Despite the growing popularity of no-contract plans, MetroPCS Communications (PCS) failed to impress the market, with lower-than-expected subscriber additions in the recently completed fourth quarter. The company reported 175,000 net new subscribers during the fourth quarter as opposed to market expectations of 214,000–250,000. However, on a year-over-year basis, MetroPCS registered subscriber growth of approximately 7%.
The company’s churn rate deteriorated to 3.7% from 3.5% in the year-ago quarter but fared better than the market expectation of 4.0% to 4.2%.
Unlike tier 1 carriers like AT&T (T) and Verizon (VZ”>VZ) that have reportedly registered strong sales in the fourth quarter, MetroPCS and other tier 2 carriers like Leap Wireless (LEAP) seem to lack the desired momentum in a highly competitive wireless market. Given the slowdown in the economy and resultant weakness in consumer spending, as well as the clear dominance of tier 1 carriers, the going is likely to be tough for these players.
Low cost carriers like MetroPCS have shown year-over-year improvement, yet stiff competition from market leaders is likely to eat into their market share at least in the near term.
Additionally, MetroPCS has been increasingly challenged by the aggressive rollout of competitive price plans by some of its larger rivals to capitalize on the attractive growth opportunity in the prepaid segment. The ongoing consolidation in the wireless industry through mergers, acquisitions and joint ventures is also making competition stiffer.
The biggest challenge for MetroPCS would likely be its CDMA network platform. Though the company started upgrading its 4G LTE coverage in early 2012, the majority of its services continues to run on a relatively obsolete CDMA network platform, resulting in increasing churn rates over the past few quarters.
While MetroPCS is not in contention for Apple’s (AAPL”>AAPL) iPhones, the company remains a beneficiary of the Android eco system. In fact Google’s (GOOG”>GOOG) Android smartphones constitute roughly 50% of its total device sales.
Going forward, recent trends indicate an uncertain outlook for MetroPCS and it does not look like the company will see significant subscriber additions. Also, subscriber additions are largely dependent on its ability to implement long-term plans like the deployment of 4G services in the majority of its markets.
MetroPCS remains focused on launching the “4G LTE for All” program in the second half of this year and expects to capture significant market share by year-end. Most of the network installation work is slated for completion by the end of this year, implying that the company would be able to support over 10 million subscribers.
Given the rapidly developing market for 4G LTE, the company plans to deploy affordable VoLTE (Voice over LTE) enabled smartphones in early 2012 to shift its customers from the existing 3G CDMA platforms to 4G networks.
The company believes that the introduction of VoLTE handsets will result in the decline in smartphone prices to the $99–$150 range from the $199-$299 range, which will in turn increase the penetration of LTE services in the mass market. MetroPCS’ affordable smartphone offerings should help it pick up additional market share in this environment.
We maintain our long-term Neutral recommendation on MetroPCS supported by a Zacks #3 Rank (Hold).
APPLE INC (AAPL): Free Stock Analysis Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis Report
LEAP WIRELESS (LEAP): Free Stock Analysis Report
METROPCS COMMUN (PCS): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment