AT&T, the second-largest U.S. wireless carrier, has agreed to buy Leap Wireless International Inc. for $1.2 billion, giving the company 5 million customers, more airwaves and a larger piece of the pay-as-you-go market.

Charles Golvin, a technology analyst with research firm Forrester, said Leap’s spectrum holdings will allow AT&T (NYSE: T) to offer more of its customers faster, more reliable wireless data in congested areas.

“Having more spectrum means having more capacity and being able to meet those long-term data demands,” Golvin said. “Just like you can never be too thin or too pretty, you can never have too much spectrum.”

Under the deal, Leap shareholders also will get the right to proceeds from the sale of Leap’s 700-megahertz spectrum in Chicago, which was bought for $204 million last year, according to a statement. The offer of $15 a share in cash represents an 88 percent premium over Leap’s closing price of $7.98 yesterday. San Diego-based Leap also has $2.8 billion in net debt.

“This is another example of the escalating value of spectrum as data pricing gets more competitive and data devices like tablets become more ubiquitous,” added Kevin Smithen, an analyst with Macquarie Securities USA Inc. He has the equivalent of a sell rating on AT&T and is neutral on Leap.

AT&T Chief Executive Officer Randall Stephenson has been on a hunt for spectrum – the airwaves that let mobile devices make calls and download data – ever since regulators blocked his $39 billion proposal in 2011 to acquire Deutsche Telekom AG’s T- Mobile USA unit. Since then, he’s resorted to smaller acquisitions, such as a $1.9 billion deal in January to acquire airwaves from Verizon Wireless, to build enough capacity to handle increasing demand for music downloads and video streaming on mobile devices.

Leap more than doubled to as much as $17.78 in extended trading Friday, reflecting the value of AT&T’s offer plus the Chicago spectrum proceeds. Investors may also expect a competing bid, Smithen said.

Merger Frenzy

The deal extends a frenzy of telecommunications mergers this year as small U.S. carriers look to team up with larger companies. T-Mobile merged with Leap rival MetroPCS Communications Inc. in May, and SoftBank Corp. completed its purchase of Sprint Nextel Corp. on July 10. Sprint also closed its own acquisition of Clearwire Corp. earlier this week.

MetroPCS and Deutsche Telekom discussed including Leap in a transaction before deciding to combine MetroPCS with T-Mobile, a person familiar with the matter said in November. SoftBank founder Masayoshi Son has spoken about combining the industry’s smaller players to better compete against AT&T and Verizon Wireless, the biggest U.S. mobile-phone company.

Prepaid Struggle

Leap and MetroPCS both focused on the prepaid market, where customers don’t sign up for long-term contracts. The approach allowed the carriers to grow quickly by appealing to younger consumers and people with poor credit. Still, Leap struggled to make money in a low-margin industry and competition from larger carriers has eroded sales growth. It has posted losses every year since 2005, and sales this year are projected to drop 6 percent.

The U.S. government balked at AT&T’s 2011 T-Mobile deal in part because it would reduce the number of carriers competing in some markets. AT&T said yesterday it will keep and expand Leap’s Cricket brand after it acquires the company’s retail stores, customers and a network that covers about 96 million people in 35 states. Leap has 3,400 employees.

Investors representing 29.8 percent of Leap shares have agreed to vote for AT&T’s proposal, the companies said.

AT&T shares fell less than 1 percent to $35.81 Friday in New York. The stock has climbed 6.2 percent this year.

“This not only improves our spectrum position, it advances our offerings in prepaid service,” said Brad Burns, a spokesman for Dallas-based AT&T. “We’ll make the prepaid market more competitive. Leap’s customers will be able to ride on our fast LTE network.”