for the best 4G LTE network with the fastest overall speeds and best performance.

PC Magazine went to a lot of effort to test the data speeds of America’s wireless providers, traveling to 30 U.S. cities sampling both 3G and 4G wireless networks to see which carrier delivers the most consistent and fastest results.

After 240,000 lines of test data, the magazine declared the results a bit “muddy.”

They have a point.

Depending on which carrier’s flavor of “4G” is being utilized, where reception was strongest, how much spectrum was available in each tested city, and how many people were sharing the cell tower at the time of each test, PC Magazine was able to deliver the definitive results. And it was effectively a draw.

Verizon Wireless achieved victory in 19 cities, AT&T won in ten others, and T-Mobile came in pretty close behind, and that carrier does not even operate an LTE 4G network. But taking all factors into account, including upload and download speeds, whether or not test downloads actually completed, and whether streamed media was tolerable, Verizon Wireless won first prize nationwide.

But by how much?

Not enough to matter, if you are using Verizon, AT&T, or T-Mobile.

But the results do offer some things to think about.

1. MetroPCS is a mess. Despite the fact this smaller carrier is building its own 4G LTE network, results were simply terrible. Either its backhaul network from cell towers offers lower capacity or its backbone network is screaming for an upgrade.
2. Cricket was not willing to participate in the test. Their network, still 3G, delivers dependably “meh” results in the places where they actually provide coverage. The company has been reducing data allowances on their mobile broadband plans and raising prices on others. In one conference call with investors, company executives admitted they have been losing mobile broadband customers and expect that to continue at the prices they are charging.
3. Sprint needs their forthcoming 4G LTE network more than ever. Their 3G data service turned in mediocre results and their 4G WiMAX network was yesterday’s news a year ago. Sprint’s 3G network is also notorious for dead-end downloads, a situation I have witnessed on friends’ phones for several months.
4. Verizon Wireless remains far ahead of AT&T in covering more cities with their 4G LTE network. But more customers are also starting to use Verizon’s newer network, and the more customers piling on, the slower the speeds get for everyone. AT&T turned in some superior speed results in several cities, but those networks are often used less than the competition, for now.
5. No network is good if you cannot afford to use it. As America’s wireless carriers keep raising prices and reducing usage allowances to keep data usage under control, there will be a breaking point where customers decide the money they spend for wireless data just is not worth it, especially if they live in a place where Wi-Fi is free and easy to find.
6. What you test today will probably be different tomorrow. Wireless networks are constantly evolving and changing, with a wide range of factors contributing to their overall performance. Perhaps a more useful test would have been measuring how wireless carriers respond when their networks need upgrading and how long it takes them to respond to changing usage patterns. Verizon seems particularly aggressive, AT&T less so based on these results. The real surprise seems to be how well T-Mobile’s older technology is performing, and how quickly Sprint is now falling behind. On Cricket and MetroPCS, “you get what you pay for” seems to apply.