AT&T Mobility (NYSE:T) could be required to pay Sprint (NYSE:S) millions of dollars due to a wholesale MVNO agreement Leap Wireless (NASDAQ:LEAP) and Sprint inked in 2010. AT&T earlier this year announced plans to purchase Leap; the transaction is on track to close early next year.
In Leap's most recent filing with the Securities and Exchange Commission, the company said that "in the event Leap is involved in a change-of-control transaction with another facilities-based wireless carrier," Leap's new owner or Sprint could terminate the carriers' 2010 wholesale MVNO agreement. However, Leap's owner "would be required to pay to Sprint a specified percentage of the remaining aggregate minimum purchase commitment, with the percentage to be paid depending on the year in which the change of control agreement was entered into, being 20% for any such agreement entered into in 2013 and 10% for any such agreement entered into in 2014 or 2015." Leap specifically noted that AT&T's purchase of Leap would trigger that stipulation.
Leap announced its $300 million, five-year wholesale agreement with Sprint in 2010; the deal gave regional prepaid carrier Leap access to Sprint's nationwide CDMA network, essentially as an MVNO, and allows Leap to take its Cricket prepaid brand into markets where the company doesn't operate a network. Leap said it agreed to annual minimum purchase commitments from Sprint of $20 million in 2011; $75 million in 2012; $80 million in 2013; $75 million in 2014; and $50 million in 2015.
However, Leap's wholesale, MVNO deal with Sprint "has fallen short of expectations." The company noted it withdrew from its nationwide launch plans starting in June 2012, removing Cricket products from around 8,000 stores over the course of the rest of 2012. By March of this year the carrier had scaled down its retail locations to around 5,000.
Likely as a result of its MVNO troubles, Leap said that it amended its deal with Sprint in February of this year. The reworked agreement provided Leap access to Sprint's LTE network, and the companies agreed that Leap could apply "other existing commercial arrangements against the minimum purchase commitment" with Sprint. It's unclear whether AT&T would ultimately have to make payments to Sprint if it acquires Leap, and if so, what that amount would be.
AT&T announced in July plans to acquire Leap for $1.2 billion. AT&T plans to use Leap's spectrum to augment its existing wireless network, and will take Leap's Cricket prepaid brand nationwide. On Oct. 30, Leap shareholders voted overwhelmingly to approve the transaction. AT&T expects the deal to close sometime during the first quarter of 2014. The FCC and Department of Justice still need to sign off on the transaction.
For its part, Leap continues bleed subscribers; the company reported losing 196,000 subscribers during its third quarter.
- see this Leap SEC filing
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