MetroPCS warns on subscriber numbers
MetroPCS Communications Inc
lost about a third of its market value on Tuesday after it reported quarterly earnings that missed Wall Street expectations and warned that already-weak second-quarter subscriber numbers would worsen in the current quarter.
MetroPCS, a provider of wireless services to cost-conscious consumers, said it was having a tough time holding on to customers, who are particularly vulnerable in a weak economy.
Still, the company said it planned to boost network spending to support heavy data use by some customers.
MetroPCS shares fell as much as 35 percent and its market capitalization fell to as low as $3.75 billion from $5.8 billion after the news. The shares of rival Leap Wireless International Inc
MetroPCS reported a net 198,810 new customers in the second quarter, short of the 248,400 average forecast of five analysts surveyed by Reuters.
The company, whose rivals also include Sprint Nextel Corp
Unlike companies offering higher-priced post-paid plans, MetroPCS does not require long-term contracts for its unlimited use wireless service. This means customers can drop its service more easily.
On a conference call with analysts, executives said they saw no sign of economic improvement in the markets where the company operates.
People are just struggling to get by, Chief Operating Officer Tom Keys said.
The company also noted that U.S. government subsidized cellphone programs such as Assurance Wireless -- which offers consumers a free phone and 250 minutes of free calls per month -- were drawing away customers, particularly in markets where the program had launched within the last three to five months.
Sprint's Virgin mobile unit provides the Assurance service among its prepaid service options.
On top of these issues, MetroPCS's own bet that selling expensive smartphones would boost revenue appears to be failing, Credit Suisse analyst Jonathan Chaplin said.
Smartphones aren't having the benefit people hoped for and the cost of supporting smartphones might be higher than expected, Chaplin said. It's probably still the fastest growing wireless business in the market, but expectations have definitely come down.
CAPITAL SPENDING BOOSTED
MetroPCS said the cost of attracting new customers rose about 8 percent compared with the year-ago quarter as it fought to counter a seasonal slowdown and continued economic pressures on its subscribers.
Bigger rival Sprint Nextel said last week that it too faced higher costs.
Credit Suisse's Chaplin also expressed concern that MetroPCS had raised its capital spending target for 2011.
The company said it now expected capital spending of $900 million to $1 billion for the year, up from its previous budget of $700 million to $900 million announced in May, as heavy use of data services was putting pressure on its wireless network.
It's a challenge, Chief Executive Roger Linquist told analysts on the conference call.
The company helped to boost revenue in the last several quarters by selling advanced phones based on Google Inc's
Profit rose to $84.3 million, or 23 cents per share, from $79.9 million, or 22 cents per share, a year earlier.
Excluding unusual items, earnings would have been 24 cents per share, compared with the average analyst forecast of 29 cents per share, according to Thomson Reuters I/B/E/S.
Revenue rose 19 percent to $1.21 billion from $1.01 billion, compared with the average Wall Street forecast of $1.23 billion.
MetroPCS shares were down about $4.86, or 30 percent, at $11.32 in midday trading, while Leap shares were down $2.17 at $10.83 on Nasdaq.
(Additional reporting by Supantha Mukherjee in Bangalore;
Editing by Viraj Nair, Ted Kerr and Andre Grenon)
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