Should you worry about AT&T gobbling up Cricket?

July 17, 2013

AT&T Wireless has announced plans to acquire Leap Wireless, best known for its Cricket brand of phones for low-end consumers. The move has rekindled a long-running debate about whether the consolidation of the wireless market is good for consumers.

(Photo by Connie Ma)
(Photo by Connie Ma)

That process has been under way for at least a decade. The company we now call AT&T was created by the merger of two earlier wireless carriers in 2004. Another merger produced today's Sprint in 2005. Verizon Wireless has acquired a string of smaller wireless carriers in recent years, including Alltel in 2008.

But the consolidation process hit a major roadblock in 2011 when the Obama administration blocked AT&T's proposed acquisition of T-Mobile, the nation's fourth-largest wireless carrier. Instead, T-Mobile merged with MetroPCS, one of its smaller rivals.

Even after that merger, T-Mobile and Sprint remain dramatically smaller than Verizon and AT&T, the market leaders. And critics say allowing AT&T to gobble up Leap will further entrench AT&T's dominance.

One reason AT&T is likely interested in acquiring Leap is the latter's spectrum holdings. And John Bergmayer, an attorney at Public Knowledge, argues that the market is already "very top-heavy," with AT&T and Verizon holding a disproportionate share of the airwaves. Bergmayer argues that spectrum gap insulates it from competition from smaller rivals. And he warns that allowing AT&T to acquire Leap will skew the market even further, leading to fewer consumer choices and higher prices.

But Fred Campbell, a former FCC staffer and an analyst at the Competitive Enterprise Institute, disagrees. He contends that Leap's business strategy, which focuses on providing connectivity to urban customers, has caused Leap to neglect rural markets and under-use its spectrum holdings there. Campbell contends that transferring Leap's spectrum to AT&T will allow it to be used more efficiently, improving the quality of service for customers of both companies.

Campbell also notes that Leap is hobbled by a high debt burden, which will make it difficult to keep its network on the cutting edge. He argues that AT&T's deep pockets and broad customer base will allow it to use Leap's spectrum and other assets more efficiently.

Bergmayer doesn't deny that the merger could allow AT&T to use LEAP's spectrum more efficiently. But he warns that "those efficiencies may be offset by AT&T facing less downward pricing to be passed on to consumers." In his view, Leap's presence at the low end of the cellular market forces the larger firms to keep prices down and service quality up. Every time a firm exits the market, those competitive pressures get reduced.

AT&T also may be interested in another asset that has nothing to do with spectrum: the Cricket brand. Low-end and pre-paid cellular plans are one of the fastest-growing segments of the market. Acquiring the Cricket brand could make it easier for AT&T to sell its services to low-end consumers. That could mean better service for those customers. But it could also just mean higher prices.

The FCC and the Department of Justice will both need to sign off on the proposed merger before it can go forward. Whatever they decide, the debate over wireless consolidation isn't going to end any time soon.

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