AT&T Tries Merger Again, Now with Leap Wireless - The UpStream

It has only been two years since AT&T began its failed bid for T-Mobile USA, which was, of course, eventually thwarted, giving T-Mobile money to upgrade its network to attempt to compete. Down but not out, AT&T has continued the search for a suitable spectrum donator, now landing on Leap Wireless, who operates the Cricket brand.

Unlike the $39 billion it offered for 4th place operator T-Mobile, AT&T has offered $1.2 billion in cash for Leap Wireless. This value represents a premium of 88% over the stock price, closing Friday at $7.98. After the announcement, Leap's stock price rose to nearly $17 per share, indicating excitement from the market about the merger.

This announcement comes in the wake of Sprint and T-Mobile both finding suitable merge partners, opening up the question as to how AT&T and Verizon would continue their own expansions in an even more competitive marketplace. The only thing about this particular purchase is that it doesn't really affect AT&T in any positive light. Leap doesn't own enough unique spectrum in enough markets to really give AT&T any wiggle room but does have $2.8 billion in debt and only 5 million customers.

What Cricket would give AT&T, however, is a foothold in the growing prepaid market. AT&T's GoPhone has not had a lot of success in the market, but Cricket has. Coming under the AT&T umbrella could mean a national roll-out of the brand name and product offerings, which has appealed to the core consumer base in the markets it is available. The company has had enough success that it has made product and service announcements at the International CES.

Predictably, AT&T plans to use Cricket in the same way Sprint has used Virgin Mobile USA and Boost Mobile: simply an established brand name to separate the prepaid offerings from the core business model. While it is a risky move to spend so much, plus absorb so much debt simply for a brand name, there are examples of success in other industries. For example, Systemax purchased CompUSA and Circuit City in full bankruptcy and have spun those brands into successful TigerDirect stores.

My personal guess is that this move could be successful. The company has had a lot of success in the core business, there has been no real success in prepaid; purchasing relevance is probably the only option.