AT&T Leaps in T-Mobile's Way

Could a giant like AT&T be threatened by an upstart like T-Mobile? AT&T's purchase of Leap Wireless International suggests it is already playing defense.

For AT&T, valued at $261 billion including net debt, Leap is a blip on the radar. It has about five million subscribers and wireless spectrum covering mostly second-tier markets, and AT&T says Leap will provide entry to prepaid wireless. But a closer look at Leap's spectrum suggests the deal may be more of a jab at T-Mobile than a boost to AT&T. More than 60% of Leap's spectrum resides in a band where T-Mobile has a major presence and AT&T, only a smattering of licenses, according to Moffett Research. Buying Leap thus keeps its highly complementary spectrum out of T-Mobile's hands. And AT&T may have a growing reason to do so. T-Mobile Chief Executive John Legere said that his company's "porting ratio" against AT&T—customers switching to T-Mobile from AT&T over those doing the reverse—had shot up to 1.75 from 0.59 in the first quarter as a result of new contract-free service plans announced in March. A desire to lock up Leap could explain why AT&T is paying more than eight times 2013 earnings before interest, tax, depreciation and amortization.