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AT&T Mobility may need to take a Leap for spectrum

By Karen Brown, Jan 3, 2012

The failure of AT&T’s $39 billion deal to acquire T-Mobile USA doesn’t mean the end of possible wireless carrier consolidation as we head into 2012.

Mayan apocalypse notwithstanding, in the coming year we may in fact see the list to nationwide carriers shorten – but not among the big players. With the Federal Communications Commission all but putting the kibosh on consolidation between the top four nationwide postpaid carriers, the focus may well shift to the prepaid players – and there is at least one interesting candidate there.

First and foremost, there is Leap Wireless, which operates under the Cricket brand. While far from mighty with just shy of 5.8 million prepaid customers, the company owns licenses in in the very Advanced Wireless Services (AWS) spectrum AT&T was seeking as part of its failed acquisition of T-Mobile.

The Leap/Cricket AWS spectrum is nearly as extensive as T-Mobile’s AWS holdings, but it could go a long way to backstopping AT&T’s Long Term Evolution network that already mixes 700 MHz and AWS assets. On a related note, in what might be considered a consolidation prize, the FCC did OK AT&T’s acquisition of Qualcomm Corp.’s portfolio of 700 MHz spectrum. But most of those licenses offer only a single 6 MHz channel, which won’t be enough to meet AT&T’s LTE capacity needs.

With all of this in mind, it is possible AT&T might make a bid for Leap, which like T-Mobile is not in the best of financial shape, as evidenced by Leap’s long history of net losses and even rumors it might merge with equally challenged prepaid rival MetroPCS. But there is a good reason AT&T hasn’t done so up until now – Cricket is a CDMA-based carrier, so any acquisition would involve transitioning the customer base over to AT&T’s GSM-based scheme.

The fact Cricket offers prepaid service would make that transition far less of a risk, as AT&T would not be greatly damaged if it lost a substantial portion of these low-revenue, high-churn customers. But it still would be a disruptive and potentially costly process for AT&T.

Other candidates also exist, including regional players such as Cincinnati Bell’s wireless business, which also holds some limited AWS spectrum licenses in Ohio. But these players would supply only spot capacity in specific areas, falling well short of supplying AT&T with a consistent spectrum footprint to support LTE.

Still, lacking other options and with the FCC’s plans to free up more spectrum still mired in red tape, acquiring Leap Wireless may be AT&T’s only viable source for new spectrum in next year or two.