Leap Wireless International Inc. lost customers during the third quarter as customers fled higher-priced entry level handsets and services, and is exploring “cost-effective alternatives” to its Long Term Evolution (LTE) network deployment.
The flat-rate carrier’s customer base shrank by about 269,000 people, increasing its churn to 4.8% compared to 3.8 percent during the same quarter in 2011. Most of those customers were on the voice side, with about 239,000 of the losses attributed to lower gross additions due to increased pricing on entry-level smartphones and general industry softness. Leap also shed about 29,000 broadband customers as the operator deemphasizes that product, and customer use shifts to smartphones instead.
The company’s service revenues grew by just 0.7 percent to $722 million for the quarter. Total revenues were up 1.4 percent year-over-year, to $774 million, and Leap recorded an operating income for the quarter of $81.4 million compared to a loss of $16.1 million for the third quarter of 2011. Net income was $26.9 million, compared to a loss of $94.1 million during the same period last year.
“During the third quarter, we continued a significant transition of our business to meet the changing needs of our customers and improve our financial performance,” said S. Douglas Hutcheson, president and CEO of Leap. He said the company increased prices on entry-level smartphones and plans to continue adding higher-quality, higher-priced handsets to its portfolio.
Leap also added new rich communications features and revamped its pricing plans, as well as continuing to implement changes to some customer retention programs, which drove up its churn rate.
Hutcheson said the results “also reflect … churn pressures from the effects of certain retention programs and handset quality issues we experienced in the second quarter, as well as general industry softness.
“We believe that the new initiatives that are being introduced will enhance the customer experience, improve our customer value proposition and drive improvements to churn.”
However, those new features and plans drove up marketing and product costs in the third quarter, reducing adjusted OIBDA by 14.7 percent year-over-year, to $131.6 million.
Hutcheson said that Leap plans to reduce projected 2012 expenditures by about $85 million by managing its 3G network capacity investments, exercising increased financial discipline, and “exploring cost-effective alternatives to deliver 4G LTE services.”
Jennifer Fritzsche, senior analyst at Wells Fargo Securities, noted that Leap’s “results were mixed, but the bigger news is that Leap is scaling back on its LTE rollout and [capital expenditures] and further exploring the use of alternative service providers.”
Leap said in a company statement that it plans to cover about 21 million pops with LTE by the end of 2012, and that the alternatives which it is exploring “may include deploying facilities-based coverage and/or entering into possible partnerships or joint ventures with others.”
Leap has attempted to make an LTE roaming deal with LightSquared, but that fell through when the latter company could not access its spectrum assets. The company has also signed an LTE roaming deal with Clearwire for that company’s future launch of LTE.
