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Leap Wireless International, Inc. (LEAP)

Q2 2008 Earnings Call

August 5, 2008 8:30 am ET

Executives

Amy Wakeham – Director, Investor Relations

S. Doug Hutcheson – President and Chief Executive Officer

Albin F. Moschner – Executive Vice President and Chief Operating Officer

Walter Berger – Executive Vice President and Chief Financial Officer

Analysts

Romeo Reyes - Jefferies & Co.

Simon Flannery - Morgan Stanley

Scott Malat - Goldman Sachs

David Barden - Banc of America Securities

Rick Prentiss - Raymond James and Associates

Presentation

Operator

Welcome to the second quarter 2008 Leap Wireless International earnings conference call. (Operator Instructions) I would now like to turn the presentation over to our host for today’s call, Amy Wakeham, Director of Investor Relations.

Amy Wakeham

This call is being recorded and will be available for playback in the United States through the close of business on August 19 by calling 1-888-286-8010. Callers from outside the U.S. will need to dial 1-617-801-6888. The pass code for both calls is 56923116.

This conference call, with accompanying presentation, is also being webcast live and will be available for replay on the Investor Relations section of our website at Investor.LeapWireless.com shortly after the completion of our live call.

Joining me on the call today to discuss our second quarter results are Doug Hutcheson, our President and Chief Executive Officer, Al Moschner, our Executive Vice President and Chief Operating Officer, and Walter Berger our Executive Vice President and Chief Financial Officer.

Following our prepared remarks, Katina will come back on the line with instructions for the question-and-answer portion of the call. Glenn Umetsu, our Executive Vice President and Chief Technology Officer, will join Doug, Al and Walter for the question-and-answer session.

Turning to Slide 3, the results and data we discuss today, including customer information, reflects the consolidated results of Leap, its subsidiaries and its non-controlled joint ventures, LCW Wireless and Denali Spectrum, LLC, for the periods indicated, as well as the results and data of Hargray Wireless, which we acquired in the second quarter of 2008.

Also, as used in today’s conference call and accompanying presentation, the term new initiatives refers to the company’s new market launch activity and its mobile broadband offering. The term existing business refers to the company’s markets and operation and associated services in those markets as of December 31, 2007.

During our call today we will discuss some non-GAAP financial measures. For a GAAP reconciliation of nonGAAP financial measures I would like to refer you to the notes to the financial statements contained in today’s earnings release and also to the financial reports page of the Investor Relations section of Leap’s website at Investor.LeapWireless.com.

Turning to our forward statements slide, I would like to remind you that statements made today that are not historical in nature, including statements about future events and performance, such as our plans to offer services to additional covered POPs and expectations regarding future growth, spending, results of operations and customer penetration, are forward-looking statements. Our actual results could differ materially from those stated or implied by such forward-looking statements.

Factors that could cause actual results to differ from our forward-looking statements are detailed in the section entitled Risk Factors included in our annual report on Form 10-K for the year ended December 31, 2007 and in our other publicly filed reports, including our Form 10-Q for the quarter ended June 30, 2008 which we plan to file shortly.

For anyone listening to a taped or webcast replay or viewing a written transcript of our second quarter call, please note that all information presented is current only as of today’s date, August 5, 2008. The company disclaims any duty or obligation to update any forward-looking information, whether as a result of new information, future events or otherwise.

With that, I would now like to turn the call over to Doug.

S. Doug Hutcheson

Three years ago we established a goal to double the size of our business. We’re pleased to share with you our continuing success in achieving this goal. In addition during this time period we’ve also assembled the capability to double the size of our business yet again. Today we’ll outline our progress and plans to double this business once again.

As we look at covered POPs over the past three years, we’ve added nearly 35 million new covered POPs since the second quarter of 2005, an increase of 130% and well on our way to potentially 100 million total covered POPs. Also we’ve introduced our mobile broadband product as of the end of the quarter to 23 million potential subscribers on the back of our success and the upgraded networks that we’ve developed over this time period.

Lastly, we added nearly 1.7 net new customers, an increase of 104% from our voice, mobile, broadband and recent acquisitions. This results in a three-year customer CAGR of 27%. So even as we've grown we’ve been improving our margins and our existing business and are well on the way to demonstrating success with our new initiatives.

The quarterly service revenue growth over three years has been $225 million, an increase of 117%. In addition, we’re now pleased to begin reporting on the service revenues of both our expansion markets and our broadband initiatives, which during the quarter added an additional $10 million.

Our operating income in our existing business was strong, offset by the $48 million negative OIBDA investment associated with our new initiatives. OIBDA growth in our existing business increased by nearly $80 million, an increase of over 100%. Existing business margins increased to 38%, showing the continuing success we are achieving in increasing our operating leverage.

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