CEO Insight Series: Roger Linquist of MetroPCS

Editor’s Note: This is the first in a new series by RCR Wireless News that will seek to interview C-level executives from around the world to gain insight into their challenges and successes. To nominate someone for the series, please e-mail Tracy Ford [email protected] or or Dan Meyer at [email protected].
Some might say that Roger Linquist is the human incarnation of MetroPCS Communications Inc. (PCS), having co-founded the regional operator and served as its CEO and chairman of the board of directors since the carrier’s inception and was president of the carrier until 2007. However, Linquist’s history in the mobile space goes beyond just his current stint at the Dallas-based operator as he got his start in the industry when he founded paging company PageMart Wireless – now part of USA Mobility Inc. – back in 1989 and serving as the company’s CEO until 1993, its chairman until 1994 and its director until 1997.
Before leaving PageMart for good, Linquist resigned his position as chairman in 1994 to found MetroPCS, initially known as GWI PCS Inc., to participate in the upcoming PCS spectrum auctions the Federal Communications Commission conducted in the mid-1990s. Since then, Linquist has led the carrier to become a leader in the fixed price, unlimited service arena that has seen the carrier grow to its current position as the industry’s No. 5 carrier with nearly 8 million subscribers. MetroPCS also recently was the first domestic operator to launch an LTE network, having recently expanded the offering to a number of its markets.
RCR Wireless News interviewed Linquist on the challenges of a regional operator competing against the nationwide giants, the importance of being early in the LTE space and challenges the carrier has faced in operating in a capital intensive industry.
RCR Wireless News: How has MetroPCS differentiated itself in the mobile space?
Roger Linquist: We’ve recently unveiled our Wireless For All plans and that has done for us what I think is one of the most important things a company can do in any industry, but particularly in wireless where there is a crowd of competition, in that is to identify and distinguish themselves on a brand basis. I think our Wireless For All plans, which are inclusive plans and very affordable, has really provided a foundation for brand development. I think at some point we are very keen on getting to a position like someone like Wal-Mart enjoys. It might not be the very best price, but they have good products and I know I am going to get a good deal.
It’s all about creating the perception and then delivering both quality of service, which is key, and new products. We enjoyed during the third quarter the uptake of QWERTY-type devices that we had for sale. But we do see that moving into the touch screen and what most people call smart phones based on the Android operating system. That will clearly be another wave and we want to be a big presence in that wave going into 2011.
RCRWN: Speaking of the third quarter, MetroPCS posted a dramatic reduction in customer churn during a time where you competition has seemed to have trouble managing churn for no-contract customers. How has MetroPCS been able to keep a check on customer churn?
Linquist: We would like to take full credit for that, but the reality is that in our business we have always had what we call false churn that has been tied to customers upgrading their handsets in the indirect channels, which have been very successful in selling and distributing our products. But since the launch of our Wireless For All plans and removing the previous free month of service we have customers now that know immediately what their phone bill will be going forward. So we are seeing a lack of people that were in the indirect channels and upgrading that we were losing sight of and then churning in the past. Now we have a distribution system and people that understand their bill and we are keeping track of this on a much more rigorous basis. This is basically just people that in the past were upgrading and we were counting them as churn.
But I will say that we have invested in our customers and have seen retention costs rise a bit. The good news is that people are re-upping on the service, getting to the latest handsets and that’s going to provide, we think, a basis for churn going down going forward.
RCRWN: While a lot of operators have focused recently on mobile data services and more specifically selling data hungry data cards and netbooks, MetroPCS has instead focused on providing data services to its customers through smart phones and handsets. What has been the reason for that decision?
Linquist: For us we feel that our sweet spot and the highest use of spectrum is for smart phones, or small screen devices, as opposed to the laptops and netbooks. We are still looking at the tablet market, but have not made any decisions yet. But clearly the cards and dongles are taking us into another area that you will see you can have five or six times the number of smart phone users for each card user. We are not really interested in that. We don’t think it’s the best use of our spectrum resources.
We see an upgrade path and that is why we have been so active in developing this ecosystem for LTE because being in early we are now working towards a portfolio of handsets designed for our bands, namely PCS and AWS, and have the capability through the upcoming 9600 chipset that Qualcomm will be offering, which might not have an impact until 2011, but we have shaped the ecosystem. You’ve got to be early to do that. You can’t sit back and assume that other large carriers with interests in 700 MHz, or 10×10 or 5×5 spectrum channels, to be able to support your development and equipment needs.
RCRWN: MetroPCS was the first carrier to commercially launch LTE in the United States and since has been pretty aggressive in continuing to roll out services. How has that roll out been for MetroPCS?
Linquist: We have just this week begun advertising the service in our Dallas market, so it’s very early. But what we are seeing, which is very encouraging, is that the mix of customers that are adopting Metro Studio, which is really our premium plan, is a majority of our users. Our thoughts of being early with a device that did not have Android and the app store that has been so popular, I think it was a good choice and that we have focused on entertainment. The screen quality, AMOLED screen from Samsung is really very crisp and so we are seeing this as an entertainment device and we think it’s a good first step. Clearly we are focused on Android and the app store as well as very smart screens. Probably around the second half of next year our handset portfolio, which will include six or eight phones, will shows how important is was for us this year to do the work on handsets to set us up for next year. We think we will have price parity with any postpaid device.
RCRWN: How important has network management become for MetroPCS seeing as the carrier is offering services across two different networks with the legacy CDMA operations and the newly launched LTE service?
Linquist: We have somewhat modest, typically 20 to 30 megahertz of spectrum in all of our market with the one exception being in Philadelphia and we hope to address that in upcoming auctions as long as the FCC continues on its march to make more spectrum available. I think the spectrum management side is very doable. I think there is some perception that has been created by other carriers with very large balance sheets and have been very active in warehousing spectrum. It’s much easier, obviously, to just buy spectrum and use it and buy more.
But the other side is we believe that we have the ability, typically with 10 megahertz, using 5×5 in each of our markets – more in some markets and in one with less – t
he capability with the narrow band offering in the standard for LTE, which goes down to 1.4 megahertz band channels. We see with 1.4, 3 and 5, and with 5×5 and 10×10 and up that we can roll over into LTE. That’s why we are so driven to get [Voice over LTE] as an application and we will be doing field test in the second quarter of next year with more than one vendor. We are very focused on making this not just a data solution as in EV-DO or HSPA, but we are more interested in making this a total transportation model for both voice and data. That will assist us in managing spectrum going forward.
RCRWN: A hallmark for MetroPCS has always been in its ability to operate a capital intensive business with a keen eye on managing the financial return. How has the carrier been able to operate in the mobile space so effectively while still managing those capital margins?
Linquist: The exciting part is that there are two major elements that drive us towards LTE for both voice and data. The flat IP network has truly revolutionized the infrastructure business. We buy base stations now called by most vendors the eNode B, and we buy those base stations and they come in and they install them and they are capable of 1.4 megahertz to 20 x 20. So we have tremendous capabilities built into a new network. There are usually use fees associated with expanding bandwidth, but that pales in significance to the old days on CDMA where we paid for each carrier, and that was tens of thousands of dollars per carrier. And we also had to have the decoders back at the switch so there was some money there for every single base station. This is revolutionary. We also put the core in a room the size of a typical conference room for the entire 100 million covered pops. What’s happening in the flat IP structure is so revolutionary that it gives rise to an opportunity that not only when [earnings before interest, taxes, depreciation and amortization] rises that when free cash flow rises as opposed to having the continuous major capex investment that’s associated with our subscriber growth.
RCRWN: What is your view of the current prepaid space?
Linquist: The future is no contract. If you look out over the next 10 years to 2020 the global standardization and world production around LTE-FDD and TDD and the baseband processing is virtually the same. There will be many bands, Moor’s Law will be fully activated and carry over to the display space where we will have a pixel per milliwatt per dollar. All of these will be moving so that the sub $100 handset will be fully featured. There will always be the high priced units, but at that point it seems to us that the no contract space explodes. Who needs to have a contract to have an installment payment for a $100 phone. That’s the same thing that happened in the paging industry more than 20 years ago. It’s looking like it will be any appliance on any network. It will be sold differently. You don’t need a contract to support a $100 retail price or lower. The no-contract world is going to be the way of the future. What we see is that yes it will be more crowded, but we are here and we are in the right space. We are the cost leader and we intend to keep that position. So there will be more competition, but it’s coming our way.
RCRWN: Do you think this change will also impact how devices are sold in the retail environment?
Linquist: It’s not an end to our exclusive dealership as I think that grows stronger. There will just be more appliances sold. The beautiful part is that you will get to a model where instead of having 40 or 50 SKUs from five or six different carriers you can take those SKUs and just sell one version of each device and sell just the SIM cards. That’s the European way. In the United States we have had this hodgepodge of technologies so we grew up differently. That’s all changing once we hit LTE. All of our LTE handsets going forward will have SIM cards, if not removable, by the end of the year and into 2011. Then everyone will be on a standard that has so far only been typically seen in Europe and Asia.