Leap continues to show operational challenges

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Leap Wireless posted continued degradation in its customer base highlighting the financial importance of its recent agreement to be acquired by AT&T.

The no-contract carrier said it lost more than 364,000 customers during the second quarter, which was significantly more than the 289,000 customers it lost during the same quarter in 2012, and put its losses for the first half of this year at more than 457,000 subscribers, which was drastically more than the 31,000 customers it lost during the first half of 2012. Leap ended the first half of this year with 4.8 million total customers, or more than 1 million less than it had one year ago.

Impacting customer numbers was a 42.6% drop in gross customer additions – despite the carrier adding the latest smartphones and juggling rate plans – that managed to offset a slight decrease in customer churn, which fell from 4.4% last year to 4.3% this year.

Leap noted that the shortfall in gross customer additions was impacted by consumer demand for “4G” services that the carrier is currently short on offering. Leap has curtailed spending on installing LTE equipment in order to cut costs, which it expected to offset by offering LTE services through a roaming agreement with a nationwide operator later this summer. That operator was expected to be Sprint, but with the recent AT&T deal announced earlier this month, that deal, as well as a previously signed LTE roaming agreement with Clearwire, are up in the air.

That slicing on network spend was evident by Leap announcing a drop in capital expenditures from $119.1 million last year to just $22.5 million during the second quarter of this year. Leap had cut first quarter capex from $146.3 million in 2012 to just $26.4 million this year. Leap did note that it plans to spend between $150 million and $200 million on capex this year, which would signify a steep increase compared to its first-half spending rate.

That lower customer base also impacted financial operating metrics, as its cash cost per user jumped $4.88 year-over-year to $27.79 and its cost per gross addition was up $91 to $387 as operational costs were spread over a smaller customer base and lower gross additions.

Leap did manage grow its average revenue per user $3.25 per month compared with the second quarter of 2012, highlighting at least some success with getting customers on smartphones and corresponding higher-priced rate plans. However, with a dwindling customer base, overall revenues dropped during the second quarter from $786.8 million last year to $731.5 million this year. Leap did manage to cut operating expenses from $754.9 million last year to $741 million this year, but after expenses were factored in overall net losses increased from $46 million last year to $156.3 million during the second quarter of 2013.

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Dan Meyer

Editor-in-Chief, Telecom Software, Policy, Wireless Carriers
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Dan Meyer started at RCR Wireless News in 1999 covering wireless carriers and wireless technologies. As editor-in-chief, Dan oversees editorial direction, reports on news from the wireless industry, including telecom software, policy and wireless carriers, and provides opinion stories on topics of concern to the market such as his popular Friday column “Worst of the Week.”