Leap loses 196K subs in Q3 as AT&T acquisition draws near

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Leap Wireless (NASDAQ:LEAP) lost customers and reported lower revenue for the third quarter, though its customer defections were fewer than it had in the year-ago period. The flat-rate carrier, which operates the Cricket brand, is in the process of being acquired by AT&T (NYSE:T), making its third-quarter report likely one of its last as an independent company.

Leap did not hold an earnings conference call to discuss its results. In a statement, Leap CEO Doug Hutcheson said that the company's handset financing plan, which it launched in July, is outperforming the previous plan the carrier offered and drawing stronger customer interest; the company said it noted a seven-fold increase in the number of applications it has received, though it did not reveal how many customers have signed up for the plan.

AT&T is buying Leap for its spectrum as much as the Cricket brand, and hopes to harvest Leap's AWS airwaves and other spectrum holdings. AT&T also plans to take the Cricket brand nationwide.

On Oct. 30, Leap shareholders voted overwhelmingly to approve the transaction. AT&T expects the deal to close sometime during the first quarter of 2014. The FCC and Department of Justice still need to sign off on the transaction.

AT&T disclosed plans last month to close its new Aio Wireless prepaid brand if the carrier is successful in acquiring Leap, which offers service through the Cricket brand. "After the transaction's close, AT&T intends to combine the nascent operations of Aio with Leap's existing operations under the Cricket brand name," AT&T said in a recent FCC filing.

Meanwhile, the Cricket business is likely going to face tougher competition from T-Mobile US' (NYSE:TMUS) prepaid unit MetroPCS, which earlier this week announced it will expand into 15 new markets as of Nov. 21. The new market expansions will add around 26 million covered POPs to the MetroPCS footprint, bringing the brand's total footprint to 168-170 million POPs, up from 104 million POPs before MetroPCS' merger with T-Mobile closed in May.

Here's a breakdown of Leap's key metrics for the quarter:

Subscribers: Leap lost 196,000 net customers during the third quarter, fewer than the 269,000 it lost in the year-ago period. The company said it lost 140,000 "core wireless" net customers in the quarter. Leap's "core" refers to the company's traditional, monthly voice and data service subscribers and excludes customers for Cricket Broadband and Cricket PAYGo.

Churn: Leap's core wireless churn was 3.5 percent, down from 4.2 percent in the year-ago period. Total churn for the third quarter was 4 percent, compared to 4.8 percent for the third quarter of 2012. Leap said core wireless churn improved due to delivery of a better customer experience, including increased adoption of automatic bill payment, the introduction of the new handset financing program, increased adoption of Muve Music and expansion of the company's Lifeline credit program.

Smartphones: Leap said 76 percent of its new handset sales were for smartphones in the third quarter of 2013, compared to 57 percent in the year-ago period. Additionally, 61 percent of the company's voice customer base was on a smartphone plan at the end of the third quarter, compared to 48 percent at the end of the year-ago quarter.

ARPU: Average revenue per user for the third quarter was $45.45, up from $41.94 in the year-ago period, reflecting improved adoption of higher-value service plans, additional fees and a reduction in the number of customers for the company's daily PAYGo product.

Muve Music: In the quarter Cricket updated its Muve Music service, giving it faster performance and a new user interface, which it said allows for easier exploration of music and improved navigation. Another improvement lets customers instantly play songs as soon as they begin downloading.

Financials: The company posted a net loss of $185.4 million, compared to a profit of $25 million in the year-ago period. Total revenues for the third quarter fell by 10 percent year-over-year to $694 million and service revenues dropped 10 percent to $646.3 million.

For more:
- see this release

Special Report: Wireless in the third quarter of 2013

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AT&T to shutter Aio Wireless prepaid brand if Leap acquisition is successful
AT&T's Aio aims to be a nationwide prepaid brand, on par with MetroPCS
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