AT&T Agrees To Acquire Leap Wireless

AT&T has announced that it has come to agreement to acquire U.S. carrier Leap Wireless (which operates the Cricket brand) for $15 per share. The acquisition will cover all of Leap Wireless’s assets, expanding AT&T’s coverage to Leap’s 5 million subscribers.

Leap, notably, runs a pre-paid deal for iPhones in the U.S.

This move enhances AT&T’s spectrum, retail store count, employee number, and more, so it is likely a positive move for its wireless customers. It’s possible that this announcement is related to the upcoming press event AT&T has scheduled for July 16th.

Official Statement:

DALLAS & SAN DIEGO–(BUSINESS WIRE)–AT&T Inc. (NYSE:T) and prepaid wireless provider Leap Wireless International Inc. (NASDAQ:LEAP) have entered into an agreement for AT&T to acquire Leap for $15 per share in cash. Under the terms of the agreement, AT&T will acquire all of Leap’s stock and wireless properties, including licenses, network assets, retail stores and approximately 5 million subscribers. As of April 15, 2013, Leap had $2.8 billion of net debt. Leap shareholders will also receive a contingent right entitling them to the net proceeds received on the sale of Leap’s 700 Mhz “A Block” spectrum in Chicago, which Leap purchased for $204 million in August 2012.

Leap’s network covers approximately 96 million people in 35 U.S. states. Leap currently operates under the Cricket brand a 3G CDMA network, as well as a 4G LTE network covering 21 million people in these areas, and has 3,400 employees.

AT&T will retain the Cricket brand name, provide Cricket customers with access to AT&T’s award-winning 4G LTE mobile network, utilize Cricket’s distribution channels, and expand Cricket’s presence to additional U.S. cities. The result will be increased competition, better device choices, improved customer care and a significantly enhanced mobile Internet experience for consumers seeking low-cost prepaid wireless plans.

The combined company will have the financial resources, scale and spectrum to better compete with other major national providers for customers interested in low-cost prepaid service. Cricket’s employees, operations and distribution will jump start AT&T’s expansion into the highly competitive prepaid segment.

The acquisition includes spectrum in the PCS and AWS bands covering 137 million people and is largely complementary to AT&T’s existing spectrum licenses. Immediately after approval of the transaction, AT&T plans to put Leap’s unutilized spectrum which covers 41 million people to use in furthering its 4G LTE deployment and providing additional capacity and enhanced network performance for customers’ growing mobile Internet usage.

Owners of approximately 29.8% of Leap’s outstanding shares have entered into an agreement to vote in favor of the transaction.

The transaction is subject to review by the Federal Communications Commission and the Department of Justice and to other customary closing conditions. AT&T expects the transaction to close in six to nine months.

Leap Stiffs Sprint On $75M MVNO Network Payment

After a disastrous second quarter, Cricket provider Leap Wireless said it will not make its $75 million minimum wholesale purchase commitment of network access from Sprint Nextel. "Due to certain provisions in the wholesale agreement, we do not believe the company is obligated to meet this commitment in 2012, although we expect to satisfy a significant majority of it in any event," said Leap CEO Doug Hutcheson. "Sprint has not agreed to our decision and we are in discussions with them."

The announcement served to cap a number of serious issues that stung Leap during the company's second quarter. Leap reported a net loss of 289,000 customers and a net loss of $41.6 million that was more than analysts expected. The company also plans to narrow its national retain expansion to just 8,000 stores--fewer than its previous expectations.

"Our results for the second quarter are not acceptable," summed Leap CFO Jerry Elliott.

Leap signed its wholesale agreement with Sprint in 2010. The agreement allowed Leap--a regional wireless carrier headquartered in San Diego--to take its offerings nationwide, beyond the markets where it operated its own network. By reselling Sprint's services under Leap's Cricket brand, the move essentially turned Leap into a Sprint MVNO. Leap in the first quarter said that it did expect to meet its minimum $75 million purchase agreement with Sprint, but its calamitous showing in the second quarter appears to have tripped up the Cricket provider.

Leap's falling out with Sprint was one of a number of missteps that tugged at Leap during the quarter. Hutcheson said Leap didn't bring in as many customers as it had expected through its promotional efforts. He also said that "certain popular handsets" were not available during the quarter due to quality issues, though he didn't name the handset suppliers or provide details of the problems.

"We are discussions with these suppliers and expect steps to be taken on their part, or they may be, among other things, eliminated from our device portfolio," Hutcheson warned.

Leap began selling the Apple iPhone at the very end of the second quarter, but carrier executives did not provide any insight into sales of the device. "We will update [on the iPhone] in the coming quarters," Hutcheson said.

Hutcheson also said Leap plans to reduce spending on its 3G CDMA network by $80 million during 2012. Elliott explained that Leap's network will be able to handle the reduction in spending partially because of Leap's shrinking customer base and because of the company's intention to handle network spending with "rigor and discipline."

However, Leap executives said the cutback in Leap's CDMA network spending will not affect its LTE buildout plans; the carrier still expects to cover around two-thirds of its network footprint with LTE within the next two to three years. But that buildout will be tweaked slightly: Leap said it now expects to cover around 21 million POPs with LTE by the end of this year, down from a previous expectation of 24 million. Elliott explained that Leap now plans to turn on one LTE market in early 2013 instead of late 2012.

Interestingly, Leap said it plans to roll out LTE "by deploying facilities-based coverage and/or by entering into possible partnerships or joint ventures with others." Such language could indicate Leap plans to team up with another carrier to deploy LTE instead of handling the buildout by itself.

Indeed, the overall situation at Leap appears to be dire enough that the company is considering a range of corporate strategies. Hutcheson said: "We are also continuing to review alternatives to drive additional cash flow and value from our assets." Leap CFO Elliott said this "review" will put all options on the table, up to and including selling the company. "I wouldn't eliminate anything right now," he said.

Credit Suisse analyst Jonathan Chaplin said Leap has four major options:

• 1. A sale of the company;
• 2. Sell its spectrum and become a full MVNO;
• 3. Ink a network-sharing agreement where it would keep its network and supplement that with the network of another carrier.
• 4. Maintain its 3G CDMA network and share or wholesale its LTE network.

Chaplin indicated a network-sharing arraignment encompassing Leap's CDMA and LTE networks might be the most likely outcome.

Here is a breakdown of Leap's key metrics for the second quarter:

Subscribers: The company reported a net loss of approximately 289,000 customers for the second quarter of 2012, compared to a net loss of approximately 103,000 customers for the second quarter of 2011. Leap's net customer losses in the second quarter of this year included 205,000 voice customers and 84,000 broadband customers. Leap ended the second quarter with 5.9 million customers, up 2.7 percent from the year-ago quarter.

ARPU: Leap's ARPU for the second quarter of 2012 was $41.64, an increase of $1.49 over the comparable period of the prior year.

Churn: The carrier's customer churn for the second quarter of 2012 was 4.4 percent, up from the 4.2 percent it reported in the second quarter of 2011.

Handsets: Leap said 57 percent of the company's new handset sales in the second quarter of 2012 were for smartphones and Muve Music-enabled devices, and approximately 9 percent of the company's voice customer base upgraded their handsets during the quarter.

Financials: Leap's service revenues for the second quarter of 2012 increased 6.7 percent over the prior year quarter to $751.3 million. The company's second quarter operating income was $31.6 million, up from the $12.3 million it reported in the second quarter of 2011. 

Apple’s iPhone Goes Prepaid June 22nd

Beginning on June 22nd, consumers in the United States will be able to purchase a new iPhone to be used alongside prepaid wireless service. Regional carrier Cricket, owned by Leap Wireless, will offer Apple’s iPhone 4S and iPhone 4 off contract alongside its $55 unlimited talk, text and data plan. Though labeled as unlimited, the plan includes 2.3GB of full-speed data, and speeds will be throttled once that threshold is reached. While the news marks the start of a new chapter for Apple’s current iPhone models, the high hardware cost compared to other prepaid smartphones may be a substantial barrier for many subscribers. Cricket plans to charge $399.99 for the 8GB iPhone 4 and $499.99 for the 16GB version of the iPhone 4S. Apple’s iPhone 3GS is seen as a much more compelling handset for prepaid carriers, which may soon begin offering the 3-year-old device for between $200 and $250 off contract.

AT&T Pursuing Leap Wireless Purchase For Its Spectrum

AT&T has made no bones about its need for more wireless spectrum, and now that it can't acquire T-Mobile, it's considering a myriad of options to fill in the gaps. The Wall Street Journal is reporting that the company is in the midst of talks with Leap Wireless, which owns the more well-known brand Cricket, saying that the two sides "have been engaged in talks about a potential deal." The talks are apparently the result of a rapport the two companies built up when AT&T was considering selling Leap some spectrum to make the T-Mobile acquisition more palatable. Though any potential deal is reportedly months away, it could remove one of the more successful smaller carriers from the marketplace.

It's no surprise that AT&T is looking at all options, including possible deals with MetroPCS and even Dish Network, which recently tussled with AT&T in FCC filings over its own wireless plans. Dish might not be interested in selling, the WSJ reports, and MetroPCS is also apparently not looking like a likely partner.

While AT&T's spectrum crunch is a problem, it has to be said that the company is still managing to roll out LTE fairly well in the short term. Compared to T-Mobile (which hasyet to detail any clear LTE plans) and Sprint (which has to now manage without LightSquared's network), the situation could certainly be worse.

AT&T-Mobile deal all but over, joint venture partnership likely

It’s becoming more and more clear that AT&T will not be allowed to buy T-Mobile USA outright. AT&T’s fourth quarter hail-mary effort to save the deal involved selling off some of its assets to appease government opposition, including a potential selloff of customers and spectrum to Leap Wireless. The Wall Street Journal is reporting that these divestiture negotiations cooled off over the weekend, and that AT&T is now preparing itself to pay the $4B breakup fee to Deutsche Telekom.

Though it appears a full takeover of T-Mobile USA is off the table, two likely alternatives are emerging. First, and perhaps the most likely scenario, AT&T and Deutsche Telekom are discussing entering into a joint venture in the United States that would combine AT&T and T-Mobile’s resources together to create a combined network. The result would be something similar to carrier Everything Everywhere in the UK, which is a joint venture between T-Mobile UK and Orange where Everything Everywhere acts as a single company which runs both T-Mobile UK and Orange networks in the UK.

Alternatively, Dish Network has long expressed interest in entering into the mobile market. Just last week, Dish Network expressed interest in purchasing T-Mobile USA if the AT&T purchase falls through. Dish Network has been acquiring spectrum left and right lately, but still doesn’t have enough spectrum to launch a widespread cellular network. Purchasing T-Mobile would provide Dish Network with the opportunity to launch their own carrier, probably under the Dish moniker.

Regardless of which suitor ultimately partners with or fully acquires T-Mobile USA, Deutsche Telekom (DT) continues to indicate that they have no interest in staying in the US market for long. It is widely believed that the $4B breakup fee from AT&T will be used to invest in DT’s European network, not to bolster the operations of  T-Mobile USA.

We’ll likely know more about T-Mobile USA’s fate in coming months. For now, it appears T-Mobile customers can rest assured that they won’t become AT&T customers anytime soon (or Leap Wireless for that matter).

AT&T to Offer Bigger Asset Sales to Save Takeover

AT&T Inc., with its T-Mobile USA takeover facing regulatory opposition, is preparing the biggest remedy proposal yet to the Justice Department to salvage the $39 billion deal, according to a person familiar with the plan.

The company is considering an offer to divest a significantly larger portion of assets than it had initially expected, said the person, who declined to be identified because the plan isn’t public. Though the exact size of the disposals hasn’t been determined, they could be as much as 40 percent of T-Mobile USA’s assets, the person said.

The asset sale is an attempt to address the concerns of the Justice Department, which sued to block the takeover on Aug. 31, saying the deal would “substantially lessen competition” in the wireless market. The acquisition was dealt another blow on Nov. 22, with the Federal Communications Commission signaling an attempt to block it.

“It’s going to be problematic for AT&T to find a successful divestiture solution,” said Kevin Smithen, an analyst with Macquarie Securities USA Inc. in New York. The pool of potential buyers isn’t very big and those that might be interested probably wouldn’t have a chance, Smithen said. “It’s unlikely that the DOJ would allow a big competitor like Verizon to purchase the assets,” Smithen said.

Customers Versus Spectrum

ATT’s proposal is likely to include the divestiture of a higher share of customers and lower percentage of spectrum, said the person familiar with the matter. The company needs more capacity to serve users as it adds customers and more of them adopt data-intensive smartphones.

AT&T, based in Dallas, fell 0.5 percent to $27.41 yesterday in New York and has lost 6.7 percent this year. T-Mobile owner Deutsche Telekom AG added 1.6 percent to 8.83 euros in Frankfurt and has declined 8.6 percent this year.

Brad Burns, an AT&T spokesman, and Andreas Fuchs, a Deutsche Telekom spokesman, declined to comment.

The asset-sale proposal, which could come as early as the next Justice Department hearing on Nov. 30, might be the only remaining option if the second-largest U.S. wireless operator wants to avoid a lengthy court battle in its bid to become the country’s top mobile carrier. The purchase may vault it past Verizon Wireless, depending on the size of the divestitures.

On Nov. 24, AT&T and Deutsche Telekom asked to pull their deal applications to the FCC so the companies could better focus on the Justice Department lawsuit. AT&T also said it would take a one-time charge of $4 billion to cover the breakup fee it will need to pay to Deutsche Telekom if the deal fails.

‘All or Nothing’

One approach is to propose a remedy that would lessen the market impact of losing the fourth-largest wireless service provider. AT&T has been in discussions with MetroPCS Communications Inc. and Leap Wireless International Inc. to sell spectrum and customers as a way of propping up competition in the absence of T-Mobile.

The second approach is to fight the court case, which is scheduled to begin Feb. 13.

“If there were a last, best offer to be made, they would have made it a long time ago,” said Craig Moffett, a Sanford C. Bernstein & Co. analyst in New York, who has a “market perform” rating on AT&T shares. “It’s very hard to envision a solution that would satisfy the problems the DOJ found with the deal. Realistically, AT&T is going to take its chances in court in February. It’s all or nothing.”

According to a term in the agreement, AT&T would be able to pay less than the deal’s original $39 billion value if regulators demand asset sales that surpass 20 percent of that figure, or about $7.8 billion, three people with direct knowledge of the situation said Sept. 7.

AT&T could walk away from the deal and pay Deutsche Telekom a breakup fee if the concessions requested top 40 percent of that value, the people said. If the deal doesn’t happen there’s no way AT&T can avoid paying the breakup fee, the people said.