AT&T said it has closed on its acquisition of Leap Wireless, bolstering the carrier’s already ample stable of no-contract offerings. The deal closed just one day ahead of the Federal Communications Commission’s self-imposed 180-day review period.
The deal, which was originally announced last summer, was priced at $15 per share and included all of Leap’s wireless properties, including licenses, network assets, retail stores and subscribers, or at least those that are left. Leap’s shareholders have also received a “contingent right” to proceeds gained on the eventual sale of the company’s A-Block 700 MHz spectrum license covering Chicago that Leap acquired in 2012.
The per-share price valued Leap at $1.2 billion, though analysts noted that AT&T would also be taking on approximately $2.8 billion in debt as part of the transaction. A shareholder vote on the deal was postponed last October as Leap cited the need to file amendments to past Securities and Exchange Commission filings.
Leap shareholders could get a nice bonus on the 700 MHz spectrum license as well, which saw its value shoot up following an agreement between the FCC and AT&T to allow for interoperability between all lower 700 MHz spectrum licenses. T-Mobile US earlier this year struck a deal with Verizon Wireless to pick up a stash of A-Block licenses covering 158 million potential customers in a number of large markets, excluding Chicago.
In approving the deal, the FCC noted that taking Leap out of the market could results in “competitive and other public interest harms in several local markets, as well as to value-conscious consumers,” but that such impacts would be countered by other benefits.
“Even taking into consideration those benefits, however, we remain concerned about the potential for the proposed transaction to result in certain public interest harms,” the FCC warned.
However, AT&T soothed most concerns by committing to spectrum divestitures in some markets; to deploying LTE services using unused Leap spectrum “within 90 days or 12 months” of the deal’s closing; and to build out LTE services in six south Texas markets within 18 months. In addition, AT&T said it will offer “certain rate plans” targeting “value-conscious” and government-subsidized Lifeline customers; and a device trade-in program for current Leap customers with CDMA phones to upgrade to devices compatible with AT&T Mobility’s network. AT&T also said it will continue to honor Leap’s CDMA roaming agreements for as long as it operates the CDMA network.
Now that the deal is done, AT&T said it will continue operating the Cricket brand, providing access to AT&T Mobility’s LTE network. The Cricket brand will join AT&T Mobility’s GoPhone and Aio Wireless no-contract services, at least temporarily. AT&T noted last year that it planned to fold its Aio Wireless brand into the Cricket brand following the acquisition of Leap.
AT&T said it would begin migrating current Leap customers to its network, which will involve having to get new devices into their hands. A vast majority of Leap’s 4.5 million customers remain on that carrier’s legacy CDMA network, which AT&T said it expects the migration process to take about 18 months.
Once migrated, AT&T plans to begin re-farming Leap’s 1.9 GHz and 1.7/2.1 GHz spectrum holdings to support its growing LTE network. AT&T noted that a majority of Leap’s spectrum holdings covering 138 million pops across 35 states was complementary to its own spectrum portfolio.
The deal’s closing comes at a fruition point for Leap, which has been in an operational free fall. The carrier last week posted a 10-K report with the SEC noting that it lost $181 million during the fourth quarter, which was more than double the $74.3 million it lost during the final three months of 2012. The increased losses were connected with a near 10% decrease in revenues, which came in at $682.7 million for the fourth quarter of 2013. For the full year, Leap said it lost nearly $641 million in 2013, which was more than three-times the $189.3 million the company lost in 2012, and was the fifth year in a row that Leap posted a full-year loss. Net revenues for 2013 also dropped nearly 8% year-over-year to just under $2.9 billion.
Leap’s financials were impacted by continued degradation in its customer base, as the carrier said it lost 745,300 customers in 2013, which followed the loss of more than 637,000 customers in 2012. Customer growth was impacted by a steep drop in gross subscriber additions, which plunged nearly 35% in 2013, and followed a 22% drop in 2012. Leap also noted an impact from T-Mobile US’ MetroPCS operations, which T-Mobile US acquired last year. Leap and MetroPCS had a long history as rivals and potential partners in the wireless space, with both companies targeting similar demographics with similar rate plans.
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