AT&T's Leap Bid: Stickin' It to T-Mobile?

AT&T Inc. says it is splashing down US$1.19 billion to acquire Leap Wireless as a way to get much-needed spectrum, bolster its prepaid play and expand its reach. But there's a nice side effect of the deal, too: AT&T gets to give a big middle finger to its ex, T-Mobile US. (See AT&T to Acquire Leap Wireless for $1.19B.)

It's not hard to see why the carrier might be feeling a little bitter after its deal to acquire T-Mobile went up in smoke two years ago. Since then, T-Mobile, under the leadership of new CEO John Legere, has been running around town trashing its would-be partner and its network to everyone that will listen.

Now it appears AT&T is getting a little revenge by announcing its intention to buy up Leap Wireless, a carrier that T-Mobile was reportedly eyeing for its own acquisition.

Of course, this isn't the reason AT&T cited for the buy at all. And its reasoning for wanting Leap is quite valid. The smaller operator gives it complementary spectrum for its LTE rollout and has a sizable customer base in the prepaid market, which AT&T has been bolstering its presence in recently. (See AT&T Nudges Prepaid Customers to LTE and AT&T Updates GoPhone Prepaid LTE Plans.)

But industry analyst Craig Moffett pokes some holes in AT&T's logic. He points out in a research note that not only is Leap's spectrum portfolio small and concentrated in Tier 2 markets, but it also isn't all that compatible with AT&T's since more than two-thirds of it is in the AWS band. AT&T gave up most of its AWS holdings to T-Mobile in the breakup and to Verizon Wireless in a January deal.

Instead, he writes, "AT&T's purchase of Leap keeps Leap's highly complementary spectrum out of T-Mobile's hands, where it might otherwise have been put to use, and it blunts the impact of T-Mobile's initiatives to expand the MetroPCS brand into additional markets."

Leap's spectrum would have meant a lot more to T-Mobile than it does to AT&T, and that's one reason AT&T had to get there first. (Although, it's worth noting that this might not be the end of the story for Leap as T-Mobile could still respond with a counter-bid of its own. Remember how well that worked out for Dish Network Corp.?)

In my opinion, spectrum and prepaid were both very real motivators of AT&T's acquisition as postpaid growth and capacity continue to be an issue for the number two wireless operator. But, I'm sure T-Mobile factored into its decision, and the bid suggests that Magenta's "uncarrier" strategy is actually making its bigger competitors a little nervous -- or at least mad enough to strike back.

— Sarah Reedy, Senior Editor, Light Reading

Sarah Thomas 7/16/2013 | 3:58:57 PM
re: AT&T's Leap Bid: Stickin' It to T-Mobile? I left AT&T awhile ago too, but my affections are more fickle. The reason I left was I didn't get service in my basement. If they offered me a microcell and a pricing plan worked out favorably, I might consider going back. Their LTE network has been impressive so far, where they have it.
Al in SoCal 7/15/2013 | 9:30:34 PM
re: AT&T's Leap Bid: Stickin' It to T-Mobile? Just like ATT - buy a service that it doesn't need simply to keep it away from T-Mobile and their customers. My happiest day was when my 2 year contract was over with ATT - I cut the ties and will never go back.
milan03 7/15/2013 | 8:29:11 PM
re: AT&T's Leap Bid: Stickin' It to T-Mobile? The PCS + AWS spectrum would allow T-Mobile to deploy LTE in lots of markets where they're spectrum constrained. The entire T-Mobile spectrum portfolio is PCS+AWS, very lean and easy to manage. This article is on point on AT&T trying to keep this spectrum out of T-Mobile's hands.
Sarah Thomas 7/15/2013 | 5:14:50 PM
re: AT&T's Leap Bid: Stickin' It to T-Mobile? US Cellular is definitely the most likely candidate for acquisition next. I think it'd be open to it as well. It's been hard for it to compete in the postpaid space even as it grows its LTE network.
MordyK 7/15/2013 | 4:54:38 PM
re: AT&T's Leap Bid: Stickin' It to T-Mobile? The argument that spectrum will sit fallow might make the FCC hesitate in its approval. As you know i'm kinda shocked T-Mobile didn't try to make a play here, as that is the precise spectrum they need and the added customers couldn't hurt.

My prediction is that US Cellular is next on the block, although the migration issues will be more challenging as their customer portfolio is a longer term set of postpaid customers, so its acquirer - if its a GSM carrier - will have to maintain dual networks for far longer.
Sarah Thomas 7/15/2013 | 4:52:37 PM
re: AT&T's Leap Bid: Stickin' It to T-Mobile? Check out Mosiak Solutions' great depiction of AT&T and Leap's spectrum overlap:
Sarah Thomas 7/15/2013 | 4:49:30 PM
re: AT&T's Leap Bid: Stickin' It to T-Mobile? Remember when there used to be a rumor of a MetroPCS and Leap Wireless merger every other day? Those were the days!

I wonder if the fact that this was (partly) aimed at hurting T-Mobile will cause the FCC/DOJ to scrutinize it more closely...
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