UPDATE 2-MetroPCS, Leap sign roaming deal; settle lawsuits
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NEW YORK, Sept 29 (Reuters) - Mobile services MetroPCS Communications Inc (PCS.N) and Leap Wireless International Inc (LEAP.O) settled litigation and inked a roaming agreement that reduces charges for each company's subscribers.
The agreement, which also covers spectrum exchanges, eliminates obstacles to an eventual merger of the companies, but also indicates that a merger, long anticipated by investors, would not happen any time soon, analysts said.
Shares of Leap, for which MetroPCS made a failed $5.5 billion acquisition offer in 2007, fell more than 9 percent and MetroPCS was down 5 percent after the news even as analysts lauded the moves.
"The agreements show that both sides are willing to work together for mutual benefit, but it also indicates that they are unlikely to be close to a merger," Credit Suisse analyst Chris Larsen said in a research note.
The companies announced a cross-license agreement for intellectual property as part of their settlement under which they agreed to dismiss all their pending litigation.
MetroPCS and Leap said their 10-year roaming pact would allow subscribers from each company to use wireless services in the other's markets.
Both companies offer cheaper rates than national rivals for customers who do not move outside their home market but they charge for roaming outside these markets while with bigger rivals tend to provide national roaming services for free.
JPMorgan analyst Michael McCormack said the agreement would eventually allow both companies to offer services on a national scale, allowing them to compete better with rivals such as AT&T Inc (T.N) and Verizon Wireless, a venture of Verizon Communications (VZ.N) and Vodafone Group Plc (VOD.L).
While the economics behind the deal were not disclosed, it had the "potential to improve penetration rates and (average monthly revenue per user) over the long term," he said.
"Ultimately, we believe both companies would recognize greater benefits from a combination, but we believe this is a positive first step," McCormack said.
Another analyst Kevin Roe of Roe Equity Research said that any merger ambitions would likely be put on hold until MetroPCS rolls out its service in Boston and New York next year.
Under their spectrum exchange agreement, which is subject to regulatory approval, Leap plans to buy spectrum from MetroPCS in California, Washington and Oregon while MetroPCS will buy Texas and Florida spectrum.
They did not disclose the terms of their agreements.
Leap shares were down $3.68 or almost 9 percent at $38.42 in late morning trade on Nasdaq while MetroPCS stock was down 51 cents or almost 4 percent at $13.39 on New York Stock Exchange. (Reporting by S John Tilak in Bangalore and Sinead Carew in New York; Editing by Amitha Rajan and Derek Caney)
