Saturday, November 8, 2008

MetroPCS, Leap finally form alliance

A year ago, San Diego-based Leap Wireless rebuffed the attempt by its younger rival MetroPCS to buy it. The two firms together are still smaller than the #5 carrier, Alltel, although they would technically leap to #5 with 8+ million subs if they merged because Alltel is becoming part of Verizon Wireless.

It seemed like the decision not to merge was driven by Leap’s pride. It is possible that they were worried about the disruption and risks of a merger, but both firms’ need for economies of scale was compelling.

However, with the Big 4 offering unlimited service plans earlier this year — directly competing with the Cricket/MetroPCS raison d’etre — their need for scale is even greater. Both companies need buying and operating efficiencies, plus the ability to offer roaming to their customers.

Although we’ve been an all-CDMA household for nearly 10 years, roaming is the main reason our household has not switched to Metro or Cricket. We split our time between San José (where Metro has been prominent for years) and San Diego (where Leap finally began offering service in December 2006).

The roaming issue is now solved. In September, the two firms agreed to settle their litigation, swapped spectrum and also agreed to a 10 year roaming deal. The two firms lack the scale to get decent terms from Alltel, Sprint or Verizon.

The other shoe dropped this week. On Thursday, the two firms announced that customers with all but their lowest priced plans can roam for free to the other’s network. The deal covers 300 markets.

However, the two carriers lack a national footprint, without New York, Boston, Chicago or Washington, DC. (No subscribers from the new Obama administration). MetroPCS does plan to enter Boston and NYC next year.

The roaming deal is a good mid-term expedient for both carriers. They are particularly well positioned to sell to sell to college students (or low income types) who lack a landline and thus need an unlimited use wireless plan for the lowest possible price.

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