Leap’s jump hampered by wider economic woes: Carrier to introduce more prepaid options

Leap Wireless International Inc. added fewer than 40,000 net new subscribers during the third quarter and its churn rate soared, while the flat-rate carrier’s financial losses for the quarter expanded to more than $43 million.
Leap had warned investors that its third quarter customer numbers were impacted by changes in customer buying patterns due to wider economic impacts, and had pre-released its subscriber numbers-which were down close to 80% from the 162,000 net additions posted during the third quarter of 2006. Leap ended the quarter with about 2.7 million subscribers.
Although Leap’s gross additions were up about 11% year-over-year, the company’s churn rate for the third quarter increased from 4.3% in 2006 to 5.2% this year.
On the bright side: service revenues were up more than 47% year-over-year to nearly $355 million, and Leap boosted its average revenue per user by nearly 4% to $44.51 for the quarter, up from $42.87 in the prior year period. The difference in Leap’s net income was largely due to an increase in interest expense for the quarter as well as income tax expenses. Leap had posted a net loss of less than $1 million in the prior year’s third quarter.
President, CEO and acting CFO Doug Hutcheson added that the company “has seen attractive post-Thanksgiving results that indicate we are on the right track for our expected fourth-quarter customer additions.” Leap estimates that it will gain between 70,000 and 130,000 net new customers during the fourth quarter and record a churn rate between 4.5% and 4.7%.
New plans
Hutcheson also said that due to an industrywide decrease in customers’ purchases of monthly calling plans in favor of prepaid, the company would be introducing new rate plan offers beginning this quarter in order to appeal to customers who are turning to cheaper plans as a way to maintain their wireless service even while economically pinched.
“We believe we have an opportunity as we look ahead, in the $40 and under price points, to provide additional value to customers and an interesting opportunity for our business,” Hutcheson said. “We expect to roll out plans during this quarter and following quarters that we think provide an interesting opportunity and really allow us to address the needs of some economically challenged customers.”
The company also is in the midst of restating its financials dating back to 2004. Hutcheson said that Leap expected to file its third-quarter results on Friday and complete the restatements by Dec. 31.
Hutcheson noted that the last few months have been particularly challenging for Leap, due to the departure of its CFO, a review of Leap’s accounting methods and the resulting restatements, the economic impacts to its customer base and an unsolicited buy-out offer from fellow flat-rate competitor MetroPCS Communications Inc., which ultimately was withdrawn.
The company confirmed that due to its involvement in the upcoming 700 MHz spectrum auction, it is not currently involved in any similar discussions on collaboration.
Hutcheson also said that Leap expects to expand its appeal with additional data and voice applications, such as mobile video, music and social networking. The company also will expand the trial of CDMA2000 1x EV-DO broadband service to five operating market during this quarter, and continue the expansion-and add additional devices-in 2008, Hutcheson said. He added that the results so far have been promising.