MetroPCS, Leap post customer gains: Even as prepaid market sees more competition

Regional flat-rate operators MetroPCS Communications Inc. and Leap Wireless International Inc. posted similar increases in subscriber additions for the fourth-quarter, although both carriers reported increased churn and expect continued pressure in the no-contract market segment in 2010. The carriers did not comment on recent merger speculation.
MetroPCS posted a decent fourth quarter, even as it commented that going forward it expects the no-contract market faces more competition from mobile virtual network operators and large incumbents. Sprint Nextel Corp. in its Q4 results noted that with the success of its Boost and Virgin Mobile no-contract offerings, it plans to launch even more sub-brands to appeal to niche markets. Because of the troubled economy and prospect of increased competition, MetroPCS said it would not provide guidance for 2010.
MetroPCS increases ARPU in the quarter
MetroPCS finished the year with 6.6 million subscribers, up 1.3 million for the year. Fourth-quarter net additions totaled 317,255, down nearly 39% from the year-ago quarter, but significantly better than its third-quarter net additions of just over 66,000. The carrier changed its pricing strategy in early 2010 in part to address the disappointing third-quarter net adds.
Total income for the quarter stood at $33 million on revenues of $930 million, compared to $15 million a year ago on revenues of $724 million in 2008.
“During the year, as the effects of a weak economy persisted, we also saw increased competition. We trialed various promotions, launched new services and rate plans as well as introduced new a la carte products. With solid full-year subscriber growth and continued profitability, I am pleased to report both our [cash per user] and [cost per gross addition] for 2009 continued to be among the lowest of any facilities-based wireless carrier,” said Roger D. Linquist, chairman, president and CEO of MetroPCS. Linquist said Metro’s decision to include taxes and fees in its Wireless for All plans announced in January are changing the way no-contract carriers will offer services going forward. Sprint Nextel’s Boost service also includes all fees and taxes in its $50 per month, unlimited offering.
Interestingly, MetroPCS reported improved average revenue per user from the year-ago period at a time when many carriers are reporting decreases in ARPU as the popularity of unlimited voice minute plans increase. (Of its nationwide competitors, only AT&T Mobility saw better ARPU in the fourth quarter.) MetroPCS’ Q4 ARPU reached $40.70, vs. $40.52 the year-ago. However, churn rose to 5.3% vs. 5.1% in the year-ago quarter.
Linquist said the increased competition in the no-contract market segment expanded the market segment as a whole and increased awareness, but also changed the segment so that plans that include taxes and other fees going forward will become more prevalent. Linquist said the carrier plans to continue to be the low-cost leader and has the ability to “tinker at the edges” if it needs to respond to increased competition.
MetroPCS said it plans to spend between $600 million and $800 million on capital expenses in 2010, with about half of those funds going toward its LTE buildout and half of the costs going to expansion and increasing capacity.
Leap posts $64M loss
No-contract competitor Leap recorded 298,000 net customer additions in the last quarter of 2009, ending the year with 4.95 million customers, which amounts to a 29% increase year over year. CEO Doug Hutcheson said the carrier crossed the 5 million customer threshold earlier this year.
Of its Q4 additions,102,000 were voice users in “core markets,” 127,000 were voice users in “expansion markets” and 69,000 were broadband customers. Net additions were down 22.7% year to year.
The carrier posted a net loss of $64 million for the year, up 17.2% from its year-ago net loss of $54.6 million, although revenues improved 15.5% year-over-year to $599.3 million in the period.
Customer churn increased to 4.7%, while ARPU declined nearly 9% to $38.66.
“Although we expect churn to remain higher than historical levels in the near-term, we look forward to improved performance over the long-term due to expected improvements in customer tenure in our newly-launched markets, potential lower unemployment levels among our customer base and the impact of new enhancements we are introducing,” Hutcheson said. “These enhancements include plans to refresh our service plans in the coming weeks as we typically do, which will feature an even-larger expanded calling footprint for our customers. In addition, the company expects to launch its first fully 3G smartphones with the introduction of a Blackberry device and an Android phone later in the year, and we also just announced plans to form a joint venture with Pocket Communications in our attractive south Texas market area.”