Leap's 3G Trumps Metro's 4G/2G Mashup

11:50 AM -- MetroPCS Inc. (NYSE: PCS) may have a Long Term Evolution (LTE) network, but Leap Wireless International Inc. (Nasdaq: LEAP) is the better bet in the prepaid market, according to Sanford C. Bernstein & Co. Inc. analyst Craig Moffett.

When prepaid stocks took a hit in August, Bernstein selected MetroPCS as the preferred carrier in the space, but it's changing its tune after Leap took its 3G network nationwide. Leap's 3G is stronger than Metro's "stopgap 2G network," Moffett says, and this is what its 4G network subscribers will fall back to in most of the country. (See Cricket Leaps to Nationwide, MetroPCS Explores Spectrum Options and Leap Takes Its Time on LTE.)

"MetroPCS's strategy to jump directly from 2G to 4G -- without a 3G stop along the way -- may well prove prescient," he wrote in a research note that sent Leap's stocks on the upswing. "It will eventually yield lower cost and higher speeds. But for now, 4G handset costs are still too high for mass adoption, and the 2G bridge devices in use today deliver painfully slow speeds and oftentimes dissatisfied customers."

The fallback issue brings up an interesting comparison to AT&T Inc. (NYSE: T) and Verizon Wireless . AT&T doesn't have nearly as much of its LTE network deployed as Verizon, but its users will fall back to the zippier HSPA+ network whereas Verizon’s will get kicked back to the slower CDMA network. (See Reliability Trumps Speed in LTE.)

The fall back to 2G or 3G will be important, especially in the early days of 4G. If the kickback disrupts mobile usage or the fallback network is unreliable and slow, it will hurt perceptions of LTE too. That's a crucial consideration whether you're offering a prepaid LTE service or a postpaid one.

— Sarah Reedy, Senior Reporter, Light Reading Mobile

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