“Sales of Apple devices were pretty good in the fourth quarter, actually. … We are not concerned about … meeting the Apple commitment. We think that’s going to be fine.”

– Leap Wireless COO Jerry Elliott, last week

If Leap Wireless COO Jerry Elliott isn’t concerned that the company will meet its first-year iPhone commitment to Apple, perhaps he ought to be.

In a filing this week with the U.S. Securities and Exchange Commission spotted by BTIG analyst Walter Piecyk, Leap said it expects to sell significantly fewer iPhones than the number it’s obligated to move over the first year of its agreement with Apple. “At our current purchase rate, we project that we will purchase approximately one-half of our first-year minimum purchase commitment through June 2013,” the company said.

Leap began offering the iPhone through its Cricket Wireless subsidiary last June, so this is a troubling disclosure, to say the least. If sales volumes are half of what was expected in the first year of the deal, what will they be in the second or third, which each include moderate increases? Leap says they’ll be just fine. The company is ramping up advertising and pursuing a number of other device-leasing and financing programs that it hopes will expand sales volume.

But if that doesn’t do the trick, Leap may find itself in a tough spot, as it bleakly explains in its 10-K:

If Apple were to require us to meet the annual minimum commitment in each of the three years of the contract term, we estimate that we would be required to purchase approximately $100 million of additional iPhones in mid-2013 above our current purchase rate, approximately $150 million of additional iPhones in mid-2014 above our current purchase rate and approximately $200 million of additional iPhones in mid-2015 above our current purchase rate.

That’s a lot of iPhone inventory for a carrier that’s clearly having challenges selling the device. And if Leap can’t move it all, and Apple declines to revise or extend the company’s purchase commitment, there could be serious financial repercussions. Said Leap, “If we were unable to sell such additional devices at the rates and prices we project, such differences could have a material adverse impact on our business, results of operations and financial condition.”

For Leap’s sake, let’s hope those iPhone leasing and financing programs prove as effective as it claims.

Leap, which offers service under the Cricket brand, launched the on-demand music service in January 2011. By creating a new company, Leap hopes to license the service to other carriers and has an agreement in principle with an unnamed international wireless carrier, spokesman Greg Lund said.

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Leap has reported growing revenue in recent quarters but, until the latest results, the company hadn’t posted a quarterly profit since 2007, after its lower-income customer base was hit particularly hard by the recession.

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With potential acquirers preoccupied with other deals, any move involving Leap isn’t expected soon. But the pay-as-you-go wireless provider, which offers service under the Cricket brand, is expected to sell eventually because — in an industry that increasingly relies on size and scale — the company will find it harder to compete against larger competitors and its spectrum will become more attractive to possible buyers.

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The pay-as-you-go wireless provider, which offers service under the Cricket brand, said Monday it is evaluating “all options,” including cost cuts and potential asset sales, as it attempts to turn around its business. In the quarter, Leap wasn’t able to add enough customers to offset higher service cancellations. It pulled back on promotions in order to put a larger effort into third-quarter product launches and marketing.

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The pay-as-you-go wireless carrier disclosed the departure in a filing with the Securities and Exchange Commission Monday. Additional information wasn’t immediately available.

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While the monthly rates are the lowest around, customers will be paying full price for the phones. A 16 gigabyte iPhone 4S will sell for $649; an 8GB iPhone 4 is being offered for $549.

Virgin, a unit of Sprint, is the second prepaid carrier in the U.S. to land the iPhone, following Leap Wireless.

“This month marks Virgin Mobile USA’s tenth birthday,” Virgin Group founder Richard Branson said in a statement. “And what better way to thank our fans for ten years of loyalty than by giving them exactly what they want: the perfect plan for the perfect phone.”

Virgin’s rate plans range from $35 to $55 a month, with a $5 discount on top of those rates for those who sign up for automatic monthly payments. The low-end plan includes 300 minutes of calling, along with unlimited texting and 2.5GB of high-speed data. A midrange plan offers 1,200 minutes of calling and the same text and data options, while the top-of-the-line plan includes unlimited calling.

For an extra $15 a month, customers can also use their iPhone as a hotspot. That price includes an extra gigabyte of high-speed data.

Leap, which sells service under the Cricket brand, is partially subsidizing its iPhones and charging $55 a month.

The company, which sells service under the brand Cricket, will offer service for $55 a month, including data, texting and calling, though data speeds will be slowed once a user has consumed 2.3 gigabytes of data in a month.

The plans, cheaper than those at traditional carriers, come with a higher upfront cost. Cricket is charging $499.99 for a 16GB iPhone 4S or $399.99 for the 8GB iPhone 4, with both models going on sale June 22. Those prices are still lower than the amount typically charged for an unlocked iPhone, however.

“Our customers want the best products available and we are excited to bring iPhone to our pre-paid consumers with an industry leading $55 per-month service plan,” Leap CEO Doug Hutcheson said in a statement. “Launching iPhone is a major milestone for us and we are proud to offer iPhone customers attractive nationwide coverage, a robust 3G data network and a value-packed, no-contract plan.”

“By making iPhone available on pre-paid plans through Cricket Wireless, we are making the best smartphone more accessible to an even broader market in the US.” Apple spokeswoman Natalie Harrison told AllThingsD.

Leap is investing heavily to be able to make the move. In a filing with the Securities and Exchange Commission on Thursday, the company said it has signed a three-year deal with Apple that requires Leap to buy roughly $900 million worth of devices over three years. The deal begins when the company starts selling the iPhone, and the minimum commitment increases moderately over each year of the deal.

The trend follows a more aggressive push by larger carriers, such as Sprint Nextel Corp. and T-Mobile USA, to capture users at the lowest end of the market, by such means as free phone offerings to those on government subsidies. Investors sent shares of MetroPCS and Leap sharply lower on Thursday.

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“Pending regulatory approval, T-Mobile will receive spectrum from Leap in several markets in Alabama, Illinois, Missouri and Minnesota, and Leap will receive spectrum from T-Mobile in Phoenix, AZ and Houston, Galveston and Bryan-College Station, TX,” T-Mobile said in a statement. “Additionally, the companies will exchange spectrum in Philadelphia, Wilmington, DE and Atlantic City, NJ as well as several markets in Texas and New Mexico.”

The move will help T-Mobile as it looks to modernize its network and add LTE service by next year, T-Mobile said.

T-Mobile said that the two companies jointly filed an application for the spectrum transfer with the Federal Communications Commission last week.

For its part, Leap said the move would also help with its LTE efforts. Leap sells wireless service under the Cricket brand name.

“As we have previously announced, we plan to cover approximately two-thirds of our current network footprint with LTE technology over the next two to three years,” Leap CEO Doug Hutcheson said in a statement. “In addition the transactions will allow us to re-align spectrum in key markets into contiguous channels thereby optimizing our delivery of wireless services.”

Financial terms of the deal were not disclosed.

Leap and T-Mobile have been mentioned (along with many other combinations) as potential deal partners in the wake of AT&T’s failed T-Mobile acquisition. However, Monday’s deal was a fairly small-scale arrangement limited to exchanging some frequencies.

Clearwire has been hunting wholesale customers since at least September, when Chief Executive, Erik Prusch, said he was in discussions with AT&T Inc., Verizon Wireless and MetroPCS Communications Inc. Leap, which operates the Cricket brand, is the smallest U.S. carrier with a national reach, with roughly half the customers of MetroPCS, its nearest competitor.

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The company said it lost $84.4 million, or $1.10 per share, on revenue of $767 million. That compares to a $249.4 million loss, or $3.28 per share, on revenue of $708 million, in the fourth quarter of 2010.

Leap said it added 179,000 net new customers in the quarter compared to 107,000 net customer additions in the year-ago quarter. It also said 60 percent of new handset sales in the most recent quarter were either smartphones or devices that connect to the company’s Muve Music unlimited music service.

That’s helping the company drive up its average monthly revenue per customer, which reached $42.09 in the fourth quarter, up 10 percent from a year ago and 2 percent sequentially.

“We had solid performance in the fourth quarter and are pleased with the operational progress the business has made,” CEO Doug Hutcheson said in a statement. “Churn performance was solid, despite some billing system disruptions that affected both new sales and existing customers in the quarter.”

The company has also announced plans for its first LTE market — Tucson, Ariz. — and said it plans for the high-speed network to reach 25 million potential customers by the end of the year. Leap, once a regional player, is also taking the Cricket brand nationwide.

With AT&T having failed in its bid to acquire T-Mobile USA, some have seen Leap as a potential acquisition target for Ma Bell.

The plan, according to the New York Times: Sell off some of T-Mobile’s assets (customers and spectrum) to Leap Wireless International.

Such a move would make Leap Wireless the fourth-largest carrier in the nation, while allowing AT&T to keep only those T-Mobile assets it really needs. But will it win AT&T the regulatory approval it needs to proceed? Seems unlikely. Transforming Leap into the nation’s No. 4 carrier doesn’t do much to preserve competition in a market in which AT&T and Verizon hold a clear duopoly.

But at this point, AT&T is evidently willing to try anything, even risking a $39 billion merger on a deal with a company that does around $700 million in revenue per quarter. And given the circumstances, who wouldn’t be making last-ditch efforts? If the deal fails to garner regulatory approval, AT&T will owe T-Mobile parent Deutsche Telekom $3 billion in cash and $1 billion worth of spectrum.

The company, which sells prepaid phones and service under the Cricket brand, said on Wednesday night that it will soon start selling a variety of phones across the country via Best Buy and other retailers. Among the products it will sell are phones with the company’s unique Muve Music service.

Enabling the expansion is a deal that Leap has with Sprint, allowing it to sell Cricket even in cities where it doesn’t have its own services available.

“This is a significant milestone in the plans we announced last year to create a new, hybrid wholesale and facilities-based model that is unique in the wireless industry,” Leap CEO Doug Hutcheson said in a statement. “We are excited to bring Cricket’s innovative wireless products to a large group of consumers who until now have not been able to take advantage of the tremendous value these products provide.”

Best Buy will start selling devices beginning Sept. 25, with other retailers following over the next two months including select Wal-mart stores, Dollar General stores as well as HSN.

In conjunction with the expansion, Cricket is adding some new phones to its lineup, including the Score, an Android phone from China’s ZTE and, later this year, a Muve-compatible feature phone called the Chorus.

The news weighed on MetroPCS’s second-quarter results and erased as much as 35 percent of the company’s market value Tuesday. Rival Leap Wireless International Inc., which reports its results Wednesday, saw its shares fall up to 18 percent.

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AT&T became the latest to join the fray on Tuesday, introducing a new $50-per-month plan that covers unlimited talk, text and Web for prepaid phones using its GoPhone service. There is a catch, however. Unlimited Web is only available on feature phones, not on the kinds of smartphones that can really start sucking down data.

The move is designed to help AT&T better compete in the prepaid market, which features low-cost plans from Sprint’s Boost Mobile and Virgin Mobile brands, as well as from smaller players such as Leap’s Cricket and Metro PCS.

With prepaid plans, phone buyers pay full price for their device, but with that they get the luxury of not having to sign a contract. And while prepaid plans once cost far more than traditional ones, such services are now often the cheapest game in town.

Boost Mobile, for example, offers plans that start at $50 a month ($60 for BlackBerry devices), with the additional perk of a $5 drop in price for every six months that a user pays on time — up to a maximum savings of $15 a month.

Metro PCS, meanwhile, offers a $60-a-month unlimited plan that is available in conjunction with an Android smartphone, the Samsung Galaxy Indulge.

Leap warned the acquisition would harm consumers as the reduced competition would result in two massive super-carriers–AT&T and Verizon Wireless–who would control more than 80 percent of the wireless market.

Sprint Nextel Corp., the No. 3 U.S. carrier, has been the most vocal opponent of the merger and has called on regulators to block it. Last week, MetroPCS Communications Inc., which like Leap provides prepaid cellphone service, also said the combination represents too high a concentration of wireless spectrum.

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However, even with the masses descending upon Las Vegas this week, Cricket has decided to delay the Muve music service and the launch of its first Muve-compatible phone.

Cricket had hoped to launch service in Las Vegas this week along with a number of other markets later this month.

Under its revised time frame, Cricket plans to launch the service in Las Vegas later this month, add nine more cities in February and roll it out to the rest of its markets this spring.

Although all the necessary licensing is in place, Cricket spokesman Greg Lund said that the company needed the extra time to ensure all of the software bugs were ironed out before it started asking customers to pay for the service.

“It’s got to be just perfect,” Lund told Mobilized in an interview at CES in Las Vegas.

The company, best known for its prepaid phones, is offering a new service called Muve Music, which includes the cost of unlimited music downloads as part of a $55 monthly cellphone plan that also includes unlimited talk, text and Web. Basically, Muve adds about $10 to the cost of the monthly cellphone tab (which, incidentally, is about what one can expect to pay for the typical subscription music service).

The music is downloaded directly to the cellphone and is accessible as long as you remain a subscriber. From a technology standpoint, the service works by transferring the music to a secure partition of a 4GB digital memory card in the phone; Cricket says that partition can hold about 3,000 songs.

Cricket is launching the service next month with a single compatible phone–a color touchscreen feature phone known as the Samsung Suede, which will sell for $199. The service will first be available Jan. 6 in Las Vegas, with about 10 of Cricket’s other markets due to come on board later in the month.

What makes the service interesting is the approach–there is no tie to a PC whatsoever. Music comes to the phone, lives on the phone and is managed on the phone. In an interview, Cricket Vice President Jeff Toig said the service is geared to Cricket’s base of customers, many of whom don’t have a PC and broadband connection. It also allows them to get their music the way they do their other cellphone services–by paying in cash at the company’s retail outlets, thereby eliminating the need for a credit card.

The downside, of course, is that the music can only be played on the phone, though the phone can connect to a car stereo or external speakers over bluetooth or via a 3.5mm cable.

On the plus side, Muve doesn’t add much to the cost of a cellphone plan and eliminates some of the complexity traditionally associated with digital music. In addition to the ability to download and play tracks from all four major music labels, Muve subscribers can set any track to be either a ringtone or ringback tone (the music heard by callers while they are waiting for someone to answer).

Nokia tried a somewhat similar approach with its “Comes With Music” phones, which debuted in 2008. In that program, the cost of the music subscription was included in the price of the phone rather than in the monthly cellphone bill. Others, such as SpiralFrog, have tried to create services relying on advertising to subsidize the cost of providing music free to the end user.

Toig said that his customer base is one that typically isn’t downloading music from iTunes at 99 cents a pop, but includes a fair number of people that illegally download music from file sharing services.

The new service, he said, allows them to have a better experience without having to spend much more than they already are, while giving the record industry a chance to reach digital music customers they are largely missing out on today.

Unlike other services, which Toig said bank on the fact that people have access to a computer, Muve tries to make it easy to discover and download music directly from the phone. Customers can subscribe to curated feeds of music that get automatically updated, as well as find and download albums by name. A built-in social network allows them to see what their friends are listening to (assuming they also have a Muve-compatible phone).

“Nobody has done mobile music right,” Toig said.

Cricket won’t say how much of the incremental $10 in monthly revenue it is getting goes to the labels, but Toig said part of the bet is that Cricket will be able to reach customers that it otherwise could not.

“We’re obviously not doing this for a few percent,” he said. “We think this has appeal beyond our base to segments Cricket has not appealed to before.”

Sprint Nextel Corp. (S) is rolling out new brands and plans, including a partnership with Wal-Mart Stores Inc. (WMT) announced Thursday that will charge seven cents per minute or text message–about half as much as TracFone Wireless, the largest U.S. prepaid provider.

Verizon Wireless, (VZ) which had largely avoided the prepaid market, has opened its nationwide network to prepaid resellers. In the first quarter, Verizon accounted for nearly half of the industry’s prepaid subscriber additions.

The entry of larger carriers into prepaid service has pressured smaller players like MetroPCS Communications Inc. (PCS) and Leap Wireless International Inc., (LEAP) which combined have 12.4 million customers, to slash prices and explore a merger.

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Rollins notes that the stock had rallied 27 percent since the end of January, and adds that the stock now faces “the absence of near-term positive catalysts for subscriber growth to outperform the historical seasonal headwinds for the next 3-6 months.” Rollins instead is steering investors to Buy-rated Sprint (S).

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WMT is rolling out the plans nationwide after previously testing service via 234 stores, according to Reuters.

This is something of a nightmare for the pure-play pre-paid wireless companies, including MetroPCS (PCS) and Leap Wireless (LEAP), which just a few days ago found themselves facing the prospect of AT&T (T) jumping into the pre-paid market.

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Revenue, excluding equipment sales, rose 30 percent, year over year, in the quarter ended in June to $541.6 million.

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