The battle between Leap Wireless International Inc.’s Cricket Communications subsidiary and No. 4 wireless operator T-Mobile USA Inc. over markets in Texas has escalated into a lawsuit and potentially could affect Cricket’s second-quarter numbers, analysts say.
Cricket last week slapped T-Mobile USA with a lawsuit alleging that the national carrier has been undermining competition and interfering with the launch of Cricket service in Houston.
Leap filed the lawsuit July 10 in Harris County, Texas, accusing T-Mobile USA of interfering with Leap’s contracts with indirect dealers in the Houston area. According to the complaint, Leap accused T-Mobile USA of devising “a strategy designed to hinder Cricket’s launch and to protect T-Mobile’s position in the Houston marketplace. This strategy included strong-arm tactics and intimidation towards any indirect dealers who conducted business with Cricket.”
Leap went on to say that T-Mobile USA had flown in about 40 additional managers from around the country to help police independent dealers in the Houston area, and had cancelled dealer codes, stopped paying commissions and pulled its wares from the stores of independent dealers who sold Cricket’s phones and service. The complaint also referenced a T-shirt that featured a dead cricket and the words “Silence the Chirp,” as evidence of the larger carrier’s malicious intent. T-Mobile USA representatives have said that the company had nothing to do with producing or distributing the T-shirts.
Several multi-carrier dealers in Houston and other markets recently told RCR Wireless News that T-Mobile USA has reacted negatively and aggressively to new market entrants—Cricket, as well as mobile virtual network operators such as Helio L.L.C. and Amp’d Mobile Inc. MetroPCS Communications Inc., which offers a similar flat-rate calling service to Leap, also has had past competitive issues with T-Mobile USA.
Leap alleged that T-Mobile USA is putting the same pressure on dealers in Austin, where Cricket service is slated to launch on Aug. 1.
Both companies declined to speak specifically on the lawsuit, citing their policies of not commenting on litigation in progress.
However, T-Mobile USA released a statement noting that it “works closely and successfully with dealers, including those who sell other carriers, to help them fully educate customers about our broad range of innovative products and services. Our standards for our independent wireless dealers are high, and we believe essential to ensure our customers the best retail experience. To be a T-Mobile dealer means having a strong commitment to focus and concentrate sales and support efforts on T-Mobile products and services.”
T-Mobile USA released a similar statement in 2004 following claims by independent dealers in New York attempting to sell both Cingular and T-Mobile USA services.
Cricket produced a statement saying that the company believes that “customers should be free to choose what service they want. It’s not up to any carrier to attempt to make that decision for them. Likewise, we also believe that dealers should be free to choose their company partners.”
Both T-Mobile USA and Leap have seen some analysts lower their expectations for the companies’ customer figures in the second quarter. Bear Stearns analyst Phil Cusick noted in a quarterly preview that the second quarter is typically a soft one, but still lowered Cricket’s estimates for net adds to 75,000 subscribers from 85,000 subscribers, citing channel checks in the carrier’s core markets as well as tougher competition in new markets. Cusick said that checks with resellers showed that Leap’s Houston launch indeed had been affected by T-Mobile USA’s pressure on dealers, and its Austin launch might see a similar impact.
“We believe the smaller reseller distribution footprint negatively impacted Leap’s Houston launch, but we do not expect any long-term penetration or market share impacts,” Cusick concluded.
Ric Prentiss of Raymond James & Associates Inc. noted that checks reflected a good launch for Leap in San Antonio, but troubles in Houston. However, he added that customer demands and basic economics were likely to trump T-Mobile USA’s efforts against Cricket, and that “Houston and other Texas markets appear ideally suited for the Leap offering.”
T-Mobile USA also is expected to have a relatively slow quarter, although analysts have not cited Cricket competition specifically as a cause. Cowen Research analyst Tom Watts recently cut T-Mobile USA’s expected net customers growth by 80,000 subscribers to 920,000 net additions; expectations for several other carriers were reduced as well due to seasonal trends. Merrill Lynch already had lowered its estimates of T-Mobile USA net additions from 900,000 customers to about 650,000 customers, with analyst David Janazzo noting that the carrier “moved primarily to two-year contracts in April and lost momentum in its indirect channel during that month.”
