Metro and Leap: Why won’t these kids just elope?

Analysts and industry observers have long touted the merits of a merger between Leap Wireless (NASDAQ:LEAP) and MetroPCS (NYSE:PCS). They share the same wireless technology, CDMA, but with the exception of a few major markets their footprints don’t overlap. Leap primarily targets mid-sized markets while Metro focuses on the big metros. Even their business models are practically identical, targeting cost-conscious subscribers with all-you-can-eat local calling plans. The whole industry seemed shocked when Metro’s proposed merger fell through in 2007.

Now, according The Wall Street Journal, Leap is seeking a buyer, but Metro might not be its first choice. Rather, the Journal’s sources have it that Leap is feeling out the larger operators for a perspective offer. They cite AT&T (NYSE:T) as a candidate, but that’s just silly. It’s not like AT&T didn’t have enough fun integrating the Cingular and AT&T Wireless networks — both of which used the same spectrum and same GSM-UMTS technology standard. Buying a CDMA network operator likely isn’t in the cards.

The other carrier is Verizon Wireless (NYSE:VZ, NYSE:VOD), which as a CDMA operator makes a little more sense. But there’s a spectrum issue. Half of Leap’s markets and most of its spectrum are in the advanced wireless service (AWS) band. Verizon owns a lot of AWS spectrum (covering almost 200 million people, actually), but it hasn’t been in any hurry to use it. It’s focused on long-term evolution (LTE) at 700 MHz and has its hands full trying to get dual-mode, dual-band devices for its current mélange of bands. Adding another set of radios to its devices may not be its highest priority. (Getting a CDMA iPhone built is hard enough; a CDMA AWS iPhone just ain’t going to happen.) Add to that the blockbuster Alltel-deal VZW just closed, and regulatory issues might become a factor.

And there’s Metro, the second half of a partnership the stars have seemingly foreordained. It’s like these two have exchanged promise rings but can’t move to the actual engagement, much less the marriage. (The two have been going steady since 2008, when they signed mutual roaming agreements.) Aside from all of the compatibility in business models, spectrum, technology and footprints, there’s one more reason why a match between Metro and Leap is ideal: data.

Wireless voice revenues per user are declining and the margins on voice services are shrinking (a problem Leap and Metro helped create with their aggressive unlimited voice plans), meaning that the future of wireless operators in mobile data. Yet each of those operators has only one half of a complete data network. Leap has a 3G EV-DO network, which Metro doesn’t, while Metro is launching a 4G LTE network, which Leap doesn’t have the spectrum to pursue. The pieces don’t lock together exactly: Metro doesn’t have 4G 700 MHz spectrum in Leap’s territory, and adopting Leap’s 3G strategy would force Metro to make an investment in its network it originally intended to skip. But, hey, there are sacrifices in any relationship. Having both a robust data network today and mobile broadband migration path for the future is something that few operators outside of the Big 4 can claim. Maybe it’s time for Leap and Metro to look at their future synergies rather than focusing on the current ones.

E-mail me at Kevin.fitchard@penton.com.

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