3rd UPDATE: MetroPCS, Leap Hurt By Prepaid Competition
(Updates with Leap results and additional background information throughout.)
By Roger Cheng
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- MetroPCS Communications Inc. (PCS) and Leap Wireless
International Inc. (LEAP) both saw customer growth slide in the third quarter
amid intensifying competitive pressure on the prepaid end of the wireless
industry.
Leap and MetroPCS, which operate similar regionally based prepaid wireless
services, both relied on new cities for growth in the period, but lost customers
in their existing markets. Both cut their expectations for growth for the year.
The business of offering prepaid service - where customers pay ahead of time
for the minutes they use and aren't required to sign a contract - has exploded
over the past year as consumers seek better bargains. The wireless industry sees
it as one of the final pockets of growth, drawing players willing to cut prices
and bundle more services, forcing each company to one-up each other.
The economic downturn was initially cited by both companies as a boon to their
businesses, since consumers were willing to trade down to a less expensive
service to save money. But they now say that the prolonged weakness and high
rate of unemployment are starting to have an impact.
Early Thursday, MetroPCS reported earnings of $73.5 million, or 21 cents a
share, up from $44.8 million, or 13 cents, a year earlier. Revenue jumped 30% to
$895.6 million, with a 33% increase in services revenue and a 9.5% jump in
equipment sales.
Analysts polled by Thomson Reuters had most recently forecast earnings of 9
cents on $869 million in sales.
But the company added only 66,000 customers, nearly half of what Wall Street
expected and down 73% from a year ago. The rate of customer defection jumped to
5.8% from 4.8% a year ago, although average revenue per user rose 35 cents to $
41.08.
MetroPCS Chairman and Chief Executive Roger Linquist said he was disappointed
in the subscriber growth, and largely cited the "depth and duration" of the
economic downturn.
"The effects of this difficult economic environment are even more pronounced
when viewed from the unemployment statistics in many of our major markets," he
said.
The Dallas wireless provider cut its estimates for full-year subscriber growth
and earnings, further illustrating the toll taken from the game of brinkmanship
played among the various low-end players.
MetroPCS cut its full-year customer growth forecast by 450,000 to 1 million to
1.2 million, and slashed its adjusted earnings before interest, taxes,
depreciation and amortization estimate by $200 million to $850 million to $950
million.
"Its recent disappearing act and lack of guidance do not instill confidence
that it has any idea what is or will happen in U.S. wireless," said Philip
Cusick, an analyst at Macquirie Securities.
Leap, meanwhile, posted a loss of $65.4 million, or 85 cents a share, compared
with a year-ago loss of $47.3 million, or 72 cents a share. Revenue jumped 21%
to $599.5 million.
Analysts surveyed by Thomson Reuters expected a loss of 53 cents on revenue of
$620 million.
Leap added 116,182 new customers, a decline of 25% from a year ago. The
company's growth was attributed to 97,000 customers who signed up for its
prepaid wireless high-speed Internet access.
The company cut its full-year estimate for new customers to 1.1 million to 1.3
million, from a prior forecast of 1.5 million.
In addition to the macro weakness, both companies face competition from Sprint
Nextel Corp.'s (S) Boost Mobile, which recently reported stellar growth. Wal-
Mart Stores Inc. (WMT) has gotten into the game with partner Tracfone Wireless,
which is the largest prepaid provider in the country. AT&T Inc. (T) recently
lowered the price of its Go Phone prepaid plan.
In response, MetroPCS recently launched a $30 voice-and-text plan, a family
plan, and a mail-in rebate program for selected handsets. Further down the line,
the company plans to lean on a better selection of phones, expand its coverage
through roaming partnerships, and eventually upgrade to a faster fourth-
generation, or 4G, network.
Leap similarly said it had launched new service plans and cellphones. The
company is also relying more on its wireless broadband product for growth.
MetroPCS shares closed down 9.2%, and were up 3 cents to $6.04 in after-hours
trading.
Leap's stock fell 6.5% to $13.03 in regular hours, but was up 2.5% to $13.35
late Thursday.
-By Roger Cheng, Dow Jones Newswires; 212-416-2153; roger.cheng@dowjones.com
(END) Dow Jones Newswires
11-05-091723ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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