occasions

Leap sees improved iPhone sales, but will not purchase more

Operator improves its financials in Q1, but not out of the woods yet
Tools

Cricket provider Leap Wireless (NASDAQ:LEAP) said it is seeing an improvement in sales of Apple's (NASDAQ:AAPL) iPhone, but the company will not purchase any more devices from Apple beyond its initial $900 million, three-year deal that it made with Apple last June.

Click here for key slides from Leap's first quarter earnings presentation.

Leap CEO Doug Hutcheson told investors on the company's earnings call that the increase in iPhone sales is due to Leap's device financing program. He said the company plans to roll out a new phase of that program soon that will expand device financing to nearly two-thirds of new customers who are coming from postpaid plans.

In March, Leap said that its customer base was not purchasing unsubsidized Apple iPhone devices from the company and it estimated it may only sell half as many iPhones as it planned during the first year of its three-year contract with Apple. At the time, Leap said that if iPhone sales did not increase, it might be forced to buy $100 million of unsold iPhones this summer. Leap did not disclose specific iPhone sales numbers.

The iPhone update was part of Leap's quarterly earnings call. The company also reported improved financials for the first quarter. Leap said it lost 93,037 customers in the first quarter, which is an improvement over the 337,000 net subscribers the company lost in the fourth quarter, but still a reversal from the gain of 258,060 customers in the year-ago period. Leap now has a total customer base of 5.2 million.

In addition, Leap said it will increase its Wi-Fi offloading so it can provide a better customer experience to its subscribers and ease network congestion. The spectrum-challenged operator has LTE covering  21 million POPs; however, the average speeds on its LTE network are only around 4 Mbps, slower than most national carriers, likely because of its weaker spectrum position. The company reiterated in its first quarter earnings that it may deploy LTE service to as many as 10 million additional POPs this year  

Hutcheson also said that the company will introduce five more LTE-capable smartphones this year, including the Samsung Galaxy S4.  He said that 54 percent of Leap's customer base has a smartphone and the company expects that figure to increase.

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

Muve Music: Leap continues to grow the number of subscribers to its Muve music service. The company has more than 1.5 million subscribers to Muve Music, a 41 percent increase over the fourth quarter.

LTE: The company said it is looking at ways to cost-effectively deploy LTE. It may deploy LTE that covers up to 10 million additional POPs in 2013, but is also looking at partnerships or joint ventures with others.

Financials: Leap's total revenues for the first quarter decreased 4.3 percent to $789.9 million. Service revenues declined 11.6 percent to $684.6 million. Adjusted OIBDA for the quarter was $121.1 million, a decrease of 7.2 percent. The carrier's operating loss was $29.4 million.

Subscribers: Leap lost 93,037 customers in the first quarter, compared to net adds of 258,000 in the first quarter of 2012. The company said the net losses reflect the discontinued sales of its daily PAYGo product to new customers, which occurred in October 2012, and a narrowing of the company's focus in national retail to fewer retailers and locations. In addition, Leap also has stopped emphasizing its broadband services.

Churn: Core wireless churn for the quarter was 2.9 percent. Total churn was 3.6 percent.

ARPU: Average revenue per user was $43.72 in the first quarter, an increase of $1.13 over the same period last year. The company credited the increase to a reduction in the number of customers for its PAYGo product and improved churn performance.

Smartphones: Around 71 percent of the company's new handset sales in the first quarter were smartphones and 12 percent of the company's customer base upgraded their handsets in the quarter.

For more:
- see this release

Special Report: Wireless in the first quarter of 2013

Related articles:
Leap introduces new $40/month smartphone family plans to spark sales
Unsubsidized iPhones not appealing to consumers
Cricket spinning off Muve Music, will license service to rival operators
Leap strikes LTE roaming deal with unnamed carrier
Leap: Advanced smartphones prompting business model changes
Leap commits $900M over three years to Apple for iPhone

Filed Under