T-Mobile US Inc (TMUS) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by.

Welcome to the MetroPCS Communications third quarter 2008 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 call is being recorded today, November 5th, 2008.

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

Keith Terreri, Vice President and Treasurer for MetroPCS.

Please go ahead, Sir.

Thank you, Dennis, and good morning, everyone.

Welcome to our third 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.

Then Tom will provide an update on a number of operational results and initiatives.

Then Braxton will review the financial highlights of our third quarter, followed by a question-and-answer session.

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

We reconcile these historical non-GAAP measures to GAAP measures in our earnings release which is available in the Investor Relations section of 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 in this conference call may constitute forward-looking statements within the meaning of federal securities laws.

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

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

We cannot assure you that the forward-looking statements 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 like to remind you that the results for the third quarter may not be reflective of results for 2008 nor any subsequent period.

For anyone listening to a taped or Webcast replay or reviewing a transcript of today's call, please note that all information presented -- including our reaffirmation of guidance for 2008 and our new guidance for 2009 -- is current as of November 5th, 2008, and should be considered valid only as of November 5th, 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 new information, future events or otherwise, except as required by law.

The country does not plan to update nor reaffirm guidance except through formal public disclosure pursuant to Regulation FD.

I hope by now you have had a chance to review our earnings release issued this morning with the financial and operational results for the third quarter.

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

We intend to file our 10-Q by Monday, November 10th.

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 third quarter 2008 earnings call.

Thanks for joining us this morning.

We are very pleased to report strong third quarter results in both our core and expansion markets, which have been driven by our continued focus on the fundamentals of our business.

Our third quarter and nine-month results demonstrates the resiliency of our business in this very difficult economic environment.

[In] historically seasonally weak quarter we are very happy to report roughly 250,000 net subscriber additions over double what we reported in last year's third quarter and churn was down year-over-year in both core and our expansion markets.

Importantly, we are also pleased to report that our growth continues.

And we have achieved another significant milestone having recently surpassed 5 million total customers.

Over the past four quarters, we have witnessed nearly unprecedented economic turbulence and disruption.

I'm pleased to report that over the same time period, we have added approximately 1.2 million new subscribers, continue to add new services to our plan and have seen impressive results with the recently launched MetroFlash service.

While our focus has been and remains on serving major metropolitan areas, we have continued to expand coverage in our existing markets adding Shreveport and Bossier City to our Dallas-Fort Worth footprint, as well as our launch this week in Central and Western Michigan.

July 1 we launched service in Philadelphia, our first Northeast market launch.

For nearly six years in a row now, we have reported year-over-year quarterly subscriber growth of at least 30% and at the end of third quarter of this year, we served over 4.8 million subscribers.

Our core markets continue to grow and our expansion markets are also performing very well.

Building on the strength and momentum we are experiencing in 2008, we expect our growth to continue and today issued guidance for 2009.

Our strong results are driven in part by our ongoing trend of wireless, wireline replacement.

Voice is indeed going wireless.

Based on the results from a number of studies, more and more homes are going completely wireless.

Nationally according to government studies, roughly 16% of homes have already cut the cord entirely.

According to a recent JD Power study, 27% home users have replaced their land line usage with mobile phones for daily calling.

And Nielsen study done in July of 2008 predicted that wireless-only households could increase reaching one in five by year's end.

These trends are projected to continue and are even more pronounced within our subscriber base and could accelerate, given continued economic strain and weakness.

People are increasingly cutting the cord and we believe that since telecommunications has become a necessity, wireless has become the new safe haven.

We believe MetroPCS's affordable unlimited service is perfectly positioned to replace land lines across the US and facilitate voice traffic going wireless.

Introduced late in the second quarter, MetroFlash is an evolutionary service which allows consumers with compatible CDMA handsets to become MetroPCS customers.

After a full quarter of offering this service, the results have been extremely positive.

With strong results thus far, we are excited about the future potential of MetroFlash.

Not only is MetroFlash a cost-effective way for customers to join the MetroPCS network, it also utilizes CDMA handsets that would otherwise likely end up going into landfills.

In this time of economic weakness, people have the ability to join our network and experience the benefits of our unlimited service without the cost of a new handset.

The overall momentum in our business continues to be strong, and after launching in the Philadelphia market on July 1st, we look forward to our ongoing future expansion into the Northeast with Boston and New York scheduled to launch in early 2009.

Late in the quarter, we announced a national roaming agreement with Leap Wireless.

We are very excited about this roaming agreement which covers both ours and Leap's current and future markets and which, when fully built, could ultimately cover the top 200 markets in the nation and would effectively be a fifth national network.

This agreement greatly expands the service area available to our subscribers and makes our service more attractive for current and future customers.

We believe this agreement will be accretive in several ways, including increased penetration, increased ARPU, and reduced churn.

We expect to launch new services utilizing this agreement to our customers within the next few weeks.

Our coverage is focused on major markets, and as we expand we will continue to focus our future buildouts on the largest and most dense markets in the country, or on metropolitan areas adjacent to existing markets.

It is important that we continue to capitalize on the opportunities for growth and with our fully funded business plan, we see a tremendous opportunity in the Northeast.

We believe this area presents an opportunity for us to maintain our strong profitable growth in dense urban areas, and we are currently in the process of completing our buildout of the Northeast.

And given the opportunities we see for continued growth, we today issue guidance for the full year 2009.

This time of economic weakness, we are executing on our business plan and we are investing in and positioning the Company for continued success.

Our mission remains the same -- to provide our customers with innovative services, expand our market segments through aggressive customer acquisition programs, and provide predictable, affordable, and flexible as well as unlimited service plans.

We are confident in our strategy and believe our strong results demonstrate the strength and resiliency of our business as well as our focus on the execution of our strategy.

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

Thanks, Roger.

The third quarter certainly presented many challenges for wireless operators.

MetroPCS experienced tremendous growth as we provided real value for consumers with demanded flexibility and continue to reap the benefits of our valued proposition.

We are very pleased with our third quarter.

Total net additions of approximately 250,000.

Our churn for the quarter came in at 4.8%, down 40 basis points when compared to the third quarter of last year, which was the result of lower year-over-year churn in both our core and expansion markets.

We believe the strong net additions and our lower churn in a historically seasonally weak quarter in the midst of a very challenging economic environment are the result of a number of drivers, including the ongoing trend of wireline replacement; the predictability, affordability and flexibility of our service plans as well as a Company-wide focus on execution.

Our brand is recognized and in demand.

Additionally, we are very pleased to report we recently surpassed the 5 million subscriber milestone.

We are committed to providing consumers with an affordable, worry-free, quality, wireless experience.

All levels of our sales force are trying to sell, based upon a customer's specific needs.

We continue to provide services like MetroFlash and Loopt that provide value on an individual basis.

We have truly responded to our customers' desires by matching innovative services to economic needs.

We also plan to leverage our roaming agreement with Leap with new enhancements in the near-term, all of which we believe will benefit our customers greatly and be ARPU accretive.

It is estimated by year-end approximately one out of five consumers will replace their land line phones with wireless.

And we believe MetroPCS has tremendous future opportunities to participate in this wireline replacement.

Within our subscriber base the statistics are even more compelling.

In customer surveys we have conducted, approximately 90% of our subscribers use their MetroPCS service as their primary phones.

Approximately 60% of our subscribers either do not have a land line phone or have completely replaced their land line usage with MetroPCS unlimited service.

As Roger has said, voice does go wireless.

During the third quarter, our core markets continue to grow and are currently penetrated on a consolidated basis at approximately 12.5%.

Our core markets have added over 268,000 subscribers in the past 12 months, representing incremental penetration of 1.2%.

In a historically seasonally slow third quarter, coupled with a weaker economic environment, we are pleased to see 30,000 net additions in a total core markets subscriber base of over 2.8 million, representing 10% growth from the same quarter a year ago.

The growth within our expansion markets continues to be outstanding.

Our first expansion markets were launched three years ago and now, in total, serve over 2 million subscribers.

When compared to the third quarter of 2007, total subscribers have grown 84% in just 12 months.

anticipate growth to continue as we launch additional markets and expand our coverage footprints in existing markets.

As noted earlier, we announced the launch of MetroFlash late in the second quarter, which enables consumers to utilize their compatible CDMA handset to join the MetroPCS network.

MetroFlash allows people to experience MetroPCS network without the cost of purchasing a new handset.

In this time of economic constraint, consumers have gravitated towards the affordable and predictable service of MetroPCS and enjoy unlimited calling.

Looking at some of our more recent markets -- Philadelphia, which launched on July 1st, is our second significant Auction 66 market to launch.

We are pleased to be the only provider currently in Philadelphia with a flat rate, unlimited wireless service.

Regarding Boston and New York, we are executing on our plans and construction of the networks continue.

We are on track for our scheduled launches of both markets during early 2009.

We are extremely focused on these market launches, as we believe these significant initiatives are the key drivers to maximize shareholder value.

The Northeast will soon have an opportunity to unlimit their family, untether their home and enjoyed the freedom of MetroPCS service.

Our industry is competitive and we believe our continued focus on cost controls, providing unlimited highly differentiated service offerings and superior customer service will continue to separate us from the competition.

Our recent JD Power Customer Service Award illustrates our continued focus on providing a superior customer experience across all of our operating markets.

With MetroFlash and the new roaming agreement with Leap, the last major barriers are being removed.

We anticipate that when all of our markets are fully built out, our roaming agreement with Leap will -- in total, covering nearly the top 200 markets in the United States, providing us with an even more attractive serviceable footprint.

We are very pleased with the third quarter 2008 results and with that I will turn to call over to Braxton.

Thanks, Tom, and good morning, everyone.

We recorded strong financial and operational results for the third quarter 2008.

Today I will discuss the results of the third quarter, then I will walk everyone through our 2009 guidance, which we issued in this morning's press release.

Total revenues for the third quarter were approximately $687 million, up 23% over the third quarter of 2007.

Consolidated adjusted EBITDA for the quarter was $201 million, approximately 9% higher than last year's third quarter.

We generated approximately $196 million in cash from operating activities in the quarter, an increase of $23 million from the prior year's third quarter.

We generated approximately $45 million in net income for the third quarter or $0.13 per share.

We are in a very strong financial position with approximately $1 billion in cash at September 30, 2008.

Our net leverage was [2.6] demonstrating the ability of our model to significantly reduced leverage over time and our debt maturities are in 2013 and 2014.

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

Our financial strength will allow us to bring our remaining Northeast markets online in early 2009 with no anticipated delay.

We believe our strong financial condition and significant liquidity is a significant differentiator and will allow us to capitalize on unique opportunities for future growth.

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

Our third quarter 2008 ARPU was $40.42, down 3% when compared with $41.77 in the second quarter of 2008.

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

Even with the decrease in ARPU, we have increased our core markets, adjusted EBITDA margin as a percent of service revenues from just under 48% in Q3 '07 to 49% in Q3 '08.

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

With that being said, we are not comfortable with further declines in our ARPU.

And we have taken significant steps that will be ARPU accretive over the upcoming quarters.

On October 1st, we eliminated unlimited text messaging from our $40 rate plan.

This change reverses the inclusion of unlimited text messaging in our $40 rate plan that was initiated in 2007.

It has been a major driver in our declining ARPU over the past year.

Our $40 customers can still enjoy unlimited text messaging for a $3.00 per month add-on feature.

Additionally on October 1st, we instituted a requirement that MetroFlash customers purchase a $40 or higher rate plan.

Our upcoming enhancements leveraging our roaming agreement with Leap will also be ARPU accretive.

Our CPGA for the quarter was $124 as compared to $126 in the prior year's third quarter.

The $2.00 decrease was primarily driven by a 39% increase in gross additions.

It is important to note that we did not spike our acquisition costs to drive the exceptional third quarter growth.

Many competitors attempt to buy growth during slower periods regardless of the impact on the lifetime value of the customer.

This is not the MetroPCS approach.

Our CPGA continues to be among the lowest in the industry.

Our CPU for the quarter was $18.18 as compared to $17.81 in the prior year's third quarter.

This modest increase in CPU was due primarily to expenses related to the construction and launch of Philadelphia, as well as the ongoing construction of Boston and New York.

Our CPU continues to be among the lowest in the industry and demonstrates the significant impact of the scaling of our business even when taking into account significant expenses related to our Northeast market builds.

The expansion markets impacted our consolidated third quarter CPU by $4.04 representing a world-class core market CPU of $14.14 for the third 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 revenue totaled approximately $611 million, an increase of approximately 25% from the third quarter of 2007.

Growth in service revenue for the third quarter is primarily attributable to the net addition of approximately 1.2 million subscribers since the third quarter of 2007.

Our consolidated cost of service increased approximately $56 million or 34% to $219 million for the third quarter.

The increase in cost of service was primarily related to the increase in expansion market cost of service including the increase in total subscribers as well as the continued substantial buildout of the Northeast markets.

Consolidated selling, general and administrative expenses increased over the past 12 months by $32 million or 38% to $117 million for the third quarter.

The increase is largely related to supporting the Company's continued growth in the expansion markets including our buildout of the Northeast markets.

Consolidated adjusted EBITDA for the quarter was $201 million with a consolidated adjusted EBITDA of approximately 33%.

I am pleased to report that our core market employee loaded adjusted EBITDA as a percent of service revenues was 49% for the third quarter.

During the quarter, we incurred capital expenditures of approximately $272 million.

This was a consolidated net burn, 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 and Philadelphia, and the buildout of the New York and Boston markets.

With respect to liquidity and capital resources, we finished the third quarter with approximately $1 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 September was less than 4 times.

Our weighted average cost of debt for the quarter was approximately 8% and currently approximately 97% of our debt is fixed by its nature or through interest rate swaps.

MetroPCS today reaffirms its previous guidance provided on November 14, 2007 and as such expects full year 2008 net subscriber additions to be in the range of $1.25 million 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.

The Company currently expects consolidated adjusted EBITDA to be in the range of $750 million to $850 million for the year ended December 31st, 2008 which is inclusive of and adjusted EBITDA burn in the range of $125 million to $175 million in the Auction 66 markets.

Without the auction, without the adjusted burn on the Auction 66 markets we would be approximately approaching the $1 billion adjusted EBITDA range for 2008.

MetroPCS expects to incur in the range of $1.1 billion to $1.3 billion in capital expenditures for the year ended December 31st, 2008 in its core and expansion markets.

In addition, we paid $313 million for the purchase of spectrum in the Auction 73 during the nine months ended September 30th, 2008.

For the year ending December 31st, 2009, MetroPCS currently expects net subscriber additions to be in the range of $1.4 million to $1.7 million on a consolidated basis.

The Company currently expects consolidated adjusted EBITDA to be in the range of $900 million to $1.1 billion for the year ended December 31st, 2009.

MetroPCS currently expects to incur capital expenditures in the range of $700 million to $900 million on a consolidated basis for the year ended December 31st, 2009.

MetroPCS currently expects to reach free cash flow positive on a consolidated basis in late 2009.

The Company currently plans to focus on building out networks to cover approximately 40 million of total additional population during 2009 and 2010, including the launch of Boston and New York metropolitan areas in the early 2009.

This expansion and cover pops represents a doubling of cover pops served by MetroPCS when compared to the beginning of 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) Ric Prentiss from Raymond James.

Good morning.

Couple of questions for you.

First on your reaffirmation of the '08 guidance of EBIT from $750 million to $850 million with a burn of $125 million to $175 million.

Can you update us a little bit about how the burn is coming along?

Philly looks like it was a good launch, but obviously it takes probably what, a few quarters to turn EBITDA [positive]?

So just maybe an update as far as how that looks on '08 actual from the burn?

Yes, sure.

First of all, our markets typically reach EBITDA breakeven in three to four quarters.

So when you are launching new markets, you continue to have a burn for a period after the launch date.

What we have disclosed when you look at our CPU metric, the impact of our expansion markets on our consolidated CPU has been over $4.00.

So you can usually do the math based upon the weighted average subs in the quarter to understand the impact of the expansion markets on the consolidated metrics.

Right.

So looking at that $4.04, looks like north of $50 million maybe impact within the third quarter.

Is that a good assumption then?

That's how the math would work out.

Yes.

And then as we look to your '09 guidance, should we expect a burn of a similar dollar magnitude in '09 even though you haven't explicitly said it?

Or would it be dramatically less than the '08 burn that we saw?

Yes.

I think directionally with the significance of the launches that are out there, we are not specifically guiding to that number.

But given the significance of the launches, I think that you should be expecting more of a burn already incorporated in the guidance that we have given.

Then another question -- this is all one question with about 12 subparts, but the now Boston and New York being considered "early '09".

Previously I think it had been the first quarter for Boston, first-half for New York.

Does early imply earlier for New York then or just how should we think about early versus previous schedules?

What we meant to do here was really reaffirm our previous guidance and we are just saying it in a different way.

Okay.

Then the final question would be Sprint has mentioned recently that they are not going to sell their iDEN network or their iDEN business.

They anticipate launching an unlimited plan using the boost brand on iDEN technology.

Can you talk a little bit about what you have seen in marketplaces where Boost has had the $1.00 a day plans although fairly limited what you can actually get to that $1.00 a day.

And have you reflected Sprint coming to town in '09 in your guidance that you've given for '09?

Yes.

We take provided guidance extremely seriously.

And we looked at all of the factors at hand when providing you with this guidance for the upcoming year.While you never want to discount the competition, we've all seen Sprint play this hand before with predictable results.

I think both MetroPCS and Leap have commented publicly for multiple quarters that Boost Unlimited was really having no measurable impact on operating markets.

And the continued -- it's the same, really continues to be true with this $1.00 a day offering.

(technical difficulty) You can see the results for our third quarter.

You can see that we just surpassed a very significant milestone of 5 million subscribers.

I believe your note this morning touched on that.

I think a couple of other factors to consider is Sprint pulled the last offering due to churn that was just under 10% and intense cannibalization of the Sprint postpaid base.

There's been a lot of people commenting on that.

And when you look at pricing, you have to always consider the cannibalization issue.

iDEN is a high-cost delivery platform, much higher than CDMA, even with no incremental CapEx investment.

And you are restricted to Motorola handsets which results in higher costs and minimal selection.

I think a final point here is that iDEN really doesn't have a data upgrade path.

All in all, given the significance deteriorating EBITDA and the extremely high overall cost structures of Sprint/Boost, I think they are the least prepared of all competitors to compete on price.

So the way we are viewing it is, you never discount the competition, but we have seen this hand played before.

Mike McCormack with JPMorgan.

Thanks for the clarification on some of the ARPU changes we might expect over the coming months.

But, Braxton, maybe just a couple of comments on the ARPU as far as distribution of rate plans.

Could you give us a sense for -- I guess, the MetroFlash customers based on your comments are probably opting for a lower rate plan.

But maybe how the distribution is trending, whether or not the economy is having an impact on that?

Then secondly, I'm assuming Family Share penetration is relatively low and that seems to be an incremental pressure as well.

Just a sense maybe for how the Family Share penetration is tracking?

Thanks.

Sure.

It's really interesting, we don't think the economy really has been having a significant impact on the mix of our rate plans.

As we have disclosed in our [Q] and have continued to talk about on today's call, we believe that the change in ARPU is solely the result of decisions we have made as a company.

Specifically the inclusion of unlimited text messaging in '07 and our $40 rate plan as well as the Family Plan.

The Family Plan, while it does drive a lower ARPU, it does bring other substantial benefits to the table.

Specifically what we're seeing is the churn profile that is essentially approaching half of that of a non Family Plan customer.

Very important and very fundamental to the lifetime value of a customer.

So there's always a trade-off, but we were very very clear that we are not going to, as a company, tolerate additional decreases in ARPU and have taken very significant steps and will be taking additional steps with our upcoming announcement of what we are going to be doing leveraging our groundbreaking agreement with Leap on the roaming agreement for the future.

We definitely expect good things to happen here and we are focused on execution.

Braxton, what do you think on the Leap roaming agreement as far as the cost side?

Do you anticipate higher minutes of use?

And I'm assuming you are going to price that accordingly, but how do you frame that?

We would love to go into detail, but we have made a commitment to our marketing team that we are not going to steal the thunder at this point.

I can assure you that in the next few weeks, we will have a full announcement of what it is going to be.

I think you'll see very, very innovative and very aggressive leveraging of this agreement in the marketplace.

Great.

Thanks.

Simon Flannery with Morgan Stanley.

Good morning.

Braxton, can you talk about the sort of environment you were assuming when you made your 2009 forecast in terms of recession recovery or continuation of the same conditions?

And can you give us any sort of sense of how we should think about churn and ARPU this year versus next year?

And what is implied in your guidance?

And related to the economy, we have seen a big drop in gas prices.

You cited a strong October.

Are you seeing some relationship there that your core customers has a few more dollars in their pocket and that's certainly helping you at the margin?

Thanks.

First of all, our view is that the economy is going to continue to deteriorate.

We think that the fourth quarter is going to be very tough from a consumer spending standpoint and we really see a severe recessionary environment for 2009.

And all that was taken into account in the guidance that we were given.

Fortunately MetroPCS has an innovative business model that has proven to be very resilient during these types of market conditions.

Not only are you seeing exceptional growth coming out of this business, you are seeing it with increasing margins and you are seeing an overall decrease in churn.

Just to remind you the first quarter and second quarter of 2008, we saw a 30 basis point decrease year-over-year in our churn.

And that accelerated in the third quarter and certainly Family Plan is part of that.

But we also believe that there's more stickiness with our value proposition, given the pressure that is out there from a consumer standpoint.

Looking forward to next year we have taken very significant measures and again will continue to take measures, leveraging our agreement with Leap to increase ARPU over the upcoming year.

As to churn, we really believe that the value proposition of what we bring our customers is exceptional.

I think it will be difficult to have the type of year-over-year decreases that we're seeing, but we are very very focused on customer retention.

And I think organically there's positive fundamentals happening from a churn standpoint.

On gas prices, anything there?

I think it's another positive that's been very recent.

I filled the last night and it was roughly $2.00 a gallon, what a significant change.

That I think will be upon a positive factor in an otherwise fairly dreary fourth quarter.

Thanks a lot.

Romeo Reyes with Jefferies.

Good morning.

Just a couple of quick questions.

On the -- again, on the Family Plan here.

As you look at the lifetime value per sub, Braxton, you did mention that you're getting about half the churn.

What is the cash contribution when you look at ARPU minus CCPU minus churn times CPGA on that customer -- on the Family Plan accounts, I guess, is probably a better way to look at it, relative to accounts that are not taking this Family Plan?

Then, second question.

When you look at the $3.00 that I think you are removing from the $40 plan on text messaging, is that applied only to incremental gross additions?

Or is that something for existing subs as well?

I will take the first question.

I will let Tom handle the question about the restructuring on our rate plan.

From a cash contribution standpoint, we really don't disclose individual rate plan cash contributions.

But you can look on an overall consolidated basis and work through the numbers.

Probably the easiest thing to point to is looking at the EBITDA margins.

That's clean without a significant expansion of the Company going on, i.e., in the core markets where you have an EBITDA margin in the third quarter of 49%.

So really you have an implied margins or cash contribution there that's roughly 50% of ARPU.

Tom?

On the SMS $3.00 bolt-on, all of our new customers that will apply to it, but the existing base is grandfathered.

We've always done that with any change in our plans.

We grandfather the base and protect them as long as they are active customers.

I don't know if you mentioned anything on the roaming agreement with Leap.

Is your plan to offer the Leap footprint a la carte or is it your plan to offer it as part of some sort of new higher dollar price plan?

I have got to go back to what Braxton said.

We have been asked by the marketing team to be embargoed on that topic.

We really don't want to discuss that right now.

We think we have some exciting plans coming up and you'll see those in the next few weeks.

Thank you very much.

Scott Malat with Goldman Sachs.

Good morning.

Could you just talk about some of the roaming provisions from the FCC with the Verizon Alltel deal?

I think they mandated a four-year stay on existing agreements as opposed to maybe the two years that they had originally talked about.

It sounds good for you guys, but I'm just wondering what you were expecting and your take on it?

Scott, good morning.

First of all, I want to say that our team here has been very, very active on the hill working the issues with the Commission.

I agree, the initial release releases appear to be very, very favorable.

But in all fairness until the final order comes out to really speculate it at a more detailed level as to what the final provisions are going to look like and the impact on our business, it is just a little premature to do that.

But I do agree that on the face of it, with what we have all seen at this point it does appear to be very positive.

Thanks.

And I know MetroFlash has been going really well.

Can you talk about the priority and how much you are pushing maybe lower-cost handsets just from buying regular handsets that you have available at a lower cost?

We are always focused on providing value from a handset price.

I mean for example, we were able to do a very, very good fourth quarter buy with one of our OEMs and have a very favorable price point leveraging off of that out in the marketplace for the fourth quarter.

You've definitely seen an ongoing trend of decreasing handset prices.

I think a key point that we are trying to make is that whether it is some variability and how you are positioning handsets, you've never seen MetroPCS really try to buy the marketplace with significant subsidies on handsets to achieve growth.

I think maybe you can point to the CPGA for the third quarter and see that fairly clearly.

Certainly we are trying to be innovative.

We've had some very nice handsets with some of the Chinese-subscribed OEMs that we think have been very positive for our base.

And we will definitely continue working in that area.

Tom, do you want to add anything there?

The MetroFlash appeal from our consumer simply is that they have purchased a handset that they like.

Their service has either been terminated, or they've agreed to move on for various reasons.

And when we see them walk into the store and they ask to MetroFlash their phone to our service, generally people are looking for long-term value from the service contract.

They are trying to find ways to consolidate their expenses while not having to put out the outlay for a new phone.

So that has actually been accretive to our gross gains every month.

Thanks.

David Barden with Banc of America Securities.

Two, if I could please.

First one, Braxton, thanks for reiterating your guidance kind of all year long here, but being as we are at the and of the third quarter, the fourth quarter implied subscriber guidance suggests that the growth sequentially could be 50% or 150%.

And there's a pretty big range as to how the fourth quarter might turn out.

Obviously, you have tightened up the ARPU equation.

We are facing a tougher economic environment.

Is it fair to assume then, that relative to this guidance that you set a year ago, maybe the more conservative end of that fourth quarter range is the more appropriate?

And if you could color that with what you are seeing to this point through November, it would be helpful.

Then the second question is longer-term.

You've obviously articulated a [40] million pop build which is bigger than I think even most models over the next two years which is over and above the Boston and New York builds.

Could you elaborate a little bit?

Are those expansion market enhancements?

Are those new markets or are those core market enhancements?

Where should we be thinking about those incremental opportunities in the longer-term model?

It is very exciting, this significant expansion that this Company is going to be going through over the next two years.

And quite frankly out think we have done a good enough job articulating the other expansions that are going on within the Company.

We focused on larger markets.

Certainly we have New York and Boston coming up in early 2009.

But I don't know if you saw the other press release that we put out this morning, that we have a very significant expansion of our Michigan footprint and you've seen a lot of other expansions of our footprint occur throughout the year that we've never made a big deal or given visibility about.

The $40 million pop build to us is right down the middle and it is a combination of new markets and expansion where it makes sense of existing markets really leveraging our regional clusterization.

So, again, when you look at it, it is almost a doubling of the base of our Company from where we entered 2008 to where we are going to exit 2010.

And I think it is a very significant factor for the public to understand.

As to the fourth quarter, we've determined that we are not going to really give specific fourth quarter guidance.

I understand that you would like to see a tighter range, but we think it is really significant that we have reaffirmed our guidance every quarter during a very, very changing and difficult environment.

There's not very many companies that have been in the position to be able to do that.

I know you did see the significant announcement that we have already exceeded the 5 million subscriber number.

And it's pretty easy to do the math to see where we ended the third quarter and that probably gives you a feel for how significant the fourth quarter and how well we are doing in the fourth quarter.

Especially when considering up to half the quarter can be in the final two weeks of the month.

That's a traditional number for a lot of carriers.

Great color.

Thanks, Braxton.

Brett Feldman with Barclays Capital.

I thought we could just go back to some of the comments you made about ARPU.

On your prepared comments, you talked about some of the initiative you have in place to I think you said be ARPU accretive.

I just want to clarify what that means.

Does that mean that you actually anticipate your ARPU will begin to trend back up?

Or are you simply anticipating that these efforts will slow the pace at which you have seen pressure on your ARPU?

We believe it will trend back up.

Is that just for the fourth quarter or do you think you could see it up from current levels next year as well?

Next year as well.

Thanks for clarifying that.

The other question is when you were comparing yourselves against boost unlimited that their iDEN product, you've mentioned how the iDEN platform doesn't really have an evolution to date which is something that you clearly have on CDMA.

When you gave us your guidance for next year's capital spending, are you anticipating that you might begin to make some investments in 3G services?

I think this would be a great time for Roger to talk a little bit about our roadmap from a data standpoint and from a technology standpoint.

Roger?

Yes.

We've indicated before that we have been investigating what best course for us to take, and it appears that long-term evolution or LTE is our best path.

And we will have more information on that, certainly, as time progresses.

But our focus right now is to make sure that we can provide really innovative services in the timeframe we are shooting for in 2010.

All I can say at this point is that there will be more to come on that.

But we do intend to have a broadband plan that does provide for some very innovative services at the early timeframe of what we would expect is 4G.

So does that mean you are probably going to skip a traditional 3G upgrade?

Yes.

We've indicated in the past that the 3G upgrade is kind of a -- call it a point of having not really the attractive services that really require higher speeds.

But these services are coming to pass; and we feel they will be unnecessary to have kind of broadband speeds which we look at as more capacity than a blinding speed, but nevertheless to have these resources in place by -- and, again, I think 2010 is going to be a very important year for the industry.

Great.

Thanks for taking the question.

Thank you, again, for participating on today's call.

We know everybody has a busy day with a lot of earnings releases.

We certainly appreciate your interest and support of MetroPCS and we look forward to our next quarter and our year-end.

And as we said, we are very focused on execution and continued progress.

Ladies and gentlemen, this concludes the MetroPCS Communications 2008 Third Quarter Conference Call.

Thank you for your participation.

You may now disconnect and have a pleasant day.