Analysts: AT&T to roll out new Cricket prepaid strategy at the end of Q2

AT&T's (NYSE:T) acquisition of Leap Wireless (NASDAQ:LEAP) and its Cricket brand has now received FCC approval, but it will be a few months before AT&T aggressively promotes what it has dubbed the "new Cricket," according to financial analysts.

In a research note, Jefferies analysts Mike McCormack, Scott Goldman and Tudor Mustata wrote that they expect AT&T to deploy a refreshed Cricket brand at the end of the second quarter "in order for marketing efforts to reach full momentum by the seasonally strong" fourth quarter.

AT&T has said it will shutter its Aio Wireless prepaid brand, which it has renamed the new Cricket. AT&T launched Aio last year shortly before announcing its deal with Leap. Jennifer Van Buskirk, who had been the president of Aio, is now the president of the new Cricket.

The analysts noted that AT&T plans to distribute Cricket through its own dedicated national stores "in order to better compete with T-Mobile (NYSE:TMUS) and Sprint  (NYSE:S) prepaid brands, while at the same time avoiding dilution to the higher-end AT&T branded postpaid brand." They also wrote they "wouldn't be surprised" if AT&T's GoPhone brand "also lost emphasis within AT&T stores."

"We expect the company to differentiate the Cricket prepaid brand from the AT&T postpaid brand by throttling speeds on offers, limiting included add-on offers (international text, tethering, cloud storage, etc) and offering an older, more limited handset selection," the analysts wrote. "It is likely the company will use the Cricket channel to sell certified pre-used devices that were traded in through" AT&T's Next handset upgrade plan. Leap had 4.57 million total customers as of Feb. 28, according to AT&T.

Earlier this month at an investor conference, AT&T CEO Randall Stephenson said the Cricket brand is "a very, very strong brand down market into the prepaid segment," but that when customers are asked why they would not choose Cricket, the one overwhelming reason is a lack of network coverage.

He said that "overnight, the Cricket brand is going to have nationwide coverage on the AT&T network and this is the part of the market we have not participated in the past and we are going to be fairly aggressive."

The Jefferies analysts noted that AT&T plans to transition Leap CDMA customers to GSM devices within the next 12-18 months, and they expect roughly $800 million in cost synergies into 2015-2016. "Near-term however, we believe that marketing investments, the new Cricket stores in Tier 1 cities, spectrum re-farming and the process of exchanging CDMA phones will dilute a majority of the initial synergies," they wrote.

AT&T agreed to divest Leap spectrum in 12 markets, mostly in Texas in Nevada, in order to win approval of the deal. AT&T plans to begin deploying LTE services on Leap's unused AWS and PCS spectrum licenses shortly after the deal closes.

As part of the FCC's approval, AT&T agreed to continue to maintain Leap's existing rate plans for its existing customers until they upgrade their device, choose another rate plan, migrate to AT&T's network, or until AT&T shutters Leap's CDMA network. AT&T also agreed to offer a prepaid plan for at least 18 months for feature phones that includes unlimited voice, texting and data (speeds slowed after 500 MB) for $40 per month.

"We view the regulatory transaction closing concessions as generally benign. Aside from typical buildout requirements, AT&T has to divest 10-20 MHz of spectrum in 12 predominantly rural markets," the analysts wrote. "The company also agreed to continue offering plans priced below $40 per month for 18-months after the transaction close, which we see as critical to targeting similar low-end Sprint and T-Mobile offers."

For more:
- see this ValueWalk article 

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