T-Mobile US Inc (TMUS) 2007 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you so much for standing by and welcome to the MetroPCS Communications, Inc., first quarter results conference call.

[OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded today, on Tuesday, the 15th of May, 2007.

I would now like to turn the conference over to Mr.

Keith Terreri, Vice President of Finance and Treasurer.

Please go ahead, sir.

Thank you, Michael, and good morning, everyone.

I'm Keith Terreri, Vice President of Finance and Treasurer for MetroPCS.

I'd like to welcome you to our 2007 first quarter conference call.

The speakers with me this morning are Roger Linquist, our President, CEO, and Chairman, as well as Braxton Carter, our Senior Vice President and Chief Financial Officer.

The format for today's call is as follows -- first, Roger will provide an overview of our business, update you on a number of business topics, and review some recent activities involving MetroPCS.

Then Braxton will review the financial and investment highlights of our first quarter.

And then we'll open up the call to questions.

During today's call, we will refer to certain non-GAAP financial measures.

We have reconciled these historical non-GAAP measures to GAAP figures in our earnings release, which is available in the Investor Relations section on our Web site at www.metropcs.com under the Investor Relations tab.

Before I turn the call over to Roger, I want to remind you that certain information that we will discuss on this conference call may constitute forward-looking statements within the meaning of federal securities laws.

Words such as "believes," "anticipates," "expects," "intends," "estimates," "projects," and other similar expressions typically identify forward looking statements.

Forward looking statements involve risks and uncertainties that could cause actual results or the timing of events to differ materially from those described in the forward looking statements.

We cannot guarantee that the expectations discussed on this conference call will be attained.

Please review the risk factors described in the prospectus dated April 18, 2007, related to our initial public offering, which was filed with the Securities and Exchange Commission.

For anyone listening to a taped or Web cast reply or review a written transcript of today's call, please note that all information presented is current only as of May 15, 2007, and should be considered valid only as of May 15, 2007, regardless of the date reviewed or replayed.

MetroPCS disclaims any intention or obligation to revise any forward looking statements, whether as a result of new information, future events or otherwise.

I hope by now you've all reviewed our earnings release, issued yesterday with the financial results for the quarter.

And I would encourage everyone to read both this document in conjunction with the information discussed on the call, along with the prospectus and other periodic reports referred to earlier.

We will be filing our 10Q later today.

At this time, I'd like to turn the call over to our President, Chairman, and CEO, Roger Linquist.

Good morning, everyone, and welcome to MetroPCS's first quarter 2007 earnings call.

We appreciate your being with us this morning.

Having just met with many of you on our recent IPO road show, the story and results should sound familiar.

At this point I'd like to take a minute to thank all of the employees of MetroPCS for their hard work over the years that helped make MetroPCS the company we have become.

As you all know, in April MetroPCS completed its IPO with primary proceeds of approximately $860 million and total proceeds of approximately $1.3 billion.

Now let's talk about the first quarter.

We're very pleased with the results of the first quarter.

With over 454,000 net additions during the quarter.

We feel very good about the business and its potential but more importantly, the MetroPCS value proposition.

The first quarter was the best quarter in the company's history from many perspectives.

Our strong first quarter results reflect our continued success in the execution of launching and penetrating major metropolitan markets.

Our low-cost structure continues to provide the foundation to generate margins that create shareholder value in a competitive industry.

Our business strategy remains the same as it has since inception.

One, we operate in major markets.

Two, we offer unlimited service products that are predictable, affordable, and flexible.

We maintain, three, a low-cost structure.

I spoke earlier about the net additions for the first quarter, and I would like to take a minute to remind everybody of the seasonality in our business.

Unlike the seasonality the major carriers experience, ours is slightly different.

From a net additions perspective, historically our first quarter has been the best, followed by the fourth quarter.

The second and third quarters are typically the slowest, and we would expect this trend to continue.

Churn is seasonal as well, with trends in the opposite direction to net additions.

After adjusting for the change in our return policy in March of 2006, our churn for the quarter was relatively flat when comparing first quarter 2007 over first quarter 2006.

Typically churn is slowest in quarters 1 and 4--lowest in quarters 1 and 4, and highest in quarters 2 and 3, and we expect that trend to continue.

Revenue.

Total revenues increased 63% in the first quarter as compared to last year's quarter, due to strong results from both our expansion and core markets.

We also had an increase in ARPU over last year's quarter of $0.63.

That was primarily the result of migration to higher priced plans by our customers.

We did launch the $50 plan in first quarter, and from early results we have seen to date, it is promising.

The $50 plan essentially adds push e-mail and Web surfing on an unlimited basis for the $45 plan.

Expenses.

As you can see, we continue to focus on the cost side of the business.

We track the cost of our business in either one of two metrics, CPGA or CPU.

With respect to CPGA for the quarter, we're pleased that we were able to keep our CPGA essentially in line with where it was last year in the first quarter.

This is important in light of the launch in Orlando in November of 2006.

I'd like to reiterate that our low-cost CPGA is the cornerstone of our customer acquisition philosophy.

Because of the nature of the no-long-term contract, pay in advance product, which by definition will have a higher churn rate, it is the cost of churn, or CPGA times churn, that keeps our profitability at a level comparable to or better than some postpaid carriers.

As a result of our other cost metric, CPU, we were very pleased to have reduced that by approximately 8% over last year's first quarter.

This is real evidence of the effect scale can have on this key metric.

What this leads to is consolidated adjusted EBITDA, which increased 73% in the first quarter of 2007, as compared to the first quarter of 2006.

We are pleased with the first quarter's 34% consolidated adjusted EBITDA margins, and the 45% adjusted EBITDA margin in our core markets, which compares very favorably with our more mature postpaid competitors.

In a few moments I'll have Braxton cover these revenues and expenses in more detail.

Market update.

As you know, we launched Dallas/Fort Worth and Detroit last spring.

These markets continue to outperform our expectations.

These two markets did not enjoy the benefits of adjacent MetroPCS markets, yet their performance has exceeded our expectations.

The most recent market we launched was Orlando, which was in the fourth quarter of 2006, and its operating performance metrics along with the other expansion markets including Tampa, which launched in late 2005, have been very strong.

We still plan that we will be launching Los Angeles in late Q2 or most likely in Q3 of this year.

The expected launch will cover approximately 11 to 12 million covered pops.

We will continue building to about 15,000--15-plus million pops after launch.

We are, as you might suspect, very focused on Los Angeles launch, but at the same time we're moving ahead swiftly on the New York, Boston, Philadelphia and Las Vegas markets that we acquired at Auction 66.

All general managers are in place, and we're making excellent progress on filling key positions in each market.

Initial ARPU designs are nearing completion.

We will initially be targeting 30 to 32 million covered pops by the end of 2008, early 2009, with Las Vegas launching as early as Q2 2008, depending on infrastructure, equipment and handset availability.

At this time we do not expect to spend any material CapEx on the Auction 66 markets until late 2007.

We're still expecting $18 to $20 per covered pop to launch in the AWS markets and $29 to $30 per covered pop to reach free-cashflow-positive, which we define as adjusted EBITDA minus CapEx.

On the competitive front we have seen much of the same.

One item to note is that a national carrier soft-launched an unlimited voice service in our California and Texas markets late in the quarter.

To date we have not seen any significant impact on our gross adds or increased churn outside of ordinary seasonal trends.

We still continue to believe that our low-cost structure puts us in a strong, competitive position relative to other wireless carriers.

Our offerings, distribution, customer care, back office, and low network cost design were engineered from the bottoms up to achieve our industry-leading cost performance position.

Technology update.

On the technology front, we continue to emphasize the use of six-sector cells to increase our capacity based on existing spectrum.

We are experiencing a typical gain of approximately 80% over the capacity of three-sectored cell sites, when we use this technology.

From a cost perspective this continues to be far more effective than cell splitting.

We are also using more of the distributed antenna systems, or DAS, in areas where site acquisition is difficult.

For example, Los Angeles.

Or in extremely high-population density areas, for example cities in the Northeast.

As far as AWS equipment and handset availability is concerned, we continue to hear that it will be late fourth quarter of this year for infrastructure equipment, and early 2008 for handsets.

We think this fits well with our planned roll-outs in Las Vegas and Northeast.

Industry update.

On the wireless industry front, we continue to see and hear what everybody else does on the 700 megahertz options.

As we have said on the road show, if we can make the economics work from a spectrum-depth perspective, there may be an opportunity for us to add some spectrum in existing markets, and we'll leave it at that for now.

Once again, I'd like to say that we're pleased with the first quarter results.

And with that I'll turn the call over to Braxton.

Thank you, Roger, and good morning to everyone.

I also would like to take a minute to thank our roughly 2000 employees for their tremendous contributions to the continuing success of MetroPCS.

We just recorded the best quarter ever at MetroPCS.

Total revenues were $536.7 million in the first quarter of 2007, up 63% from the prior year's quarter.

Consolidated adjusted EBITDA for the quarter was $149.3 million, up 73% over last year's first quarter, and up 35% sequentially over the fourth quarter of 2006.

We generated approximately $112 million of cash from operating activities in the quarter, nearly double that of the first quarter of 2006.

We produced consolidated net income of $36.4 million, or $0.11 per share, which was also nearly the double the net income and the EPS of last year's first quarter.

From a financial metric perspective, we are very pleased with the results of the first quarter.

Our ARPU for the first quarter of 2007 was $43.75, representing an increase of $0.63 over the first quarter of 2006, and an increase of $0.60 over the fourth quarter of 2006.

Our CPGA for Q1 '07 of approximately $109 has slightly increased over the prior year's first quarter of approximately $106, but has declined from $120 in the fourth quarter of 2006.

Our CPU for the first quarter of 2007 of $18.56 was down from $20.11 at last year's first quarter and continues to track as we would expect, considering the fact that we are increasing our scale.

The expansion markets impacted our consolidated Q1 '07 CPU by $2.83, resulting in a core market CPU of $15.73 for the first quarter of 2007.

From a subscriber basis, we had a very successful start to the year.

During the first quarter, we had approximately 454,000 net additions.

What is exciting to us is the proportion of these net additions that continue in the core markets.

We added approximately 184,000 core market net additions in the first quarter of 2007, which is equivalent to our Q1 2006 net additions.

This is particularly significant given our increased subscriber base and represents an acceleration in core market gross additions.

At March 31, 2007, we have an 11% penetration in our core markets, and an incremental 1.5% penetration over the last twelve months.

As well as our core markets are doing, our expansion markets are doing better, with approximately 270,000 net additions in the first quarter and a penetration rate of 5.6% at March 31, 2007.

As Roger mentioned earlier, the first and fourth quarters have historically been our strongest quarters for net additions, with the second and third quarters being the slowest.

Churn for the three months ended March 31, 2007, was 4%, compared to 4.4% for the prior year's first quarter.

Churn computed under our prior methodology, reflecting a seven-day return period, versus our current return period of 30 days, was 4.5% for both the first quarter of '07 and '06.

I would now like to discuss the income statement in more detail.

Revenues.

In our core markets, service revenues increased approximately $72 million, or 27%, to approximately $337 million for Q1 '07, versus approximately $265 million for the first quarter of 2006.

this increase was primarily attributable to full-year net additions of approximately 429,000 customers from March '06 to '07, which accounted for approximately $55 million of the core market increase, coupled with the migration of existing customers to higher priced service plans, accounting for approximately $17 million.

The expansion market service revenues increased approximately $92 million, to approximately $103 million for Q1 '07 from $11 million for the first quarter of '06.

This increase is primarily attributable to the launch of the Dallas/Fort Worth, Detroit, and expansion into the Orlando metropolitan area in November of '06, which have contributed to net additions of approximately 796,000 customers from March '06 to March '07.

These net additions accounted for approximately $75 million of the expansion market increase, coupled with the migration of existing customers to higher priced rate plans, accounting for approximately $17 million of the expansion market increase.

Keep in mind that Dallas/Fort Worth and Detroit were not launched until March and April of '06, so that on an LTM basis we now have approximately 12 full months of operations.

The increase in customers migrating to higher-priced service plans is primarily the result of our emphasis on offering additional services under our $45 service plan that we pioneered, which includes unlimited nationwide long distance and various unlimited data features.

In addition, this migration is expected to continue as our higher priced service plans become more attractive to our existing customer base.

Currently over 85% of our customers are on the $40 or higher service plans.

Expenses.

Consolidated costs of service increased approximately $53 million, or 57%, to approximately $145 million for the three months ended March 31, 2007, from approximately $92 million for the three months ended March 31, 2006.

The core markets cost of service increased approximately $21 million, or 27%, to approximately $100 million for the three months ended March 31, '07, from approximately $79 million for the three months ended March 31, '06.

The increase was due to the 21% growth in our core market customer base and the additional network infrastructure added during the year.

The expansion market cost of service increased approximately $31 million to approximately $45 million for the first quarter of '07, from approximately $14 million for the first quarter of '06.

The increase was primarily attributable to the launch of the Dallas/Fort Worth, Detroit, and Orlando expansion markets, which contributed to net additions of approximately 796,000 customers during the twelve months ended March 31, '07.

Cost of equipment increased approximately $72 million, or 72%, to approximately $173 million for the first quarter of '07, from approximately $101 million for the first quarter of '06.

The reasons for the increase are as follows.

Core markets cost of equipment increased $22 million or 25% to approximately $113 million for the first quarter of '07, from approximately $91 million for the first quarter of '06.

The increase in equipment costs is primarily attributable to the sale of higher cost handset models, accounting for approximately $16 million of the increase.

The increase in core market gross customer additions during the first quarter of this year of approximately 31,000 customers as well as the sale of new handsets to existing customers accounted for approximately $6 million of the core market increase.

The expansion market cost of equipment increased approximately $50 million, to approximately $60 million for the first quarter of '07 from $10 million in the first quarter of '06.

These costs were primarily attributable to the launch of the Dallas/Fort Worth, Detroit, and Orlando launches, which contributed gross additions of approximately 287,000 customers for the current quarter, as compared to last year's first quarter, which accounted for approximately $40 million of the expansion marketing increase.

Coupled with the sale of new handsets to existing customers accounting for approximately 10 million of the expansion market increase.

Selling, general and administrative expenses increased approximately $22 million or 42%, to approximately $73 million for the first quarter '07 from approximately $51 million for the quarter ended March 31, 2006.

The increase is due to increases in core markets and expansion markets SG&A as follows.

The core markets SG&A expenses increased approximately $6 million or 16% to approximately $43 million for the first quarter '07 from approximately $37 million for the same quarter in '06.

Selling expenses increased by approximately $2 million or approximately 12% for the three months ended March 31, '07, compared to the three months ended March 31, '06.

General and administrative expenses increased approximately $4 million or 18% for Q1 '07 compared to the same period in '06.

The increase in selling expenses and G&A was primarily due to employee costs, which were incurred to support the growth in our core markets.

The expansion markets SG&A expenses increased approximately $15 million to approximately $29 million for the first quarter of '07 from $14 million for the first quarter of '06.

Selling expenses increased by $8 million for Q1 '07, compared to Q1 '06.

This increase is related to employee costs as well as an increase in marketing and advertising expenses associated with the growth in the expansion markets.

General and administrative expenses increased by approximately $7 million for Q1 '07 compared to the same period in '06, due to labor, rents, legal and professional fees and various administrative expenses incurred in relation to the launch of these markets.

EBITDA.

Adjusted EBITDA for the first quarter was $149.3 million, with an adjusted EBITDA margin of 34%.

For the four quarters ended March 31, '07, adjusted EBITDA was $458.4 million with an adjusted EBITDA margin of approximately 32%.

Please refer to the table in our press release for a reconciliation of adjusted EBITDA for the first quarter of 2007 and 2006.

CapEx.

During the quarter we incurred capital expenditures of approximately $156 million.

This was a consolidated number and included not only growth in our core and expansion markets, but substantial investment in Los Angeles as well.

You can reference our most recently filed S1 for our disclosures related to capital expenditures for the full year of 2007.

Liquidity and capital resources.

We finished the quarter with approximately $540 million in cash and marketable securities.

Subsequent to the quarter close, as you are aware, we closed on our initial public offering with primary gross proceeds to the company of approximately $860 million.

Pro forma for the IPO, our liquidity position is approximately $1.36 billion, as disclosed in our prior filings.

Our total leverage, computed in accordance with our 9.25% senior notes on an LTM basis at the end of March was 5.35 times.

Our weighted average cost of debt was approximately 8.2% and approximately 77% of our debt is fixed by its nature or through interest rate hedges for the next several years.

During the quarter we negotiated a repricing of our credit facility, reducing the spread to LIBOR plus 225 basis points, down from LIBOR plus 250 basis points.

This will result in a reduction in our annual interest expense of approximately $4 million.

MetroPCS Wireless, Inc., a wholly owned subsidiary of MetroPCS Communications, Inc.

was contemplating the issuance of up to an annual 300 million of 9.25% senior notes due 2014, under our existing indenture.

The company anticipates the net proceeds from the potential financing would be used for general corporate purposes, which could include participation in the upcoming FCC's 700 megahertz auction.

The company's Board of Directors has not approved the additional financing.

The launch and consummation of the offering is subject to market conditions.

I'd also like to take this time to mention that we will not be giving any guidance at this point.

We will continue to review this on an ongoing basis and will keep everyone posted.

I'd now like to turn the call back over to the Operator, for Q&A.

I thank you, sir.

Ladies and gentlemen, at this time we will begin the question and answer session.

[OPERATOR INSTRUCTIONS] Our first question comes from Phil Cusick with Bear Stearns.

Hi, guys, thanks for taking my questions.

How are you doing?

Good, Phil.

Good, it's good to see you out and fully in the market now.

I wonder if we could just talk about the core markets a little bit.

It seems like the reacceleration is really a big part of the story here, both in terms of ARPU and also subscribers.

What markets are driving the ARP--the subscriber reacceleration, and is it the expansion of the plans or is it really, I'm thinking about Tampa and Orlando increasing the value of the core markets?

Thanks.

Well, to the extent that I can address that, Phil, the--I think, the performance in the first quarter was pretty uniform across all our core markets as Braxton indicated.

And I think part of that had to do with the fact that we have introduced new plans and we have also targeted customers who really do want to see data services improved, and we're really hard after that objective right now, is to improve our plans, particularly in the $45 and the $50 levels, with additional data products.

So I think that had a good bit of push and created additional interest in our service products.

The expansion markets by themselves I think have just begun to hit their--shall I say, trim, based on the fact that they are now, for instance Dallas and Detroit, just finishing up the first year in the first quarter.

So I think it has to do a good bit--in the core markets, with the new service offerings that we have launched and our focus on communicating that to the public.

That's great.

So as I think about the new plans that you've launched over the last couple of years, it seems like every higher level plan gets pretty good acceptance over time.

So $45 got great acceptance, now $50.

is there some process in terms of following up to $55, $60 levels, maybe adding roaming like some of your sort of compatriots have done, or is there anything that you think would sort of top us out at $50 and keep us here for a while, in [IM].

I think that our philosophy is that we like the $30 to $50 plan structure.

The roaming that we do provide is on an a al carte basis, and people can use it based on a minute-for-minute basis.

We think that's pretty acceptable at this point, so we don't really see expanding the ARPU.

We like the range.

Instead, I think as we indicated on the road show, we intend to add more value in the rate plans we currently have.

So I wouldn't--I think it would be inappropriate at this point to think that we're going to introduce plans greater than the $50 plan we have today.

Okay, guys.

Thanks a lot.

Talk to you soon.

Okay, thank you.

Rick Prentiss, with Raymond James, please go ahead with your question.

Yes, good morning, guys, a couple of quick questions for you.

Roger, you mentioned on LA, late quarter 2, more likely early quarter 3.

Can you walk us through, since that's four or eight weeks away, kind of where you are in the process of getting the network turned up?

You mentioned also I think a distributed antenna system, hiring--opening of doors, hiring.

Just walk us through the [perk] chart as far as getting launched maybe.

And then on the core markets, pretty impressive margins, getting up approaching 45%.

I think you mentioned hitting the trim.

It sounds like there could be more room in the margins as we look out as they keep executing.

Yes, well let me take the LA.

Really, the LA is--because it's a very large market, we're trying to structure right now what we think is the critical mass of launch.

We like to launch, obviously, as expeditiously as possible.

I really can't give you a per-chart, Rick, but I can tell you that we do feel that depending on just how we see the sites that are falling in line, coming out of the permitting process, that we do see that we have the opportunity to launch in this timeframe.

But to be more granular about it now would be getting way ahead of our headlights.

So I think that we are making good progress, but that's about as close as we can get in terms of giving you some guidance on when it's going to hit.

I think that the--well, I think that's just enough said for now.

I really can't add more to that comment.

Let me talk about the core markets.

I do think that there's opportunities to increase the margins in core markets, but there's also a competitive dimension to this, and we take very seriously any new competitive offerings.

As you know, the post-paid carriers are continuing to--shall we say, find ways of offering unlimited service in network.

Typically and more recently, as you've probably seen, the Sprint Boost offering.

So in taking that very seriously, I think we have to balance the trajectory we're on now with the fact that we continue to find ways of adding greater value to our existing price plans.

And some of those offerings will contain more operating costs.

So I think the levels that we're at now are very acceptable.

I think we've reported 45% operating margin in our core markets.

We find that very, very acceptable.

You know, we'll lift up a few percentage points or vary the other way, quite likely, but I wouldn't consider this going to 50% or 55%.

I think that would be bad guidance.

Okay, and maybe to ask the question another way on LA.

What percent of the pops do you want to have covered at launch?

I think in your earlier markets, it was kind of more 60, 70%, and in some of the later markets more towards 80%, but what's your thought on what you want to have as far as that critical mass in LA?

Yes, I think It's in the 60 to 70% range.

The real question there is because LA is such a very sprawling market, and much larger than our past experience in terms of geographical area and expanse.

But I guess the interest we have is launching as early as we can, but being very mindful of having a critical mass as we see it with our customer base.

So--but as I also indicated on the road show that we'll be building right on through and probably won't stop until some time in the middle of 2008, and that won't be a dead stop.

That will be a--shall we say, come to a resting point.

Okay, well LA looks like an exciting market.

Good luck, guys.

Alright, thank you.

John Hodulik with UBS, please go ahead with your question.

Okay, thanks, good morning.

Just two quick questions.

First on the new Auction 66 markets.

Do you anticipate any issues regarding carrying the spectrum that could impact in any way your expected launch there?

And then if you could comment on--as you look into these new markets, LA and the eastern markets, is there anything that we can expect different that what you're seeing in the existing markets from a competitive standpoint?

Are those markets, to your belief, less or more competitive than what you see now in both your core and expansion markets?

Good questions.

Well, AWS clearing is a little bit of a crystal ball.

I think there's two sides to this, as you know.

One is the transmit side, and one is the return side.

The 2.1, I think we're making very good progress, and we're not alone because other major carriers are out doing a heck of a job in clearing.

And so where we can, obviously, we're working with them.

The 1.7 return link side is in the hands of government, and those various bodies we are beginning to work with now.

We had a meeting earlier this with the Department of Justice, and so the question is--fundings in place, let's see what we can get done now.

I think we're opti--cautiously optimistic, but I can't tell you that we won't run into roadblocks, because we're working with governmental agencies that sometimes their time schedule doesn't match up with ours.

So I think we're cautiously optimistic is what I could come out on that.

On the LA and the Northeast, I think the major markets that we have approached thus far are most typified in the conditions of [ethnicity], the conditions of having a very strong and typically younger oriented population base where we can find some very rich prospecting for our types of service.

So I think that LA and New York City is really the prototypical example of what we think our service plays very well with.

From the competitive side, I think we see, as you will always see, more competition.

We think that basically it goes back to engineering our particular service from the ground up, and we always see our cost basis and approach to the market as giving us some comfort that we will be a very significant competitor when we operate in these markets.

Thanks.

Okay, David Barden with Banc of America Securities, please go with your question.

Hey, guys, thanks a lot.

A couple of questions.

Just, first, on the Auction 66, I know there's a limited amount you want to say about it, but within the context of what we know, is the 300 million debt financing, is that thought to be the limit of what you'd like to be spending?

Second, what if any costs at this stage of the game have been baked into the results we're seeing now, might be baked into the results we'll see for the rest of the year for developing the Auction 66 spectrum?

Thanks a lot.

Yes, sure.

How are you doing?

It's a very good question.

First of all, the 300 million that we are considering raising at this point is totally independent of anything we're doing with the AWS markets.

As you remember from the disclosures in our S1 and as we clearly discussed on the road, with the proceeds from the initial public offering and the cash that's being generated in our business have a fully funded business plan with a very substantial liquidity cushion to fully build out and launch the AWS markets.

The 300 million that we're considering, which by the way has not had board approval at this point, would be more of building a warchest--and one of the things that we were clear here, is the potential for the 700 megahertz auction.

So that's really what the thought process there is.

And is that the limit?

Is that the thought process there, Braxton, is kind of 300 would be the cap?

Yes, we're looking at--in the release we said up to 300.

It may be less.

And I want to also emphasize that this is totally contingent on market conditions for a launch or a consummation of anything that our board would ultimately approve us to do in this area.

And I apologize, I just want to follow this up.

So, the 300 million is related to the 700 megahertz.

If you were unable to raise money, you would not then participate in the 700 megahertz auctions?

Oh, we're fully funded with our business plan before any additional investments, which would include the 700 megahertz auction.

So the 300 million would potentially fund the participation in those auctions.

And we continue to look at other types of rationalization of the capital structure and could do other things in the future if opportunities arose.

Okay, great, and just costs in the quarter relates to new spectrum developments or kind of anticipated costs in the balance of the year that we'll see on the income statement?

Yes, it's like--you've seen our statement disclosures, which we believe are really state of the art in the industry and very, very transparent.

For the AWS markets for the first quarter, you're seeing de minimis costs, really, in the other category.

And then the core and the expansion markets broken out separately in those segments.

We are doing an evaluation under FAS131 as to the future presentation of the AWS markets.

And we'll be discussing that with you next quarter.

From a CapEx standpoint, as Roger was clear, there is really no material CapEx until the end of the year, and in our liquidity section of our recent filings, we've quantified that as approximately $175 million on the AWS markets.

Okay, thanks, guys, congrats.

Thank you.

Romeo Reyes with Jefferies & Company, please go ahead with your question.

Good morning.

Good morning.

Roger, congrats on building a great business.

It wasn't that long ago that all you had was a map of the Lucent network you were going to build.

A couple of questions.

A couple of things that resonated with me from your prepared remarks were the expansion is striking better than expected, expansion markets.

I was wondering if you could expand a little bit on that, and just talk about maybe the penetration curve that you experienced in the first wave of market and how that's tracking with--I mean how the expansion markets are tracking relative to that--your initial curve that you experienced in your first wave of markets, in your co-markets if you will?

The second number that I think resonates with me here is the $15.73 core CCPU number that you reported for the core market.

As you look at some of the next--the next wave of markets, is that--are those numbers achievable, do you think, at something about $15 or $16, CCPUs are achievable for your expansion markets.

Well, there's a bit of forward looking here, so I'll try to guide myself between the posts, and Braxton will jump in, too.

The expansion markets I think there's a penetration, as we indicated I think in the road show, and we just indicated here too, was--as a group that we've achieved over 5% penetration from the beginning, including the Tampa launch in '05, and more recently the Dallas and Detroit launches in early '06, and then the launch later this last year of Orlando.

I think on a blended basis that shows from our standpoint, without getting in more granular, that we find that even in markets which are disparately located from our markets, core markets in the past, that we've had a very good reception.

So this was a key test for us, because we've entered these markets a good bit later than 2002, which we launched the core in, and we wanted to make sure that we had a model that fits today's needs and would be embraced as readily as it was back in 2002.

So I think we see the performance that reflects a more seasoned business.

Certainly when we launched in '02, we had, as we mentioned, one handset and limited capital resources to build out our systems.

We still have some, obviously, limitations on CapEx, but we've done a much more thorough job in our most recent markets wherever we can.

And so I think what you're seeing now is the reflection of a plan that's more mature.

Certainly our ability to execute.

So we would expect that this would carry through to the markets that we're going to be launching in the future.

In terms of the $15 and $16 range, I think that what we've achieved in the core markets to date reflects a level of maturity and also is very tied into the growth.

So the more rapid growth rate that we can experience because we have a more mature build in the markets we're launching most recently will reflect the fact that it may not--it's much more, I guess, tied to the number of units and service and the percent of penetration than it is with this year's--or time and grade, if you will.

So we look to seeing some of these markets that we've launched recently more rapidly approach maturity, and our hope is that we will be seeing levels that we're seeing now in our core markets after these five years of operations.

Does the 15.73 include the corporate overhead?

Is that all burdening the core markets?

Absolutely.

That's full burdening of corporate overhead across all markets.

There's no corporate overhead in the expansion markets?

Yes, there is.

Oh, there is.

All markets.

Calculated across all markets.

Okay, thank you.

Our next question comes from James Breen, with Thomas Weisel Partners.

Please go ahead.

Thanks, guys.

Just some questions on usage.

Can you talk about some of the trends in terms of the minutes of use in the customer base?

And also with respect to data and text messaging.

And lastly in terms of demand on the data side, is there any demand from customer base for further products?

Thanks.

Yes, well mix of use, as we reported, is north of 2,000, and it does vary somewhat between markets, but not very much.

So I see those demand in units, particularly when people have an opportunity to step up in the various rate plans and have both unlimited long distance as well as local.

So we've seen that long distance does contribute as a segment of the total usage, and that's where we've experienced the growth.

So I would say that markets that we're launching now, we usually have an early rush with new subscribers in recently launched markets, because it's a more novel, if you will, experience.

But that normally tapers down.

I would still--would plan somewhere in the 2,000 to 2,100 range.

But we really do like to see that, because we do feel we're penetrating those customer segments that want to really not only cut the cord but not depend on the cord.

I guess that would be more our group.

So as it relates to text messages, I can't--we haven't released any data on that yet.

I think we'll be shortly in a better position.

But remember it's not just the data channel that gets you the text messaging.

Overflow goes into the voice channel.

So on balance what we want to see is people using, really, the [wim] out of our system.

Our job is to make sure that we can support it in a very cost-effective basis.

So we're very focused on network innovation and technology, as it were.

We all buy from the same vendors, but how we employ that does make a difference.

So I can't give you numbers on the text messaging, picture messaging now.

But I will say that our customers have a very high usage of both of those services.

Great, thank you.

Okay, thank you.

Brett Feldman, with Lehman Brothers.

Please go ahead with your question.

Yes, thanks for taking the question.

You guys have a lot of market launches planned over the next two years or so, with the next one being LA.

In terms of thinking it out and managing expectations, is there a predictable pattern of spending around the launches?

I know CapEx comes in a little bit early.

But in the quarter before you launch a big market, is it reasonable to think that operating metrics like CCPU or CPGA might tick up just a little bit because of the costs you're incurring to get that market ready for the next quarter?

Well, I think the answer is, yes, you should expect some as the--how big will it impact or how much will it impact the company as a whole?

It depends on the size of the company at the time.

But we are launching, as you know, LA in the not too distant future.

So we would expect an uptick there, certainly in operating costs.

We don't typically as a matter of course, go into a big promotional spend at the front end.

What we rely on to a much greater degree is a--certainly we do spend some money getting in the market and to get some recognition.

But we focus on the more virile nature of this product and service, and its attractiveness to our customers.

So I would look for an uptick, but I can't say it will be because we're going to roll out a huge advertising campaign in advance.

There certainly will be some, but we will be very disciplined in that regard.

So this spending increase is probably a little more cost of service related ahead of a launch than marketing related.

I think that would be the key understanding.

Because we will have stores.

We'll have employees.

We will have G&A.

We will have a full complex of people in the marketplace.

So yes, you will definitely those people and the headcount there that will have a burn rate associated with it.

Okay, thanks, and then just a different question.

Some of the national operators are experimenting with their own unlimited plans, including in one of your markets.

What's been your experience with that so far?

Do you find that it is directly competitive or is it a little bit too early to tell?

Well, I think it's very early.

We, as I mentioned earlier, take all competitive offerings very, very seriously.

And the fact is that we've had some competitive offerings in a very small part of our operations over the years, both in Sacramento and in the San Joaquin Valley.

But the fact is that we have not really seen anything to date, so I think the best comment is that it's too early to judge.

We do feel our product is substantially different in the fact of our more completeness in the offering and our concentration on not only voice but data.

Okay, great.

Thanks, guys.

All right, thank you.

Todd Rethemeier, with Soleil Securities.

Please go ahead with your question.

Thanks, two quick questions here.

First, can you talk about buying additional spectrum on the 700 auction potentially.

Is there incremental revenue we should think about for that, or is this just to reach the 15% penetration levels that you've already talked about?

And then the second question, can you give us a little bit of an outlook on where the NOL balance is and what your cash tax outlook is?

Yes, let me get to the first one.

I think we're looking kind of, as I mentioned earlier, to fill our spectrum depth needs of -- 10-meg serves us very well.

There are considerations that, if we found spectrum at the right value, it makes sense from an economic standpoint to buy rather than to go through a cell-splitting process.

So we've really looked at the economics of cell split versus the acquisition of new spectrum.

Certainly new spectrum gives you more flexibility to do things that cell splitting alone can't achieve.

But there is spectrum coming out, whether it's the 700 megahertz or whether it's other spectrum in the 2.1 band, or even beyond.

So we'll look at that, but it is strictly an economic trade-off at this point.

Braxton, can you cover the NOL?

Sure, our current tax NOLs are projected to take us through 2008 before we become a large cash taxpayer.

Okay, thanks.

You're welcome.

Kevin Roe, with Roe Equity Research, please go ahead with your question.

Thanks, good morning, very nice quarter, gentlemen.

Thank you.

Two questions.

First, for Roger, can you share your thoughts on the relative attractiveness of an affiliate partner program, to help accelerate your network build or footprint in the future?

And for Braxton, we're halfway through Q2.

Are you still seeing upward pressure, or I should say movement, in ARPU, given the $50 price plan you've got and some upward migrations?

Okay, let me take the affiliate.

And I'll leave the second for Braxton.

The affiliate plan, perhaps because of our concentration on major markets, even though we've bought some REGs, which represent very large areas in the country, our position really is that we're going to build the next [problem] areas, which are the large metropolitan areas of our interest.

And if there are secondary markets that are communities of interest with those individual major metropolitan areas, we would like at this point to leave that as an opportunity for us.

So we don't see building out the region as being our main objective.

What we want to do is build out the communities of interest in the geographical areas surrounding our major markets.

And we think at this point that the affiliate program would not necessarily be an approach that would be helpful to us.

Braxton, do you want to--

Sure.

No, Kevin, I appreciate the question, but we've determined at this point for this call, that we are not going to give any guidance.

We will continue to evaluate that in the future, but based on that, I'm not going to respond to your question.

Okay, Braxton, there's no CapEx expectation out there yet for '07 or '08.

Well, if you look in the liquidity section of our MD&A, and a very robust discussion about our expected CapEx deployment in '07, $650 million on a consolidated basis, plus $175 million on the AWS markets.

And there's a fulsome discussion on that in the MD&A.

Great, thanks, guys.

Okay, thank you, Jonathan Atkin with RBC Capital Markets, please go ahead with your question.

Okay, yes, good morning.

I wonder if you could give us some flavor for network utilization in some of your more established markets, for instance, maybe how many CDNA carriers you're utilizing at this point.

And then on the DAS deployments that you mentioned, are you using third-party facilities or deploying that on your own or in partnership with other carriers?

Can you flush that out a bit?

Okay, well I've got to tell you that I wasn't anticipating the first question.

I think that's pretty granular.

Within the realm, we do have adequate, shall we say, upside, because we have in many cases, as I've indicated, we've gone to the six-sector approach.

We've refined that over the last three years to a point now where it is, we think, a very good tool for us.

So, I really can't give you the granularity that you're looking for on the number of carriers we use in various markets.

We all have different [specs of holdings] across the country, so let me not talk any further.

The second question, again?

DAS.

DAS systems.

Let me just comment on that.

There will be a third party.

We don't see ourselves as having that as a core competence.

We view it more as a tower-related business.

I think in the future if that perspective changes, there may be an interest in doing something, but at this point we see it as a separate business.

But we will be looking towards that in a more wholesome way in these major markets.

I think we've indicated that we have a DAS structure in a number of areas in Los Angeles, to deal with certain issues on zoning.

And also we would look towards that as being a very dense population areas, in the country.

Certainly in the Northeast, where we would look more favorably upon [Bedaz] systems as opposed to just macro sites only.

So it will be third parties only.

We will not get in that business, and certainly in the near future.

And the six-sector approach, maybe just to ask one more question on that, does using that approach allow you to get more usage out of each carrier?

Or does it allow you to use fewer carriers altogether?

What's the advantage there?

Well, the advantage really is that we get--if you think of the capacity of a three-sectored cell site, and this does vary.

But I can give you a typical value, because again we're operating in major markets where we have high population density, and we usually have a fairly robust, shall we say, 360-degree usage of these systems.

So we see about a--for instance, if a three-sectored cell is 100% in terms of capacity, we would see 180% of that capacity on the same carrier if we had a six-sectored cell.

So it does give us a significant lift important to us because of our voice traffic.

And obviously there are other alternatives.

Intelligen antennas can reach such performances.

They're at a much different cost level, and we think in our particular application, we like the approach we've taken today.

And it's been a very major impact for us.

Thank you.

Okay, thank you.

Our final question this morning will be from Michael Nelson with the Stanford Group.

Please go ahead.

Thank you very much for taking the question.

The first is a housekeeping item.

Can you break out the amount of CapEx that was spent during the quarter in the expansion markets?

And then, was there a material difference in churn in the core and expansion markets during the quarter?

And can you talk about how churn typically trends as you launch new markets and your customers become more seasoned?

Thanks.

Yes, we, again, believe that our segment disclosures are very transparent, but we are not disclosing metrics on a segment level.

We're only disclosing those on a consolidated level.

I can tell you that on a macro basis--a beautiful thing about the model and having the major markets that we operate in is there is some variability, but for the most part, you have a lot of consistency in the economic performance and the key metric performance of the individual markets.

We don't see a tremendous amount of variation.

Now that would be based upon markets that are at generally the same level of maturity.

Obviously a new market that has not reached scale will look different from an established market.

But that's probably on a macro basis the best way to answer your question.

Well, let me just try to deal with this issue saying that we have been more successful and more robust in building out markets initially where we had the opportunity and zoning and other things are, shall we say, not terribly difficult.

So we don't have the kind of ongoing CapEx in some of the new markets that we've launched, and I think that's something that is differentiated from the past.

Where we did have some economic constraints limiting our CapEx spend.

The other side of churn, for the six months of the market, we do see differences in churn rate in new market launches, but after that it tends to fall in line pretty much to the other, more mature markets that we've launched in the past.

Great, thank you.

Okay, thank you.

Mr.

Linquist, there are no further questions at this time.

Please continue.

Thank you again for participating in today's call.

We appreciate your interest and support of MetroPCS, and we look very much forward to reporting next quarter on our continued progress.

Thank you very much.

All right, thank you.

Ladies and gentlemen, this concludes the MetroPCS Communications, Inc.

2007 first quarter results conference call.

[OPERATOR INSTRUCTIONS] You may now disconnect, and have a very pleasant day.