QUOTE AND NEWS
Benzinga  Dec 2  Comment 
BZ NOTE: Sale Has Options To Include Sale Of Towers And Undeployed Spectrum Ntelos Seeking Ways To Monetize Other Non-Core Assets © 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Yahoo  Oct 28  Comment 
T-Mobile US Inc (TMUS.N) on Monday posted record subscriber growth in the third quarter on the back of aggressive marketing campaigns, but booked wider-than-expected losses due to the cost of integrating its MetroPCS network.
Reuters  Oct 28  Comment 
T-Mobile US Inc on Monday posted record subscriber growth in the third quarter on the back of aggressive marketing campaigns, but booked wider-than-expected losses due to the cost of integrating its MetroPCS network.
Banking Business Review  Feb 20  Comment 
Powered Card Solutions (PCS) has announced the availability of its embedded technology for use in secure debit and credit cards.
Cellular News  Nov 7  Comment 
Deutsche Telekom has posted a 6 percent rise in its revenues, although that was boosted by the inclusion of MetroPCS in the USA. Click here for more.
Wall Street Journal  Nov 5  Comment 
T-Mobile US Inc. said its third-quarter loss narrowed sharply as the company continued to add new customers and revenue was boosted by its merger into MetroPCS Communications Inc. Though the year-ago period was hurt by hefty impairment charges...
MarketWatch  Nov 5  Comment 
T-Mobile US Inc. shares rose 4% in light premarket trade on Tuesday after it reported third-quarter results. The wireless carrier added 648,000 branded postpaid net users in the third quarter, stronger than the net 450,000 postpaid subscribers...
JCN Network  Oct 11  Comment 
Toyota Motor Corporation announces that it has developed a Pre-collision System (PCS) that uses automatic steering in addition to increased pre-collision braking force and automatic braking to help prevent collisions with pedestrians.
Benzinga  Jul 25  Comment 
In conjunction with the expansion of its MetroPCS (NYSE: PCS) brand into 15 new markets, T-Mobile US, Inc. (NYSE: TMUS) is tomorrow introducing two new smartphones to the brand's 4G portfolio: the LG Optimus F3(TM) and the Nokia Lumia 521. These...




 

MetroPCS Communications (NYSE: PCS) is a wireless phone company that targets youth and minority demographics, offering service without requiring a contract or a credit check; this differs from traditional wireless carriers such as AT&T Wireless and Verizon Wireless. The company's unlimited voice plans start at $30 a month, and youth and young professionals form 55% of MetroPCS's customers.[1] Furthermore, MetroPCS' attention on densely populated urban markets has helped it achieve the highest margins (14.5% operating margin in 2009) and customer growth rate (42% annual) in the wireless industry over the past three years by keeping distribution and capital expenditures per potential customer low.[2] The company spends $124 on average per new customer added, compared to the industry average of $358.[3]

85% of its customers use MetroPCS service as their primary phone service and 55% do not own any other phone service, reducing the risk that customers will cancel their service in an economic downturn.[4] This mitigates the company's exposure to low-income demographic trends, which are a risk given its focus on urban communities. However, customers do not have contracts with MetroPCS, which creates pricing pressure that intensifies in a recession. The lack of contracts means MetroPCS's customers can easily switch to alternatives such as landlines, VoIP, or plans offered by MetroPCS's direct competitors, Cricket/Jump Mobile and Sprint Boost Mobile, if they view these plans as a better value.

Company Overview

There has been widespread consolidation in the telecommunications industry in the last decade. AT&T (T) purchased Cingular Wireless at the end of 2006 and Verizon Communications (VZ) acquired MCI in 2005. Furthermore, Sprint bought Nextel in 2005 to form Sprint Nextel (S). These three companies, Verizon, AT&T, and Sprint-Nextel, now account for 72% of the entire U.S. wireless market share.[5] With only 1.7% of the market share, MetroPCS faces challenges competing with such large players - it costs more to offer expansive networks to customers, network improvement is more expensive, and competitors can offer bundled packages.[6] In response to competitive pressures arising from consolidation, MetroPCS Communications (PCS) offered to buy Leap Wireless in September 2007 for $5.5 billion or $75 per share. Leap rejected the terms, and MetroPCS subsequently withdrew its offer.

MetroPCS focuses on buying coverage area in urban markets in order to keep expenses low; it keeps infrastructure costs minimal by avoiding less populated areas. In order to operate within a specific area, a wireless provider needs to either purchase coverage area from the Federal Communications Commission or entered a contract to use another service's bandwidth. MetroPCS began by buying coverage area and subsequently building a network in Sacramento, Miami, Atlanta, and San Francisco.[7] These four cities, referred to by MetroPCS as its core markets, accounted for 67% of total customers, but only 35% of net customer additions.[8] Tampa, Detriot, Dallas/Ft. Worth, and Los Angeles, which are included in MetroPCS's expanded markets, formed the remainder.[9] The MetroPCS coverage area now includes New York City, Philadelphia, Seattle, San Diego, Boston, and Portland.[10]

85% of MetroPCS's customers buy from indirect retail outlets and the remainder from company-owned retail stores.[11] Customers can choose unlimited talk, text, and web plans that start at $40 a month.[12] For between $5 and $20, they can add services such as voice mail services, and caller ID, and additional lines. Customers pay for next month in advance, and if payment is not received, then services will discontinue immediately at the end of the month that was paid for by the customer. Service revenue accounts for 86%, MetroPCS's revenue. Sales of handsets and accessories form the remainder.[13]

Business and Financial Metrics

First Quarter 2010 Results[14]

MetroPCS reported revenues for the quarter of $971 million, an increase of 22% over first quarter of 2009. Adjusted EBITDA was $224 million, an increase of approximately 13% over first quarter of 2009. Quarterly consolidated churn was 3.7%, down from 5.0% during the first quarter 2009. The company saw record net subscriber additions of approximately 692 thousand, resulting in a 10% increase in total subscriber base over the end of the fourth quarter 2009. MetroPCS has added 1.3 million subscribers in the past 12 months and now has over 7 million subscribers.

Expansion Strategy

MetroPCS's expansion into new markets increases sales and marketing expenses and raises capital expenditures. For instance, MetroPCS spent approximately $370 million to build out its network in Jacksonville.[15] In order to recoup these expenses, MetroPCS has to retain its customers and seek new ones. The company can also increase revenue by selling more wireless services to each customer on average. As such, five performance measures are good indicators of MetroPCS's business health. These metrics include:

  1. Average Revenue Per User (ARPU) is the monthly sales to each of MetroPCS's customers on average. Higher ARPU translates to higher revenues.
  2. Cost Per Gross Customer Addition (CPGA) is how much MetroPCS spends to acquire each additional customer. A lower CPGA decreases expenses, and increases operating profitability.
  3. Cash Cost Per User (CCU) is service and selling and general administrative costs, along with any equipment losses untied to acquiring customers, divided by the average number of customers. As the difference between ARPU and CCU increases, operating margins improve.
  4. Churn is the turnover rate among customers that have used MetroPCS's service for more than a month. MetroPCS would like to retain customers (low churn), because the price to attract new customers (CPGA) is quite high.
  5. Total Customers indicates how many people subscribe to MetroPCS's service. More customers mean more service revenue for MetroPCS.

The following table[16] shows the figures for these five business metrics over the past three years. Also, one can see how MetroPCS compares to its competitor in the Competition Segment of this article.

MetroPCS's expansion into new markets is expensive and decreases net income in the near-term. As MetroPCS increased its expansion rate from 2005-2008, capital expenditures rose from $266.5 million to an expected $1.2 billion in 2008.[17] In addition, MetroPCS spends more advertising in new markets.

4G LTE Deployment

MetroPCS will launch its 4G LTE service in select metropolitan areas in the second half of 2010. The next generation wireless networks are LTE and WiMax. Both are 4G technologies designed to move data rather than voice. LTE will be faster than the current generation of WiMax, but 802.16m, the next generation of WiMax, is fairly similar in speed.

WiMax is based on a IEEE standard (802.16), an open standard that was debated by a large community of engineers before getting ratified. The level of openness means WiMax equipment is standard and therefore cheaper to buy than LTE equipment — sometimes half the cost. Depending on the spectrum alloted for WiMax deployments and how the network is configured, this can mean a WiMax network is cheaper to build.

LTE will be the standard chosen by 80 percent of the carriers in the world. LTE deployments are expected to reach mass adoption by 2012.

Trends and Forces

Although the wireless market has matured, MetroPCS still has room to grow In the United States, 285.6 million people have cell phones, a wireless penetration of 91%.[18] Companies have to fight for market share or add services to existing customers, such as data, in order to drive revenue growth. Benefiting MetroPCS's growth has been the lack of attention telecom giants Verizon Wireless, T-Mobile, and AT&T Wireless gave to the minority and youth markets. However, these wireless providers began flat rate unlimited service offerings much like what MetroPCS offers.[19] Despite the maturing market, MetroPCS believes most of the remaining growth will be in no contract and low-income demographics. The company points to Wall Street research (shown in the bottom right graph produced by MetroPCS) that indicates 25% of the population earning between $22,500 and $39,999 per year do not have cellular service, but only 7% of people with incomes above $90,000 do not.[20] MetroPCS's average customer earns $38,000.[21] Further, only 10% of Americans use no-contract wireless subscriptions, which is relatively low compared to the United Kingdom's 67%, Italy's 88%, or France's 39%.[22]. Decreasing discretionary income, due to rising Food and Gas Prices, can cause consumers to be less confident in their ability to pay long-term contracts, and as a result, shift demand to no-contract plans like the ones offered by MetroPCS.

MetroPCS's strategy has been successful in the past year, as it saw record net subscriber additions of approximately 692,000, resulting in a 10% increase in total subscriber base from the fourth quarter of 2009 to the fourth quarter of 2010. MetroPCS has added 1.3 million subscribers in the 12 months ended May 2010 and now has over 7 million subscribers.[14]

Although the wireless market has matured, MetroPCS still has room to grow

In the United States, 285.6 million people have cell phones, a wireless penetration of 91%.[23] Companies have to fight for market share or add services to existing customers, such as data, in order to drive revenue growth. Benefiting MetroPCS's growth has been the lack of attention telecom giants Verizon Wireless, T-Mobile, and AT&T Wireless gave to the minority and youth markets. However, these wireless providers began flat rate unlimited service offerings much like what MetroPCS offers.[24] Despite the maturing market, MetroPCS believes most of the remaining growth will be in no contract and low-income demographics. The company points to Wall Street research (shown in the bottom right graph produced by MetroPCS) that indicates 25% of the population earning between $22,500 and $39,999 per year do not have cellular service, but only 7% of people with incomes above $90,000 do not.[25] MetroPCS's average customer earns $38,000.[26] Further, only 10% of Americans use no-contract wireless subscriptions, which is relatively low compared to the United Kingdom's 67%, Italy's 88%, or France's 39%.[27]. Decreasing discretionary income, due to rising Food and Gas Prices, can cause consumers to be less confident in their ability to pay long-term contracts, and as a result, shift demand to no-contract plans like the ones offered by MetroPCS.

MetroPCS's strategy has been successful in the past year, as it saw record net subscriber additions of approximately 692,000, resulting in a 10% increase in total subscriber base from the fourth quarter of 2009 to the fourth quarter of 2010. MetroPCS has added 1.3 million subscribers in the 12 months ended May 2010 and now has over 7 million subscribers.[14]

In response to saturation in the wireless market, wireless providers are pushing data services and consumers are buying

While MetroPCS offers data services such as text messaging and mobile Internet browsing, the company remains focused on delivering wireless service at low costs rather than offering high revenue generating contracts. This strategy contributes to MetroPCS earning $10 less in monthly ARPU than the industry average, but also kept its average monthly cost per user $11 lower.[28]

Mergers and acquisitions have resulted in a few giants dominating the telecom industry

The M&A Activity has helped Verizon Wireless, Sprint Nextel (S), and AT&T claim almost three-quarters of the wireless communications industry.[29] This consolidation puts pressure on smaller wireless providers. For instance, these large companies control wider coverage areas and have pricing power over MetroPCS when it comes to using their networks.[30] MetroPCS tries to avoid paying competitors for use of their networks focusing on urban centers, where calls tend to be local and within its coverage area. The largest wireless providers can also use their extensive advertising budgets to target a wide range of areas. More targeted marketing in urban locations allows MetroPCS to remain competitive but does not require it to build and maintain national coverage or spend as much as competitors to attract business.

Wireless market share in 2009
Wireless market share in 2009[31]

MetroPCS's failed bid for Leap Wireless and its subsequent build-out of its network

As consolidation of wireless providers left a few big players, MetroPCS made a bid for Leap Wireless in September of 2007. The deal, priced at $75.05 per Leap share, would have made the company the sixth largest wireless communications provider and given the combined company access to almost all the top 200 markets. The two companies mostly operate in different markets, so a synergy would expand presence and not simply remove competitive pressure. Furthermore, a combination of the two wireless providers will lower overhead expenses and market-level operating expenses.[32] The deal, which would have been paid in MetroPCS shares, also called for MetroPCS to refinance almost $2 billion of debt which Leap Wireless holds.[33] While Leap rejected the deal as its boards wanted better terms, the FCC allowed talks (if desired) to resume in April 2008.[34]. No news stories suggest the two wireless providers have resumed talks, and further, the rival companies now are entering the same markets, which decreases the likelihood of a merger. MetroPCS launched wireless service in Las Vegas in March of 2008, and Leap followed two months later.[35]

MetroPCS's insulation from U.S. Economic Cycles

With MetroPCS's average customer earning $38,000, rising prices at the pump and higher food costs, along with layoffs, will lower disposable income. However, 85% of MetroPCS's customers use MetroPCS service as their primary phone service, so they may find themselves decreasing spending outside of their phone bill.[36] For example, the economic slowdown at the beginning of 2008 did not hurt MetroPCS Communications (PCS) - the company added 450,000 net subscribers in the first quarter, which surpassed analyst's expectations of 415,000.[37]

Mergers and acquisitions have resulted in a few giants dominating the telecom industry

The M&A Activity has helped Verizon Wireless, Sprint Nextel (S), and AT&T claim almost three-quarters of the wireless communications industry.[38] This consolidation puts pressure on smaller wireless providers. For instance, these large companies control wider coverage areas and have pricing power over MetroPCS when it comes to using their networks.[39] MetroPCS tries to avoid paying competitors for use of their networks focusing on urban centers, where calls tend to be local and within its coverage area. The largest wireless providers can also use their extensive advertising budgets to target a wide range of areas. More targeted marketing in urban locations allows MetroPCS to remain competitive but does not require it to build and maintain national coverage or spend as much as competitors to attract business.

Wireless market share in 2009
Wireless market share in 2009[40]

MetroPCS's failed bid for Leap Wireless and its subsequent build-out of its network

As consolidation of wireless providers left a few big players, MetroPCS made a bid for Leap Wireless in September of 2007. The deal, priced at $75.05 per Leap share, would have made the company the sixth largest wireless communications provider and given the combined company access to almost all the top 200 markets. The two companies mostly operate in different markets, so a synergy would expand presence and not simply remove competitive pressure. Furthermore, a combination of the two wireless providers will lower overhead expenses and market-level operating expenses.[41] The deal, which would have been paid in MetroPCS shares, also called for MetroPCS to refinance almost $2 billion of debt which Leap Wireless holds.[42] While Leap rejected the deal as its boards wanted better terms, the FCC allowed talks (if desired) to resume in April 2008.[43]. No news stories suggest the two wireless providers have resumed talks, and further, the rival companies now are entering the same markets, which decreases the likelihood of a merger. MetroPCS launched wireless service in Las Vegas in March of 2008, and Leap followed two months later.[44]

MetroPCS's insulation from U.S. Economic Cycles

With MetroPCS's average customer earning $38,000, rising prices at the pump and higher food costs, along with layoffs, will lower disposable income. However, 85% of MetroPCS's customers use MetroPCS service as their primary phone service, so they may find themselves decreasing spending outside of their phone bill.[45] For example, the economic slowdown at the beginning of 2008 did not hurt MetroPCS Communications (PCS) - the company added 450,000 net subscribers in the first quarter, which surpassed analyst's expectations of 415,000.[46]

Competition and Market Share

Competitive pressure for the roughly $168 billion wireless communication industry is quite fierce. These companies use quality, reliability, brand awareness, and value pricing to try to capture new and retain existing customers in the saturated wireless market. MetroPCS closest rivals include Cricket, Jump Mobile, and Boost Mobile. Unlike Verizon Wireless and AT&T Wireless, these brands direct advertising and payment plans towards minority and youth demographics. This segment's preference towards no-contract and prepay service plans results in consumers ability to switch quickly between wireless carriers depending mainly on value of offered services.

Wireless providers use 3 common business metrics to show success - Monthly Average Revenue Per Customer (ARPU), Net Additional Customers, and Churn rate (or turnover rate). The following table[47] compares the companies in this industry using these metrics, in addition to showing the total number of customers, 2007 revenue numbers, and each company's market share in the wireless communication industry.

Monthly ARPU Churn Rate Net Additional Customers Total Customers Total Revenue (in $millions) Market Share[48]
MetroPCS Communications$43.03 4.7%1,021,8003,962,786$2,200 1.7%
Verizon Wireless$50.96 1.2%2,000,00065,700,000$43,882 27%
AT&T Wireless$50.80 1.3%9,100,00070,100,000$42,684 28%
Sprint Nextel$28, $582.3%, 7.5%566,00054,000,000$34,698 19%
T-Mobile$53 1.9%3,644,00028,700,000$19,288 12%
Alltel$54.30 1.3%961,25512,785,193$8,803 5%
Leap Wireless$44.92 4.3%633,6932,863,519$1,631 1.2%
RestN/AN/AN/AN/AN/A6.1%



References

  1. Raymond James Institutional Investor Conference 3/3/08
  2. Raymond James Institutional Investor Conference 3/3/08
  3. Raymond James Institutional Investor Conference 3/3/08
  4. Raymond James Institutional Investor Conference 3/3/08
  5. Chetan Sharma Consulting Group
  6. Leap Wireless (LEAP) Form 10-K FY 2007, "Competition" Page 10-12
  7. MetroPCS (PCS) Form 10-K FY 2007 "Service Areas" Page 4
  8. MetroPCS (PCS) Form 10-K FY 2007 "Performance Measures" Page 66
  9. Raymond James Institutional Investor Conference 3/3/08
  10. MetroPCS (PCS) Form 10-K FY 2007 "Item 6" Page 47
  11. #102 MetroPCS (PCS) Form 10-K FY 2007 "Distribution and Marketing" Page 8
  12. MetroPCS Plans
  13. MetroPCS (PCS) Form 10-K FY 2007 "Selected Financial Data" Page 46
  14. 14.0 14.1 14.2 MetroPCS Reports First Quarter 2010 Results
  15. MetroPCS (PCS) Form 10-K FY 2007 "Capital Expenditures" Page 79
  16. MetroPCS (PCS) Form 10-K FY 2007 "Performance Measures" Page 66
  17. MetroPCS (PCS) Form 10-K FY 2007 "Capital Expenditures" Page 79
  18. CTIA Advocacy: "US Wireless Quick Facts"
  19. Leap Wireless (LEAP) Form 10-K FY 2007, "Competition" Page 10-12
  20. Raymond James Institutional Investor Conference 3/3/08
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  22. Raymond James Institutional Investor Conference 3/3/08
  23. CTIA Advocacy: "US Wireless Quick Facts"
  24. Leap Wireless (LEAP) Form 10-K FY 2007, "Competition" Page 10-12
  25. Raymond James Institutional Investor Conference 3/3/08
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  27. Raymond James Institutional Investor Conference 3/3/08
  28. Raymond James Institutional Investor Conference 3/3/08
  29. Chetan Sharma Consulting Group
  30. MetroPCS (PCS) Form 10-K FY 2007 "Competition" Page 9-10
  31. Daily Wireless
  32. Fierce Wireless
  33. C|Net News
  34. MSN Money Article
  35. Telephony Online
  36. Raymond James Institutional Investor Conference 3/3/08
  37. Forbes Article
  38. Chetan Sharma Consulting Group
  39. MetroPCS (PCS) Form 10-K FY 2007 "Competition" Page 9-10
  40. Daily Wireless
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  44. Telephony Online
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  47. Collection of 2007 Company Financial Highlight Pages except for Market Share Data
  48. Chetan Sharma Consulting
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