AT&T launched Aio Wireless in May and made the prepaid brand available nationwide in September. But if the Federal Communications Commission (FCC) approves AT&T's bid to buy prepaid carrier Leap Wireless, AT&T plans to scrap Aio, folding its efforts and customers into Leap's Cricket brand.
"AT&T intends to combine the nascent operations of Aio with Leap's existing operations under the Cricket brand name," AT&T said in its letter.
In an Aug. 1 FCC filing, AT&T explained that Aio—which it initially launched in three metro areas and has since also launched in one market in Georgia, six in Florida and two in Texas—has nowhere near the reach of Leap.
"Aio still needs to establish widespread retail distribution, build brand recognition and develop a significant customer base," Rick Moore, AT&T senior vice president of corporate development, wrote in the filing.
"Leap, in contrast, has an established prepaid Cricket brand that is well-known in its service area and that AT&T intends to retain and expand nationwide," Moore continued. "Equally important, Leap has an established distribution network, a significant subscriber base of about 4.8 million customers ... and experience in marketing and selling no-contract service, all of which can be leveraged to expedite AT&T's establishment of a competitive nationwide presence more rapidly than AT&T's new brand could achieve on its own. "
T-Mobile has asserted that AT&T, in an effort to gain Aio greater recognition, has tried to confuse customers by entwining their recognition of Aio with T-Mobile's own branding. On Aug. 23, T-Mobile filed a lawsuit again AT&T, saying that Aio's branding color palette—shades between light pink and burgundy—is likely to "dilute T-Mobile's famous magenta color trademark" and intentionally confuse customers.
Competing With T-Mobile
In a wireless market in which prepaid has been fast outgrowing postpaid, AT&T is feeling the pressure to own a larger slice of the prepaid market pie. It launched Aio, it told the FCC, "to appeal to a broader set of customers."
In its most recent filing, AT&T pointed out that T-Mobile, since merging with MetroPCS, is now "one of the largest providers of prepaid offerings, with an estimated share of subscribers over 20 percent and an even higher share of gross prepaid adds in the first quarter of 2013."
Sprint, too—with its multiple prepaid brands, including most notably Virgin Mobile and Boost Mobile—has an estimated share of more than 20 percent of the prepaid market, and enjoyed nearly 20 percent of new prepaid customer additions during the first quarter.
AT&T points out these facts, as well as that Leap customers very rarely switch to AT&T and AT&T customers even more rarely switch to Leap, as a way of additionally highlighting that an AT&T purchase of Leap would have minimal effect on industry competition.
"The fact that Leap is a tiny source of diversion from AT&T," states the Aug. 20 filing, "minimizes any potential competitive concerns inferred from shares alone."
Concerns over healthy competition in the industry led the FCC to deny AT&T's 2011 bid to purchase T-Mobile, after nearly a year of efforts.
Should the FCC approve the Leap acquisition, AT&T expects to migrate Leap's customers to AT&T's network within 18 months. These customers can also expect a far better wireless experience. Leap currently has LTE technology in 11 metro areas—while AT&T has LTE in 437 markets—and AT&T plans to utilize some unused Leap spectrum to expand its LTE network in additional areas, within a year of the transaction's close.
Analysts widely expect the FCC, if perhaps with some conditions, to approve the merger.