The Federal Communications Commission could rule today on whether Leap Wireless International
Inc. is qualified to own C-and F-block personal communications services licenses and bid in tomorrow’s reauction of C-
block spectrum.
Leap’s U.S. subsidiary, Cricket Communications, launched service last week in Chattanooga,
Tenn., under a management agreement with C-block operator Chase Telecommunications Inc., a company Leap plans
to purchase pending the FCC ruling.
Leap Chairman and Chief Executive Officer Harvey White said the FCC has
hinted it will decide prior to the auction whether Leap qualifies as a designated entity. DE status gives small businesses
preferential pricing and payment terms when acquiring PCS frequency in the C and F blocks.
Cricket’s strategy is to
acquire C-block spectrum in this week’s auction as well as purchase ChaseTel, of which it already owns 7.2 percent,
and North Carolina F-block licenses from AirGate Wireless L.L.C. The carrier wants to target compact mid- to smaller-
sized cities, and could launch service in Nashville next depending on the FCC’s ruling.
Western Wireless Corp., the
U.S. Small Business Administration, Cook Inlet Region Inc., DigiPH PCS Inc. and Carolina PCS I L.P. have protested
Leap’s request for DE status, claiming the Qualcomm Inc. spinoff remains too closely tied with the San Diego-based
manufacturer.
Sources close to the FCC said Cricket is amending its DE filing and FCC staff members are waiting
for the new information. It’s unclear if Leap can or will bid for C- and F-block spectrum without a ruling.
If Cricket
doesn’t receive a favorable ruling from the FCC, White said the company can purchase spectrum from the D and E
bands as well as segments of spectrum in the A and B blocks-both more complicated and potentially expensive options.
The FCC is auctioning a total of nine D and E licenses. The company likely will continue its management agreement
with ChaseTel as well. Qualcomm plans to give the company several hundred million dollars in vendor financing. Leap
also can draw from a $256 million credit facility.
Cricket is differentiating itself in the market by offering customers
unlimited local calling for an upfront payment of $30 per month. The company said the service is designed for
subscribers who want to use their wireless handsets for local calls within their metropolitan area. Cricket’s system is a
fully mobile cdmaOne Qualcomm system, but customers’ mobility is limited because Cricket won’t build out past the
metropolitan area. Customers must purchase a prepaid card to make long-distance calls.
“We found a lot of
people who don’t want to roam,” said White. “We have the ability to give basic telephone service. It’s not a
‘me too’ PCS service. We don’t have any interest in being the sixth or seventh provider in the market. We’re targeting an
underserved segment of the market.”
Since Cricket’s soft launch of the service March 1 in Chattanooga, White
said the number of minutes customers are using on the cdmaOne system matches landline usage
patterns.
“People are doing what we thought; they are using this phone as a basic method of
communicating,” said White.
“The company is correct not to position this as another wireless
service,” said Matt Hoffman, wireless analyst with Dataquest in San Jose, Calif. “Whether the company
actively positions the service as landline displacement, it is. For them to be successful, people need to start considering
their mobile phone as their primary phone.”
Analysts say keeping costs down will be critical for Cricket since
it is charging a flat fee for service. No financial analyst has initiated coverage of Leap, which went public this fall.
Analysts say the company will be difficult to value.
“One of the real things we’re struggling with is how to get
people to understand that this is a whole new turf,” said White. “We’re not another PCS service. MOU is
not the criteria. Penetration is the driving metric … We have the capacity to provide wireline minutes on our
network.”
Chris Larsen, senior wireless analyst with Prudential Securities Inc. in New York, said the key to
Cricket’s success will be keeping a low- cost structure. This can be achieved because Cricket won’t need to conduct
credit checks, negotiate roaming agreements or spend as much money building out its network in outlying areas, say
analysts. The carrier also can be selective in acquiring spectrum.
“We have an advantage in that we don’t need
a footprint,” said White. “We can be selective in our spectrum acquisitions that will allow us to be cost
effective.”
Because customers know how much their bill is every month, customer care and churn costs
should be minimal as well. Cricket also is offering Qualcomm single-mode handsets, which are significantly cheaper
than dual-mode cdmaOne handsets.
“Cricket will still need an efficient distribution platform and a low churn
rate to make the economics work,” said Larsen.
Could Cricket’s service change the dynamics of the industry?
White is hoping so. He likens the company’s strategy to Southwest Airlines, which changed the airline industry by
offering quality service at a low price.
“We’re opening up a whole new market here,” said White.
“We’re going to change the way people view basic telephony service, and how to deliver these
services.”
“I think this takes the industry a step further toward eliminating confusion,” said Kent
Olson, wireless analyst with the Strategis Group in Washington, D.C.
AT&T Wireless Services Inc. is offering
unlimited airtime at a flat price within the city of Plano, Texas, for local wireless service. The company is testing the
demand for the service, and a national offer could come down the pipe if tests are successful.
