T-Mobile US Inc (TMUS) 2007 Q2 法說會逐字稿

Welcome to the MetroPCS Communications 2007 second quarter results conference call.

During today's presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be open for questions.

(OPERATOR INSTRUCTIONS).

This conference is being recorded today, August 3, 2007.

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

Keith Terreri.

Please go ahead, sir.

Thank you, Joshua, and good morning everyone.

I'm Keith Terreri, Vice President of Finance and Treasurer for MetroPCS and I'd like to welcome you to our 2007 second quarter conference call.

The speakers with me this morning are Roger Linquist, our CEO and Chairman of the Board; Thomas Keys our President and Chief Operating Officer; and 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.

Next, Tom will update you on a number of operational topics and review some recent activities involving MetroPCS, then Braxton will review the financial and investment highlights of our second quarter, followed by Q&A.

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

We 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 meanings 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 timing of events to differ materially from those described in the forward-looking statements.

We cannot assure you that the expectations discussed in this conference call will be attained.

Please review the risk factors described in our filings with the Securities and Exchange Commission.

We would also like to remind you that the results for the second quarter may not be reflective of our results for the year nor any subsequent quarter.

For anyone listening to a taped or web cast replay or reviewing a written transcript of today's call, please note that all information presented is current only as of August 3, 2007 and should be considered valid only as of August 3, 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 this morning with the financial results for the quarter.

I would encourage everyone to read our earnings release in conjunction with the information discussed on this call, along with previous SEC filings.

We intend to file our June 10-Q next week.

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

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

We're glad to have you with us this morning.

I would like to start out by saying that management is very pleased with the results of the second quarter.

The second quarter was the most profitable in our history and we continue to believe the MetroPCS value proposition compares very favorably with our competitors' offerings.

With 155,000 net additions during the quarter and 609,000 year-to-date, we are pleased with the growth of the business and its potential.

Our second quarter financial results reflect our continued success in the execution of launching and penetrating major metropolitan areas.

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

Total revenues increased 50% in the second 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 of $0.32 that was primarily the result of migration to higher priced plans by our customers.

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

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

I'd like to reiterate again that our low CPGA is a foundational component to our customer acquisition philosophy.

It's the cost of churn, or CPGA times churn, coupled with a low CPU that generates the world-class margins in our Core Markets.

As far as the other cost metric, CPU, we are very pleased to have reduced that by approximately 9% over last year's second quarter primarily due to the continued focus on our cost structure and also increased scale of our business over the last 12 months.

We have built this business from the ground up to be the low-cost provider in the industry and our results are representative of this cost focus and discipline.

As you saw in the press release this morning, our consolidated adjusted EBITDA reached $180 million for the quarter, which is nearly double last year's second quarter.

This is a tremendous testament to the leverage of this business model.

We are equally pleased about the fact that our Core Markets attained a 47% EBITDA margin.

We believe our subscriber profitability in our Core Markets compares very favorably with our competitors.

This is a world-class EBITDA margin that has been achieved by a few national or regional carriers.

Additionally, it is significant that we could achieve these margins with considerably less scale than our larger competitors.

Braxton will cover these revenues and expenses in more detail later in the call.

I would be remiss not to mention this.

It's important to reiterate that our business strategy remains the same as it has since inception.

We operate in major markets.

We offer unlimited products that are predictable, affordable and flexible for our customers.

We maintain a low cost structure.

As we discussed in the first quarter call, I'd like to remind everyone of the seasonality in our business.

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

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

Second and third quarters are typically the slowest and you can see that this trend has continued.

If you look at our Core Market's net addition as a percent of full year net additions over the last several years, you will see that the second quarter has tracked right in-line.

Churn is seasonal as well, and peaks during this period following our highest growth, our churn for the quarter was about 30 basis points higher over second quarter 2006.

Typically churn is lowest in quarters one and four, highest in quarters two and three, and this trend has also continued.

Additionally, the exceptional number of subscriber adds during the first quarter has an impact on second quarter's churn, which we will talk about in a bit.

As you have seen from our announcement in late June, Tom Keys has been appointed President and Chief Operating Officer here at MetroPCS.

Tom will bring additional focus on Metro's day to day operations and to the future growth of the Company which will allow me to focus more on MetroPCS's overall strategy and facilitate succession planning should I retire at the Company as previously announced.

You will get to hear from Tom in a few minutes.

Commission adopted on July 31 an order which establishes a band plan, performance requirements and service rules for the 700 MHz spectrum band.

We are currently evaluating the impact of this action on our participation in the 700 MHz auction.

We would also like to give everyone an update on the Los Angeles launch.

Although we have made substantial progress, we have not launched the Los Angeles market as of today.

We continue to expect the launch before the end of the third quarter.

Tom will be spending some time reviewing the launch, but I want to make it clear that we intend to launch only when we have achieved the appropriate coverage in place to ensure successful commercial launch.

Understanding the magnitude and geographical compost composition of this market, I'm sure you can appreciate our approach since you only get one chance to make a first impression.

I would now like to hand it over to Tom to discuss some of the operational highlights from the quarter.

Thanks, Roger.

For those of you who don't know me yet, I'm Tom Keys, the new President and COO.

I've been at MetroPCS since April of 2005 when I came here to build and launch the Dallas market.

I am excited about the new challenges in front of me and remain excited about the prospects for MetroPCS going forward.

I thank the Board and Roger for their continued confidence.

I hope to get a chance to meet and speak with many of you over the coming year.

Let's jump right into the quarter.

As good as the quarter was from a financial perspective, I want to make sure everyone understands some of the underlying operational and market segment dynamics that we're seeing.

Let's start with growth during the quarter.

As Roger mentioned, there is significant seasonality in our business.

Historically, roughly 40% of our annual net additions are in the first quarter, roughly 15% in each of the second and third quarters, with the remaining net additions in the fourth quarter.

In the Core Markets, we added approximately 57,000 net new subscribers during the second quarter.

This is slightly below the second quarter from last year when we added 64,000 net new subscribers.

However, when you look at the penetration gain on an LPM basis, we gained 1.6% incremental penetration, a slight improvement sequentially from the 1.5% incremental LPM penetration achieved at the end of Q1 '07.

On an LPM basis, our subscribers in the Core Markets have increased approximately 20% compared to June 2006.

Our Core Markets continue to experience significant growth, even after being in operation for about five years.

In the Expansion Markets, we gained an additional 97,000 net new subscribers during the quarter.

This is approximately half of the second quarter 2006 and bears some further explanation.

What we experienced in the second quarter of 2006 was the new market launch effect as we brought Dallas and Detroit online.

As has been the case with our launches historically, there is a significant amount of pent-up demand for our product when we enter a new market.

In addition, there is minimal churn in our business model in the first quarter of operations in a new market.

Therefore, the timing of the launch of Dallas and Detroit in 2006 affect the comparison of net adds year-over-year due to this initial pent-up market demand and minimal churn.

We will of course see a significant spike in expansion market net additions when the Los Angeles market is launched.

The seasonality of our business affects churn as well.

Churn was higher in the second quarter as compared to a year ago by 30 basis points.

The primary reason why the churn increased in the second quarter is that we had a record-breaking number of net additions during the first quarter of 2007 of 454,000 as compared to 245,000 in the first quarter of 2006.

The churn for customers we added in the first quarter would not typically develop until the second quarter.

Therefore, our significant Q1 outperformance as compared to the prior year has impacted our year-over-year churn results.

This increase in churn over the first quarter of this year coincides with experienced in the past.

The seasonality of our business causes churn to be higher in the second quarter due to lower growth during this quarter, churn from the higher net add first quarter and seasonal migration of customers.

We do not believe we have experienced any material affects from any of our competitors, which leads me to the next topic, competition.

From a competitive standpoint, everyone is aware that a large national carrier has launched their unlimited product trial in California and Texas.

At this point, it is difficult to ascertain that there has been any material effect on our sales results from the launch of this product.

We have done mystery shopping and talked with most of our dealers and we're not seeing any significant impact on our business from this competing offering.

As we discussed in the past, the truly unlimited service is a business that has to be built from the ground up, not a pricing plan that can be bolted on to a high-cost structure enterprise.

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

We feel comfortable we're in an excellent competitive position.

We will continue to keep everyone updated on this.

And last but not least, as Roger spoke about earlier, we're expecting to launch the Los Angeles market before the end of the third quarter.

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

We will continue to build out 15 million-plus pops after launch through 2008.

The most important aspect in the launch is that we achieve our targeted geographic coverage objective.

You only get to launch the market once.

Five years from now, will it matter when we launch the Los Angeles market?

It will only matter that we launched it properly.

That's what we intend to do.

Our distribution is firmly in place and we're closing in on the 11 to 12 million initial pop coverage that we intend to launch with.

We have approximately 400 dealer doors signed up and ready to go at launch.

We have plans in place that will expand distribution as the network expands.

We're working with all of our partners, vendors and dealers as we coordinate our efforts and prepare for operations.

We are all very focused on the Los Angeles launch.

At the same time, we're continuing to move ahead on building the New York, Boston, Philadelphia and Las Vegas markets.

All general managers and their key staff are in place.

Initial RF designs have been completed.

Local management in all four markets are focused on network construction and coverage design.

We are excited about our new AWS markets.

Our guidance with respect to auction 66 launches has not changed.

We will be initially targeting approximately 30 to 32 million covered pops by the end of late 2008, early 2009, with Las Vegas targeted for launch in the first half of 2008, depending on infrastructure equipment, incumbent clearing and handset availability.

Our initial launch dates will vary in our auction 66 markets and our launch dates in the larger metropolitan areas will be accomplished in phases.

On the technology front, we continue to emphasize the use of six sector cells and [DAS] systems as we build out our new markets.

The emphasis of six sector cell technology reduces our cost by saving on cell splitting.

Use of distributed antenna systems allows for speed to market where site acquisition and zoning can be problematic.

DAS implementation provides localized directed coverage over a wide area of intended coverage.

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

Once again, I would like to say that we're very pleased with the second quarter results.

And with that, I will turn the call over to Braxton.

Thanks, Tom, and good morning everyone.

Total revenues were $551 million in the second quarter, up approximately 50% year-over-year.

We just recorded the highest-ever quarterly adjusted EBITDA at MetroPCS.

Consolidated adjusted EBITDA for the quarter was $180 million, nearly double last year and up 21% over the first quarter of '07.

This is a tremendous achievement for our Company, its employees and our shareholders.

We generated approximately $156 million in cash from operating activities in the quarter, an increase of 17% over the prior-year's second quarter.

We produced consolidated net income of $58 million, or $0.17 per share, which was over 250% of the net income and nearly three times the earnings per share in last year's second quarter.

From a financial metric perspective, we're also very pleased with the results of the second quarter.

Our ARPU for the second quarter of 2007 was $43.18, representing an increase of $0.32 year-over-year.

Our CPGA for the quarter of approximately $125 represents negligible increase over the prior year's second quarter.

Our CPU for the quarter of $18 was down from nearly $20 in last year's second quarter and continues to demonstrate the significant impact of the scaling of our business.

The Expansion Markets impacted our consolidated second quarter '07 CPU by approximately $3, resulting in a world-class Core Markets CPU of just under $15 for the second quarter of 2007.

From a subscriber basis, we've had one of our most successful starts to any fiscal year.

During the second quarter, which historically had been one of our slowest quarters, we added another 155,000 net additions to the first quarter's 454,000 nets for a year-to-date total of 609,000 net additions.

A very important point is the proportion of these net adds generated in our Core Markets.

We added approximately 57,000 Core Market net additions in the second quarter.

At June 30, 2007, we have an 11.2% penetration in our Core Markets, which represents an incremental 1.6% penetration over the last 12 months.

Our Expansion Markets continue to perform very well with approximately 97,000 net additions in the quarter, representing a penetration rate of 6.2% at June 30, 2007.

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

Let's start with revenues.

In our Core Markets, service revenues increased approximately $75 million, or 27%, to $356 million during the second quarter.

This increase was primarily attributable to full-year net additions of approximately 423,000 subscribers from June 2006 to June 2007, which accounted for approximately $56 million of the core market increase, coupled with a migration of existing customers to higher-priced service plans accounting for approximately $19 million.

Our Expansion Markets service revenue increased $96 million to $123 million for the second quarter versus $27 million for second quarter 2006.

This increase is primarily attributable to the launch of the Dallas-Fort Worth, Detroit and Orlando metropolitan areas during 2006.

These Expansion Markets launches, along with the launch of Tampa in Q4 '05, have contributed net additions of approximately 708,000 subscribers during the last 12 months, accounting for approximately $63 million of the Expansion Market increase.

The migration of existing customers to higher-priced rate plans accounted for approximately $33 million of the Expansion Market increase.

Keep in mind that Dallas-Fort Worth and Detroit were not launched until March and April of 2006, so that on an LTM basis, we now for the first time have approximately 12 months of operations in these markets.

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 and the launch of our $50 service plan in 2007.

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

Let's now talk about expenses.

Consolidated cost of service increased $55 million, or 51%, to $162 million for the second quarter, versus $107 million in last year's second quarter.

Our Core Markets' cost of service increased $29 million, or 35%, to $111 million for the second quarter versus $82 million a year ago.

The increase was driven by the operating costs to support net additions of 423,000 subscribers over the last 12 months as well as the additional network infrastructure added during the year.

The Expansion Markets cost of service increased $26 million to $51 million for the second quarter of 2007.

The increase was primarily attributable to the Expansion Market launches which contributed net additions of approximately $708,000 during the last 12 months.

Cost of equipment increased $21 million, or 19%, to $133 million for the quarter from $112 million for the second quarter last year.

The reason for this increase is as follows.

Core Markets, cost of equipment increased $7 million, or 8% to $90 million for the quarter versus $83 million last year.

The increase in Core Market gross subscriber additions during the second quarter of this year as compared to the prior-year second quarter of approximately 49,000 subscribers was the primary reason for this increase.

The Expansion Markets' cost of equipment increased $14 million to $43 million in the quarter from $29 million for the second quarter of 2006.

These costs were primarily attributable to the launch of the Dallas-Fort Worth, Detroit and Orlando markets, which contributed incremental gross additions of approximately 52,000 subscribers for the current quarter as compared to last year's second quarter which accounted for approximately $7 million of the Expansion Market increase, coupled with the sale of the new handsets to existing customers accounting for approximately $7 million of the Expansion Markets increase.

Selling, general and administrative expenses increased $22 million, or 37% to $83 million for the second quarter.

The increase is due to increases in Core Markets and Expansion Markets selling, general and administrative expenses as follows.

The Core Markets SG&A expenses increased $6 million, or 17%, to $44 million for the second quarter from $38 million during the same quarter in 2006.

Selling expenses increased by approximately $2 million, or approximately 15% for the quarter compared to the quarter a year ago.

General and administrative expenses increased by $4 million, or 18%, compared to the previous year's quarter.

Both of these variances related to supporting the growth in our Core Markets.

The Expansion Markets' SG&A expenses rose $16 million to $38 million for the quarter compared to $22 million in the prior year.

Selling expenses increased by $4 million for Q2 2007 compared to Q2 2006.

This increase is related to employ 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 $12 million for Q2 '07 compared to the same period in '06 due to labor, property taxes and various administrative expenses incurred in relation to the launch of these markets as well as the buildout expenses relating to the launch of the Los Angeles market.

Moving onto EBITDA.

Consolidated adjusted EBITDA for the quarter was $180 million with a consolidated adjusted EBITDA margin of 37.6%.

For the four quarters ended June 30, 2007, adjusted EBITDA was $548 million with an adjusted EBITDA margin of approximately 34%.

I'm pleased to report that our Core Market fully loaded adjusted EBITDA as a percent of service revenue was 47.1% for the second quarter.

During the quarter, we incurred capital expenditures of approximately $191 million.

This was a consolidated number and included not only CapEx to support the growth in our Core and Expansion Markets, but also CapEx relating to the upcoming launch of Los Angeles.

You can refer to MD&A in our most recently filed S-1 for a disclosure relating to expected capital expenditures for 2007.

With respect to liquidity and capital resources, we finished the second quarter with approximately $1.8 billion in cash and short-term investments.

During the quarter, as you are aware, we closed on our initial public offering with primary net proceeds to the Company of approximately $818 million.

During the quarter, we also completed the issuance of an additional $400 million of our 9.25% senior notes to (technical difficulty) [2014] under the existing indenture.

The notes were issued at a significant premium of 105.87% with a yield of 7.89%.

As disclosed previously, we anticipate the net proceeds of approximately $421 million from this financing will be used for general corporate purposes which could include participation in the upcoming FCC 700 MHz auction.

Obviously, we're very pleased with this execution given current conditions in the credit market.

Our total leverage computed in accordance with our 9.25% senior notes on an LTM basis at the end of June was 5.16 times.

Our weighted average cost of debt was approximately 8.11% and approximately 80% of our debt is fixed by its nature or through interest rate hedges for the next couple of years.

I would also like to mention at this time that we will not be giving any guidance.

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

This is the end of our prepared remarks.

I would now like to turn the call back over to the operator for Q&A.

(OPERATOR INSTRUCTIONS).

Phil Cusick, Bear Stearns.

I wonder if you could start by addressing a little bit on the sub-prime side.

There has been a lot of concerns in the market on I think you guys are selling off a little bit on worries that things are slowing down.

Can you talk about the typical seasonality over the years from the first quarter to the second quarter for both churn and net adds and what you are seeing out there in terms of the sub-prime impact either in the core or in the new markets for us?

Just to start with that, thanks.

Maybe we'll take -- maybe two ways.

I will take the first part and ask Braxton to reflect on sub-prime issue also.

As you know, we've had, and has been mentioned, roughly 40, as high as 45% of our net gains have historically come in the first quarter.

Second and third quarter have been slow quarters and I think it represents not only the effect of the gift giving in the holiday season carrying over, but also into the into the IRS making early refunds to those who are able to make their refund requests early.

So we have a cash carryover which I think very heavily impacts first quarter which means that if we have a heavy first quarter, the most likely reason is that tends to depress second and third quarters alike.

Typically, they're in the 15% plus or minus two or three percentage points and have been over the last five years.

So that tends to be a trend that not necessarily is followed or emulated by the national carriers.

So we tend to be a bit of an exception in that regard.

Fourth quarter typically is a good bounce for us and we get the benefit of all of the giving.

And even though there are some short months with the holidays, this tends to be the bulk of our business.

So, this is -- there's absolutely nothing different here from our perspective.

We did have several things that did cause I think some interesting factors.

One is that, even though we had an opportunity and chose not to launch L.A.

at the end of the second quarter, we want to get as I mentioned before our coverage right-sided to a point where we do go after the 11 to 12 million pops even though we thought we had an opportunity to do a soft launch.

So none of those obviously counted in the second quarter because it's future for the third quarter.

But on the other side, we did launch Dallas and Detroit last year in the March-April time frame which I think caused a very significant lift for us, because as you know, in the first 90 days of operations, basically all our gross gains become net.

And that is the same case for anybody in this business model because the disconnects simply don't really start happening until the 90 day period afterward given the grace period of 30 days.

So we have to look at that too, because now, Dallas and Detroit are a regular way and they're disconnecting as they did in second quarter the same way as all our Core Markets.

So it does depend on new markets and launches.

And I guess the last element here is that we have the sub-prime question.

I think that as gas prices accelerated last year and I think that we on the road show talked a bit about that to many investors.

We did feel a 30 or 60-day [pinge] with this.

And I think with this cash coming out of pockets, we had an accelerated deactivation, we had some decline in grosses that we fully recovered from in the following 60 to 90 days.

So I think those are very short-terms effects.

On the other hand, the sub-prime as you raise it I think could very well be an affect that lasts on the order of six, maybe nine months.

If people are just recovering from very difficult circumstances of having to give up their primary residence and find other means, that is just more cash out of the pocket.

But those people will return.

Their choice is made clear by the fact that our average minutes if use is over 2000.

There is no better deal than our service offering and that's the reason why we are so hot after making this unlimited and every great service we offer, both voice and data.

So that may be a long-winded answer, but I do think this is an area that we feel very satisfied with the results that came out of second quarter.

We feel we're on track as it relates to past performance.

Do we want more?

Of course.

Braxton, do you want to add anything?

Sure.

We talked about on the road with you that short-term economic disruptions, be it gas prices, be it sub-prime, be it economic downturns, can definitely have a short-term impact on operations.

That's really what we're not seeing here in the second quarter.

But the other part of that thesis, Phil, is when over 80% of your customers use the Metro phone as their primary phone, which implies a very, very high amount of wireline replacement and displacement and you look at our usage numbers on a per-minute basis, we believe that economic downturns or disruptions ultimately can create more opportunity for MetroPCS.

So I think that's something to keep in mind.

In regards to the second quarter, it's clearly a result of just an incredibly outstanding first quarter.

Remember, every one of our Expansion Markets achieved a first 12-month penetration rate in excess of 5%.

That is unheard of to have that type of growth in 12 months.

And when you look at what we did in the first quarter from an incremental penetration standpoint, and it truly was outstanding, we're paying the price for that.

I think Tom very clearly said, we are looking forward to the launch of Los Angeles and we're really excited as to what that is going to do from a net addition standpoint for our Expansion Market segment.

Can I follow up on that?

Can you be specific on L.A.

as to what's the hold up.

Is it zoning, and is there a date before which there is just no way you do a launch, and just to get people's expectations in the right frame of mind here?

Let me start, Phil, and then I will pass it onto Roger and Tom.

First of all, we have consistently positioned at late Q2 or the third quarter.

So we are reaffirming the guidance that we are launching by the end of the third quarter or before the end of the third quarter.

And I think that is very important.

We've spent a lot of time looking very closely at where we are at, and we take these types of disclosures very, very seriously.

But we are reiterating the guidance that we have given in prior quarters.

Let me take a crack at this too, Phil, and then Tom may add some color.

The fact of the matter is that it's one item.

L.A.

is, as you know, a very complex market.

We feel that we have attacked in our launch configuration what we think is the prime rib and with 11 to 12 million pops, because no one has launched all of L.A.

at one time.

Nobody in the history of this business has.

But we feel this is the right side of the vent.

There were some possibilities to launch earlier as I alluded to.

We discarded those.

The factors that are really impeding our progress right now where we have constructed the number of sites virtually that we need for launch, the fact is that we still have to get power and telco and get these on service.

And a few days ago, we just had information, just to show you how things come out of the blue, a crane operator's strike that came up that gives us pause for, so we have to get this up on building tops.

But we have backups for those and we continue to be very resilient to all of these impediments.

But these are unforeseen things that lead us to be cautious and give more broad windows than try to nail a date certain.

We think that we are confident in this forecast, and we are also, shall we say, firming up the fact that our initial thoughts of the launch of containing the number of pops that we have indicated is an important step for us.

So those two factors puts us in this window, and to do anything more granular than that would be imprudent on our part.

David Barden, Banc of America Securities.

Again, Braxton, just on the Expansion Market subscribers, I think that seems to be what -- if I looked across the result today, we had Core Market living up to expectations and Expansion Market was where the weakness was.

So there doesn't seem to be any systemic sensitivity to the sub-prime market.

Margins were obviously very good, so I think the market is reacting to the Expansion Market.

You mentioned something about how churn kind of ticks up in these quarters after the launches.

If you could walk through that a little bit, how maybe Dallas, Detroit and maybe Orlando kind of came together and maybe they affected the second quarter comparisons a little bit more specifically.

The second question would just be on the $50 rate plan and how you have been seeing the progression of the subscriber base and the take rates there and what kind of prospects there are for growth there.

And the third I guess last question would be, ex-ing out the L.A.

launch, how would you expect the Expansion Markets to be outside of L.A.

looking into the third quarter versus the second-quarter?

Thanks a lot.

Sure.

I think it's really important for everybody to focus on what Roger and Tom both touched on during our prepared remarks, and that is the seasonality of our business.

Specifically, you can look at the quarterly data that we have disclosed in our previous filings, and there is a very, very pronounced trend on the seasonality for this model.

As Roger and Tom had mentioned, we do roughly on average 40% of our nets in the first quarter, roughly 15% of our net additions in the second and third quarter with the balance of 30% really being in the fourth quarter.

So it's really the summer months which not only for this model, but for all carriers in our segment, you really see a significant slowdown in the activity that you see versus the first and the fourth quarter.

With that, you also see very pronounced seasonality year-over-year historically in churn, in ARPU which are two very, very important metrics; and to some extent, CPGA.

Specifically on churn, you always see a spike in churn during lower growth periods or periods that are following your higher growth quarters.

And that's just natural.

When you look at the mechanics of this model, you're paying in advance, you have a 30-day grace period to make a payment.

If you don't make that payment, then you are not disconnecting until that third month of your activity.

So, during quarters of extreme performance, you're having fallout from that performance into the next quarter.

And you will see that year-over-year if you look at our historical operations.

ARPU's also a similar issue.

By having more churn in your second and third quarter, what we do is we recognize revenue on a customer-level basis and the precursor to churn is really looking at people who are in that grace period who are hotlined.

We don't recognize revenue on a customer unless a cash payment has been made.

So you see a pronounced seasonality also in ARPU in the second and third quarter, the low point being July and then you work up from there.

In CPGA, you can see the impact of the volume from a gross add perspective that we do in the first quarter and fourth quarter on the CPGA.

Now CPGA doesn't scale like a CPU metric, but there are certain fixed costs in there.

So when you have the gross add activity we have in the first and fourth quarter, you do see a benefit there.

So I think it's very, very important that people understand the seasonality and I think it's very important when you look at the Expansion Markets, you have a onetime anomaly here.

You have a comp a year ago that is brand new market launches.

Remember, we talked about the way this model works where your disconnects really fall in the quarter after.

So when we went in and launched the Dallas-Fort Worth and the Detroit markets in March and April of last year, and then we went in and launched Orlando in the fourth quarter, you are seeing tremendous pent-up demand in those markets, you know, incredible initial penetration.

But in that comp quarter, you are saying very little churn.

And that is what Tom was explaining when he was talking about what we saw from a churn standpoint.

So we're not seeing anything really fundamental with the business.

We're trying to communicate to you the underlying nature of the dynamics that we see with these market launches in the prior year.

David, your second question was the $50 rate plan, and I would like Roger to address that.

Let me indicate that we have seen what we think is a reasonable take rate.

This plan is really to give people the full suite of unlimited services.

One of the concepts that we have always drove towards is the fact that we'd like to offer our customers as a complete line of we think relevant services both in data as well as in voice.

I think the voice side has been reasonably captured.

We have a very robust plan now for long distance calling outside of the country, international calls, calls down to as low as $0.02 a minute for some destinations.

So -- and more aggressive calling now to South America and some of the islands that are sitting off our coast.

So we beefed that up.

The $50 plan was meant to give people an opportunity to get services that we thought were very important but not necessarily services that the mass would want.

And the perception being is that you can get all you need, really need from Metro on an unlimited basis, and that continues to be our philosophy.

So whether or not the $50 plan is robustly successful, it is successful, but certainly in smaller proportion than the 45 and the $40 plans.

And our purpose is not to see if we can get a $50 ARPU.

Our purpose is to make sure that our customers see that their needs for all practical purposes can be fulfilled from Metro.

And we think we have accomplished that.

Let me just touch on one point that Braxton mentioned that I think was very important and take it one step further.

Our grosses are on plan.

This is not an off-plan quarter for us.

What we have experienced is that, and let's call it out the front door, i.e., new business coming in the front door, and the back door is our disconnects.

What we experienced is part of the first quarter which almost doubled last year, and invariably, that first quarter and that 30 basis points increase I feel is a win for us because I thought quite frankly it would be a bit higher, given the fact that the first three months are the most significant months of churn for new subscribers.

So given that we doubled our take on first quarter this year over last year's first quarter, quite frankly I feel very good about that and even better about the fact that we met our gross game plan.

So the front door is working.

The back door was a bit more open than we would have liked, but explainable given the very strong first quarter results.

Third point, you want to pick that one up?

Yes.

David, where you can see those gross adds specifically in the press release where we have the reconciliations of the non-GAAP measures, you can go to the CPGA metric and see the period-over-period gross adds that Roger is referring to.

David, your final question was on the L.A.

launch.

Could you ask that again, please?

Just ex-ing out the L.A.

launch, I guess to Roger's point, if the back door is a little more open than we thought, is that expected to continue, or can you close that back door a little bit better in the third quarter?

Yes.

Well, the back door I referred to is the -- we almost doubled the net gains if you're comparing first quarter '06 over first quarter '07.

So I'm saying, take those 200,000-plus customers where they are churning and the exceptional rate for the first three months, and this decays over time.

I've been saying that explains -- in fact, that would explain more than 30 BPS.

So I am somewhat pleased that it wasn't higher.

That was my point.

I think that addresses David's questions.

Ric Prentiss, Raymond James.

A couple of questions on the future.

I guess North Florida is something that also maybe is teed-up for a launch.

L.A.

is a great market, but I'm wondering when you're going to come to Gainesville, get the Gators covered and Jacksonville.

is that still looking like early '08?

And then, also, just an update on spectrum clearing.

Obviously a lot of excitement on New York and Boston and Philadelphia in the future, but what is the path looking like for that?

Let me take that, Rick and good morning.

The path to northern Florida, we are engaged in building Jacksonville now.

And given the fact that we like to think that we tackle the major markets first, the stadium in Gainesville -- well, let me put it this way.

I will have a discussion with our guys now to see just how quickly that's going to be on the road map.

But all kidding aside, we do intend to cover North Florida.

Gainesville clearly is in our plans, Jacksonville is the next target of opportunity as well as completing Daytona and Melbourne to give us a very strong quarter.

And we just want we want to paint Florida ours.

So we're going there.

On the second point, spectrum clearing.

Spectrum clearing, I think we're having some very positive thoughts on the non-federal government side.

As you know, T-Mobile has been out there with a big stick and they have done some work that we will benefit from.

We're doing some ourselves.

I think we have a pretty good path for '07.

Some certainly will dribble into '08, and so I won't say that won't be but first quarter maybe '08 before we can see a path clear there.

On the federal government side, I'm not sure what you're hearing elsewhere, but we continue to be cautious about that.

We're seeing Homeland, DoJ and the DoD actually responding in the last I would say six weeks very, very strongly towards seeking a desire to come to a conclusion.

That conclusion may not happen until end of second or third quarter of next year.

I do think that we have a high expectation of being spectrum clear to a point of operation before the end of '08.

But really, it hangs on the federal government, and so many of these unfortunately these devices are mobile, and they are very secure.

And unless there is alternative equipment that they can not only get access to, but prove in and port all of their other equipment over, then this move is really problematic.

They are making that attempt to re-band their stuff and make a move that can get them out sooner as opposed to a whole new system.

That is what they are telling us and we could not be more pleased with these thoughts, and quite frankly, they have been very cooperative.

We will have to see how they execute.

And a final question.

I think Roger, you mentioned the 700 MHz that you guys are evaluating now that the rules are out there.

Can you give us a little sense of -- it seems like the license size was a victory for you guys, that you will be able to rifle shot some potential targeting of where you would like to add more spectrum.

And also, what is your understanding as far as when the M&A window might close down as people look to participate in the 700 auction?

That's a good one.

There is a quite period that will extend once the applications are filed, I believe it's long form.

So there is a quiet period coming up.

I suspect that's not going to happen until November, but I don't have that, a more precise date in front of me right now.

I will say the 700-meg rules that were adopted by the FCC have got to be a head-scratcher for everybody.

But there are some opportunities there.

Everybody should know that the band itself is not as pristine as other bands have been offered to us because of the near adjacent channel potential issues that arise.

So we're studying it.

We certainly have not made a choice either way, but I suspect at the end of the day, there will be a party to that.

John Hodulik.

Getting back to the comments on churn, could you talk a little bit about how -- what you expect in those churn numbers in the third and fourth quarter and maybe give us a little flavor for maybe churn progressed through the quarter and maybe what you're seeing if you're seeing any relief here thus far into the third quarter?

And then back to your earlier comments on you may have seen some economic impact in the past and short-term economic impact from higher gas prices.

We've got higher gas prices now.

There was sort of [re-rating] on the mortgage side that could potentially cause some more short-term dislocation in the second half here.

How -- do you expect that to impact the business in the second half?

And what was the impact last time these issues cropped up?

Was it a gross add issue, or did it affect you on the churn side?

Well, you've asked about 10 questions, so let me try to peel the onion and then I will call for help here when I run out of gas.

But that wasn't a pun, by the way.

The issue was that, being more granular to be quite frankly is not something that we are ready to talk about right now because I don't think it would really help you in the final analysis because this -- it really does trend much more suitably over the quarters.

I think the trend though that you are trying to get a better analytic on is, do we expect the third quarter to have more churn or less?

I think we've said in the past, you can follow our churn rates.

We don't have really better information than that.

But, we do know that we follow a pattern relatively well.

So that will be -- past practice will be a real good guide to that, we think because the churn number we release is for the Company.

And the fact is that most of our markets now will be after the 12 months phase which really puts them in a more regular way mode.

It's that first year and sometimes the first nine months that really gives us exceptional changes in lift in both the churn and gross metrics.

That's what I'm trying to get at.

Looking at it from a seasonal standpoint, it looks like going from second to third for the last couple of years, it has ticked up in the third, your reported monthly churn.

But then, at the same time, you're sort of coming off of this nine-month period given the launch back in March.

You know what I mean?

Clearly.

And I'm saying, I think we would expect churn to follow the past.

That is the best guidance because I really don't have anything else.

To be honest with you, we plan it that way, we trend it that way and you should expect it that way.

What I would like to emphasize is that our gross plan was highly exceeded in first quarter.

We were on budget in second quarter and that is the way we plan.

And if there is a bluebird here that comes in and surprises us, that is great.

We would love to be able to launch a new market every quarter like perhaps some other parties can do, but we do focus on major markets.

So ours is bigger and lumpier.

So there -- the issue is, that there is not many bluebirds that fly into these results and that pump up gross gains, or by the same token, given they're a launch, they virtually have no disconnects.

So you have to take that into consideration.

We're more a regular way right now, so we should be trending, and that's probably the best guidance I'd give.

As relative to the question you had on the gas bump (technical difficulty) being very clear.

That had a bump of I would say a couple of months.

It may have been three, it may have been six weeks, I don't have it that granular.

But that went away.

Those short-term effects I think really support our plan in the long run because people look around and say I have to readjust my budget.

I know I'm paying more for gas now, and that is the reason why gas this year, which is virtually not maybe $0.30, $0.20 difference than what we had when we went through the crisis.

People have we believe now accommodated that.

They've made other adjustments.

And because of the priority they place on having a communicator that they can call on a few thousand plus minutes a month, that has ranked up in one of those things that becomes what I want to say it if I can.

So I think the short-term is we're beyond that now.

Sub-prime I was trying to say, which was, that has a longer tag to it because of the turmoil that occurs when people are displaced from their primary housing.

So what I'm saying is that once people sort that out, the priority of telcom comes back and we would expect to be a beneficiary.

That could be an effect that is carrying us now and it maybe an extraordinary jump.

We don't see it but, that's an uncertainty that is there.

James Breen, Thomas Weisel Partners.

Just a couple of questions.

One, CapEx this quarter.

Can you talk about how the spending was relative to the core expansion in 66 markets?

And then secondly, without giving away any sort of the competitive information on the L.A.

launch, I think covered pops there that you had originally talked about there was about 12 million.

Can you talk about how many of those covered pops you plan to address immediately at the launch?

Thanks.

At launch, we're talking 11 to 12 million.

As we always have.

Yes, so that has not changed.

That's at launch, and as Tom, will grow to 15 million.

On the CapEx, I think, in my prepared remarks, I said we are not changing our view on the prior disclosures.

If you look at the liquidity section of MD&A where we talk about CapEx, we have talked about CapEx for the Company and then separately for AWS.

That is still our view for 2007 with no significant differences at this point.

So that's where we're at on that.

Have you changed your spending trends at all in the Core Markets versus the Expansion Markets?

Not significantly, no.

Brett Feldman, Lehman Brothers.

During your comments, you talked about the increasing use of distributed antenna systems.

I was hoping maybe you could just talk a little bit more about what the real advantage of those systems are.

And, are you finding that they're not just more preferable to, say, a rooftop, but are they actually competitive with tower infrastructure?

The use of DAS equipment in our network is extremely important.

What we find is that, in areas that could be problematic for zoning, we can work with third parties that we have agreements with who can more easily zone and construct those networks.

So we can get coverage in our core demographic, where if we looked at problematic zoning areas and we were unable to get the sites we wanted, we might see additional expense by a band in sight.

So therefore, the use of that actually can get us to market quicker and in the long run more economical.

Ana Goshko, Banc of America Securities.

Back to the churn, are you looking at ways to potentially reduce churn, or are you at a place where you basically believe it is what it is and it's seasonal and it responds to -- it's higher after you have your higher gross adds, etc.?

Because as we have talked about churn in the past, the top reasons tend to be, one, people cannot pay, which some carriers have put it week-to-week plans to try to keep people on; frustration with the product, which often has to do with roaming.

And so I am wondering what you think the downside would be to actually adding a roaming bucket to your rate plan.

And then I think the last one is, people just move and there's really nothing that you can do about that.

But I'm generally wondering what may be in the cards for potentially reducing the churn, and then if you have plans on adding a roaming feature.

Right.

Let me take it a little bit out of order if I may.

The roaming feature I think you referred to as probably the one that -- or at least one of those that would reduce roaming, the satisfier.

The bucket plan, I suspect you may be referring to another operator.

We have taken a position that we do offer a roaming plan.

Approximately anywhere between 1 and 2% of our customers actually use that option.

That does not mean to say that we may have not reached customers who would be in the 10% or higher category.

But the fact is that there is relatively de minimus use, even though it is there as an alternative for our customers.

And we have roaming rates that go both the in market, an in-coverage area, as well as out of coverage area, and we think that does address people's need for roaming.

And, quite frankly, we find that there's a fairly high level of satisfaction and to be able to simply op-in whenever they need it, as opposed to buying a bucket and not knowing if they're going to use all their minutes every month.

If I could just respond to that.

I guess my question would be, are you potentially because you aren't overtly advertising a roaming bucket, are you potentially not reaching customers or gaining customers that just sort of feel uncomfortable with the minute by minute, and (inaudible) a psychological factor that you may be missing?

I guess I'm wondering what the downside is to actually just adding that feature.

The downside I guess is that it all depends on whether or not you think that fits in a bucket.

Put it this way.

We see it as optional a-la-carte.

We think our customers are strongly motivated around the 45, 40, $50 price plans.

As we get up to $60, there seems to be a big push back, and we think that we are on target.

If people want it, they have it.

The fact that we advertise it very strongly in our stores.

We don't do billboards.

We think that's an inappropriate way to flag this because it's not our main proposition.

It's kind of leading with the least, most insignificant feature that you have.

So I mean, we have tried to judge what we think we do best, but it's clearly, given and posted as an option at the stores, at our dealer doors which we have as you know quite a large number.

So there's exposure there.

The real issue I guess is, and again, there is a -- the people that can't pay I think is number one.

We find that we have introduced when we first introduced a family plan, that has been a very significant churn reduction device.

I'm not going to get into separate numbers, but that has been a factor.

We do work at this.

We want to make sure that we don't disappoint customers in the fact that we don't have products that they would see from other carriers, and so we have continually added those.

We've just added the service for the instant messaging and we are promoting that in our $45 plan now to get that out in front of people.

But we're just taking the first step there.

We want to make sure that we have a supplier that could be fully operational and meet our cost objectives, which tends to be really a main drag on introducing new services because everything we do, we do unlimited.

You probably saw the Verizon adds coming up lately about their unlimited service, if you pay $90 or so for this.

And therefore, our objective here is to provide just overwhelming value in these 45 to $50 price plans.

We don't see any point in towering it up to $60 as long as we give our customers access to buy when you need it, as opposed to buy it even if you don't need it.

Okay, great, thanks.

And just another question.

I think you have said in the past that your markets really re very strikingly similar on all of the operational metrics.

I just wanted to check this quarter.

Was there any outlier in any metric, either on -- particularly on the additions in any of your markets, are were you pretty much stubble across all of them (MULTIPLE SPEAKERS)?

That's a really good question.

Yes, there's two items.

The first is the CPU where we disclose the impact to the Expansion Markets.

On CPU, it was $3, which really puts the Core Markets CPU at under 15, versus the consolidated number we had of 18.

And then the second one which we've had a great deal conversation on in this call is, we did see some differential in the churn metric in the expansion versus the core specifically relating to the issues that we have been talking about of comping a year over a period where you had significant market launches with minimal churn.

But then, among the Expansion Markets, they were all pretty much tracking as you usually expect.

There wasn't anything going on in one of your recently launched markets that would have impacted anything unduly?

We really don't get down to market-level disclosures, but we are not seeing significant differences.

Joshua, we have time for one more question.

Romeo Reyes, Jeffries.

I would say that you're saving the best for last, but I won't.

Let's say, can you give us a sense of what the first bills not paid related churn was for Q2 of '07 versus Q2 of '06?

The extraordinary growth that you had in gross adds in Q1, it seems to me that it would have led to something like around 1.2% churn from first bill not paid in Q2.

So I think if you can give us a sense of generally ballpark, if that's the right number, and then where you were a year ago is the first question.

And then secondly, on the AWS launch, the number of pops that you talked about, that 30 to 32 million pops by late '08, early '09.

How confident are you that clearing and the other (inaudible) as well as the handset availability will enable you to -- and as well as I guess the permitting and stuff, other issues -- will allow you to launch that 30 to 32 million?

Thank you.

I think that you are focusing on the issue that we have talked about here, and that is first month non-pays is really what we are seeing.

And as a percent of the gross adds that happened a year ago, we have done a lot of analysis on that and we're not really seeing a significant differential quarter over quarter.

It's the volume of the adds that we did in the first quarter and the percentage of the first month non-pays there.

So your analysis is right on there.

Secondly, I will take a quick stab at this and then pass it over to Tom and Roger.

We have been -- first of all, I think we have positioned Las Vegas for the first half of 2008.

There's some people who may think that that could be done a little bit quicker if all the dominos line up and fall perfectly in place, but we have conservatively looked at it and recognize that there are clearing limitations.

As Tom said, we believe that the equipment and the handsets are going to be available in commercial quantities, and more than just one handset, if you look at a launch in the latter part of the first quarter or second quarter for Los Angeles.

The builds in the Northeast are very significant builds, just like Los Angeles is a very significant build.

Tom talked about, our focus is on doing things right and providing a quality coverage to our customers versus trying to meet a timeline.

And as a result of that, we have been fairly macro in the guidance that we have given as the latter part of '08 or early '09.

At this point, we're really not seeing any reasons why that would not be available.

But as Tom said, we will potentially address major metropolitan areas.

They will have different launch dates and they could potentially be phased.

We appreciate the questions today, and --.

If I might say, thank you again for participating on today's call.

We certainly appreciate your interest and support of MetroPCS and look forward to our next quarter of continued progress.

Thank you all.

Ladies and gentlemen, this concludes the MetroPCS Communications 2007 second quarter results conference call.

Thank you for your participation and you may now disconnect and have a pleasant day.