AT&T Inc. (T) Is Making Too Big of a Leap

AT&T Inc. (NYSE:T)AT&T Inc. (NYSE:T) is now looking to acquire Leap Wireless International, Inc. (NASDAQ:LEAP) in a move that’s very plainly a bid for more spectrum. While the headline cost is $1.2 billion, or $15 per share, AT&T is actually on the hook for a lot more.

After factoring in Leap Wireless International, Inc. (NASDAQ:LEAP)’s net debt of $2.8 billion along with other contractual obligations, the total bill will easily climb to over $5 billion. That’s quite a price tag, and the overall package that AT&T Inc. (NYSE:T) is getting in return is rather questionable. In comparison, Verizon Communications Inc. (NYSE:VZ) paid just $3.6 billion to a consortium of cable companies last year for a ton of spectrum in a much better deal.

First off, Leap Wireless International, Inc. (NASDAQ:LEAP)’s 3G network is built using CDMA, an entirely different and incompatible technology from AT&T Inc. (NYSE:T)’s GSM and HSPA network. Ma Bell will now be tasked with integrating Leap’s customer base and slowly migrating them to its own network before it can fully repurpose the spectrum it’s acquiring, which in itself will take some time.

More importantly, AT&T Inc. (NYSE:T) currently operates in all of Leap Wireless International, Inc. (NASDAQ:LEAP)’s major regional markets. The areas where Leap has the strongest spectrum holdings (at least 26 MHz of certain bands) are cities like San Antonio, Houston, Denver, Phoenix, and Portland, to name a few. AT&T already has sizable spectrum licenses in all of these markets.

Much of Leap Wireless International, Inc. (NASDAQ:LEAP)’s spectrum is also in the advanced wireless services, or AWS, band. AT&T Inc. (NYSE:T) doesn’t have as much AWS band, especially after it handed over AWS licenses to T MOBILE US INC (NYSE:TMUS) as part of its breakup fee in 2011. In most markets, Leap’s spectrum isn’t contiguous with AT&T’s, which may imply that AT&T is banking on upcoming technologies like carrier aggregation that can utilize non-contiguous spectrum bands.

It’s also conceivable that AT&T Inc. (NYSE:T) was buying Leap Wireless International, Inc. (NASDAQ:LEAP)’s spectrum so that other rivals couldn’t. BMO Capital Markets thinks Ma Bell was just trying to shut out T-Mobile from making a move. This is actually something regulators have taken note of, with the Department of Justice recently encouraging the Federal Communications Commision to structure an upcoming auction in a way that prevents “leading carriers from foreclosing their rivals from access to low-frequency spectrum.”

Buying more spectrum licenses to build up capacity isn’t necessarily a bad thing, unless you don’t really need it and you’re overpaying… like AT&T is.

The article AT&T Is Making Too Big of a Leap originally appeared on Fool.com and is written by Evan Niu, CFA.

Fool contributor Evan Niu, CFA, owns shares of Verizon Communications (NYSE:VZ). The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!