In a fiercely competitive market, two rivals are getting together to provide mobile broadband service to consumers in South Texas.
Leap Wireless International and Pocket Communications are forming a Leap-controlled and managed joint venture to serve the region from San Antonio to Laredo and in the Rio Grande Valley, covering more than 4.4 million potential customers.
In past years, Leap and Pocket have engaged in a very public war over their competing no-contract plans and that situation hasn't changed over time, but the benefits of consolidating are so compelling that both came to the realization that the whole is greater than the sum of the parts, says Pocket CEO Paul Posner, who will have a continued financial interest in the joint venture.
On a nationwide basis, competition in the no-contract space has hit an all-time high, but the South Texas market has been dominated by these two players. "This is really about taking advantage of the combined assets and strengths ... They have more spectrum, better data services and we have superior distribution," Posner says. "Telecom is a game for big players and there's inevitably going to be a rollup," and he'd prefer to be ahead of the curve rather than the last man standing.
Combined, the entity will serve about 720,000 customers in South Texas based on their totals at the end of 2009. Leap will own about 76 percent of the joint venture and Pocket Communications will own about 24 percent.
Immediately prior to the closing, Leap will purchase some of Pocket Communications' South Texas assets for about $38 million in cash, which Leap will then contribute to the joint venture together with its own South Texas assets.
The deal includes the provision that Pocket will be obligated to sell its interest in the joint venture to Cricket in the event of a Leap change of control. Completion of the transaction is subject to customary regulatory and other closing conditions, including approval by the FCC. The parties expect the transaction to be completed later this year.
Following the closing, Pocket Communications will continue to provide services under the Pocket brand in New England.