MetroPCS shrugs off prepaid competition, posts strong Q2 results

Has all the competitive pressure in the prepaid space been coming from MetroPCS Communications Inc. (PCS)? A glance at second quarter results shows that while other carrier’s that have traditionally been reliant on attracting prepaid customers seemed to have suffered during the quarter, MetroPCS posted strong gains.
The regional operator said it added just over 303,000 customers during the second quarter, nearly 50% improvement compared with the 205,585 customers it added during the same quarter of 2009. For the first six months of the year, MetroPCS has added 994,611 new customers compared with 889,279 added in 2009, pushing its total customer base to more than 7.6 million subscribers.
By comparison, T-Mobile USA Inc. (DTEGY) announced today that it lost 199,000 prepaid customers during the second quarter; Leap Wireless International Inc. (LEAP) reported earlier this week that it lost 111,000 prepaid customers during the quarter; and Verizon Wireless (VZ) said it also lost direct prepaid customers during the quarter.
Among the larger prepaid operators Sprint Nextel Corp. (S) said it added 173,000 no-contract customers across its plethora of service offerings; Tracfone Wireless Inc. (AMX) said it added 460,000 customers thanks to its increasingly popular Straight Talk service; and AT&T Mobility (T) said it added 300,000 prepaid customers, and recently announced that Tracfone’s Straight Talk offering would soon begin using AT&T Mobility’s network in addition to its current use of Verizon Wireless’ network.
Bolstering MetroPCS’ customer growth was a sharp decline in customer churn, which dropped from 5.8% during the second quarter of 2009 to 3.3% this year, a result that was less than T-Mobile USA Inc.’s blended churn rate.
Despite a dip in average revenue per user from $40.52 in 2009 to $39.84 this year, MetroPCS reported a 20% increase in service revenues to $922 million for the quarter. Increases in both cost per gross add and cash cost per user were not enough to dampen net income that increased from $37.7 million during the second quarter of 2009, a return of 7 cents per share, to $79.9 million, a return of 22 cents per share, in 2010.
MetroPCS’ management noted that the carrier remained on track to launch LTE in select markets during the second half of the year, noting its offering would continue the carrier’s no-contract stance.
The results titillated investors who sent the carriers stock up more than 6% in early trading.