Leap's MVNO deal with Sprint makes MetroPCS merger unlikely

Sue MarekRecent moves by Leap Wireless (NASDAQ:LEAP) appear to be making the unlimited prepaid carrier less dependent on its roaming partner, rival and sometimes rumored merger buddy MetroPCS (NASDAQ:PCS). In fact, some analysts believe that Leap's latest maneuverings make a merger between Leap and MetroPCS extremely unlikely.

Leap and MetroPCS have always had a love/hate relationship. During the past three years there have been many reports that the two prepaid unlimited carriers were considering a merger. The first surfaced in 2007 when Leap announced that it had refused an unsolicited offer from MetroPCS. The most recent merger rumblings occurred in February when the Wall Street Journal said that the two firms wanted to merge but were unable to come to a consensus on the value of each company.

But now it appears that Leap has little incentive to merge with MetroPCS. Just last week Leap announced that it inked a 3G data roaming deal with Sprint Nextel (NYSE:S), thereby becoming an MVNO of Sprint. Leap executives said the Sprint agreement allows the Cricket provider to sell its services through national retailers, and to expand quickly into new markets. The news follows on the heels of a March announcement, wherein Leap said it now could offer nationwide voice coverage to its customers due to roaming agreements with Sprint and other partners. At the time, Leap said the deal increased its coverage area from 194 million POPs to 277 million POPs. 

Leap's recent roaming deals with Sprint seem to make the company's 10-year roaming deal it inked with MetroPCS in September 2008 unnecessary. Back then, the two firms said the national roaming deal would cover both networks' present and future markets, and would allow the two carriers to provide interoperable service for their customers. During a conference call with analysts last week, Leap executives downplayed the impact of the Sprint deal on Leap's roaming relationship with MetroPCS, and said that both companies would continue to use the other's networks for roaming.

"From a practical perspective, I think that between the voice roaming deal with Sprint from earlier this year and the new data roaming MVNO deal, it means that Leap doesn't need MetroPCS, either as a roaming partner or as a merger partner," says John Byrne, analyst with Technology Business Research. "So the long-awaited MetroPCS/Leap deal may never happen."

Byrne added that there are other repercussions to Leap's MVNO deal with Sprint, including the additional pressure that it will put on AT&T (NYSE:T) and Verizon Wireless (NYSE:VZ). Through this deal, Leap becomes a "more formidable national presence," and that may mean that AT&T and Verizon Wireless will have to respond with prepaid plans that are on parity with what Leap offers. 

But so far AT&T doesn't appear concerned about the threat from prepaid carriers. Yesterday, at an investor conference in Boston hosted by Oppenheimer, AT&T Mobility President and CEO Ralph de la Vega reiterated his company's belief that the prepaid market is limited by its high churn rate, and that AT&T plans to continue to focus on acquiring postpaid, high-ARPU customers who have a low churn rate. --Sue

P.S. Be sure to check out my colleague Phil Goldstein's feature that delves into the latest developments in the MVNO arena, including more details on Leap's MVNO deal with Sprint. Click here.

Suggested Articles

AT&T is surprisingly spending less on capex in 2020 than it did in 2019. And the other big carriers haven't predicted big capex boosts for 5G.

CWA over the weekend struck a new tentative contract agreement with AT&T covering more than 8,000 workers.

McKinsey estimates by 2030 high-band 5G roll outs will cover 25% of the global population, costing $700 billion to $900 billion.