MetroPCS’ costly gamble on LTE and Android-based smartphones showed signs of paying off last quarter, according to financial results posted this morning.
Profits soared to $91 million, a five-fold increase over last year’s profit of $14 million. Sales rose 16 percent to $1.24 billion for the three months ended Dec. 31, up from $1.06 billion from the same period in 2010.
The prepaid provider hasn’t always benefitted from its shift toward smartphones, which cost more to subsidize than its feature phones. Investors questioned MetroPCS’ smartphone strategy after its profits slumped during both the second and third quarters of last year, and the number of new customers signing up for its service declined.
Even with its financial improvements, churn rose two-tenths of a percentage point to 3.7 percent and its net new customer additions slumped 34 percent to 197,000, in line with its previous forecasts. ARPU rose 76 cents to $40.55.
MetroPCS said 35 percent of its customers are signed up for smartphone plans, which bring in more money than its feature phone plans. CEO Roger Linquist said he expected smartphone uptake to increase toward the second half of this year, when MetroPCS plans to come out with cheaper LTE smartphones.
“We think handsets will be key to us maintaining our competitive edge,” he said.
MetroPCS is working to move all its customers to LTE so it can free up spectrum currently used for its legacy network. The company’s meager spectrum holdings have limited the speeds of its LTE network, which is only available in 14 markets. Its LTE speeds run as slow as 1 Mbps in some areas.
MetroPCS also has been adding EV-DO carriers to increase the capacity of its CDMA network. One-fifth of its cell sites have been upgraded to EV-DO, COO Tom Keys said. “We don’t think it will be dramatic in terms of our need for additional carriers,” Keys said.
The migration to LTE will require MetroPCS to come out with devices equipped with voice-over-LTE, or VoLTE.
Linquist said VoLTE won’t come into maturity until 2013, but maintained that MetroPCS would have as many as two VoLTE handsets on store shelves by the second half of this year.
“We’ll have two handsets with VoLTE in the second half,” he said, conceding that VoLTE smartphone chips were “not fully baked” yet. “It’s probably a 2013 reality, but we will have at least one if not two handsets that are completely VoLTE capable.”
In response to an analyst’s question about when it would begin offering tablets, company executives said their customers were not clamoring for tablets, but that 2013 is “probably the right time” for the devices.
MetroPCS is still on the hunt for spectrum, but Verizon’s recent AWS spectrum purchase “took out some very positive and very favorable spectrum out of the marketplace,” Linquist said.
The failure of AT&T’s acquisition of T-Mobile USA was also a blow to MetroPCS, which hoped to buy spectrum the FCC may have forced the companies to divest as part of its terms for the deal.
But recent legislation allowing the FCC to sell off television broadcast spectrum could open new opportunities for MetroPCS.
“We’re looking at all the natural suspects,” Linquist said.
