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Leap continues to show stress from operational change

Leap Wireless International Inc. (LEAP), which operates its wireless business under the Cricket Communications Inc. brand, posted lumpy first quarter results as the carrier continues to manage changes in its operations.
The carrier said it added 331,000 customers during the first quarter of the year, which was a 26% decrease from the 445,768 subscribers it added during the first three months of 2010. The 2011 net additions included 300,000 customers to its handset-based operations and 31,000 customers to its broadband service.
Leap ended the quarter with 5.849 million customers on its network.
Leap noted the slowing broadband growth was a conscious move by the carrier as it looks to increase “network management initiatives” centered on migrating its customer base from bandwidth heavy wireless modems to less data intensive, though “sticky” smartphones. This was highlighted by 40% of new handset sales during the quarter coming from the carrier’s smartphone lineup.
Despite the slowing customer growth, Leap noted that customer churn plunged from 4.5% during the first quarter of 2010 to 3.1% this year, with voice churn at 2.8% and broadband churn at 5.5%. The carrier added that the Q1 churn results were its lowest in nearly a decade.
Average revenue per user also increased year-over-year from $38.04 during the first quarter of 2010 to $39.35 this year, which the carrier attributed to greater adoption of its $45 and higher rate plans, including its smartphone plans that begin at $55 per month.
The increase in smartphone adoption also helped drive up Leap’s cash cost per user from $17.49 during the first quarter of 2010 to $23.04 this year; and its cost per gross addition from $171 to $192 over the same time period. Smartphones typically require a higher subsidy at the time of purchase, but in return provide higher ARPU and lower churn.
Overall, Leap’s revenues increased 14.1% from $683.8 million during the first quarter of 2010 to $779.9 million this year. However, increased expenses related to the smartphone adoption, rate plan changes that now include regulatory fees and the integration process of its acquisition of Pocket Communications pushed net losses from $68 million in 2010 to $96.2 million this year.
Despite the increased loss, Leap’s stock was trading up nearly 13% in early Thursday trading at around $17 per share.
Leap also announced this week that it sold 130 towers to Global Tower Partners for an undisclosed amount. Leap’s management said it was not a “gigantic” amount of money, but that it was “happy with the multiples.”
Leap also said it remains on track to begin trialing LTE services this year with plans to roll out commercial services beginning in 2012. That move will be bolstered somewhat by its recent roaming agreement with LightSquared, which Leap’s management said would be a fill in and back up option for its own network plans.

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