ATandT, Leap Talks Highlight Wireless Industry's Growth Challenge

AT&T may be considering buying Leap, says one report, while another has T-Mobile in talks to team with MetroPCS. The competitiveness of the industry is making carriers consider even odd bedfellows.

AT&T was in serious talks to purchase Leap Wireless, a carrier with a prepaid base and a network that runs on incompatible technology, Reuters reported May 10, highlighting the challenge that players in this mature market face when it comes to growth. Bulking up seems to require some combination of an acquisition, a Long-Term Evolution (LTE) network and a solid base of pre-paid subscribers.

An Apple iPhone also helps.

T-Mobile, Bloomberg reported the same day, is in talks about merging with MetroPCS. While the need for new spectrum with which to build out LTE networks is a frequent motivator€”such as it was during AT&T€™s 2011 bid to purchase T-Mobile€”the report stated that the combination of the nation€™s fourth- and fifth-largest carriers was more about bolstering T-Mobile€™s ability to grow.

T-Mobile and MetroPCS are also built on incompatible platforms€”T-Mobile, like AT&T, on GSM technology, and MetroPCS, like Leap, on Code Division Multiple Access (CDMA). The eventual move to LTE by all parties will help smooth such challenges.

In April, Leap and T-Mobile announced a deal to swap some spectrum, citing the ability for each to realign spectrum in key markets to help with LTE plans.

Both Leap Wireless and MetroPCS focus on offering prepaid plans, a segment that, in a weak global economy, has flourished, and the prepaid segments of the major carriers are no exception.

€œT-Mobile€™s postpaid struggles left the operator focusing on prepaid for the majority of future growth and competing more with MetroPCS, Leap Wireless and Tracfone,€ Technology Business Research analyst Eric Costa wrote in May 10 research note. €œThis could lead to a potential alliance or merger between some of these players, including rumors that T-Mobile€™s parent company, Deutsche Telekom, and MetroPCS are in talks about a possible sale of T-Mobile USA or a merger where DT will be in control of the new combined entity.€

Costa noted that, while T-Mobile lost nearly half a million postpaid subscribers during the quarter, its prepaid segment brought in 435,000 new customers.

Sprint, during its first quarter, added 263,000 postpaid net subscribers but 870,000 prepaid net subscribers, lowering its prepaid churn rate for the tenth consecutive quarter to 2.92 percent. Sprint, it€™s reported, also considered purchasing MetroPCS, but in February backed out of the deal.

Despite the technological awkwardness, teaming up with AT&T could offer Leap a needed cushion. Speaking at the CTIA Wireless 2012 event in New Orleans May 9, Leap CEO Dough Hutcheson said he€™s considering adding data tiers to Leap€™s pay-as-you-go plans, €œto help manage the rising use of streaming video and photo downloads to handsets,€ The Wall Street Journal reported.

Leap€™s user growth slowed by 22 percent during its 2012 first quarter, as it struggled to compete against MetroPCS, which increased subscriber additions by 7 percent during the quarter and now has more than half a million subscribers on its LTE network.

MetroPCS offers $40, $50, $60 and $70 unlimited talk, text and data plans attached to its LTE network. The $50 plan, for example, offers a user his first 2.5GB of data at LTE speeds.

Leap€™s Hutcheson, in an April 25 statement announcing Leap€™s first-quarter results, tried for upbeat. €œWe believe the company is well-positioned to move successfully through today€™s challenging environment,€ he said, €œand the volatility taking place in the wireless industry has not changed our positive long-term view.€

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