AT&T?s need to divest spectrum to push through its proposed merger with T-Mobile USA could end up making MetroPCS and Leap Wireless top-tier national competitors.

Recent reports suggest that AT&T may be looking to divest itself of spectrum to address concerns raised by the Department of Justice in a suit seeking to block the merger that it will lessen competition in some markets. In an analysis conducted by research firm Strategy Analytics, MetroPCS and Leap Wireless could benefit significantly from purchasing AT&T?s spectrum. 

?The more I think about it, the more it is to AT&T?s advantage to have that happen,? said Susan Rudd, director of service provider analysis at Strategy Analytics, Boston.

?MetroPCS and Leap won?t be a real challenge to AT&T?s segment but it would increase the competition in the areas that people are worried about,? she said.

?We would essentially have two more real competitors on a national basis as a result.?

Significant overlap
There are 97 wireless market areas identified by the Department of Justice where the agency contends that AT&T?s merger with T-Mobile would likely substantially lessen competition for mobile wireless telecommunications services.

There are several markets that the DOJ is particularly concerned about because a combined AT&T and T-Mobile would have a market share greater than 40 percent and, in some cases, greater than 50 percent.

These include major metropolitan areas such as Dallas, Houston, Oklahoma City and Seattle.

In the analysis conducted by Strategy Analytics, the research firm found that Leap or Metro PCS has a presence in all of these CMAs except for two ? Honolulu, HI and Johnson City-Kingsport-Bristol, TN-VA.

As a result, either firm could expand cost-effectively by adding spectrum and subscribers from AT&T in these markets.

The firms are also present together in several markets. This could result in competitive bidding for AT&T spectrum in Philadelphia, PA, Buffalo, Rochester, Syracuse, Las Vegas and Tacoma, WA.

Such a sale could also increase the competition significantly in these markets.

And, because MetroPCS and Leap Wireless both focus on low entry-point mobile options such as prepaid phone, they would not be competing with AT&T in its price point range.

Leap Wireless appears to have national aspirations for its Cricket prepaid wireless service, announcing a major retail expansion last week that will see Cricket products and services becoming available nationwide at Best Buy, Dollar General, in select Walmart locations and on HSN.

?This really does meet a need,? Ms. Rudd said. ?Both are doing reasonably well financially and able to serve that segment quite properly.?

Strategy Analytics? analysis also showed that AT&T could potentially accomplish most of the required divestitures with sales to MetroPCS and Leap alone.

One question will be whether MetroPCS or Leap can raise sufficient financing to purchase the spectrum.
?If financing is required, AT&T could make it possible for them to acquire it over time,? Ms. Rudd said.

Strategy Analytics? analysis so far does extend to how much spectrum AT&T would have to divest or if there is enough to divest in each of the problematic areas in order to address concerns over a lack of competition.

?AT&T needs a real plan that convinces the DOJ and I think it will be advantageous to AT&T to have parties ready to step up and buy spectrum,? Ms. Rudd said.

?If you look at this from the DOJ perspective, [selling spectrum to MetroPCS and Leap] would help strengthen two of the second tier segments into becoming first tier segments,? she said.

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York