While many personal communications services licensees have become disillusioned with the PCS market in the United States and have opted to bow out of the game, Leap Wireless International Inc. sees a market with opportunities.
Purchasing licenses “is certainly something we want to look at, but we have no intention of going too fast,” said Leap Senior Vice President Dan Pegg. “We’re considering all options in the United States. It is certainly a market that we want to participate a greater degree in. We think we have some opportunities with CDMA technology, and we have an approach to niche markets that will benefit customers and create a real opportunity for Leap.”
Leap Wireless, the spin-off wireless operating company from Qualcomm Inc., recently purchased all F-block PCS licenses owned by AirGate Wireless L.L.C., which opted to become a Sprint PCS affiliate in North Carolina, South Carolina and Georgia. Leap’s purchased licenses cover Charlotte, Greensboro and Hickory, N.C. Leap plans to deploy Code Division Multiple Access (cdmaOne) fixed and mobile networks in domestic and international markets. Qualcomm transferred to Leap all of its joint-venture and equity interests in Pegaso Communicaciones-which won PCS licenses in Mexico-Metrosvyaz of Russia, Telesystems of the Ukraine, Ozphone Pty. Ltd. of Australia and certain other development-stage businesses.
Leap has applied with the Federal Communications Commission to qualify for designated-entity status, which allows small businesses preferential pricing and payment terms when acquiring PCS frequencies in the C and F blocks. Leap may be one company actively bidding in the re-auction of C-block spectrum in March. More than 300 C-block licenses were returned to the FCC.
“When spectrum comes back to the market, we hope to have proven our concept and expand it,” said Pegg.
Leap believes a strong potential exists in the United States for a combined wireless local loop limited mobility service targeted at the mass-consumer market. Leap’s strategy will give its vendor Qualcomm, which supplies Interim Standard-95 WLL systems around the world, a place in the U.S. market. Qualcomm has never had a strong prospect for mobile phone infrastructure contracts in the United States, though it provides network components for other vendors.
Analysts have indicated that the U.S. market has a slow potential for WLL service because of the highly developed wireline systems that exist. Wireless will have difficulty competing with the quality and price of wireline service.
“There’s no question the U.S. is going to be a much slower market for WLL because it’s so well built out,” said Pegg. “When you continue to add the new demands on the wired infrastructure, whether fax in the home or other online activities, the demand (for more lines) will exceed the supply. The obvious choice for expanding the network is wireless. We see in certain parts of the United States opportunities already. Ultimately, anything with a population above the 2 (million) to 3 million population is going to be very attractive.”
Leap has some strong financial backing to pursue opportunities in the United States. Qualcomm, in support of the spin-off, will give Leap several hundred million in vendor financing. In addition, the company can draw from a $265 million credit facility.
Leap also may be able to pick up licenses through purchases from companies wanting out of the PCS business for a bargain price. However, the company paid $19.45 million for AirGate’s four licenses, about $125,000 less than what AirGate paid at auction.
