Is Leap Wireless For Sale?
The Wall Street Journal reported today that Leap Wireless is organizing a group of strategic advisers and board members as a first step in readying the company for a sale or merger. Leap Wireless (LEAP) closed at +$1.73, a number received by analysts as good news for the low cost provider of wireless services that are sold to consumers under the Cricket brand. Goldman Sachs will be facilitating the future plans of the company.
Many in the financial markets suspect that MetroPCS, another low cost wireless provider that also focuses on the pre-paid market, will prove to be the most likely partner for Leap and have been suggesting a Leap-MetroPCS merger for several months. However, recent moves by the Tier 1 carriers to lower prices to attract the value-oriented consumer during tough economic times may potentially enable Leap to court a different suitor.
Although both Leap and MetroPCS saw a lot of growth early in 2009 through prepaid subscribers—as did Deutsche Telekom owned T-Mobile US—the new customers tended to be credit-challenged, pay-as-you-go users, known as "sub-prime." These consumers tend to migrate to the lowest price, and show less loyalty to a device or carrier. With lower operating costs than most major carriers, Leap and MetroPCS have been able to stay focused on keeping their pricing competitive. However, with the impending popularity of mobile broadband Leap no doubt needs a 4G network strategy, especially as mobile broadband device prices decline and penetrate carriers' portfolios.
Leap's network was never the value proposition for its users, who were primarily based in densely populated urban areas. Unlike AT&T''s highly mobile road warriors and enterprise customers or Verizon's post-paid families, Leap's customers are less likely to notice gaps in their coverage maps because prepaid users often are young and or have a lower income. Upgrading and expanding that network, though may pose the biggest complication for a major carrier interested in purchasing the scrappy prepaid provider.Continued on the next page