MetroPCS Leans on VoLTE After Dismal Q1

MetroPCS posted dismal first-quarter financial results today as fewer customers signed up for service and spiraling smartphone costs sent profits into a nosedive. CEO Roger Linquist said the company "significantly underperformed expectations." Bernstein Research analyst Craig Moffet had a more colorful take, calling the numbers "downright ugly." The market agreed, sending shares sliding about 9 percent in morning trading. Profits declined 63 percent to $21 million on smartphone upgrade expense despite a slight uptick in overall sales, which rose 7 percent to $1.27 billion. Net customer additions dropped 82 percent to just 131,654, from the 725,945 new subscribers it added last year. The drop was blamed on later-than-expected tax refunds, competition in the prepaid market from larger operators and "end-users' desire for high-speed data." MetroPCS has extremely limited spectrum holdings and has struggled to bring out phones and services on par with the competition. Its first LTE smartphone, the Brew-based Samsung Craft, was widely panned for poor performance. MetroPCS is staking its rebound on voice-over-LTE smartphones set to make their debut in the third quarter. Once enough customers move over to the service, MetroPCS will be able to refarm the spectrum it is currently using for its CDMA service to boost its LTE network. "It is inextricably linked with our spectrum needs," Linquist said when asked how important VoLTE was to MetroPCS. "It is foundational to refarm CDMA spectrum." MetroPCS said today it planned to have "at least two, maybe three devices this year," with additional VoLTE phones coming in 2013. Its first VoLTE device will be manufactured by Samsung. The introduction of LTE smartphones in the sub-$150 range during the second half of this year will help move additional customers over to the service. MetroPCS is still working to expand its LTE network. It currently covers 80 percent of its total footprint and is expected to cover its entire CDMA footprint by the third quarter. MetroPCS said it "came close to doubling" its LTE customer base during the first quarter. Subscribers using the new network have a churn rate "near 2 percent," lower than the 3.1 percent churn rate for its overall subscriber base. The company has been pushing higher-end devices as a solution for its woes, but that strategy backfired in the first quarter after the company underestimated the impact of mail-in rebates and marketing. MetroPCS told analysts to expect cost per gross addition of about $190, but today said that the number was actually $245. ARPU inched up 14 cents to $40.56 as some customers switched to higher-priced smartphone plans. Nearly half of MetroPCS customers were on smartphone plans in the first quarter, it said.