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AT&T, Leap deal signals end of latest round of industry consolidation

AT&T?s $1.2 billion bid for Leap Wireless could bring the latest round of consolidation in the wireless carrier industry to an end as the players turn their attention instead to next year?s spectrum auction.

Following the failure of the AT&T-T-Mobile USA merger 18 months ago, consolidation in the wireless carrier industry has picked up, with T-Mobile acquiring MetroPCS for $1.5 billion earlier this year and Japanese telecom giant Softbank gaining approval just last week for its $21.6 billion deal for Sprint. However, with the AT&T-Leap Wireless deal, there are not many smaller wireless carriers left to be gobbled up.

?There's not much more to consolidate,? said Rich Karpinski, a senior analyst at Yankee Group, Boston.

?Look for operators to turn their attention to the upcoming spectrum auctions, including fighting to win favorable rules in the near-term, positioning to bid for spectrum in the mid-term, and then driving another wave of consolidation based on the auction results in the long-term,? he said.

Spectrum grab
With limited mobile spectrum available and mobile use continuing to grow, wireless carriers have been looking to acquisitions as a way to get a hold of valuable airwaves.

Leap Wireless is the sixth largest wireless carrier in the U.S. It has a network that covers 96 million users across 35 states. It operates a 3G CDMA network and a 4G LTE network covering 21 million people in these areas. The deal includes spectrum that is mostly complementary to AT&T?s existing spectrum licenses and which covers 137 million people.

?[The deal] not only gets AT&T some bits of spectrum, it keeps that spectrum out of the hands of competitors, most notably T-Mobile,? Mr. Karpinski said.

With few smaller wireless carriers left to acquire, the players that are left will be turning their attention to an auction of new airwaves for wireless broadband scheduled for next year by the Federal Communications Commission.

Prepaid push
AT&T is making a big bid to own a part of the growing prepaid market by acquiring Leap Wireless.

Leap Wireless is an attractive acquisition for AT&T because it operates the Cricket prepaid brand that enable users to get wireless service without a contract. Such services have been growing in popularity, particularly among urban and younger consumers, but AT&T has not had a big part in the segment to date.

?I do believe prepaid is important, and think AT&T does as well,? Mr. Karpinski said.

?My take is that AT&T will ? and should ? keep the brand and retail locations intact to serve the value/urban/ethnic sector of the prepaid market,? he said.

?At the same time, look for it to continue to push its slightly more upscale Aio Wireless no-contract brand and also drive AT&T-branded prepaid opportunities through big-box retail channels, where its brand name can make a competitive difference.?

Sizing up
However, the AT&T takeover of Leap Wireless is not a done deal yet.

AT&T faced significant pushback from government regulators over its plan to merge with T-Mobile USA, which is why the deal was ultimately called off.

With AT&T still holding a very strong position in the wireless carrier industry and the regulatory environment not having changed significantly since the T-Mobile deal was called off, there is a chance AT&T could face a similar situation, with public interest groups asking the government to block the transaction because of AT&T?s already strong position in the market.

AT&T plans to retain the Cricket brand name and expand its presence to additional markets, which AT&T claims will increase competition and enhanced mobile Internet experiences for consumers interested in low-cost prepaid wireless plans.

For brand marketers, the consolidation that has taken place among wireless carriers is an opportunity for them to reach a wide range of mobile users.

?For brand marketers, the key message is that mobile continues to see growth,? Mr. Karpinski said.

?Mobile marketing and advertising is still maturing, with opportunities to do big data-mining of mobile subscribers emerging as a key area of interest,? he said. ?Bigger operators made even bigger by consolidation will be great partners in such efforts, which will help marketers reach mobile users with better-targeted messages and offers.?

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