Prepaid Carriers Look to LTE as Growth Slows in Q1; MetroPCS Eyes Potential Spectrum Divestiture
LTE is becoming significantly more important as prepaid carriers like MetroPCS saw growth slow in Q1 due to competition and economic uncertainty, executives said. MetroPCS’s Q1 profit of $21 million was a 63 percent year-over-year decline, while another prepaid carrier, Leap, reported a widened Q1 loss of $98.4 million. Meanwhile, MetroPCS said it is interested in spectrum that could potentially be divested as part of the regulatory approval of the Verizon/cable deal.
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MetroPCS’s earnings results were below expectations, CEO Roger Linquist said during a conference call Thursday, noting the first quarter is usually the strong quarter for prepaid. Growing competition in 3G data services and uncertainty in the economy made the deployment of LTE services more important, he said. The company seeks to offer affordable LTE smartphones in the fall, he said. Vendors like Huawei, ZTE and Samsung are making low-cost LTE smartphones that would be sold in the $99 to $150 price range, Chief Operating Officer Tom Keys said. The first of these LTE phones is expected to be available prior to the back-to-school season, he said.
MetroPCS might be bidding for the lower 700 MHz licenses Verizon might be divesting to get regulatory approval for its acquisition of cable spectrum, Chief Financial Officer Braxton Carter said. “We are absolutely interested in any options out there,” Carter said. It’s a “viable option. … We will certainly be taking a very close look at that.” The carrier added 132,000 net subscribers in the quarter versus the 726,000 it added in the year-ago period.
A couple of voice over LTE-enabled (VoLTE) phones, made by Samsung, will be available in the second half of the year, the company noted. VoLTE is critical for the company to “refarm” its CDMA spectrum, Carter said. MetroPCS, which has 580,000 LTE subscribers, has built out LTE to 80 percent of its CDMA markets and expects to cover 95 percent of its CDMA markets by the end of Q3. The company is investing in microwave backhaul to supplement fiber and improve capacity for its LTE network, particularly in urban areas, executives said. It will also build small cells to augment its LTE network. The carrier continued to seek spectrum opportunities, but enhancing network capacity through technology provides a near-term alternative, Linquist said.
Leap intends to spend $600 million to $650 million in 2012, executives said during an earnings conference call late Wednesday. Much of that spending will be focused on LTE rollout, they said. Leap plans to deploy LTE across two-thirds of its network footprints over the next two to three years, they said. The carrier plans to overhaul its service pricing plans and its device portfolio, according to CEO Doug Hutcheson.
It’s hard to say whether weak Q1 results at MetroPCS and Leap are a reflection of the economy or the prepaid sector, Bernstein Research’s Craig Moffett told us. It’s most likely company-specific, he said. MetroPCS appears to be struggling with “a lackluster product, smartphones that run on a slow 3G network, while they wait for lower cost 4G handsets,” he said. It’s been a weaker quarter for subscriber additions for the wireless industry in general, Credit Suisse analyst Jonathan Chaplin said. It’s tough to explain the magnitude of slowdown at PCS in the context of industry trends, he said. Growth of prepaid services, helped by the economic downturn, was expected to continue post-recession, analysts had said.