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AT&T Completes Leap Acquisition

Zacks Equity Research

As announced in July 2013, AT&T Inc. (T) has finally closed the Leap Wireless International Inc. acquisition for $1.2 billion. The company acquired Leap’s Wireless properties like licenses, network assets, retail stores and subscribers along with its stocks.

While AT&T acquired full right over Leap, it offered contingent right to Leap shareholders that allows them to gain from the sale of 700 MHz “A Block” spectrum of the latter. The spectrum was purchased by Leap in 2012.

We believe this takeover will be a value addition for AT&T, fortifying its position in the wireless industry against top players like Verizon Communications Inc. (VZ), Sprint Corporation (S) and T-Mobile US, Inc. (TMUS).

This acquisition will give AT&T control over Leap’s spectrum in the PCS and AWS bands covering 138 million people, thereby enhancing the spectrum base of the former. In addition, AT&T will also benefit from more customer care service facilities, low-cost data plans and robust financial resources. Further, the deal will endow AT&T with a stronger pre-paid business line with the incorporation of the Cricket brand.

According to a press release, AT&T will integrate Cricket with its existing operations to form a no-contract segment offering low-cost rate plans, smartphones and a strong network experience from AT&T.  The new Cricket will leverage from AT&T’s nationwide 4G LTE network covering nearly 280 million people, while AT&T will benefit from Cricket’s distribution channels and additional markets.

AT&T expects customer migration to Cricket to take approximately 18 months after the launch of the new brand.

This is AT&T’s second attempt in the last two years to acquire a wireless carrier. In 2011, the company was mulling over buying T-Mobile USA for $39 billion. However, the deal failed to materialize due to disapproval by the U.S. regulators.

Acquisitions and mergers seem to be the trend in the telecom industry. In May 2013, T-Mobile USA acquired MetroPCS Communications Inc, while in early July 2013 Sprint Nextel Corp. and Japanese telecom company SoftBank announced the successful completion of their merger.

AT&T currently holds a Zacks Rank #3 (Hold).

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