Shares of MetroPCS (PCS) slipped after the carrier reported lower subscriber growth for the fourth quarter and cut its margin outlook for 2010. The company has also revamped its prepaid wireless service plans to counter stiff competition in the low-cost unlimited prepaid wireless market.
MetroPCS’ new family of nationwide unlimited (voice, text and data) service plans includes four all-inclusive month plans ranging $40 to $60 per month. The revised service plans (called “Wireless for All”), which start at $40 per month, include all taxes and regulatory fees. Other plans start at $45, $50 and $60 and offer additional facilities including unlimited international long distance calling to more than 1,000 destinations in over 100 countries.
The new plans are designed to offer greater savings to customers compared to the earlier plans as they promote more features and include taxes and fees. The company hopes the new plans will help entice subscribers and compete with similar plans offered by Sprint Nextel’s (S) Boost Mobile prepaid subsidiary. However, associated promotional expenses are likely to drag near-term profitability.
MetroPCS also reported that it added 317,000 customers in fourth-quarter 2009, down 39% year-over-year. The company added 112,000 customers and 205,000 customers in the Northeast and Core markets, respectively. The carrier exited 2009 with a subscriber base of 6.6 million, up 24% year over year.
Moreover, the company provided a grim margin outlook for 2010 as it expects an adjusted EBITDA margin for its core markets in the mid-30% range, which underscores the impact of higher promotional expenses for rolling out new service plans. This reflects a considerable decline from the EBITDA margin of 40.6% registered for the core markets in the first nine months of 2009.
MetroPCS contends with subscriber retention problems due to intense competition in the prepaid wireless segment. The company has been increasingly challenged by the aggressive roll-out of discounted service plans by its archrival Leap Wireless (LEAP) and some of its larger peers such as Sprint Nextel, America Movil’s (AMX) Tracfone and T-mobile USA, the US subsidiary of Deutsche Telekom (DT).
Churn (customer switch) level remains high due to increased customer defection as the company’s larger rivals continue to lure subscribers with competitive service plans and better product offerings. Churn for fourth-quarter 2009 was 5.3% versus 5.1% registered a year ago.
MetroPCS’ shares plunged 11% to $6.40 in afternoon trading on January 12, 2010. Shares of Leap Wireless fell by 9.4% to $14.54 on concerns about a reignited price war in the low-cost unlimited prepaid market.
Read the full analyst report on “PCS”
Read the full analyst report on “LEAP”
Read the full analyst report on “S”
Read the full analyst report on “AMX”
Read the full analyst report on “DT”
Zacks Investment Research
