Credit crunch impacting flat-rate carriers’ stock

Flat-rate wireless carriers serving the sub-prime sector have seen their stocks plunge in recent weeks, reflecting fears about sub-prime customers who could affect the carriers’ financial results.
Earlier this year Leap’s stock had been steadily gaining value, and was trading as high as $99 per share in late July. Earlier this month, though, the carrier’s stock took a plunge into the $60 range after Leap announced disappointing second-quarter results. The carrier also posted increased customer churn and cut its projections for third-quarter customer gains.
MetroPCS Communications Inc.’s stock has followed a similar trajectory since its initial public offering in April. The stock peaked at around $40 in late July, but fell to around $30 in early August after MetroPCS posted disappointing customer numbers. MetroPCS’ stock has since slipped into the $25-per-share range.
“Part of it is the whole sub-prime mess,” said Current Analysis analyst William Ho. “Leap’s customers and Metro’s customers are that category, the sub-prime category, and all those fears kind of rode the waves of the stocks’ decline.”
Another probable factor is Sprint Nextel Corp.’s new Boost Unlimited offer, which may be gobbling market share, Ho added. Sprint Nextel said in its most recent quarterly report that the new service had signed up 100,000 customers.
The financial markets have been rattled by fears about the extent to which the floundering sub-prime mortgage market and a corporate credit crunch will affect the rest of the economy. After a turbulent week on Wall Street, the Federal Reserve opted last week to cut the interest rate that it charges to banks in order to stave off a credit crisis, and the market responded by rebounding on Friday. However, major stock indexes were down again today.