Ever since a consortium of companies paid a gazillion dollars for bankrupt Nortel Networks' assets -- only to be trumped a short time later by Google, which paid a bazillion more for Motorola -- the value of wireless spectrum has been firmly cemented in investors' minds.
Any company with a smattering of spectrum saw its stock soar as the possibility of a super premium bid fomented images of riches being played out. More often than not, however, those dreams were dashed when offers were not forthcoming, though in the deals that did get made in the aftermath -- such as Softbank's acquisition of Sprint Nextel (NYSE: S ) (and Sprint's subsequent purchase of Clearwire) and T-Mobile's (NYSE: TMUS ) acquisition of MetroPCS -- it was the lure of spectrum that drove the deals.
So that's the lens through which investors should view AT&T's (NYSE: T ) $1.2 billion bid to acquire the prepaid Cricket service offered by Leap Wireless (NASDAQ: LEAP ) . Sure, it brings in another 5.2 million subscribers, a 3G CDMA network covering 96 million people, a 4G LTE network covering 21 million people, and the Cricket brand, which, while fumbling, seems a better business than Ma Bell's own Go service. But more importantly, it also includes Leap's AWS and PCS bands, covering 137 million people that AT&T says is complementary to its current spectrum licenses.
Analysts say that compared with Verizon (NYSE: VZ ) and Sprint, AT&T controls less spectrum and on a per-subscriber basis has even less spectrum than T-Mobile. Indeed, along with the news announcing the acquisition, AT&T said upon closing it will put Leap's underutilized spectrum covering 41 million people to work building out its own 4G LTE deployment while providing additional capacity. The chance to enhance network performance for AT&T's customers' growing mobile Internet usage was something it couldn't pass up, and getting Leap's customers off its networks and onto AT&T's own to free up even more spectrum may be a high priority, too.
It also serves the dual purpose of keeping that spectrum out of T-Mobile's hands. Leap and MetroPCS had tried to hook up one time before, so it wouldn't have been so far-fetched to see T-Mobile finally bringing them together and gaining access to that spectrum as well.
There's likely to be little regulatory opposition to the deal, unlike when AT&T tried to buy T-Mobile. With that carrier looking more robust after MetroPCS and Softbank reinforced the competitive landscape, many of the arguments that might have been posited to prevent AT&T's purchase have been diminished. Sure, the amount of spectrum continues to be consolidated into fewer hands, and with carriers such as MetroPCS and Leap disappearing from the market, independent low-cost alternatives are few and far between, so it's a good part of the reason Cricket will be not only maintained but expanded: The regulators will be kept at bay.
While the need for spectrum provided the fuel for this deal, the $15 per share AT&T offered may be a rich price for what it's gaining in return, beyond the 88% premium to Leap's closing price on Friday. Leap's spectrum is primarily in rural areas, and though it still holds substantial value, it's not of the same order as, say, MetroPCS's. Then again, as any real estate professional will tell you, to get the greatest gain you want to buy the worst house in the best neighborhood. That may be what AT&T has done with this deal.
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