MetroPCS Communications, Inc. (PCS), one of the leading prepaid telecom carriers in the U.S. has reported fourth quarter subscriber results. The company registered net subscriber loss of 93,237, a steep drop from the year-ago gain of 197,410 subscribers. The company’s total number of subscribers fell 5% year over year to 8.8 million.
Stiff competition at the high-end smartphone market that remains dominated by large players is mainly responsible for the shrinking customer base. High-end devices like Apple’s (AAPL) iPhone and the Samsung Galaxy series are mostly availed through tiered contracts at cheaper rates.
As a result, it remains difficult for MetroPCS to counter the competitive pricing for these devices offered by large carriers. The significant financial strength of the big players allows them to provide high subsidies on big budget phones to attract customers, who then choose contract plans.
Further, 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. We believe the ongoing consolidation in the wireless industry through mergers, acquisitions and joint ventures would make competition more severe in the coming days.
However, MetrPCS is progressing well in the LTE market. This remains evident by its 4G LTE subscriber growth that was a whopping 117% sequentially to a record 2.2 million. Churn rates improved marginally by 10 basis points to 3.6%. The company continues to benefit from the mobile broadband momentum success of “4G LTE for All” service plans that foster continued financial and subscriber growth in this space.
Looking forward to the LTE market, MetroPCS made several changes in its 4G LTE service plans. The company offers the cheapest 4G LTE plan at $40 per month. Additionally, it remains the only wireless operator to offer a no-contract, unlimited 4G LTE data plan for as low as $55 per month, inclusive of taxes and fees. Moreover, up to three family members of the subscriber can get the same service for only $50 a month. These cost effective pricing plans differentiate MetroPCS from Tier-1 wireless carriers such as AT&T, Inc. (T) and Verizon Communications Inc. (VZ) that typically require subscribers to sign up for long-term agreements (post-paid contracts).
The advanced 4G LTE network, cost effective 4G devices and affordable 4G service plans are expected to remain the key drivers of MetroPCS’ 4G LTE for All. The company has already deployed high-speed 4G LTE services in most of its major markets and covered 97% of its market with a 5x5 megahertz channel bandwidth.
MetroPCS has a Zacks #3 Rank, implying a short-term (1–3 months) Hold rating. For the long term, we have our Neutral recommendation on the company.
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