Chris King, an analyst at Stifel, Nicolaus & Co., shared Gallant's prediction that the deal will clear the regulators.

In a note to clients, King said antitrust regulators are not likely to find that the acquisition of Leap, which has less than 2% of the overall wireless market, would present a significant threat to competition in general.

However, he said the DOJ, which is likely to handle the antitrust review, might have some concerns about the national prepaid market, where Leap has a 9.5% share and AT&T about 13%. The prepaid market, he said, is already heavily concentrated according to antitrust regulators' standard measure of concentration, and the Leap acquisition would make the situation somewhat worse.

Currently, the Herfindahl-Hirschman Index in the prepaid market stands at 2,600, King said, and the deal would add almost 250 points. A market with an HHI over 2,500 points is considered highly concentrated.

But King said it's unlikely the DOJ would try to block the deal outright. Even though the DOJ stopped AT&T from taking over T-Mobile, the agency did not stop Bell takeovers of smaller carriers, which he said are better analogies to the Leap.

He added that AT&T and Leap have seen their prepaid subscriber levels and market shares erode recently, which also could reduce any concerns in the prepaid market.

Gallant predicted that DOJ and FCC worries about harm to individual markets could be addressed through local divestitures.

He noted that when the agencies have found competitive problems with wireless deals, they normally have required spectrum divestitures as they did with AT&T-Cingular in 2004, Verizon-Alltel in 2008 and Verizon-Rural Cellular in 2008 rather than reject acquisitions outright.

He said there's also a slim chance that the FCC would require that AT&T enable device interoperability in the lower 700 MHz portion of its spectrum holdings but he said that is unlikely because that condition wouldn't address a harm specific to the merger.

FCC Democrats have been looking at requiring industrywide device interoperability in the lower 700 MHz band, a regulatory mandate AT&T has opposed.

Written by Bill McConnell

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