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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.
The 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.