Leap Wireless Shares Fall As Sprint Plans Service to Rival Leap's Core Business

Shares of Leap Wireless International Inc. sank Tuesday after Sprint Nextel Corp. said it will combat deteriorating cell phone subscriptions with a plan that may muscle into Leap's business.

Late Monday, Sprint Nextel said its cell phone business is losing customers. One of the Reston, Va.-based telecommunications company's remedies will be a trial launch of unlimited local service through the Boost Mobile brand for a monthly payment.

Investors in afternoon trading Tuesday examined what harm this could have on Leap Wireless. The San Diego-based company provides cell phone service to 2 million customers in 21 states. One of Leap Wireless' products is a cell phone plan allowing customers to make unlimited local calls for $35 per month.

Shares of Leap Wireless fell $3.46, or 5.7 percent, to $57.81 on the Nasdaq Stock Market. The shares have traded in a range of $34.54 and $62.36 in the past year.

Credit Suisse analyst Christopher M. Larsen wrote in a client note the damage will depend on how much Sprint charges, how aggressively it markets the new product and in how many regions Sprint offers the service.

"Other competitors have tried to copy Leap's 'all-you-can-eat' offering in the past, but they have generally been unsuccessful as they could not replicate Leap's low-cost structure," Larsen said.

Another problem other carriers run into when they offer unlimited service is dragging their own customers from higher-cost plans into lower-cost plans, Larsen said.

Sprint Nextel shares fell 2.13, or 10.85 percent, to $17.51 in afternoon trading on the New York Stock Exchange.

Bear Stearns analyst Philip Cusick wrote in a research report he still recommends Leap Wireless "but will watch Sprint's efforts closely."

In a worst-case scenario, Cusick said Leap could lose existing customers and fail to attract new ones if Sprint offers better prices nationally or in Leap's markets.

AP