Leap loses 200K subs in Q3, bets on smartphones, data for turnaround

Despite changes it made to its rate plans and device lineup in August, Leap Wireless (NASDAQ:LEAP) is still struggling to keep subscribers. The operator notched 660,000 gross customer adds in the third quarter but lost a net 200,000 subscribers. The carrier's total subscriber base reached 5.1 million at the end of the quarter, a 9.3 percent increase over third-quarter 2009 but a 3.8 percent decrease from the second quarter of 2010. In addition, the company reported an operating loss of $478.1 million, a reversal of the $1.4 million operating income it reported in the third quarter of 2009.

Click here for key slides from Leap’s earnings presentation.During the company's earnings call with investors, Leap President and CEO Doug Hutcheson tried to spin good news around Leap's earnings, arguing the company is trending well for the fourth quarter of 2010 and the first quarter of 2011. Specifically, Hutcheson said that, excluding its PayGo customers, Leap's handset upgrades have tripled, and nearly 50 percent of its voice customers are migrating onto Leap's new all-inclusive plans, with 70 percent of those customers purchasing $45 per month or higher rate plans. He also said that since the company launched its first Android-based smartphone in mid-October, more than one-third of Leap's non-PayGo handset sales have been for smartphones.

Here's a look at the company's other key metrics for the quarter:

Subscribers: Leap ended the quarter with 5.1 million subscribers, about 600,000 of which were broadband subscribers.

Net adds: Leap had approximately 660,000 gross customer adds, with a net loss of 200,000 customers. Approximately 172,000 of those were voice customers and 28,000 were broadband customers.

Churn: Leap's churn rate was 5.5 percent in the quarter, up from 5.4 percent at the end of third quarter of 2009. Voice churn was 5.2 percent. Broadband churn was 7.6 percent, up from 5.8 percent in the same quarter of 2009.

ARPU: Average revenue per user was $37.02, down from the $39.60 Leap posted during the third quarter of 2009. The company said the decline was due to the elimination of late payment fees, a move that coincided with the introduction of Leap's all-inclusive rate plans.

Leap executives argued that a more profitable customer base will emerge once more subscribers convert to the carrier's new plans. In addition, executives said Leap's tiered data pricing, announced Aug. 3, will increase ARPU.

Hutcheson reiterated that Leap will trial LTE in 2011 but probably won't launch the next-generation technology until late 2012.

For more:
- see these key slides from Leap's earnings presentation
- see this WSJ article (sub. req.)
- see this release

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