AT&T, Leap Say Their Proposed Deal Is in the Public Interest

"Combining AT&T’s nationwide network with Leap’s prepaid/no-contract business will benefit consumers seeking a high-quality, competitively-priced prepaid wireless experience,” the companies said in the public interest statement (http://bit.la/1d4kr5r). “Leap has years of experience marketing prepaid/no-contract service and an established retail distribution system, and its Cricket brand is well recognized in its service areas. AT&T has a fast and reliable nationwide 4G LTE/HSPA+ network that provides its customers a level and variety of services that Leap does not and cannot offer."

The filing notes Leap has a “limited network footprint” letting it offer facilities-based service to less than a third of the U.S. and has to rely on roaming and MVNO services outside that footprint. “Leap’s financial resources and limited spectrum depth make it uneconomic to upgrade its current 3G CDMA platform to LTE throughout its network,” the filing said. It said the smaller carrier has deployed LTE technology in 11 metropolitan areas covering about 21 million people, with “little prospect today of financing significant further upgrades to cover the remainder of its network footprint.” Leap’s customer base dropped 22 percent between March 31, 2012 and June 30, 2013, “meaning that its fixed costs are spread over a smaller customer base,” the filing noted.

AT&T meanwhile faces “significant challenges in establishing a competitive presence” in the prepaid market, the companies said. AT&T can also make good use of Leap’s wireless spectrum holdings in the PCS and AWS bands, the carriers said. “Leap’s current network uses less than half of its spectrum in the areas where it provides facilities-based service, and Leap holds additional spectrum, covering 41 million people, that is outside Leap’s network footprint and is not currently in use."

Leap is a “weaker competitive force” now than in 2011, when the FCC noted it “did not present a meaningful competitive constraint” on the failed AT&T plan to buy T-Mobile, said Leap CEO Douglas Hutcheson. Leap’s direct competitors have grown far stronger since then, with T-Mobile gaining spectrum from Verizon Wireless and AT&T, and combining with MetroPCS, he said. Leap expects “increased head-to-head competition” with the MetroPCS brand, “which has begun to expand aggressively into Leap markets” post-merger, Hutcheson said. Sprint’s Virgin Mobile and Boost prepaid brands are also usually present in Leap markets, he said (http://bit.ly/14uDBcW).

If AT&T acquires Leap, it can “offer a full range of prepaid/no-contract services as well as a high-quality wireless experience,” said Rick Moore, AT&T senior vice president-corporate development. The deal will make Leap’s Cricket service a national brand, allowing it to become a “more competitive national prepaid offering to customers,” he said. The deal also will result in “significant network and operations savings, including reduced interconnection and backhaul expenses, decreasing roaming expenses, savings through the decommissioning of redundant cell sites and other reductions in administrative costs, Moore said (http://bit.ly/17LLUTA).

AT&T should be able to integrate “a few thousand” Leap cell sites into its network, said William Hogg, AT&T senior vice president-network planning and engineering (http://bit.ly/1a2sXSW). The carrier also will be able to more efficiently deploy Leap’s AWS and PCS spectrum, he said. Leap’s spectrum licenses cover an area with a potential 137 million customers, Hutcheson said. Leap has deployed only 42 percent of its spectrum -- and the spectrum it has deployed has been used to support its less spectrally efficient 3G CDMA EVDO technology, Hogg said. Leap’s LTE deployments tend to be in smaller 3x3 MHz or 5x5 MHz configurations, rather than the 10x10 MHz configurations AT&T employs on its LTE network, Hogg said. Leap has been unable to more fully deploy its spectrum, “due to the expected costs of building-out that spectrum and of seeking to acquire customers, compared to the economic benefits Leap could expect to gain in those markets,” Hutcheson said. AT&T’s LTE network covers an area with more than 225 million potential customers, and the company expects the network to cover 270 million potential customers in 400 markets by the end of 2013.

Leap’s spectrum holdings complement AT&T’s 4G deployments, meaning the acquirer can use the acquired company’s spectrum in a way that allows for higher-quality service for both AT&T and Leap customers, Hogg said. Where Leap’s AWS spectrum is contiguous with AT&T’s spectrum, AT&T will be able to use the additional spectrum to deploy 10x10 MHz or larger blocks, he said. The Leap purchase will also give AT&T 10x10 MHz blocks of AWS spectrum in multiple markets where it has none, including Washington, Houston, St. Louis, Baltimore and San Diego, Hogg said. AT&T will be able to move from a 5x5 MHz block to a 10x10 MHz block on AWS in Jennings and Lafayette, La.; Racine, Wis.; Las Cruces, N.M.; and Hinesville, Ga., he said. AT&T would be able to deploy Leap’s spectrum in as little as 60-90 days after the deal is completed in markets where AT&T anticipates using AWS for its LTE deployments, including Denver, Greenville, S.C., and Baton Rouge, La., Hogg said. AT&T would be able to use Leap’s spectrum within 12 months in other areas, including Chicago, Washington, San Diego and Milwaukee, he said. (hbuskirk@warren-news.com),