July 16, 2013 5:51 pm

MetroPCS/Leap: paid and gone

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Having fought each other, the pre-paid operators have been swallowed up

If imitation is the sincerest form of flattery, it is cold comfort to the long-term shareholders of MetroPCS and Leap Wireless. The companies were recently consumed by T-Mobile and AT&T, respectively. They were fringe US wireless carriers that focused on the “pre-paid” market. Their customers, often of limited means or credit, could get a mobile phone by paying in advance for service, one month at a time.

Contrast that with how the larger players such as Verizon Wireless and AT&T required strict two-year contracts and would hand over in return a $600 iPhone for, say, $200.

In 2007, MetroPCS attempted to acquire Leap through a stock swap. MetroPCS’s shares were then trading at $26 and Leap’s were above $80. Leap demurred and the aftermath was not pretty. T-Mobile bought MetroPCS for roughly $12 a share; AT&T is paying $17 a share for Leap. Hindsight is easy but a single beefed-up pre-paid provider would have had a better chance of surviving the financial crisis, possessing the scale to compete with the national mobile networks or, at the very least, becoming a more attractive takeover target.

Still, while MetroPCS and Leap disappear, their business model has proven resilient. The T-Mobile /MetroPCS combination has branded itself as the “uncarrier” – providing flexible month-to-month plans with simplified pricing. Verizon and AT&T are slowly following suit. The latest move, announced in the past week and already being copied, allows subscribers to upgrade phones even if their existing contracts have not expired.

Verizon and AT&T still dominate the US market with traditional contract-based models, so T-Mobile has no choice but to position itself distinctly as well as try to catch up in network quality. So who finally “won” between MetroPCS and Leap? MetroPCS’s final trading price was down 70 per cent from its high; its shareholders got shares in the new T-Mobile. If Leap’s final takeout price is $17 – the offer price per share is $15, with contingent value for spectrum sales – it will be off more than 80 per cent from its high.

Email the Lex team in confidence at lex@ft.com

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