NEW YORK-Due to orchestrated criminal activity involving illegally obtained subscriber identity module cards, Omnipoint Corp. discounted nearly $10 million-all overseas roaming revenues-its Omnipoint Communications Services L.L.C. subsidiary earned last quarter.
In its Aug. 10 earnings announcement for the second quarter ended June 30, Omnipoint Corp., Bethesda, Md., reported losses of $180.4 million, or $3.43 per share, on revenues of $42.4 million.
Omnipoint’s earnings release came after the close of the trading day. Its stock opened Aug. 11 at $16.87, down $1.87. It closed Aug. 13 at $15.87.
The company said second-quarter losses included a one-time charge “primarily related” to a $300 million debt reduction achieved by taking advantage of the Federal Communications Commission’s C-block license restructuring. In exchange, Omnipoint turned in radio-frequency licenses for less than 4 percent of the population it covers. Interest savings on that debt reduction will be an additional $40 million.
The losses also included unanticipated costs of about $9.6 million “associated with international fraud” and $2.2 million in expenses related to joint-venture operating agreements.
Excluding those charges, Omnipoint would have posted a second-quarter net loss of $154.8 million, or $2.94 per share. For the same period in 1997, the company posted revenues of $6.9 million and losses of $68.31 million, or $1.33 per share.
“Unfortunately, we were hit by some very determined criminals using stolen identities and theft who orchestrated international fraud,” said George Schmitt, president of Omnipoint Communications, the personal communications services carrier headquartered in Cedar Knolls, N.J.
“We stripped out virtually every dollar of roaming revenues (from foreign carriers) and put them into current expenses … Based on our review of July [when] such fraud was less than $55,000, we believe we have largely eliminated this problem.”
Suspects in the United States have been arrested in connection with the theft of SIM cards in this country using stolen or their own identities, Schmitt said.
“It was a racket, a pretty organized approach in the marketplace. I’d like to say more, but we want the authorities in Europe to be able to get to these people,” he said.
“As best as we can tell, it was limited to four to five countries. The people who perpetrated this have done it to other carriers, but they got us better than the norm.”
The criminals, he added, knew how to buy phones from retailers, remove the SIM cards, disguise them in packaging to clear customs and deliver them to call centers in Europe. There, they ran up bills until they were discovered and service disconnected.
“Unfortunately, our roaming partners in most cases were not quick enough to notify us of use. In early June, we began to get more accurate and timely data from our overseas roaming partners, and (international) roaming fraud was $55,000 in July,” Schmitt said.
“There are fewer SIM cards active overseas now, but I am pleased we did not have to take steps to not allow people to roam.”
Of the $42.2 million in revenues earned during the latest complete quarter, $40.3 million are attributable to Omnipoint Communications. The remaining $1.9 million was derived from Omnipoint Technologies Inc., the corporation’s technology subsidiary.
During the second quarter of this year, Omnipoint Communications added 64,000 net new subscribers, its largest quarterly increase, to reach a total customer base of 225,000. Of the total, 2,200 net additions are “proportionate ending subscribers” to the PCS carrier’s joint ventures in central Pennsylvania and Wichita, Kan. By comparison, Omnipoint Communications had 42,000 subscribers total at the end of the year-ago quarter.
“Despite our rapid subscriber gains, our average revenue per subscriber run rate was $54. More importantly, average revenue per Omnipoint (store) retail customer, exclusive of resellers, was $59,” Schmitt said.
“Our customer acquisition costs declined to under $490 per gross add, and we are hoping for the mid-400s by year-end.”
