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AT&T agrees to buy Leap Wireless: Will regulators let this one through?

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AT&T(s t) was denied T-Mobile, so now it’s trying its luck with a smaller carrier. Ma Bell announced at the end of business Friday that it has agreed to buy Leap Wireless(s leap), the regional carrier that runs the Cricket Communications brand, for $1.2 billion.

With 5 million customers, Leap is currently the fifth largest mobile carrier in the U.S., having moved up the ranks last spring when T-Mobile(s tmus) merged with MetroPCS. It runs CDMA networks in many small and mid-sized markets in 35 states across the country, along with a few larger cities like Chicago and Houston.

at&t-mobile-mergerThe big question is whether regulators will let this deal pass. When the Federal Communications Commission and the U.S. Department of Justice smacked down AT&T-Mo in 2011, they made it clear that they weren’t going to let AT&T and Verizon grow bigger by taking any more viable competitors out of the market.

Regulators may not view Leap in the same light, though. It’s hardly nationwide, and it’s struggling. Allowing the acquisition would still maintain the balance between the big 4 operators and only increase AT&T’s customer base by a modicum. But the deal would also put valuable 3G and 4G airwaves into AT&T’s pocket in many regions of the country, giving it the same kind of “surgical” spectrum MetroPCS gave T-Mobile.

Still, the guard is changing at the FCC. Obama’s pick for a new commission chairman is Tom Wheeler, who is a former CEO and President of CTIA, the big carriers’ primary lobbying and policy group. That doesn’t change the situation at the DOJ, though, and it was the Justice Department that took the lead in killing AT&T-Mo.

The DOJ and FCC may choose to look at this deal primarily as a spectrum deal, rather than a merger of competitors. Both agencies let Verizon buy up the cable companies’ massive treasure trove of 4G airwaves, though they secured assurances from Verizon(s vz) it would sell off other spectrum. We might see the same thing happen in an AT&T-Leap deal. AT&T said in its announcement it already plans to sell off a block of 700 MHz spectrum in Chicago Leap just bought from Verizon.

AT&T, though, doesn’t appear only interested in cannibalizing Leap’s spectrum. It said it would put the carrier’s unused 4G airwaves — which cover around 41 million people — to use immediately in its LTE network, but it claimed it would maintain the Cricket brand, using it to denote its prepaid services, just like T-Mobile will use the MetroPCS brand and Sprint(s s) uses the Boost Mobile and Virgin Mobile brands.

Ultimately AT&T would have to shut down Leap’s networks completely though, since their networks aren’t compatible. That’s fine with AT&T. It doesn’t need any more 2G or 3G service. It’s focused on the LTE prize.

5 Responses to “AT&T agrees to buy Leap Wireless: Will regulators let this one through?”

  1. Leap Wireless was a losing company anyway. Somebody would have bought them out regardless. AT&T prepaid services like gophone and Aio allow access to LTE networks. Pretty sure SoftBank will expand Sprint coverage and prepaid services now that they are the spectrum leader. Deutsche Telekom has enormous revenue, but seem to be holding back on investing in their T-Mobile unit. Got a feeling selling off T-Mobile is still on the minds of Deutsche Telecom. Overall it’s good to see prepaid rapidly taking off. Soon enough Verizon will have to improve their prepaid plans and allow access to their LTE network if they wish to compete in prepaid.

  2. John B.

    Whether the FCC views this as anti-competitive or not, it turns my stomach to constantly see Verizon and AT&T wiping out even the smallest of carriers leaving less and less chances for the remaining distant ranked carriers to capitalize. We must hope that Tmobile and Sprint can move more swiftly and aggreassively in deploying viable networks or we are doomed.

    John B.

    • Jody Smith

      Do we really need a market of 200 different carriers providing the same or similar types of services?

      And what’s with the prevailing attitude that all carriers have to be on equal footing and that there can be no winners or losers? Let people who want premium coverage and services go to the bigger guys. We still have Sprint, T-Mobile and countless other MVNO’s and small wireless carriers to choose from.

      AT&T has over 107 million connections. Companies this size need much more airwaves to keep up with demand and grow their business.

      We’re not talking about water or gas companies here. We have tons of carriers to choose from. Leap couldn’t compete anymore and was suffering financial collapse.

    • Kevin Fitchard

      Yep, you’re right, Blake.

      (Here’s the post for those interested:

      I was obviously wrong, but this still seems absolutely ridiculous to me. AT&T is paying $1.2 billion and taking $2.8 billion in debt to get spectrum in a few big markets and a bunch of small ones. That’s basically the same price Verizon paid for the cableco spectrum — much more significant licenses covering every single major market in the U.S.

      I was wrong about T-Mobile-MetroPCS as well. I’ve been making the mistake of thinking the big carriers are interested in smaller carriers because of their businesses and their customers. It’s becoming obvious, though, that the big operators aren’t interested in the companies themselves. They just want to strip their acquisitions of spectrum, and they’re willing paying enormous sums of money to do so.

      There’s still nothing compatible about Leap and AT&T. At the end of all this there will just be the Cricket brand and a bunch of AWS and PCS airwaves subsumed into AT&T’s network. Maybe I was completely naive in thinking that carriers were still interested in buying carriers for their businesses — trust me I’m no longer thinking that way — but I’m still shocked they’re paying such high premiums for what amounts to patchwork to spectrum.