Small Carriers Push For Roaming Conditions on Leap Deal

WASHINGTON (The Deal) -- Small wireless carriers are mounting an 11th-hour push to convince the Federal Communications Commission to require that AT&T (T) charge "reasonable" roaming 4G rates as a condition of approving AT&T's acquisition of prepaid mobile phone carrier Leap Wireless International (LEAP).

AT&T Inc. announced on July 12, a $15 per share deal to acquire Leap, which sells wireless service to low-income and budget-minded consumers under the Cricket brand. Coupled with Leap's $2.8 billion in net debt, the deal values the target at roughly $4 billion.

Last week representatives from the Competitive Carriers Association met with officials of the FCC's general counsel's office and the wireless telecommunications bureau to press the case for merger conditions that would address what the group, which represents rural and regional wireless carriers, said are exorbitant rates AT&T and Verizon Wireless charge smaller carriers for roaming, particularly on their high-speed 4G LTE networks.

The group, along with public advocacy groups and some individual small wireless carriers, is asking the FCC to condition approval of the Leap acquisition on an AT&T commitment either to offer 3G and 4G LTE roaming services on the same terms that competitors negotiate with Leap for at least the next four years, or to provide roaming terms no less favorable than those Leap is entitled to if the merger is broken up. (The companies' merger agreement includes a three-year roaming agreement for Leap if the merger falls apart.)

Finally, the rural and regional carriers want the FCC to make AT&T divest spectrum in markets where the merger would put the combined company over the commission's local spectrum cap.

The smaller carriers' appeal for these conditions is considered a longshot by industry analysts because Leap at the moment does not offer roaming to its customers, so the takeover would not reduce the number of wireless players currently offering roaming. "I would be surprised if the commission's order conditioned LTE roaming because this deal doesn't reduce the number of LTE roaming players nationwide," said Paul Gallant, a telecom analyst at Guggenheim Securities LLC.

Plus, in the 38 markets where AT&T would be over the spectrum cap, previous FCC rulings indicate that the commission believes there is a sufficient number of competitors in most of those areas to offset whatever harm to competition AT&T's relatively large holdings inflict. In only a few markets is AT&T likely to face spectrum divestiture requirements.

But according to an account of the Feb. 4 meeting, CCA officials and their lawyers, Michael Lazarus and Andrew Morentz of Telecommunications Law Professionals PLLC, argued that the transaction will indeed exacerbate the difficulty smaller carriers are having obtaining "reasonable" roaming arrangements. They noted that prior to entering the proposed sale to AT&T, Leap had constructed an LTE network covering 21 million people, which would give Leap an incentive to enter roaming agreements with other carriers.

The group also said that even without offering roaming at the moment, Leap "acts as a competitive check on roaming prices, and allows other carriers to have prices to benchmark against." That informational function allows all roaming rates to be lower, they said.

CCA and its lawyers said that confidential documents AT&T submitted to the FCC last month indicate that the roaming rate AT&T will offer Leap if the deal is broken up is far below current roaming rate. The inference the FCC should draw, according to CCA, is that AT&T's roaming rates are artificially high. The rates AT&T would offer Leap if the deal is terminated have not been publicly disclosed but CCA's lawyers saw AT&T's documents after agreeing to protect the confidential portions.

The important point, CCA said, is that the commission itself now knows AT&T's roaming rate practices. "Since the commission now has before it, for the first time, an LTE roaming rate offered by AT&T, it should use this information to remedy the significant, transaction-specific harms that will result if Leap is lost as an actual and potential LTE roaming partner."

AT&T has opposed any roaming-related conditions being imposed on the transaction, arguing that the FCC has an established arbitration process for resolving complaints.

The smaller firms, however, contend that the process is too cumbersome and expensive because each case is dealt with individually and takes years to resolve.

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