T-Mobile US Inc (TMUS) 2008 Q1 法說會逐字稿

Welcome to the MetroPCS Communications first quarter 2008 results conference call.

(OPERATOR INSTRUCTIONS) This conference is being recorded today, May 6, 2008.

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

Keith Terreri, Vice President and Treasurer for MetroPCS.

Please go ahead, sir.

Thanks, Kimberly.

Good morning, everyone.

I'm Keith Terreri, and I would like to welcome you to our first quarter 2008 conference call.

The speakers with me this morning are Roger Linquist, our Chairman, President, and Chief Executive Officer; Tom Keys, our Chief Operating Officer; and Braxton Carter, our Executive Vice President and Chief Financial Officer.

The format for today's call is as follows: First, Roger will provide an overview of our business and then Tom will provide an update on a number of operating results and initiatives, then Braxton will review the financial highlights of our first quarter followed by a question and answer session.

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 visiter relations section of our website 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 we will discuss in this conference call may constitute forward-looking statements within the meaning of the 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 assure you that the expectations discussed on this conference call will be attained.

We also encourage you to 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 first quarter may not be reflective of results for 2008 nor any subsequent period.

For any one listening to a taped or webcast replay or reviewing a written transcript of today's call, please note that all information presented is current as of only May 6, 2008, and it should be considered valid only as of May 6, 2008, regardless of the date reviewed or replayed.

MetroPCS disclaims any intention or obligation to revise any forward-looking statements whether as a result of the new information, future events or otherwise, except as required by law.

I hope by now you've had a chance to review our earnings release issued this morning with the financial results for the further.

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

We intend to file our 10-Q later this week or early next week.

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

Good morning, everyone, and welcome to the MetroPCS first quarter 2008 earnings call.

Thank you for joining us this morning.

I'd like to start this morning's call by discussing what we believe was a significant shift in the wireless industry this quarter.

We believe the industry has passed an inflection point during the first quarter as all the national wireless players introduced unlimited wireless service calling plans.

As pioneers in the unlimited wireless space, we believe this industry trend towards unlimited service plans is a natural progression in the industry.

This new focus on flat rate services created by MetroPCS is recasting the entire industry's approach to wireless services.

Bear in mind, the national carriers unlimited plans are generally two to three time more expensive than our existing plans.

Now for the first time, customers can make a truly educated decision with regard to our plans versus the national carriers.

Given the value in our service offerings and our industry-leading low cost structure, we expect to compete very well in this new environment.

Our first quarter results were very strong with 452,000 net additions, particularly considering the challenging macroeconomic environment.

In the past six months the momentum of our business has been strong, and in that time we've added over 750,000 subscribers.

Additionally, at the end of first quarter, we launched service in Las Vegas ahead of schedule, and we're proud to say that this is the first commercially launched AWS U.S.

market in the United States.

We look forward to look forward to launching additional Auction 66 Markets later this year and into 2009.

We believe our strong subscriber growth is driven by customers continuing to realize the value within our service.

Every one of our operating markets, including our core markets, continues to report positive net additions resulting in increased penetration and total subscribers.

As we announced in April, we currently serve over 4.4 million subscribers, representing total subscriber growth of over 30% when compared to the first quarter of 2007.

We firmly believe that our value proposition is compelling regardless of economic conditions.

We also feel that in the midst of a U.S.

economic slowdown, our simple unlimited service plans present the best value proposition as evidenced by this quarter's results.

We believe that wireless service has become a necessity for many customers based on our predictable, affordable, and flexible service.

As the trend of wire line replacement continues, customers are consolidating their costs and their phone lines by using our phones as their own phone.

Based on our past customer surveys, approximately 85% of our customers use our service as their primarily telephone service, and we believe these customers are less likely to discontinue service.

With unlimited service offerings and no concerns with overcharges, MetroPCS is in a perfect position to replace landline phone service, and we are confident in our ability to continue to capitalize on this major trend.

With our current footprint of approximately 60 million cover tops, we are a major market carrier and we will continue to focus on the largest markets in the country as we expand.

After launching Las Vegas at the end of the first quarter, we plan to law of service in Philadelphia, Boston, and New York City later this year and into 2009.

With dense populations, attractive demographics, we continue to believe that the northeast presents a tremendous opportunity to continue our strong, profitable growth.

We will continue to innovate, expand our market segments through aggressive customer acquisition programs, and by adding value to our unlimited wireless service plans.

Since service launch in 2002, we have focused on providing an unlimited wireless service for both voice and data, and we are the leaders in offering reliable, affordable, unlimited wireless service.

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

Thanks, Roger.

I'll first talk about some high-level trends and then I'll discuss some of our operational initiatives in more detail.

As Roger stated, our first quarter was very strong, with total net additions of approximately 452,000.

In our core markets we continue to seek growth and increasing penetration with approximately 30% of this quarter's net additions coming from our core markets.

We see our growth coming from the ongoing trend of wire line displacement as subscribers increasingly use our phones as their primary communication device.

As macroeconomic pressure continues to erode disposable income, we see consumers increasingly using their wireless devices as a primary means of communication.

Additionally, we see our family plans as having a positive effect on growth and we believe they also help to reduce churn.

I will speak to our specific offerings shortly.

In our core markets, we are also benefiting from solid brand recognition, product awareness and acceptance as we have been operating in some of these markets for over six years now.

Our expansion markets growth continued this quarter generating over 314,000 net addition, and now totals over 1.6 million subscribers representing 78% subscriber growth year over year.

In some of those markets where we have been in operation for a second full year, we are seeing compelling market penetration rates and impressive metrics.

Los Angeles launched in 2007, in September, continues to ramp and our marketing efforts are bearing fruit as we see customers move from initial product awareness to consideration and purchase.

The build out of Los Angeles continues and we expect covered POPs to reach 15 million by the end of the third quarter 2008.

Within the Los Angeles metro area we recently launched service in Bakersfield, and we continue to build out into Riverside and San Bernardino counties.

At the end of the first quarter, after only six months of operations, we have approximately 2.2% penetration of marketable POPs.

Historically, there is significant seasonality in our business due to changes in customers disposable income throughout the calendar year.

Typically, the first quarter has been our strongest season quarter in terms of net additions, and we are pleased with this quarter's strong net additions of 452,000.

Every market is growing and we believe increased customer penetration in our core and expansion markets, new market launches as well as the predictability, affordability, and flexibility of our service offerings will drive continued growth across all our markets.

Our simple, easy to understand service plans given our customers protectability but in an affordable manner with flexible terms.

These service attributes are foundational and are now desired by wireless consumers.

We expect the net additions for the second and third quarter will follow seasonal patterns and be down on a sequential basis.

However, this year, we believe the government's tax refund stimulus plan with the government beginning to send checks out last week, will positively impact our second and possibly our third quarter.

It is noteworthy that over the past year our growth both within core and expansion markets has been outstanding.

Year-over-year our subscriber base grew over 12% in core markets and 78% in expansion markets.

With the inherent seasonality in our business, our churn in net additions are affected by seasonal patterns.

Typically, our churn is lowest in the first quarter and highest in the second and third quarters, moving inversely to our rate of net additions.

New market launches affect churn in that we have nearly zero churn during the first quarter after a market launch.

Churn tends to spike during the second following a market launch and continues to be elevated over the following two quarters.

Churn moderates and typically reaches a mature level by month 12.

With the recent launch of service in Los Angeles, churn in this market will elevate the overall churn number for the next several quarters before maturing to historical average by month 12.

Recently we have announced the launch of service in Las Vegas, Bakersfield, and Jacksonville.

MetroPCS continues to build out new service areas to provide our customers increased regional coverage and mobility.

Las Vegas and Bakersfield are strong additions to our Los Angeles market and are part of our planned West Coast expansion.

Jacksonville augments our Florida coverage that now enables consumers to travel within a MetroPCS footprint down the East Coast of Florida from Jacksonville all the way to the Florida Keys with virtually con tug cushion coverage.

Looking at our Auction 66 Markets, as I'm sure many of you saw, we launched service in Las Vegas during the first quarter of 2008, ahead of schedule.

Las Vegas was the first commercially launched AWS market in the United States and we are excited to have this market in service.

Coinciding with the launch, hopefully some of you who were at CTIA visited some of our stores and purchased a phone or tried our service.

Looking at our other current market builds, in Philadelphia we have both macro and [DAS] construction well underway.

We completed our first internal call off of our new switch last week, and we are making significant inroads with our branding and go-to-market strategy in Philadelphia.

We remain optimistic about a launch in this market in the fourth quarter of this year.

Excitement continues to build for our launches of service in Boston and New York City, which continue to be on track for our scheduled launches during the first quarter 2009 and the first half of 2009 respectfully.

[DAS] networks and macro sites are being constructed.

Telco and infrastructure are well underway and internal metro teams are making great progress.

We remain confident that our collective experience will enable us to have an extremely successful northeast launch.

While we operate in a competitive industry, our unlimited offerings, low cost structure, and our innovative services differentiate us from the competition.

In the past nine months, we have introduced a number of innovative offerings, including mapquest on our handsets, unlimited premium 411 service, and we recently introduced chat link, an innovative push-to-talk service that permits up to 10 callers to participate simultaneously regardless of their carrier's network.

A push-to-talk session initiated on a MetroPCS enabled handset can connect callers over any network, either wireless or wireline.

We believe these innovative service offerings will be well received by our customers and help position us for continued success.

As many of you have heard, we will be launching an extremely competitive and exciting promotional offer that we call our family unlimited plan.

This new and creative plan will allow families to utilize our predictable, affordable and flexible service which we will include local, long-distance, SMS, and voice mail for up to five users for as little as $25 per user per month.

We have leveraged our low cost structure to offer a plan that is priced significantly below our competitors plans.

MetroPCS continues to be a leader in service innovation, as we provided products to benefit our customers.

Increased value that allows families to stay connected without limits at very affordable rates is a natural extension of our fundamental go-to-market strategy.

Once again, I would like to sea that we are very pleased with the first quarter 2008 results and, with that, I'll turn the call over to Braxton.

Thank you, Tom, and good morning everyone.

We recorded strong financial and operating results for the first quarter of 2008.

Today I will discuss the results of the first quarter, then I will walk everyone through our 2008 guidance, which we reaffirmed in this morning's press release.

Total revenues for the first quarter were 662 million, up approximately 23% over the first quarter of '07.

Consolidated adjusted EBITDA for the quarter was 178 million, approximately 19% higher than last year's first quarter.

We generated approximately 107 million in cash from operating activities in the quarter, down slightly from the prior year's first quarter.

We generated 40 million in net income during the first quarter, or $0.11 per share.

We are in an extremely strong financial position with approximately 1.3 billion of cash at March 31, 2008, and a net leverage of 2.28 times.

We are fully funded for all of our planned market builds with a very substantial cash cushion.

This will allow us to bring our northeast markets on line in 2008 and 2009 with no anticipated delay.

It also gives us the latitude to capitalize on other opportunities such as our recent success in the 700 megahertz auction and the Jacksonville asset purchase.

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

Our ARPU for the first quarter of 2008 was 42.22 compared to 42.54 if the fourth quarter of '07.

The change in ARPU is primarily attributable to higher participation in our family plans as well as reduced revenue from certain features now included in our service plans that were previously provided ala carte.

Even with a slight decrease in ARPU, we have increased our adjusted EBITDA margin as a percentage of revenues.

We focus on bottom lin profitability versus exclusively growing the top line.

Our CPGA for the quarter was $121 as compared to $109 in the first year's first quarter.

The $12 increase was primarily driven by the company's continued growth in the expansion markets, including the launch of service in the Los Angeles metropolitan area.

Our CPGA continues to be among the lowest the industry.

Our CPU for the quarter was 1886, representing a 1.6% increase from last year's first quarter.

The change in CPU was due primarily to expenses related to the construction of Philadelphia, Boston, New York, and in the recent launch of the Las Vegas metropolitan area.

Our CPU continues to be among the low nest industry and demonstrates a significant impact of the scaling of our business even when taking into account the expenses relate to retention and our ongoing ramp up of service in Los Angeles.

The expansion markets impacted our consolidated first quarter CPU by $3.65, resulting in a world class core market CPU of approximately $15 for the first quarter of 2008.

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

Let's start with service revenues.

On a consolidated basis, service revenues totaled 562 million, an increase of 28% over the first quarter of 2007.

Growth in service revenue for the first quarter is primarily attributable to the net addition of over 1 million subscribers since the first quarter of 2007.

In our core markets, service revenues increased 32 million, or 10%, to 369 million for the first quarter.

This increase was primarily attributable to full year net additions of approximately 311,000 subscribers during the last 12 months.

Our expansion market service revenues increased 90 million, or 88%, to 193 million for the first quarter versus 103 million for first quarter 2007.

This increase is primarily attributable to net additions of 708,000 subscribes during the last 12 months.

Now let's talk about expenses.

Our consolidated cost of service increase $43 million, or 30%, to 188 million for the first quarter.

The increase in cost of service was principally related to the increase in total subscribers and the launch of service the Los Angeles metropolitan area in September 2007.

Core markets cost of service increased approximately 7 million, or 7%, to 107 million for the first quarter from 100 million a year ago.

The increase was driven by the operating cost to support net additions of 311,000 subscribers over the last 12 months and operating costs to support the additional network infrastructure added during the year.

The expansion markets cost of service increased 36 million to 81 million for the first quarter of 2008 from 45 million a year ago.

The increase was primarily attributable to the addition of 708,000 new subscribers during the last 12 months as well as the additional network infrastructure added during the year.

Consolidated selling, general and administrative expenses increased over the past 12 months by 31 million, or 43%, to 104 million for the first quarter.

The increase was largely related to supporting the company's continued growth in the expansion markets, including our build out of the northeast markets, slightly offset by a decrease in core market selling, general and administrative expenses as a result of increased scaling of our business.

Move on to adjusted EBITDA.

Consolidated adjusted EBITDA for the quarter was 178 million with a consolidated adjusted EBITDA margin of approximately 32%.

I'm pleased to report that our core market fully loaded adjusted EBITDA as a percentage of service revenue, was over 46% for the first quarter.

During the quarter we incurred capital expenditures of approximately 184 million.

This was a consolidated number and included not only CapEx to support the growth in our core and expansion markets, but also CapEx related to our recent launch of service in Las Vegas, the continued expansion of Los Angeles, and the buildout of our Auction 66 Markets.

With respect to liquidity and capital resources, we finished the quarter with approximately 1.3 billion in cash and cash equivalents.

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

Our weighted average cost to debt for the quarter was approximately 8%, and approximately 97% of our debt is fixed by it's nature or through interest rate hedges for the next two years.

MetroPCS today reaffirms previous guidance, and, as such, expects full year 2008 net subscriber additions to be in the range of 1.25 to 1.52 million on a consolidated basis.

With 250,000 to 320,000 in the core markets and 1 million to 1.2 million in the expansion markets which does include 75 to 125,000 in the Auction 66 Markets.

The company currently expects consolidated adjusted EBITDA in the range of 750 to 850 million for the year ended December 31, 2008, which is inconclusive of an adjusted EBITDA burn in the range of 125 to 175 million in the Auction 66 Markets.

Without the adjusted EBITDA burn on the Auction 66 Markets, we would be approaching the 1 billion adjusted EBITDA range for 2008.

MetroPCS currently expects to incur in the range of 1.1 billion to 1.3 billion in capital expenditures for the year ended December 31, 2008, in it's core and expansion markets which includes 600 to 700 million in its Auction 66 Markets.

In addition, we will spend 313 million for the purchase of Spectrum and Auction 73 for the year ended December 31, 2008.

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.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Simon Flannery of Morgan Stanley.

Okay.

Thank you very much.

Good morning.

I wanted to -- you talked about some excellent penetration stats in some of the launch markets that are a couple of years old now.

I think in the past you've talked about a potential penetration in the sort of 15% range.

I just wanted to get some thoughts on where we are now, given the success you've been having and getting more experience with some of these new markets.

Is that still sort of a good aspiration target for your company overall?

And if you have any updates on Las Vegas, what we've seen so far, that would be very helpful.

Thank you.

Good morning, Simon.

Definitely appreciate the question.

I think we have talked if the past about overall potential penetration rates of 15% plus in our markets.

It's very important to note that every one of our markets continues to grow, and given the relative maturity of our core markets opposed to the type of growth we're seeing supports that type of penetration potential.

Our expansion markets have continued to perform very well and we believe that the potential is in the 15% range for those markets.

We've been very happy with the Las Vegas launch, getting to market at the end of the first quarter well ahead of our published targets I think was a real testament to the hard work of our people in the market.

Also it was the first commercially launched AWS market in the country.

Working through all of the issues from a network equipment standpoint, from a handset standpoint, from a clearing standpoint was a significant accomplishment.

Okay.

And in terms of this the sort of customer acceptance, is that similar to L.A., better than L.A.?

Simon, this is Tom.

Yes, so far we're very pleased with our customer acceptance.

As Braxton mentioned, the network is operating very well and to date we have seen things just like our L.A.

rollout; we're very pleased with it.

Okay.

Thank you very much.

Your next question comes from the line of Scott Malat of Goldman Sachs.

Thanks.

Subscribers, I think you have noted a couple times that the core markets continue to show increasing penetration, so that's probably not what everyone would have thought.

You talked about a few of the initiative that are driving these results in your comments.

Can you talk a little bit about the impact family plans have had so far, obviously with the extended roll out of family plans and then maybe give some detail on the features and the service plans that were previously provided ala carte, and then just basically the obvious question I just wanted to followup with it, it's the first conference call post the lifting of the Spectrum auction, any collusion rules, just wondering if you could provide us any kind of update on your thoughts and possible discussions would leady anything from time frames to changes how you approach the synergies or anything like that?

Thanks.

Okay.

Great.

Talking about family plan, I think it's very important to note that the family plans bring another dimension to our offerings.

The national carriers put on anywhere from 40 to 60% of their net additions on in family plans.

That is not the case with MetroPCS.

With MetroPCS, our overall penetration of family plans is less than 20% of our consolidated mix.

And the reason why, is we've had to be very innovative in the design development of this plan.

Given our targeted demographics and given our approach to the marketplace, the last thing that we would want to do is encourage non-family members to band together to take advantage of family plan pricing.

Because one of the main benefits of family plan is more stickiness with the customers and a reduced churn level.

The way we do this is with an inherent design feature in that every line in the family plan needs to be paid at once.

And, if not, all the lines disconnect.

So that virtue works very well with a family unit.

It does not work well with a band of associates or friends getting together to take care of the pricing.

We're very excited about the promotion that launched on the 1st of May on our unlimited family plan that Tom talked about.

Early results are very encouraging and, again, we see a very positive impact by continuing to promote that feature, looking at better overall retention in the marketplace.

At this point, I would like to turn it over to Roger to address your last question.

Right.

As you know, we withdrew our public merger proposal in November last year and announced that our focus would be on realizing our significant growth opportunities.

Since then, we have done just that, and we believe our results over the past three quarters, as well as our future growth opportunities, continue to differentiate us from the other wireless carriers.

The last point that you did ask was the ala carte features.

Let me just add that we continue to combine as we see the opportunity, shall we say push these ala carte features into our rate plans, because over time we've now been been to provide data services that at one point were ala carte and now they're combined in typically the $40 to $50 plan, but we have seen that as an opportunity.

We'll do that as soon as the economics justify that move.

Scott, you have published before your thoughts on the productivity loop or the continued reinvestment and the competitive viability of our rate plans.

That is a vision that Roger has brought to the table since the early days of this company and we will continue to invest in the offerings while maintaining a very strong EBITDA margin to further differentiate us from the competition as time goes on.

Thanks.

That's really helpful.

Just one really quick question on the math to get it right.

You mention $2.2% penetration in Los Angeles.

That's for all marketable areas in L.A., that's including those that you launched just recently?

Just wanted to make sure that's clear.

That's not the penetration the market you launched back in September, is that right?

That's correct.

That's absolutely correct.

Thanks.

Your next question comes from the line of David Barden of Banc of America Securities.

Good morning.

Thanks a lot.

Good morning Braxton and Roger.

If I could just, two questions, number one.

Obviously, heading into 2Q there's historically been a big kind of change in the pace of the business in the second quarter and we've had this kind of problem before where executions and the realities of the business model get misaligned and you talked about the impact of the potential -- the tax rebates in influencing that trend.

I think if you could be as clear as you could possibly be now about what you think the net effect of these moving forces, seasonalities plus new market launches plus older market launches plus tax refunds is going to be on the business both in ARPUs and in churn and subs I think it would be very productive for everyone to kind of get on the same page on that.

And then the second question, maybe more for Tom, a little bit, just as you've gone through now the first AWS market rollout from soup to nuts, could you kind of give us any insight as to whether you found it smoother, harder, easier, the same to get these markets turned up, turned up on time, turned up in budget, and all the pieces are ready to go when you want to launch?

Thanks lot.

Quick question, David, and I think that the right way to look at all the factors that are moving around in relation to the second quarter, is that there are puts and takes.

We all know that the macroeconomic environment continues to be extremely difficult.

Gas prices are increasing, there's more pain that people are seeing in the markets.

Offsetting that is the strong tax stimulus rebate plan that the government started last week.

In addition, the family plan promotion that Tom talked about we think will be accretive to the quarter.

But when we sit back and we look at all the factors combined, we were in the position to today reaffirm our guidance, which means our overall views on the year, and specifically on the individual quarters, has not changed.

I do want to re-emphasize that seasonality is very, very strong in this business and there is a very steep drop off of net additions in the second and third quarter followed by a nice increase in the fourth quarter and our golden quarter of the year, the first quarter, which was just finished.

But even with that, we put on well over a million subscribers for the last two years and our guidance calls for another even larger increase this year.

Tom made a very important point in his script and that was on churn.

And churn is almost inverse to the net add performance.

In periods of lower net adds, you do see a higher churn rate, particularly when you have the dynamics of new market launches.

There is essentially no churn in this model for the first three months.

Then you're seeing a peak churn in the second quarter, and it's not until really five quarters out over the completion of four full quarters that you see a churn profile that mimics that of a more mature market.

And when you're looking at launching a market the size of Los Angeles, the expectation is that there should be increased churn from an expansion market standpoint.

We were very pleased with our churn for the first quarter of this year.

Being flat year-over-year with and of these dynamics that we're talking about, and given the macroeconomic environment I think speaks very strong about our viability in this type of marketplace.

But that's really how we're looking at some of these key metrics.

At this point, David, I'll turn it over to Tom to address your question on the AWS market rollout.

Hi, David.

I think I used the characterization of smooth that you put out there that if you use our experience in building new markets, if we look at our network design that did include macro as well as [DAS] sites inside of Las Vegas, the two additional elements that we worked with were, number one, clearing, and then, number two, vendor and OEM equipment.

On the clearing side we're extremely focused.

We set up our own separate teams and continue to do that with our Spectrum and made sure we had our timing down, and that did work for us in Vegas very well.

The second factor were obviously equipment and OEM relationships and with launching on the 28th of March we were able to have equipment ready, our network was ready, so I think will we really focused on that early on and made sure we could come into Vegas on time because it was really important to us to be the first commercially launched AWS market in the United States.

Great.

Appreciate it, guys.

Thanks much.

Your next next question comes from the line of Rick Prentiss of Raymond James.

Good morning, guys.

A couple questions for you I would like to follow on.

With the family plans, Braxton, I think you just mentioned to David's question that you expect family plans to be be accretive in the second quarter.

Is that on the revenue side, is that along with churn helping on the EBITDA side?

Or what exactly does that mean?

And as we think of family plans, interesting thought about that, however, you have to pay all at once, but how do we think of that as far as affecting kind of the gross add share?

Does it stay in the 20s or get up even higher?

First question for you guys.

Yes, really good question.

It's accretive from a growth add standpoint, a net add standpoint, but I think very importantly from a churn standpoint, and the churn benefit you'll see over the course of a year as you put on increased family plan units, but specifically for the second quarter this is a very, very strong promotion and we think that it will be a accretive from a growth standpoint in the second quarter.

But, again, I just want to emphasize offsetting that is the overall macroeconomic conditions so please keep that in mind.

Sure.

Makes sense, but from an ARPU standpoint, obviously a lower price point at the $25 level how do we think about the effect that it might have on ARPU against the base, or what kind of share of gross adds we should be thinking coming along this line?

Because of the inherent limitations that I talked about earlier where every line has to be paid or they all hot line, we're not going to see the types of take rates that's national has, even on the very lower end.

So we don't really see a significant increase in the overall mix proportion of what we have historically experienced, and remember I told you this was less the the 20% of what we did.

Okay.

And I think that's important to keep in mind.

So, yes, there is a small impact on ARPU, but please remember that we're posting EBITDA margins that are truly world class.

So the overall profitability as we continue to sustain this business, even with a slight ARPU decrease is still accretive to overall adjusted EBITDA.

Okay.

That actually leads into my next question, which is on the burn rate rate and the margins that you've been seeing in the core markets and expansion markets, can you break out for us in second quarter or -- excuse me, first quarter actual how much Auction 66 burn there was?

I think for the annual guidance you're saying 125 to 175 million worth of burn, but how much did we see in the first quarter?

Rick, I appreciate the question, but the only thing we're commenting on at this point is the overall annual burn rate.

Okay.

Do you anticipate that some point letting us know know how you did versus that guidance?

We'll have to take a look at that issue.

Okay.

And then my final question, I guess, would be on L.A.

POPs, going back to the earlier point.

2.2% penetration on L.A.

POPs.

Where are your L.A.

POPs right now?

I think you started probably around 11, you're heading to 15 by the end of the third quarter, but where were we at the end of the first quarter?

Well, those were -- let's be clear.

Tom said that was by penetration of marketable POPs, and we've talked about before that increasing that market to its overall footprint that we have in mind of 15 million covered POPs, until we get there, your marketable POPs are a subset of your overall covered POPs and that's really important because you don't want to market too heavily on the fringes of your covered POPs because because you don't want to bring customers in that this service footprint doesn't work for, so you definitely bring in your marketable POPs.

If we were to look at first quarter as far as covered POPs in L.A.

and marketable POPs in L.A., do we know roughly where that would be?

Can you share that with us?

Rick, that's just not a number that we're disclosing.

We don't get into individual market market specific disclosures.

What we're trying to do is provide color and feel for how well the Los Angeles market is doing without disclosing a specific point estimate on a net adds number.

Rick, it's kind of a work in progress, so I think those numbers will be disclosed once we get to a build out point.

That I think is probably the best way to tackle it.

Okay.

And so just maybe from a broad standpoint, maybe percentage wise, marketable POPs versus covered POPs, I wouldn't think there would be a drop to like 60% to 70% of covered POPs being marketable, it would be some higher number, wouldn't it, just to kind of frame it for us?

Absolutely.

All right.

Thanks a lot, guys, good luck.

Your next question comes from Todd Rethemeier of Soleil Securities.

Good morning, guys.

Two questions for you if I could.

First, have you seen any change the competitive dynamics just recently?

I know on their call last night, Virgin Mobile talked about it's new price plans and success it was having there.

And then the second question, any color on the success of the Wal-Mart channel?

Thanks.

On the competitive dynamics, as Roger mentioned, all of the nationals have come out with their unlimited plans.

What we've tried to too with that is actually utilize that and leverage that, hence the introduction of our family plan nation wide.

In terms of Wal-Mart, it is a strong partner for us.

We believe there is a lot of growth going forward, and as we roll it out nation wide, we think we'll see increased penetration as we actually expand the market through that national retail partner.

Virgin Mobile specifically, now that you asked, we really haven't seen that is as a major factor in our market, so maybe that change is too new or certainly we have not seen or felt any impact from it.

Okay.

Thanks.

Your are next question comes from the line of Brett Feldman of Lehman Brothers.

Thanks for taking the question.

You guys alluded early in the prepared comments about the introduction of unlimited plans and all of the major national carriers and it does create a very interesting comparison with your service.

If you look at what AT&T and Verizon is offering, it is basic unlimited voice for about $100 a month for an individual where as with your promotional family plans it can get as low as $25, and the key difference is really just coverage, so it is starting to highlight a very significant value opportunity by having more coverage.

I guess my question is, are you at all surprised by how accretive ARPU can be if you can offer service nation wide, and does this change your view as to whether or not you could be taking steps towards having a broad nationwide footprint?

Well, I think the -- certainly it's an interesting question, and I think the answer is there is that segment, but there's also a segment that we serve.

What you do see, though, particularly in times like we're experiencing now, if I can save $300 a month with four lines, I'm highly motivated to do it unless I truly have all family members in the very, shall we say, important traveling mode where they really do need nationwide coverage.

Our point with the family plan is that we think there's a very high propensity of families that particularly the family members do not require, specifically do not require the national roaming plan even though the head of household and even perhaps the spouse might.

So the thought that is basically this is an area where coverage, particularly national coverage, would probably have the least impact on us.

I guess I'm sort of alluding to your prior offer for [leap] because if you look at it now, what you have is $100 a month for outstanding nation wide unlimited service and $40 to $45 a month for outstanding unlifted service in a fixed geography or anywhere within your pockets of service.

Are you thinking that maybe there's a bigger market somewhere in between and that that might change your calculus as to what you would get out of being a bigger company?

Well, I think that there's -- the answer to the question is specific that the more market segments that you can serve, the more attractive it is.

However, I keep going back to the point that I ask you how many families, particularly families we're talking about children and families, need national coverage.

We think this is a very strong plan under it's own principles.

And bear in mind in places like California and Florida now, there's a very large area that people can take advantage of but, once again, the family plan gave us a unique opportunity to pinpoint family members and even spouses that don't tend to have the same geographical, shall we say, coverage needs that a head of household would.

Okay.

That's fair enough.

I'll ask one other unrelated question.

As you're looking at your build out in the northeast and you comp it against your experience in L.A., if you ignore the potential clearing issues, are you generally finding that it's easier or harder to get your network build at the pace you would like in the northeast?

I know L.A.

ended up having a little bit of a delay versus your initial expectations.

Are you seeing the same thing in, say, New York, for example?

All of these markets, particularly New York and L.A., have their own challenges, but I would say that the use of our distributed antenna systems has put us, we think, right on track for scheduled launches.

We feel very confident that the dates that we've given you all will be met.

Okay.

Thank you for taking the question.

Your next question comes from the line of Phil Cusick of Bear Stearns.

Following up on the family plan just quickly.

What is the level of churn reduction?

Can you help us quantify that versus the typical customer?

It's favorable, Phil.

I would put it somewhere in the range of maybe up to half of the normal churn profile.

Okay.

And then in the past, you've given us updates on and of the toughest markets in the country.

Can you give us jump dates on places like Detroit?

How are those going and is there any change versus the mean that they are seeing as gas prices come up and things like that?

Thanks.

Phil, this is Tom.

I think our comment on Detroit would be similar to the last quarter's call where Detroit has a very high level of landline displacement replacement and our market up there performs very, very well, even with some of the worst economic conditions, so I think our answer to that would be similar to the previous quarter, it performs to expectations and is doing very well.

Are you guys seeing any shifts in the number of customers who are bringing members over from landlines in percentage of gross adds, anything like that?

Porting takes place on somewhat of a seasonal basis as well.

There's generally higher ports that will take place in the first quarter than quarters two and three, so we're not seeing anything that is seasonally out of line with past years.

We'll continue to see movement from carrier to carrier depending upon what market it is, but nothing is out of line compared to our year-over-year quarter over quarter seasonality.

But, Phil, remember that ports are a very small subsets of what happens here and there could be an acceleration in wire line replacement that numbers aren't coming over, and we're just adding incremental lines because of that.

To your point on Detroit, Detroit has a much higher percentage of wire line replacement than the rest of the country and we think that's because of the depressed economic conditions that have been out there since we launched the market back in '06, and we believe is that tough economic times can results in an acceleration of that trend.

I think you're hearing that from some of the wire line providers.

Your final question comes from the line of Romeo Reyes of Jefferies and Company.

On family plan, just a clarification, please, if you wouldn't mind.

Did you say it's less than 20% of gross adds of the net adds?

I don't know if you clarified that.

Typically less than 20% of our gross adds.

Of your gross adds.

Okay.

Good.

Now, in terms of the, are there any incentives that you are putting in place with plans with ABP or are you giving add on lines may be cheaper less expensive handsets?

What's the catch here.

If the ARPU is a little bit less and the churn is a little bit less, that's great, but is there also a benefit on the CPGA side?

Not that we can see.

Our standard offering for purchase of handsets stands.

We've not taken any steps to either further subsidize those handsets, so it's ordinary course of business on that customer transaction as they buy their handsets.

Okay.

And just one last question.

Did you disclose CapEx for Auction 66 the quarter?

We just disclosed consolidated CapEx.

Okay.

Great.

Thanks.

Thanks Romeo.

Thank you.

I would now like to turn the call back over to Roger Linquist.

Thank you all.

We appreciate -- thank you again for participating in today's call.

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

Thank you all.

Ladies and gentlemen, this concludes the MetroPCS Communications 2008 first quarter conference call.

Thank you for your participation.

You may now disconnect, and have a pleasant day