MetroPCS Communications Inc. (PCS), the sixth-largest prepaid wireless service operator in the U.S. , launched its second 4G Long-Term Evolution (LTE) wireless broadband service in Dallas/Fort Worth Metroplex. This release follows the simultaneous launch of the first LTE service in Las Vegas and the launch of “Samsung Craft”, the first commercially available LTE enabled handset, a week before.
 
MetroPCS operates as a leading unlimited prepaid wireless broadband service provider. The company is evolving and expanding its broadband services in the U.S. and its metropolitan markets. MetroPCS has selected Ericsson as infrastructure vendor and Samsung Telecommunications America as the supplier of its LTE enabled handsets.
 
The company is way ahead of its Tier-1 competitiors, Verizon (VZ) and AT&T (T) in launching LTE services. Verizon plans to launch its 4G wireless network based on LTE later this year, while AT&T is expected to roll out 4G LTE services in 2011.
 
MetroPCS has plans of launching 3–5 handsets in the next 12 month. The company plans to expand 4G LTE coverage in its other markets by the end of 2010 and early 2011, along with the launch of attractive features for smartphones and 4G handsets.
 
We believe MetroPCS is one of the key beneficiaries of the ongoing fixed-to-mobile transition trend. By moving to 4G LTE and offering super-fast mobile broadband experience on their handsets, the company will encourage customers to discontinue wireline broadband, thereby winning and retaining new customers. Moreover, the ultra-high bandwidth multimedia data applications available through the 4G LTE network will boost revenue per user through increased minutes of use. 
 
MetroPCS remains one of the lowest cost wireless service providers in the U.S. This enables the company to roll out a range of cheap service plans. The company’s average cost per new customer addition remains the lowest among national wireless carriers, and helps it to maintain one of the highest profits per subscriber in the industry.  
 
Despite its leadership in the unlimited prepaid segment, MetroPCS is currently struggling with a high churn (customer switch). However, MetroPCS competes head-to-head with its archrival Leap Wireless (LEAP). The carrier has also been increasingly challenged by the aggressive rollout of competitive discounted service plans by some of its larger peers such as Sprint Nextel’s (S) Boost Mobile and America Movil’s (AMX) Tracfone.
 
Moreover, at the end of the second quarter, MetroPCS’ total debt was approximately $3.65 billion, suggesting a significant interest burden. This substantial indebtedness will limit the company’s ability to raise funds to support its ongoing expansion initiatives into new markets and technology upgrades that entail greater capital spending.
 
Thus, we are currently maintainng our long-term Neutral recommendation on MetroPCS supported by the Zacks #3 (Hold) Rank.
 
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