It was somewhat of a mixed bag for Leap Wireless in the first quarter, but investors must have liked what management had to say yesterday because shares were trading up more than 8 percent at one point this morning, to $16.31.

Leap, which sells prepaid service under the Cricket brand, added about 331,000 net customers for the quarter. Churn was 3.1 percent, reflecting voice churn of 2.8 percent, which Leap says is its lowest churn in nearly a decade. Service revenues for the first quarter increased 10.4 percent over the prior year quarter to $678.4 million. 

However, its net loss was $96.2 million compared to a net loss of $68 million for the first quarter of 2010. Cash cost per user (CCU) was $23.04 – 31.7 percent higher than a year ago, mainly due to costs associated  with device upgrades and the inclusion of regulatory fees and taxes in all-inclusive rate plans.

In a conference call with analysts Wednesday, executives were optimistic about the broader launch of the Muve Music service later this year. They didn’t give a specific launch date but it will be toward the second half when it rolls out to more nationwide retailers with more Android devices and various service price points. Currently, the Muve service is offered in Leap’s facilities-based markets for $55 a month.

“It’s a very differentiated product,” said Leap CEO Doug Hutcheson. “There’s not anything similar to it in the industry. We think it’s a point of differentiation.”

Instead of getting music by individual downloads or trying to stream or get music in some ad-hoc way, customers get access to a catalog and they can download as many songs as they want, he said.

Bernstein Research analysts’ quick take on Leap’s results concluded a rising prepaid tide is lifting all boats – and lowering churn rates. “Leap Wireless joins a parade of strong prepaid wireless results. The whole prepaid sub-sector has reported better-than-expected 1Q11 results,” said analyst Craig Moffett in a research report. “Leap’s Q1 results are, at first blush, less impressive than those of peer MetroPCS, or even those reported by Sprint’s prepaid unit last week. But the results hint at underlying trends that are much better than they first appear.”

During the quarter, Leap entered into a long-term LTE roaming agreement with LightSquared to supplement the coverage that it plans to deploy across its own networks over the next few years. The company also signed an agreement in late April with Global Tower Partners for the sale of the company’s tower assets; financial terms weren’t disclosed and it’s expected to close by mid-2011.

ARPU for the first quarter of 2011 was $39.35, an increase of $1.31, or 3.4 percent, from the prior year quarter and up 3.2 percent, from the fourth quarter of 2010. The year-over-year increase primarily reflected more uptake in smartphones and all-inclusive service plans, as well as improved churn.

About 40 percent of new Cricket handset sales in the first quarter were smartphones and about 15 percent of the voice customer base upgraded their handsets during the quarter.

Capital expenditures during the first quarter of 2011 were $92.9 million, compared to $107.2 million in the first quarter of 2010.