AT&T's takeover of Leap leaves U.S. Cellular, other regional carriers with uncertain future

AT&T (NYSE:T) is poised to complete its acquisition of Cricket provider Leap Wireless (NASDAQ:LEAP) and Leap's 4.57 million customers. The transaction is the latest in a long line of consolidation in the wireless industry that has removed players ranging from MetroPCS to Clearwire to Alltel.

But it's unclear what will happen next.

The AT&T/Leap deal leaves U.S. Cellular (NYSE:USM) as the clear No. 5 U.S. carrier. However, there is a major gap between U.S. Cellular and the Tier 1 carriers, and then between U.S. Cellular and other, smaller players. U.S. Cellular ended the fourth quarter with around 4.77 million total customers.

According to data from research firm Strategy Analytics, T-Mobile, the No. 4 player, had 46.68 million total customers at the end of the fourth quarter. Below U.S. Cellular is C Spire Wireless, which is privately held and counts around 1 million total customers.

In the past 18 months, U.S. Cellular has sold spectrum and key markets to both Sprint (NYSE:S) and T-Mobile. As part of the $480 million Sprint deal, U.S. Cellular offloaded PCS spectrum and its Chicago, St. Louis, central Illinois and three other Midwest markets to Sprint. T-Mobile bought 10 MHz of AWS spectrum from U.S. Cellular for $308 million covering a total of 32 million POPs in 29 markets in the Mississippi Valley region, including Kansas City, Louisville, Memphis, Nashville, New Orleans and St. Louis.

"They're trying to move to where they're a big fish in a small pond rather than a small fish in a big pond," Recon Analytics analyst (and FierceWireless contributor) Roger Entner told Investor's Business Daily. "But they haven't had a good customer acquisition story for six or seven years."

Due to the spectrum sales, U.S. Cellular is not an obvious acquisition target, especially because it has continued to bleed subscribers. U.S. Cellular lost 71,000 postpaid customers and 26,000 prepaid subscribers in the fourth quarter, for total net losses of 97,000 customers. Morgan Stanley noted that marked the 15th straight quarter it lost postpaid subscribers.

U.S. Cellular's outlook is decidedly unclear. In late February when it reported fourth-quarter results it said it was "not providing guidance for 2014 revenues and profitability at this time due to a number of factors, which involve significant uncertainty and affect the company's ability to estimate future results with reasonable confidence."

Additionally, its ability to forecast was impacted by "continuing elevated churn due, at least in part, to issues arising from the company's billing system implementation in the second half of 2013. Although the company expects churn to improve over the next several months, the extent and timing of the improvement is uncertain."

Beyond U.S. Cellular other acquisition targets are not clear. C Spire has reportedly indicated it wishes to remain an independent company. Other smaller players include nTelos Wireless, Appalachian Wireless, Alaska Communications and Cellcom.

According to Strategy Analytics, C Spire was the No. 7 carrier in the fourth quarter, followed by nTelos with 465,000 total customers. Cincinnati Bell was No. 9 with around 340,000 customers. Interestingly, Deutsche Bank analysts wrote in a March 11 report that Cincinnati Bell might sell its wireless business because it can't afford to invest in LTE, according to Investor's Business Daily.

"From a consumer perspective, the market is still being addressed with different value propositions and different price points," Entner said.

For more:
- see this Investor's Business Daily article

Special Report: Grading the top U.S. wireless carriers in the fourth quarter of 2013

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