MetroPCS Fails to Woo Users - Analyst Blog

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Despite the growing popularity of no-contract plans, MetroPCS Communications ( PCS ) failed to impress the market, with lower-than-expected subscriber additions in the recently completed fourth quarter. The company reported 175,000 net new subscribers during the fourth quarter as opposed to market expectations of 214,000-250,000. However, on a year-over-year basis,MetroPCS registered subscriber growth of approximately 7%.

The company's churn rate deteriorated to 3.7% from 3.5% in the year-ago quarter but fared better than the market expectation of 4.0% to 4.2%.

Unlike tier 1 carriers like AT&T ( T ) and Verizon ( VZ">VZ ) that have reportedly registered strong sales in the fourth quarter,MetroPCS and other tier 2 carriers like Leap Wireless ( LEAP ) seem to lack the desired momentum in a highly competitive wireless market. Given the slowdown in the economy and resultant weakness in consumer spending, as well as the clear dominance of tier 1 carriers, the going is likely to be tough for these players.

Low cost carriers likeMetroPCS have shown year-over-year improvement, yet stiff competition from market leaders is likely to eat into their market share at least in the near term.

Additionally,MetroPCS has been increasingly challenged by the aggressive rollout of competitive price plans by some of its larger rivals to capitalize on the attractive growth opportunity in the prepaid segment. The ongoing consolidation in the wireless industry through mergers, acquisitions and joint ventures is also making competition stiffer.

The biggest challenge forMetroPCS would likely be its CDMA network platform. Though the company started upgrading its4G LTE coverage in early 2012, the majority of its servicescontinues to run on a relativelyobsolete CDMA network platform, resulting in increasing churn rates over the past few quarters.

WhileMetroPCS is not in contention for Apple 's ( AAPL">AAPL ) iPhones, the company remains a beneficiary of the Android eco system. In fact Google 's ( GOOG">GOOG ) Androidsmartphones constitute roughly 50% of its total device sales.

Going forward, recent trends indicate an uncertain outlook forMetroPCS and it does not look like the company will see significant subscriber additions. Also, subscriber additions are largely dependent on its ability to implement long-term plans like the deployment of4G services in the majority of its markets.

MetroPCS remains focused on launching the"4G LTE for All" program in the second half of this year andexpects to capture significant market share by year-end. Most of the network installation work is slated for completion by the end of this year, implying that the company would be able to support over 10 million subscribers.

Given the rapidly developing market for4G LTE , the company plans to deploy affordableVoLTE (Voice overLTE ) enabledsmartphones in early 2012 to shift its customers from the existing 3G CDMA platforms to4G networks.

The company believes that the introduction ofVoLTE handsets will result inthe decline in smartphone prices to the $99-$150 range from the $199-$299 range, which will in turn increase the penetration ofLTE services in the mass market.MetroPCS' affordable smartphone offerings should help it pick up additional market share in this environment.

We maintain our long-term Neutral recommendation onMetroPCS supported by aZacks #3 Rank (Hold).


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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