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The Deal: Leap Wireless Review Hangs on Feds' Approach

NEW YORK ( The Deal) -- In the face of fierce opposition from public interest groups, AT&T's (T - Get Report) planned $4 billion acquisition of prepaid mobile phone carrier Leap Wireless International (LEAP - Get Report) could hinge on whether the Federal Communications Commission and the Department of Justice judge the deal based on their traditional models for gauging a telecom deal's effect on competition or whether they break from more established practice and view the deal's impact on national or niche markets.

The FCC's latest move in a smaller deal AT&T is also trying to complete might be a bad sign for the merger. On Tuesday, Aug. 27, the FCC halted its review of AT&T Mobility's proposed $780 million purchase of Atlantic Tele-Network's (ATNI - Get Report) retail wireless business, which operates under the Alltel brand, and demanded that AT&T provide more information about how it will transition Alltel's remaining prepaid customers to its network. On day 175 of the review period, Ruth Milkman, the FCC's wireless bureau chief, told AT&T that the company's responses to questions about AT&T plans for transitioning ATNI's significant prepaid customer base did not contain sufficient detail.

AT&T said it was "extremely disappointed" by the delay in the ATNI review. (The FCC's 180-day clock is not binding on the commission but the FCC tries to adhere to the timeline. It will halt the clock in order to avoid going past the deadline, particularly late in the process.)

Harold Feld, senior vice president of digital public advocacy group Public Knowledge, said the FCC's concern over prepaid customers in the ATNI review is a good sign that the FCC will make the issue a top priority in the Leap deal too. He said the market is now highly concentrated following T-Mobile USA Inc.'s purchase of MetroPCS Communications Inc. in April.

"T-Mobile is the primary player in the prepaid market, especially after the purchase of MetroPCS. Leap which sells the Cricket branded service is the other major competitor," Feld said. "The concern we have is whether AT&T is really committed to that market, which serves low-income customers, or wants to suck up the spectrum and let that part of the business go by the wayside."

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