MetroPCS' profit drops 48% as churn rises

MetroPCS reported a 48 percent drop in net income in the quarter, and the flat-rate carrier's net subscriber additions plunged while churn rose substantially. Metro's earnings and revenue both missed Wall Street expectations. As a result, the carrier's stock was down a whopping 30 percent in trading this morning to around $9 per share.

MetroPCS had net income of $26.2 million, down from $50.5 million in the year-ago quarter.

Revenue: The carrier--which has faced intense competition from rivals including Leap Wireless, Sprint Nextel's Boost Mobile unit and TracFone Wireless--saw its total revenue rise to $860 million in the quarter, up 27 percent from total revenue of $679 million in the year-ago quarter. Service revenues jumped 28 percent to $767 million, up from $599 million in the second quarter of last year.

Net additions:
MetroPCS had just under 206,000 net subscriber additions in the quarter, up from around 184,000 net adds in the second quarter last year, but a sharp drop from the record 684,000 net adds it had in the first quarter. The company ended the quarter with 6.25 million subscribers.

Churn: Churn rose substantially in the quarter to 5.8 percent, up from 5 percent in the first quarter and 4.5 percent in the second quarter of 2008. The carrier blamed the rise in churn on increased gross additions over the past nine months, seasonality and handset upgrades by customers who did not identify themselves as existing customers.

ARPU: ARPU for the quarter was $40.52, up slightly from $40.40 in the first quarter but down from the $42.05 MetroPCS recorded in the second quarter of last year.  

The results disappointed the analysts at Pali Research. Analyst Walter Piecyk called the quarter "ugly," and said Metro's net adds were about half of his estimate. Further, he said it appeared Boost was already affecting Metro's subscriber additions. Indeed, in an apparent attempt to counter the aggressions of Boost, MetroPCS last week cut the prices of some of its unlimited plans. Metro rival Leap quickly followed with the introduction of a new $40 unlimited plan.    

For more:
- see this release
- see this Dow Jones Newswires article (sub. req.)

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