Leap adds fewer subscribers in Q1, but improves churn

Leap Wireless (NASDAQ:LEAP) posted a wider net loss and weaker subscriber growth in the first quarter, but saw a substantial drop in churn and an increase in average revenue per user.

Leap, which provides service through its Cricket brand, also said it added its one millionth smartphone customer in the quarter. The company--like its larger, flat-rate competitor MetroPCS (NYSE:PCS)--has been focused on adding more smartphones to its mix, particularly those running Google's (NASDAQ:GOOG) Android platform.

Smartphones: On the company's earnings conference call, Leap CEO Doug Hutcheson said that 15 percent of the company's subscriber base upgraded their handsets in the first quarter. He said that 40 percent of all handset sales in the quarter were smartphones and that 20 percent of the carrier's subscriber base is using a smartphone, figures that are strikingly similar to ones that MetroPCS reported for the first quarter. Hutcheson said Leap will add three or four new smartphones by the middle of the year.

Muve Music: Hutcheson also talked up Leap's Muve Music service, which is now available in all of its Cricket markets as part of a $55 per month rate plan. The Leap exec said the service, which provides users with unlimited music downloads from a catalogue of millions of songs, is a unique proposition. The company plans to expand national retail distribution for the service later this year and is also going to add new devices that support the Muve service, including Android phones, as well as new rate plans for the service.

LTE: The company inked a long-term LTE roaming deal with wholesale LTE provider LightSquared in late March. The deal will allow Leap to supplement the LTE network it plans to deploy with roaming on LightSquared's network. Hutcheson said that Leap will ramp up its LTE operations "as costs, devices and demand hit their inflection points." The Leap chief said he thinks consumer-oriented LTE devices will be available more broadly next year, but did not say when Leap will launch its first LTE devices.

"There is no financial commitment on our part, no binding commitment," Hutcheson said regarding the LightSquared deal. "There is the access. As LightSquared gets a chance to build its business, we have access to that as a backup and fill-in strategy." 

Here is a breakdown of Leap's key quarterly metrics:

Subscribers: Leap added around 331,000 total net subscribers in the quarter, including 300,000 voice and 31,000 broadband additions. The company said that the year-over-year drop it saw in broadband subscriber additions was due to network management initiatives, including throttling. Leap's subscriber additions were down nearly 26 percent from the 446,000 it had in the year-ago period. Leap ended the quarter with 5.84 million total subscribers, up 8.3 percent from the 5.4 million it had at the end of the first quarter of 2010.

Financials: Leap posted a wider net loss of $86.4 million, compared with a loss of $65.4 million in the year-ago quarter. Leap's total revenues clocked in at $779.9 million, up 14.1 percent from the $683.8 million it recorded in the year-ago period. The carrier's service revenues came in at $678.4 million, up 10.1 percent from $614.6 million in the first quarter of 2010.

Churn: Leap's churn in the quarter was 3.1 percent, down substantially from 4.5 percent in the year-ago quarter. Hutcheson said the improvement in churn was due to a number of factors, including Leap's all-inclusive rate plans and its roaming deal with Sprint Nextel (NYSE:S), better device selection and improved device upgrade paths, which removed false churn.

ARPU: Leap's average revenue per user was $39.35, up from $38.04 in the year-ago period.

For more:
- see this release

Special Report: FierceWireless Q1 earnings page

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