Mental gymnastics as AT&T grabs at Leap

Leap Wireless services about five million 'pre-paid' customers using spectrum in the PCS and AWS bands and the $1.2 billion offer from AT&T is about a 100 per cent premium on the price its stock was trading at before the bid.

Why the move? One view is that AT&T is part-motivated by wanting to get into the pre-paid market which, in the US, is seen as a market for the poor and for those with bad credit. Leap has made a name for itself in pre-paid, it's thought, and AT&T might want to build on that.

But there's also lots of talk of telecoms market consolidation. The bid, the spin goes, is all about getting spectrum; "consolidation is already happening and AT&T needs to buy to defend itself; and anyway, consumers would benefit."

This is the line that AT&T likes to peddle (though not very successfully in its attempted takeover of T-Mobile) to try and get the regulators to yield.

The alternative view is that US consumers are more likely to benefit from a hole in the head. Far from consolidating, it's said, the US needs more competition on services, prices and business models.

In fact the only other consolidation move recently was MetroPCS being acquired by T-Mobile - the Softbank/Sprint/Clear moves, on the other hand, have hardly resulted in any meaningful consolidation, more like a ripple of ownership change, but the spin doctors seem to have been busy.

That's not to say, however, that more consolidation moves will not follow. The goal is spectrum because - we've been constantly led to believe - individual mobile carriers need more of it if they're to meet the data demands of their customers. The alternative (cynical) view is that dominant carriers want to grab it to stop it being utilised by their competitors, thus keeping real competition to a minimum. The fact that existing holdings of spectrum are not being used to their max tends to favour the latter version.

With a bid price twice the former trading price there's unlikely to be any shareholder resistance - regulatory resistance is another matter.

There will be calls to block the deal on competition grounds and advocates for that course have received some unexpected help: "unusual trading activity" was noticed just before the deal was announced on Friday, reports, but whether this will result in any further action is unknown.

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