Federal Communications Commission da 14-349 Before the Federal Communications Commission

background Description of the Applicants

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  1. Description of the Applicants

    1. AT&T

  1. AT&T, headquartered in Dallas, Texas, is a communications holding company that ranks among the leading providers of telecommunications services in the United States.1 As of December 31, 2013, AT&T reported 110 million wireless subscribers, and approximately $70 billion in wireless service revenues, which accounted for approximately 54 percent of total revenues.2 AT&T’s nationwide wireless network currently covers approximately 308 million people, or 99.9 percent of the population of the mainland United States.3 AT&T reports that it covers all major metropolitan areas and nearly 280 million people with its fourth generation Long Term Evolution (“LTE”) mobile technology, and the company expects to cover 300 million people by the summer of 2014.4 In May of 2013, AT&T announced the creation of Aio Wireless, a subsidiary of AT&T offering prepaid wireless service “to value-conscious customers interested in an unlimited talk/text/data plan with no annual contract.”5 Aio Wireless service is currently available nationwide to customers who order online, although Aio Wireless only has dealers in a limited number of markets.6
      1. Leap Wireless

  1. Leap, headquartered in San Diego, California, provides wireless services in the United States under the Cricket brand.7 For the fiscal year 2013, Leap reported approximately $2.90 billion in revenues.8 As of December 31, 2013, Leap had approximately 4.6 million customers.9 As of the same date, Leap held licenses covering approximately 137 million people, of whom approximately 97 million are covered by Leap’s network footprint.10 The Applicants contend that Leap is not a nationwide facilities-based provider and has no current plans to become one; it has attempted to expand its retail footprint through a 3G Mobile Virtual Network Operator (“MVNO”) arrangement, but has attracted a relatively small number of customers.11
    1. Description of the Transaction

  1. On August 1, 2013, AT&T and Leap filed the Applications12 pursuant to sections 214 and 310(d) of the Communications Act of 1934, as amended (the “Communications Act”), seeking Commission consent to the transfer of control of, and assignment of, a number of principally AWS-1, PCS, and associated microwave licenses and international section 214 authorizations. The Applications are part of AT&T’s agreement to acquire Leap in an all-cash transaction.13 The total cash consideration is $15 per share and expected to be approximately $1.3 billion, and AT&T would acquire all of Leap’s outstanding indebtedness.14 Leap had a net debt of approximately $2.7 billion as of June 30, 2013.15 Leap will become a wholly-owned subsidiary of AT&T.16

  2. In the proposed transaction, AT&T is proposing to acquire 10 to 50 megahertz of spectrum in 1,354 counties in 356 Cellular Market Areas nationwide.17 Post-transaction, in markets in which there is geographical overlap, the merged entity would hold 46 to 180 megahertz of spectrum covering approximately 137 million people, or approximately 44 percent of the population of the continental United States.18  Leap covers approximately 31 percent of the population nationwide with its network footprint; 100 percent of this population is also covered by AT&T.19 The Applicants assert that the proposed transaction would combine AT&T’s nationwide network with Leap’s prepaid/no-contract business to the benefit of consumers seeking a high-quality, competitively-priced prepaid wireless experience.20 Further, according to the Applicants, the transaction will result in an improved network experience for customers of both companies.21 The Applicants also contend AT&T can make use of Leap’s PCS and AWS-1 spectrum more efficiently to enhance AT&T’s LTE deployment.22 The Applicants contend as well that the transaction will result in substantial operating synergies and substantial savings in roaming and resale expenses because the combined company will offer a significantly greater on-net footprint and expanded coverage compared to Leap’s current network.23

  3. In addition to cash, Leap’s shareholders will each receive a contingent value right (“CVR”), that will entitle them to net proceeds received from the sale of Leap’s Lower 700 MHz A Block license in Chicago (the “Chicago License”).24 Leap Licenseco, a subsidiary of AT&T, will become the licensee for the Chicago License.25 According to the Applicants, however, Laser, Inc. (“Laser”), a newly formed indirect, wholly-owned subsidiary of AT&T, will serve as the stockholders’ representative and will exercise de facto control over the Chicago License.26 The stockholders’ representative will have the power to make all decisions and to act on behalf of and as agent for the CVR holders, including the authority to conduct a sale process with respect to the Chicago License for the benefit of the former Leap shareholders.27 If the stockholders’ representative fails to enter into an agreement to sell the Chicago License within two years after the closing of the AT&T/Leap transaction (or if an agreement has been entered into, but the Chicago License has not been sold by the third anniversary of the closing of the AT&T/Leap transaction), then AT&T will have the right to sell the license, and the net proceeds will go to the former Leap shareholders.28

  4. Cricket Communications, Inc. (“CCI”), a subsidiary of Leap, has been a minority owner of Flat Wireless, LLC (“Flat”), since 2010.29 Flat is a regional wireless telecommunications provider that operates in Texas, Colorado, Arizona, and California.30 CCI currently holds [BEGIN CONFIDENTIAL INFORMATION]| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | [END CONFIDENTIAL INFORMATION].31 In its Public Interest Statement, the Applicants represented that Leap was contractually committed to dispose of its interest in Flat prior to closing on the proposed transaction.32 AT&T, however, has recently informed the Commission that it has agreed to waive that condition prior to consummation of this transaction.33 There is a dispute between CCI and Flat about the ability of CCI to dispose of its membership interests in Flat.34 An arbitrator has stayed the disposition of CCI’s interests in Flat pending resolution of the arbitration.35

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