Leap acquires Denali, plans LTE test market in 2011

No-contract wireless carrier Leap Wireless (NASDAQ:LEAP) will acquire the remaining portion of Denali Spectrum it does not already own, a move CEO Doug Hutcheson said was "a very effective move for us" and would clean up Leap's operations in Chicago and Southern Wisconsin.

Denali was Leap's bidding partner during the recent FCC spectrum auctions. Leap said it will purchase the remaining 17.5 percent of Denali, which will give it ownership and control of Denali's Greater Chicago and Southern Wisconsin markets. Leap did not disclose the financial terms of the deal.

In a related--and more complicated--action, Leap said Denali will give its "non-operating wireless licenses and spectrum lease" to Savary Island Wireless for an 85 percent non-controlling membership interest. Meanwhile, Ring Island Wireless will buy a 15 percent controlling membership interest. Leap said Savary Island is a newly formed limited-liability company that will apply to obtain its licenses as a "very small business" designated entity under FCC rules. Under the transaction, Savary Island will assume $211.6 million of the outstanding senior secured debt owed by Denali to Leap.

The moves have precedence: Leap paid $3.2 million in August to purchase the remainder of LCW, a wireless carrier that provides Cricket wireless service to customers in areas of Portland, Salem and Eugene, Ore. LCW was formed in 2006 as part of a joint venture among Cricket, CSM Wireless and W LPCS Management. 

Leap's announcement coincided with an appearance by CEO Hutcheson at an investor conference in New York, where he offered a snapshot of Leap's performance since it overhauled its voice and data pricing in early August.

Hutcheson said initial results from the Cricket revamp have been positive, but said Leap won't report significant financial and operational gains until the fourth quarter.

Interestingly, though, Hutcheson did mention that Leap is moving forward on LTE network technology. He said the carrier plans to launch an LTE test market next year (Leap recently conducted a successful test of LTE network technology in San Diego with equipment from Huawei). A Leap spokesman declined to provide details on the forthcoming LTE trial market, including where it will be and which vendor will provide equipment.

Though Hutcheson promised Leap's performance will improve, he warned that the company expects to report a loss in net customer additions of between 170,000 and 200,000 during the third quarter--numbers that would mark a major reversal from the 116,000 net customer additions Leap reported in the third quarter of last year. Leap in the second quarter of this year lost a net 112,000 customers. Hutcheson described the third quarter as a "transition quarter," adding that "I think we're going to post a substantially positive net add number in the fourth quarter."

Hutcheson said 30 percent of Leap's customer base has migrated to the company's new calling plans, and that 70 percent are now on plans of $45 per month or higher. He also said two-thirds of the carrier's mobile broadband subscribers are on the higher-priced tier of pricing. Finally, Hutcheson said Leap's churn has improved dramatically since the introduction of the carrier's new rate plans, and said in September Leap's churn moved into the high 2 percent and low 3 percent range. Leap's churn in the second quarter of this year was fully 5 percent.

As for handsets, Hutcheson promised the carrier would launch another Android-powered phone, this one for under $200, in time for Black Friday, the day in November that marks the beginning of the holiday buying season. He said the carrier also plans to introduce additional BlackBerry gadgets.

Hutcheson said smartphones are becoming a critical part of Leap's retail strategy, noting the carrier recorded "double-digit uptake percentage" on its recently released BlackBerry Curve smartphone, which sells for $299.

In other Leap news, the carrier announced COO Al Moschner will retire. The carrier is searching for a replacement.

For more:
- see this Leap release about Denali
- see this Leap release about Moschner

Related Articles:
MetroPCS details LTE buildout plans for 2011, open to LightSquared
Leap adopts tax plan to avoid takeover bids
Cricket buys remainder of LCW for $3.2M
Leap strikes MVNO deal with Sprint, posts Q2 subscriber loss

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