Verizon Snubs Leap, Will Pursue Canada to Further 'Winning Business Model'

By Craig Galbraith Comments
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**Editor's Note: Please click here for a recap of the biggest mergers in Q2 2013.**

Verizon's decision not to pursue a counteroffer to AT&T's bid for Leap Wireless is a good one, at least according to one industry insider, who says buying a wireless provider in Canada is a better idea.

Big Red last week denied on its quarterly earnings call that a bidding war over Leap is in the offing; instead, CFO Fran Shammo confirmed that his company is in the early stages of considering M&A in Canada. He wouldn't go as far to say that Wind Mobile – rumored earlier this month as an acquisition target – is a company being considered.

“Why look to Canada if you’re Verizon? For more top-tier potential subs against which to leverage a clearly winning business model," noted Yankee Group senior analyst Rich Karpinski, commenting specifically on a CNET article. "That’s the story that came out of its Q2 earnings call. All of Verizon’s key metrics continue heading upward, led by a whopping 941,000 net adds in the quarter, mostly postpaid users and mostly being monetized by its customer-mandatory shared data plans, and added to its now more than 50 percent capacity full (and 100 percent territory-covered) LTE network. Those are the numbers behind a business model clearly revving on all cylinders."

AT&T announced on July 13 that it had a deal in place to buy Leap Wireless for $15 per share, or roughly $1.2 billion in cash. As part of the deal, AT&T will absorb Leap's $2.8 billion in debt. Leap's network, which operates under the prepaid Cricket brand, covers 35 states. Speculation immediately emerged that Verizon or DISH might challenge with a counteroffer. It appears that at least one of them, Verizon, won't. But DISH still wants to operate its own wireless network after being denied pursuit of Sprint and Clearwire.

"Crossing over the border to capture additional premium-minded customers in Verizon network-adjacent metropolitan markets of Toronto and Quebec – coupled with the imminent auction of Verizon network-friendly 700 MHz spectrum in those regions – is certain to be more appealing to Verizon than trying to make Leap’s cut-rate prepaid model work in its favor," Karpinski added. "While chief rival AT&T aims to cover more of its wireless bases with prepaid ventures into Leap and Aio Wireless, Verizon is rightly content to keep pushing its premium business model – centered around its gold-plated mobile LTE network and fiber-rich FioS services – for all it’s worth."

Follow senior online managing editor @Craig_Galbraith on Twitter.

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