Leap back in play

The announcement this morning that T-Mobile is buying MetroPCS directly impacts both Sprint and San Diego’s Leap Wireless, which may either end up in each other’s arms or left standing alone.

The good news for Leap is that they no longer have to deal with MetroPCS’s repeated acquisition attempts, because it’s disappearing as a corporate entity.

The bad news is that its exit opportunities are reduced. After the FCC blocked AT&T’s efforts to buy T-Mobile, it seems unlikely that Verizon or AT&T would be allowed to buy a large firm (such as #6 Leap). So the possible options are either to be bought by #3 Sprint, or for the #4 T-Mobile to add Leap with MetroPCS to its spectrum and customer base.

Leap’s stock today was up (briefly) up on speculation that it is now in play. The WSJ reported:

As Bernstein analysts put it today: “Leap Wireless is now the belle of the ball.”

But maybe Bernstein should have added: “Depending on the ball.”

Leap still has some ugly spots, or as Bernstein diplomatically put it: “consolidating Leap may be a bit more complicated than it first appears.”

However, unlike MetroPCS, Leap has rural markets, limited spectrum and is late in LTE deployment, causing Bernstein to conclude that the company would not necessarily be a good fit for Sprint. Perhaps that’s why the stock now is trading below today’s opening price — or even its price Monday, before shares were bid up on reports of the possible MetroPCS sale.

With Leap’s market cap at $0.5b, it’s possible that T-Mobile could also make a bid. Leap’s stock has been trading in a $6-10 range this year, far below its 2009 (post-financial crash) high of $39, let alone its all-time high of $95.90 in July 2007. With either acquirer, it would end San Diego’s third largest public telecom company, after Qualcomm ($106b) and ViaSat ($1.6b) and ahead of Maxwell ($237m).

Meanwhile, the impact of the MetroPCS (or Leap) CDMA defection will be much less on Qualcomm than if it had happened five years ago. Qualcomm is now getting processor design wins (particularly for smartphones) on GSM network LTE phones, including T-Mobile phones from Samsung and HTC.

Local public telecom companies

As part of a conference on UC spinoffs, I presented a paper on the growth of the industry and its tie to UCSD. As part of that, I updated my January 2008 data on the small number of public companies in San Diego's telecom industry

Company	Ticker	Market Cap†	Change in 50 months
Qualcomm	QCOM	$114,900m	+78.1%
ViaSat	VSAT	$2,040m	+226.9%
Leap Wireless	LEAP	$712m	-73.6%
Maxwell Technologies	MXWL	$519m	+200.0%
Entropic	ENTR	$513m	+525.6%
Novatel Wireless	NVTL	$113m	-77.7%
Dot Hill Systems	HILL	$89m	-44.0%

† Market cap at 4pm EST Friday, according to WSJ.com

I knew that selling Qualcomm had been financially a bad decision. I had not realized that ViaSat and Entropic had done so well. In particular, Entropic has done tremendously well after a precarious start since its IPO. Meanwhile, Leap’s stock has fallen even more than Metro PCS since it rejected its repeated acquisition offers.

As an aside, Qualcomm has the 7th highest market cap on the NASDAQ: after Apple, Microsoft, Google, Oracle, Vodafone and Intel, but ahead of Cisco, Amazon, Amgen, eBay and Starbucks. There are only about 14 or 15 stocks on the NYSE with higher market cap (including IBM, AT&T, Coke and several banks and oil companies).

Cricket leaps into 4G strategy

Cricket has finally announced its 4G strategy: it’s going to license capacity from Clearwire, which has been providing WiMax to Sprint but (as long predicted) is shifting over to the industry-standard LTE next year.

More precisely, Clearwire is switching to the Chinese variant of LTE called TD-LTE — which presumably makes it easier to get more cheap phones from Huawei and ZTE. However, given Qualcomm’s support for TD-LTE, the cellphones may also be available from more familiar (i.e. Korean) smartphone brands. (VentureBeat sees this as another nail in the LightSquared coffin.)

San Diego-based Leap Wireless (dba Cricket) has lagged its longtime rival and erstwhile suitor Metro PCS on picking a 4G strategy. Given its size and scale — or lack thereof — licensing network access is probably the only way to get nationwide coverage.

The five year agreement to buy Clearwire capacity would seem to reduce some of the possible synergies between Cricket and Metro PCS, thus possibly discouraging another acquisition attempt during the life of the agreement. Perhaps that’s why the stock was down 3.8% on a day when the market was flat.