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Leap Courts High-End to Combat Customer Loss

Leap Wireless's focus on higher-end devices to breed higher-value customers cost it in the second quarter, in which the prepaid carrier's revenue fell 7% to $731.5 million.

Leap lost $163.1 million, or $2.09 per share, in the second quarter, what could be one of its last remaining quarters reporting as an independent company. Last month AT&T Inc. bid $1.19 billion to acquire the smaller operator, which runs the Cricket Communications, Inc. brand, in order to get its hands on its spectrum and prepaid customers. (See AT&T to Acquire Leap Wireless for $1.19B.)

But that customer base is waning, too. It was revealed yesterday in its preliminary proxy filed on the AT&T acquisition that Leap's subscriber count fell by 22 percent between from March 31, 2012, to June 30, 2013, so analysts weren't expecting a stellar quarter. Leap ended up adding only 283,066 gross customers, down from 492,720 this time last year. Competition from T-Mobile and its bigger rivals was likely to blame for much of the hurt.

The proxy, first unearthed by Moffett Research analyst Craig Moffett also suggests that T-Mobile wasn't as interested in buying Leap itself as once thought. In fact, it wasn't interested at all. Leap apparently reached out to T-Mobile in May and never got a call back. AT&T was the only bidder and ended up paying 58 percent more than it initially offered. (See AT&T's Leap Bid: Stickin' It to T-Mobile?)

Doug Hutcheson, CEO of Leap Wireless, wouldn't comment on the pending merger, only noting that the combination would result in increased competition, better device selection,improve customer care and a better experience, in general.

As it works its way through regulatory approvals, Leap says it will continue to focus on bringing higher-end LTE devices to market to reduce churn, which is currently at 4.3 percent. Hutcheson said data usage for their LTE customers was about twice that as 3G customers. The operator also recently introduced new, flexible payment options that let new customers sign up with no money down or no credit check. Hutcheson said they've had a great uptake so far. (See In Response to Leap's New Plans – Crickets.)

"If all you want to do is grab market share and you just want to grab customers regardless of profitability, then that's one approach," Hutcheson said in a jab against T-Mobile, reiterating that it's looking for those customers that will bring the most value to the prepaid operator.

— Sarah Reedy, Senior Editor, Light Reading

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