T-Mobile US Inc (TMUS) 2009 Q1 法說會逐字稿

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

Welcome to the MetroPCS Communications First Quarter 2009 Conference Call.

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

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

(OPERATOR INSTRUCTIONS) This conference call is being recorded today, May 7th, 2009.

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 Regina.

Good morning everyone and welcome to our first quarter 2009 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 the first quarter 2009, followed by a question and answer session.

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

We have reconciled these historical non-GAAP measures to GAAP measures in our earnings release, which is available in the Investor 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 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, should, could, would, 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 made in the forward-looking statements.

We cannot assure you that the forward-looking statements discussed on this conference call will be attained.

Our forward-looking statements also are subject to the risk factors described in our filings with the Securities and Exchange Commission and we encourage you to review them.

We would like to remind you that the results for the first quarter may not be reflective of the results for any subsequent period.

Also, I would like to remind everyone of our new segment reporting format.

Our first quarter results reflect core markets, which are comprised of all our operating markets with the exception of our northeast market segment, which includes the Philadelphia, New York City, and Boston metropolitan areas.

For anyone listening to a taped or webcast replay or reviewing a written transcript of today's call, please note that all information presented including our reaffirmation of guidance for 2009 is current only as of May 7th, 2009, and should be considered valid only as of May 7th, 2009, 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 Company does not plan to update or reaffirm guidance except through formal public disclosure pursuant to Regulation FD.

I hope by now you've had a chance to review our earnings release issued this morning with the financial and operational results for the first quarter of 2009.

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 for the period ended March 31st, 2009, by Monday, May 11th.

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

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

Thank you for joining us this morning.

With industry-leading growth and a low-cost structure, we delivered record first quarter adjusted EBITDA.

We reported approximately 684,000 net subscriber additions in the first quarter and we have added over 1.6 million net subscriber additions in the past 12 months.

In fact, based on a recent prominent third-party study, in aggregate our share of gross subscriber additions in our launched markets was higher than any other US carrier in the first quarter of 2009, at approximately 25% market share.

With the lowest CPJ in the industry, this outstanding growth demonstrates our focus on marketing, cost efficiency, and execution and is a record for the Company.

Customers in our markets continue to realize the value of our service.

And in what has been a challenging economy, we are pleased to report strong net subscriber additions in both our core markets as well as recently-launched northeast markets.

On a consolidated basis, the growth of our subscriber base actually accelerated this quarter, growing over 37% year over year compared to 30% growth when compared to the first quarters 2008 to 2007.

Helping to driver our strong subscriber growth is the continuing trends of subscribers cutting the cord.

Residential wire line access line losses at the largest national telephone companies continued in this first quarter and were over 12% year over year.

We expect this to continue as voice continues to go wireless.

Among our PCS customers, the trend is clear as nearly 60% of MetroPCS subscribers have already replaced their land line phones with their MetroPCS wireless phones.

As innovators in the unlimited wireless space, we recently introduced GroupLINE.

GroupLINE enables MetroPCS family plan subscribers to port their land line number into MetroPCS and to receive calls on a shared group line number while still maintaining their individual mobile numbers.

Our customers need only phone, their MetroPCS phone.

We believe the economy will continue to struggle for the foreseeable future.

And within the unlimited wireless space, we are perfectly positioned to continue to offer customers a superior value proposition.

Customers are looking for value and our offer of unlimited wireless service that is predictable, affordable and flexible fits this need perfectly.

Recently we have seen additional entrants into the unlimited space.

As such, the awareness and acceptance of the availability, practicality of unlimited wireless plans is growing.

We believe we execute the best in the unlimited space.

And as a result, demonstrate-- we believe we continue to grow and take share.

Analysts within the wireless industry forecast that unlimited segment of wireless will grow faster than the overall wireless segment.

As pioneers in the flat rate, no signed contract service, we are very well positioned.

Unlimited is the only thing we do and we do it well.

On February 4th, we announced the simultaneous launches of service in New York City and Boston metropolitan areas.

The northeast markets, which now include the metropolitan areas of Philadelphia, New York, and Boston, were built within a network using both macro sites and distributed antenna systems or DAS sites.

At the end of the first quarter, our networks in densely populated northeast markets covered approximately 23 million POPs.

With first quarter net subscriber additions of approximately 249,000 in the northeast, we are very pleased with our initial results.

We continue to expand coverage and add POPs outside the initial launch service areas.

In the future, we expect to connect these three metropolitan areas and provide contiguous coverage within the northeast region as well as expand into adjacent metropolitan areas.

Given the initial results, we continue to be excited about the opportunities for growth in the northeast markets.

Few facilities-based carriers can report sustained annual subscriber growth of at least 35% for over 6 years in a row.

At the end of the first quarter of this year, we served approximately 6.1 million subscribers.

Given our first quarter results, we expect our growth to continue and have today reaffirmed our guidance for 2009.

Strategically we are bracing the convergence of devices at MetroPCS.

As voice has gone wireless, data will go mobile.

We have recently introduced several smart phones including the Blackberry Curve and the Samsung Finesse.

And we intend to introduce more over the next few quarters as we want to be well positioned to bring a variety of smart phones to the marketplace of an unlimited service basis.

Ultimately smart phones will run increasingly complex applications and media-rich content.

In terms of future technology deployments, we continue to work on our transition to an LTE infrastructure platform to provide 4G data rates to our subscribers.

We are currently working with a number of handset and infrastructure providers and will announce these strategic relationships and timetables in the near future.

We continue to anticipate having an LTE smart phone solution available in the second half of 2010.

Touching on ARPU, this quarter's ARPU reflects steps we took during the fourth quarter of 2008.

We've seen a positive impact from these changes.

And based upon our current pricing projections, we continue to expect ARPU will stabilize over the next year in the low $40 range, which is consistent with our long-term plan.

Our recently announced promotional in Mexico unlimited offering is another example of how we provide extraordinary value to our customers while having a positive incremental effect on ARPU.

We continue to focus on execution and believe our results demonstrate the strength and resiliency of our business, even in these difficult economic times.

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

Thanks Roger.

The first quarter of 2009 proved to be another successful quarter for MetroPCS.

The quarter was highlighted by outstanding subscriber growth, well executed, large market launches, continued product innovation, smart phone introductions, and overall operational excellence.

We continued to show extraordinary financial and operational results as we expand our leadership position in the unlimited wireless space.

So how did we do in Q1?

During the first quarter, we added approximately 684,000 net additions with over 1.5 million gross additions.

Both of these were records for the Company.

So taking a look at the last 12 months, we've added over 1.6 million net subscriber additions.

It is clear that consumers are changing the way they think about wireless services.

The troubled economic times we're experiencing are driving a change in the way people spend money.

Consumers are looking for the most value for every dollar they spend.

We think this is a permanent change and we are perfectly positioned to take advantage of this reevaluation.

This change towards value for money has accelerated our brand position in all markets.

We have aggressively brought the brand to value and feature-seeking consumers and the result has been increased subscriber penetration in all markets during Q1.

A common remark heard in recently launched markets has been "wow, Metro, you guys are everywhere.

Thanks for coming here." And we're real proud of that.

When you take a look around the country, you'll note that very few companies have the growth story that MetroPCS has.

Even during these difficult economic times, we have continued to grow.

While other companies are cutting back during an economic era not seen since the Great Depression, we are forging ahead, aggressively acquiring customers.

AT&T added 875,000 post-paid net additions on a nationwide footprint of roughly 250 million covered POPs.

While MetroPCS added approximately 684,000 net additions on a 77 million average POP footprint.

In fact, according to independent third-party research, in our operating markets and in aggregate, MetroPCS sold more handsets and had the highest share of decision of any wireless carrier.

I think we're doing extremely well.

New York and Boston-- launches, clearly one of the most important events during the first quarter and honestly for the Company as a whole was the launch of two of our northeast markets, New York and Boston on the same day, another Company first.

New York is the largest market in the country and we're excited about the growth potential there.

While we've launched these markets, our building has not stopped.

We continued to expand Philadelphia, New York, and the Boston footprint every day.

We are pleased with our progress and excited about the future in the northeast.

Our local teams have done an outstanding job building these networks.

And the coverage quality is excellent.

Our drops and blocks are below the average of the national carriers and the in-building penetration has been outstanding.

These networks were built for high demand and high usage and they are delivering.

The increased deployment of data systems has enhanced customer experience.

And the news of MetroPCS' value proposition is spreading.

Our viral, word-of-mouth messaging is truly amazing.

We used some unique marketing tactics at launch and I wanted to quickly walk through some of those with you.

Out-of-home execution, bus routes, bus panels, subway panels, billboards, station domination, and talented, trained, energetic and engaged street teams helped introduce our unlimited offerings to the Boston and New York marketplaces.

We colored the markets purple.

We touched consumers one by one and listened and watched the word spread from Brooklyn to the Bronx and from Providence to [Lin].

As you can see from the results, customers in New York, Boston as well as Philadelphia are embracing the unlimited nature and exceptional value of the MetroPCS product.

We have an unparalleled value proposition that resonates with those who pay their own bill.

Handset roadmap-- as Roger mentioned earlier our handset roadmap continues to evolve.

We've recently introduced several smart phones including the Samsung Finesse, a touch screen smart phone, the Blackberry Curve and more recently the Motorola Hint.

We continue to work with our vendors to provide higher end handsets which our customers demand.

Based on our early experience with the Curve and the Finesse, all evidence points to the fact that our customers do want and have the money to spend on these types of handsets; handsets they can't get from other carriers with plans that are unlimited and don't require a signed contract.

Our Best Buy relationship continues to expand and is going well.

They have embraced the product and been successful early on, particularly with the Blackberry Curve and the Samsung Finesse.

More to come on this relationship as we move throughout 2009.

Products and promotions-- product differentiation and a low-cost structure will prove to be the winning combination that prevails.

I want to mention a couple of products we recently introduced that we feel will continue to fuel the growth.

We recently introduced GroupLINE, a product whereby a family can port their land line number over to a group of family members' wireless phones.

This second line on everyone's wireless handset functions similarly to multiple extensions in your home.

Group line eliminates a significant barrier to cutting the cord in that families can now all receive calls anywhere.

This enables us to continue to capitalize on the ongoing landline replacement trends in the US in this largely untapped market segment.

A promotion we launched in April was our Mexico unlimited offering.

Our subscribers can now call landlines in 200 cities and towns throughout Mexico as well text wireless callers on an unlimited basis.

Since the introduction of this promotion in the LA market, we have now successfully rolled this service out in all markets and are excited about the results.

We saw a need.

We engineered a solution.

And we delivered tremendous value.

ARPU-- the changes we made back in October 2008 are taking effect and we feel confident that we've established a good runway towards RPU stabilization.

During the first quarter, a slight decline we saw in ARPU was primarily due to lower MetroFlash activations, which was a direct offshoot of the popularity of our $49 handset.

The customers are simply choosing to spend an extra $9 and get a new handset versus paying $40 and using an older handset.

We expect new products and services such as GroupLINE and our Mexico unlimited service will continue to provide further stabilization to our ARPU.

We estimate that of the 5% churn we experienced in the first quarter, false churn is estimated at 1.7%.

Without the false churn, our churn would be in the 3% range.

The increase in churn is in part due to our record level of gross additions over the past nine months.

Additionally, sales of our $49 handset have been strong and we believe that some subscribers are upgrading their handsets as long.

As a new phone number is assigned, we are not capturing these upgrades as an offset to churn, thus, creating false churn.

During this period of heightened growth, there is a natural propensity for increased churn.

Importantly though, for tenured customers, those who have been with us over 12 months, churn has historically been in the 2% range.

We are very pleased with the first quarter 2009 results.

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

Thank you Tom and good morning everyone.

Once again we have reported record first quarter adjusted EBITDA, even with the largest gross additions and highest overall acquisition costs in our history.

We optimized all of our key metrics; ARPU, CPGA, CPU, and churn to maximize our profitability.

No individual metric dominates our financial results.

It is the focus on the entire picture and on adjusted EBITDA per subscriber that has produced these exceptional results during these difficult economic times.

We ended the first quarter of 2009 with approximately $1.1 billion in cash and short-term investments.

We believe our strong financial condition and liquidity is a significant differentiator and will allow us to capitalize on unique opportunities for future growth when they occur and will allow us to continue to be the leader in the unlimited wireless space.

Our total leverage computed in accordance with the indentures governing our 9 % senior notes at the end of March was approximately 4.5 times.

And our net leverage was approximately 3 times, demonstrating the ability of our model to significantly reduce leverage quickly over time.

With debt maturities in 2013 and 2014, a weighted average cost of debt for the quarter of below 9%.

And substantially all of our debt fixed by its nature or through interest rate swaps and with over $1.1 billion in cash and short-term investments, we are very well positioned from a balance sheet perspective.

We were pleased to see the positive impact our ARPU initiatives had during the first quarter.

Our first quarter 2009 ARPU was $40.40, down only $0.12 or approximately 0.3% when compared with $40.52 in the fourth quarter of 2008, continuing the change in our recent trajectory of this metric.

Our CPGA for the quarter was approximately $134 as compared to $125 in the prior year's first quarter, the lowest of any facilities-based carrier.

Other unlimited carriers have historically had CPGA in the $200 or higher range.

And the average of the national carriers is well over three times MetroPCS.

MetroPCS' results demonstrate incredible spending efficiency in our marketing and distribution.

The $9 increase was primarily driven by costs associated with the launch of the New York and Boston metropolitan areas.

Our CPU for the quarter was $16.69 as compared to $18.86 in the current year's first quarter.

This decrease was due primarily to continued cost reduction efforts and the increasing scale of our business offset by expenses related to our recent launches in the northeast market segment.

Our business continues to scale.

And our CPU continues to be among the lowest in the industry.

We expect our CPU will continue to decline as we achieve future economies of scale.

MetroPCS continues to focus on profitable growth and we are pleased to report that during the first quarter adjusted EBITDA was $199 million, which represents a margin of approximately 27% compared to approximately 32% the first quarter of 2008.

These results, after an adjusted EBITDA burn of $69 million for the first quarter in our northeast markets.

Our core market adjusted EBITDA margin was 38% compared to approximately 34% in the first quarter of 2008.

We believe over time all of our markets on a consolidated basis can achieve a mid 40% adjusted EBITDA margin on average as demonstrated by our original core market segment.

I'd like to highlight a few items from the income statement and cash flow statement.

On a consolidated basis, those service revenue and cost service continued to grow as our overall subscriber base increases.

In the quarter, our service revenue and cost of service grew over 29% and 30% respectively to approximately $727 million and approximately $246 million.

Our consolidated selling, general, and administrative expenses were $136 million for the first quarter of 2009, representing an increase of approximately $32 million when compared to a year ago quarter.

This increase is primarily related to the launch of the Boston and New York metropolitan areas.

We generated approximately $307 million in cash from operating activities in the quarter, an increase of $199 million from the prior year's first quarter.

Offsetting this operating cash flow, we incurred capital expenditures of approximately $313 million for the quarter.

We also generated $44 million in consolidated net income during the quarter or $0.12 per share.

I am very pleased to announce that we've completed the conversion of all of our markets to our new [AMDOTS] billing platform.

This conversion was done in less than nine months and on budget and we believe it will be a significant differentiator for MetroPCS going forward.

I would now like to discuss reporting changes that we will make starting in the second quarter of 2009.

Going forward, we will not pre-release quarterly subscriber results except for at year end.

We commenced the pre-release of subscriber results in late 2007 given the concern of how our business model would perform during difficult economic times.

That concern has been put to rest.

As a MetroPCS business model has proven to be extremely resilient.

To put any rumors to rest now, our second quarter is off to a strong start and we plan on being aggressive in capturing additional market share during the upcoming quarters.

For the year ending December 31st, 2009, MetroPCS today reaffirms the guidance it originally provided on November 5th, 2008 and reaffirmed on February 27th, 2009.

MetroPCS currently expects net subscriber additions to be in the range of 1.4 million to 1.7 million on a consolidated basis and consolidated adjusted EBITDA to be in a range of $900 million to $1.1 billion for the year ending 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 total population during 2009 through 2010, which includes the Boston and New York metropolitan areas in which service was launched on February 4th, 2009.

This is the end of our prepared remarks.

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

Operator?

(OPERATOR INSTRUCTIONS) Our first questions comes from the line of Michael McCormack with JPMorgan.

Hey guys, thanks.

A couple things, Braxton can you try to quantify for us the impact of ARPU-- of I'm sorry of the MetroFlash ARPU this quarter.

I'm assuming it was the activation revenues that you're not seeing that were flowing through ARPU.

And if we can get quantification on that that might be helpful.

And then secondly, I know you've been pretty vocal historically about Sprint's entry into the marketplace and they obviously put up some pretty impressive numbers on Boost.

But maybe just circling back on your thoughts on what demographic you think they might be targeting and what impact it might have on yourself?

Thanks.

Sure Mike.

I'll touch base on ARPU and then I'll have Roger address the question on the competition.

First of all the full change in ARPU where it decreased $0.12 was related to the change in MetroFlash.

And you're absolutely right, the activation revenues related to MetroFlash.

But I think there's a couple other pieces to the story here.

First of all, you know that really accounts for it being flat on a sequential basis.

The rest of the story is we just launched two very major markets that are ramping.

And when you look at the distribution of [ABS] during the quarter, it doesn't follow the normal distribution that we typically see in the first quarter, because you're ramping and you had a better margin.

That does have a dilutive impact on ARPU as we discussed in the fourth quarter.

The second thing we have seen which we think is a real positive is a higher take rate on our family plan during a non-promotional period than what we've experienced on a historical basis.

And if you remember Roger's talked about some of the branding that we did in the prior year for family plan and it's really resonating with our consumers.

So that really kind of fills out the picture of ARPU.

Roger?

Braxton, just maybe quickly on that.

Your thoughts going into second and third quarter in the legacy markets, do you expect any additional promotional activity in the family share?

You know, this is Tom, we will always look at what's the right thing to pulse the market with.

So I think if you just watch our offering, you'll find that family plan has always been part of our offerings.

It's never gone away.

It's always been there for the consumer to take advantage of.

Yes, let me address the question on the competition because obviously the Sprint Boost people posted some very impressive numbers.

And I think they did a great job.

I would say that bear in mind that they have roughly three times the covered pops that we do.

And I think what we're seeing is an expansion of the pay-in-advance segment for unlimited, no signed contract type service.

So I think it's really an impact of the segment growing rather extensively.

But then I come back to the fact that the numbers that we've seen from this third party looking at share, with our 25% share of gross additions being number one in the country among all carriers, it's obviously not had a great impact in our markets.

Okay, thank you guys.

Thank you.

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

Morning.

Thanks for taking the question.

I don't want to harp on ARPU, but I think it's maybe just from a bigger picture perspective, obviously a lot of focus on that metric.

I know you said in the past that you've targeted in the low 40's range, but can you take us through your bigger picture thinking here?

Meaning, the obvious goal is to maximize free cash flows, so wouldn't more subscribers on the family plans, which have attractive unit economics, just be better for free cash flow over the long run while maybe more dilutive to ARPU?

And wouldn't you be okay with that?

You know we've consistently talked about a term actually that you've coined, the productivity loop.

And we do focus on the full picture.

And if you remember some of my comments earlier, we were talking about optimizing all of our metrics from a macro standpoint to reach the end goal of profitability, which we really look at from an EBITDA per sub standpoint.

So absolutely, you know family plan is accretive to the overall profitability of our Company due to several other positive features, greater stickiness, lower churn that we've talked about in the past.

So your point is well taken.

But we've also been very clear that we're focused on in the ARPU stabilization in the low 40's.

And we believe that we've taken all the necessary impact to do that.

And you're seeing a lot of I think really innovative marketing coming out of MetroPCS.

Our unlimited Mexico offering is a good example.

Those are items that will be accretive to ARPU going forward.

Let me just add to that cause I think it's a great question.

The opportunity as we see it is in the growing this segment that is really wire line replacement and displacement I might add.

You don't have to give up your phone line to be committed to a wireless solution.

If you have other uses for it like internet or DSL etc.

The point that you make though is very important.

That the real growth segment is the wire line replacement.

And we are perfectly positioned for that.

So yes there is a balancing act on ARPU because it tends to be, at least from our offering, it tends to be a bit of ARPU decrementing.

On the other hand, we do have services as I think we've added with smart phones that do bring people to realize that there are other offerings as we have in GroupLINE that will enhance it, Mexico calling navigator, which pushes them back into higher rate plans on average.

So I think the smart phone development has been to kind of counteract that.

But we would much rather own the wire line replacement market because we think our ever-improving CPU gives us the bottom line that we need and the growth that we're after.

Thanks.

And just another question-- just on the handset pricing strategy.

The lower end phones, I'm wondering, the $50 phones, I'm wondering the churn profile for those phones.

And maybe is-- does it make sense to offer phones at low prices but maybe only give a partial or free first month?

And kind of how are you looking at the unit economics of these phones?

Thanks.

I think the-- it all comes back to the metric CPGA and churn.

I think the note that Tom made and one that's very important that there's gross churn and net churn.

And unfortunately we don't have the customer identity to absolutely nail this.

But the fact is that churn is stabilized and it has been over the last number of years, since we've been keeping this data at around 3%.

But the fact is that the so-called $49 handset buyers do have a higher false churn because they typically are through indirect dealers who don't keep this information and don't track back that a customer is basically trading in a phone that he has already on our service, if they don't require their same number.

So higher false churn on the $49 overall we don't think is a significant difference.

Okay, thanks.

Your next question comes from the line of James Breen with Thomas Weisel Partners.

Thanks.

A couple questions-- one on the market launches.

Can you talk about any competitive response you saw?

If there was a difference between Boston and New York?

And then secondly, with respect to the Blackberry, any color there in terms of how that's gone since the launch?

Thanks.

Sure, this is Tom.

On the New York and Boston launches, you know we were first of all extremely pleased.

If you go back over our history, we've always tried to take lessons learned from previous launches.

And the lessons that we learned are about coverage, coverage, and coverage.

I think Roger highlighted the use of our DAS networks in both of those markets.

And right now, we're seeing extremely good coverage, which really resonates as we increase our distribution over the course of time.

So both of those launches for us are really exciting.

We've mentioned some of the marketing initiatives that we've activated the brand with and it really resonates.

People in New York and Boston, they're just really happy that we're there.

They've heard of us and now that we're there, we're seeing very, very good results.

In terms of competitive response, I think we're going to see just an increased pay-in-advance, prepaid sector.

I think you can look around the postpaid world, there's a lot of excitement around what others have done, including us.

And we think that's only going to highlight to consumers that there's an offer out there that's now available to everybody.

And we think MetroPCS will gather our share along the way.

Blackberry-- so in introducing the Blackberry, we have utilized Best Buy as an early distribution point.

And we've seen extremely good results, just as we've recently introduced the Finesse.

The uptake in smart phone products by our customer base has actually taken us by surprise.

We've seen extremely good results.

There were times that we were not able to keep some product on the shelves in some of our Best Buy locations, which is never a good thing but a great indication of our consumer demand for the product.

We've seen a phenomenal outbreak in tweeting about our products.

And it is so viral that the minute we launched the Blackberry in Best Buy, there was thousands of tweets going on about the excitement of it inside of our customer base.

We think the products will do very well.

We've got three phones now positioned at a $249 for the Hint, at a $349 for the Finesse and a $449 for the Curve.

And we think that distribution sits well.

Great.

Thanks.

Your next question comes from the line of Phil Cusick with Macquarie.

Hi guys.

Thanks for taking the call.

Can you hear me?

Yes.

Morning Phil.

Okay great.

Going back to churn and this false churn, I just want to explore this a little more.

Can you help us out?

Cause you've given in the past what you thought that number was.

What do you think it was a year ago versus the 1.7 of the 5 today?

And then also, is this an issue that needs to be addressed?

And that you're working on or is it something you're just going to accept and say this is part of the cost of doing business and it's really not that big a deal and move forward?

We've heard about some activities with dealers in trying to minimize this.

And is it sort of a result of the first month is free if that's our business period or do you sort of explore maybe we don't want to be giving the first month free over time?

Right.

You know Phil it's amazing.

The adjusted level of normalized churn has been remarkably consistent over the last four to five years.

And actually in our analyst day that's coming up on the 15th, which I know you will be attending.

And for the people who can't attend, we will definitely have webcast with the slides.

We have actually a chart where we're showing year over year how stable it has been.

You know what you have seen is an increase in overall churn, which is an increase in false churn.

But when you normalize for that, it's really in the 3% range.

You know churn is very important.

But remember our focus is really on the all-in.

And we think the right way of looking at a business model when you're evaluating customer turnover is looking at the cost of the acquisition amortized over the life of a customer.

Churn is never a positive thing.

But if you can minimize your acquisition cost, then you can minimize the overall impact on the profitability of the company.

And we do this by taking churn by CPGA and multiplying it by CPGA.

And that gives you a monthly cost of acquisition.

And it's a really interesting analysis to do that and then to compare it to all of the other players.

And you'll see that even with a higher level of churn that you're going to have with this model as a 3% normalized range, we benchmarked very, very well against the national players when you're looking at the all-in cost of churn.

You know the false churn, you know it is something that of course we're always looking at ways to minimize churn.

I mean it's part of what we do from an operational standpoint.

But overall, we're not overly concerned because we're not seeing any adverse effect when you look at the interplay of everything and keeping our low CPGA down on the profitability of the business.

And bottom line, that's what we're here to do is create value for our shareholders.

Roger do you--

Yes I think to summarize saying that it's really the whole business cause if we can grow as we have and you've seen our growth in first quarter has been quite exceptional, the-- if you can maintain growth and you can maintain profitability, then it's the confluence of all these variables that really matter.

And in our original core markets, once again we want-- we had 48%+ EBITDA margin.

So if we can make that kind of profitability and grow this quickly, then the issue is really mute.

Okay that's great.

And if I could follow-up just for a second.

As you-- we've talked in the past how churn tends to tick up in the summer months.

We've got this false churn happening and then we've got the impact of the New York and Boston launches just recently.

Can you-- I know you don't want to give guidance but can you help us clarify what churn probably does over the next quarters?

Just to help people get an idea of what they should be looking for in 2Q and 3Q.

Thanks.

I mean I think you hit the two key factors.

I mean you can go back and you can look at the historical seasonality of churn.

And there definitely is a seasonal impact on churn.

And it's pretty simple.

Your highest churn periods are following your highest growth periods.

And the summer months for any carrier and it's the dog days of summer.

You know you always see an uptick in churn.

But you also bring up another phenomena that's going on is we're penetrating very rapidly new market segments, which have continued to show incremental growth and will continue to show incremental growth.

And you do need to model that impact.

Your next question comes from the line of Brett Feldman with Barclays Capital.

Yes thanks for taking the question.

And maybe just to get back to the topic of new competitors in your segment.

Obviously a lot of interest in Boost considering that the quarter that they reported.

And I think that people are somewhat surprised that everyone seems to be doing well.

When you look at Boost, they're technically available everywhere.

You guys obviously have a strong presence in significant markets in the country.

So it would seem that you completely overlapped with that product.

But I'm wondering if that's a too simplified of a way of looking at the marketplace.

Could you maybe give us a little bit more color on what actually happens at the distribution level?

How extensively you think their distribution is overlapping yours?

And maybe talk a bit about where most of your additions come from?

For example, what percentage come from a MetroPCS branded channel versus say a multi-branded channel where you could be on the shelf next to a Boost product?

Well I think those that first of all that we haven't released that data in the past and it's, as the nature of the question suggests, it almost suggests that we have more complete knowledge on distributors that carry multiple brands.

And that's-- even though we have anecdotal information that that information is difficult to come by, even from our standpoint.

But I would just say this that the share of gross additions in our market far exceed the share of gross additions that Boost has been able to turn up.

But they've done a good job.

And what's clear to us is that this market segment is expanding.

You know Brett I think if you-- if you look at this real simply, we use less water and we have the tallest crops in the land.

And it's really about the execution what we do locally.

It's how we activate a brand in any city.

It's the spend that we do.

It's how we maximize it.

We don't use the most expensive marketing spend.

We use things that are seen a little bit differently.

But we've been doing this now consistently since we've launched our first market.

It's in our DNA.

And it's really about execution.

You know there are times that if you study harder, you get better grades.

And I just think that's what we do.

It's about local execution.

Okay that's helpful.

And then maybe just one more quick question, make sure I get all my POPs math right here.

I think you have about 83 million POPs in operation at the first quarter?

Is that correct?

That is correct.

And then that's inclusive of 15 of the 40 million POPs you want to launch by the end of next year, right?

No, the 15 million was the initial launch in New York and Boston.

We definitely had incremental POPs in other areas and we've continued to expand post-launch in those markets.

I guess I'm just really trying to say that it looks like you are still adding-- looking at about 25 million additional POPs by the end of next year, is that right?

It would be less than that cause we've already added some of the--

And it will be building throughout this year.

So if you really do put the line at 2009 versus 2010, it'll be much more in the 15 to 17 million range.

Okay, that's what I was trying to get to.

Thank you very much.

Sure.

Your next question comes from the line of Simon Flannery with Morgan Stanley.

Thank you very much.

Good morning.

Just keeping up on the POPs point, can you just talk about what you've been doing in the first quarter in New York and Boston?

You know if you launch with 15 million, was your marketing really focused on 10 or 12 million of that?

And is it-- is that sort of steadily expanding through the quarter?

And in addition, can you talk about the impact of the roam-- national roaming deal?

How important that is?

Are you starting to see some traction with some of your higher end rates bands and some usage as a result of that?

Thanks.

Thanks Simon.

That's a great question about New York.

Let me just kind of give you the five boroughs play if you will.

We certainly focused on Brooklyn, Manhattan, Queens, the Bronx and Staten Island with our, what we'll call a Phase I approach.

We used macro coverage as well as dense DAS deployment.

And then we limited the things we did, as an example, zoned cable is how we reach the market.

We tried not to get a lot of overlap in places that we didn't have coverage to reach.

So the spend was very economical.

If you were in Manhattan for any of that point in time, you probably ran into somebody dressed in purple who was engaging and was greeting you with an offer that we had to bring you into one of our distribution points.

We also put some of our distribution points in some of the highest density traffic corridors in the city.

We're on 125th Street up in Harlem.

We are in Fulton Street in Brooklyn.

So we really measured where we should go.

We did a great job of understanding commuting corridors.

We know exactly how many people go from every borough into Manhattan and out.

In the morning you found us in Manhattan at key places.

In the evening, you found us out at the other end of the boroughs greeting people as they went home from their day in Manhattan.

We dominated major billboards and signage in the cities.

You'll find us right above Junior's in Brooklyn with a permanent billboard that's unbelievable.

We did a similar thing in Boston with our T-stop domination.

There's not as much outdoor available in Boston as there is in New York obviously.

But we made great use of our street teams as well.

And we think that initial exposure with how viral the product is, was a huge part of our success in both of those markets.

Philadelphia included, but especially Boston and New York most recently.

And on the roaming?

You had a second question?

Yes our-- you know nationwide roaming, we keep all the stats of where our customers roam to and who runs on us through all of our switches.

And we found some amazing things that maybe weren't intuitive but we found some cities such as Raleigh, North Carolina was a phenomenal commuting environment for our customers to go to, to utilize another network that we have in our roaming platform from our Atlanta market.

We have definitely enjoyed the use of this agreement and we've given people a lot more mobility, which was certainly one of the barriers that we were trying to overcome when we thought about putting this agreement in place.

So our nationwide roaming has been very, very well accepted by our customers.

Then I think the question you raise is that how many POPs do we really market to in these launches?

And I would say as a rule of thumb, you've really got to take at least 10% off because we're just not going to market to the fringe areas where there's a high risk that customers will roam or at least have place of residence outside our coverage.

So you'd have to take at least 10% to 15% off to cover POPs.

Great.

Thank you.

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

Yes, good morning guys.

Morning Ric.

Hey couple questions for you.

Braxton, you're probably the best one for some of these.

The CPGA, can you help us out a little bit about how much of the CPGA cost might have been from the launching of the New York and Boston launch or on the CCPU, how much might have been at the consolidated level, how much might have been pulled down by the launches?

Just trying to gauge the ability to grow those back once you get more steady state.

Yes you know just look at the burn for the first quarter on the northeast markets was $69 million.

You know and without that our EBITDA for the first quarter would have been well over $750 million.

That $69 million burn had significant impact on both CPGA and CPU.

And you're still seeing incredible improvement and scaling in our CPU metric.

On CPGA specifically, we did comment that the driver of the $9 increase was the New York and Boston launch.

And you saw a similar phenomena following the launch of our LA market where you saw a CPGA again in the quarter following launch spike up to this level but then you saw it come down very rapidly in the next two quarters.

And the bottom line is when you're launching a new market and you're scaling, I mean you're ramping your gross adds and you're covering your fixed costs, you know that's part of what we're seeing there.

And the same with CPU, definitely a large impact, but we're past these large launches.

Where we entered 2008 to where we're going to exit 2010, we'll more than doubled the number of POPs that we cover in this Company.

And that's been a significant drain on EBITDA.

And you think about the profile of our markets reaching EBITDA breakeven.

And in three or four quarters and you think about what that's going to do organically to our EBITDA going forward, even if multiples stay where they're at, it's a pretty exciting story.

Yes it is.

On the CCPU side, if we look at cost of service, I think it was flat in a dollar term almost from fourth quarter to first quarter.

So I'm just trying to understand also with the burn, would some of those costs maybe been capitalized in the early part of the quarter?

And we should see it spike up a little bit in the second quarter?

Just trying to understand that kind of flat--

Yes, no we-- we do not and have not ever capitalized any pre-operating OpEx costs.

There's been a full burden on our P&L for anything that would typically hit OpEx with these-- for any market launch that we do.

And then final question, obviously a pretty substantial cash balance there.

You've alluded a little bit to looking at opportunities.

Can you help us understand, given you said you're going to be free cash flow or you'll be free cash flow by late 2009, you probably will exit will a good chunk of cash.

How do you look at what the opportunities are?

How do you gauge attractiveness?

Just help us kind of prioritize what you might be thinking about?

We think that in this environment there's going to be some very, very high return on invested capital opportunities.

And one of the things that's really interesting is spectrum opportunities.

I mean for example just look at our federal government and the amount of money that they're spending right now.

They're going to be looking for ways to recapture as much revenue as possible.

And we would not be the least bit surprised to see additional spectrum coming to the marketplace.

You know there will be companies who are monetizing assets.

We just think there's going to be some unique opportunities in this environment.

Roger, do you want to add anything?

No I think this is the opportunistically we want to be positioned to capitalize on whatever we can.

But as Braxton mentioned, obviously if [ADBS2] or other spectrum come to the market any time soon, then we're clearly well positioned to take advantage of that.

Is this also to prepare you for the LTE opportunities in the second half of 2010?

It certainly doesn't hurt.

But we think that we can measure our steps and without taking a major hit to our CapEx.

So it's really for all of the above.

But it's not significantly for that last topic and mainly the LTE build out.

Great.

Thanks guys.

Thank you Ric.

Your last question of the day will come from the line of David Barden with Banc of America.

Thanks guys for taking the question.

Just to maybe follow-up on a couple things.

Just first, with respect to you guys' POP build out, if you could kind of maybe just give us the target split for that between kind of the enhancements to what you're putting in the core market bucket and how the new market, expansion markets are going to be built out?

Second, just on the cost side, obviously when you look year over year as the service revenues stripping out the equipment, it's like a 46% incremental margin.

And that includes all the network build expenses.

Are there going to be any new big chunky costs that go along with that market expansion?

And then I guess my last question if I could is on-- where the growth is coming from?

I know we've talked a lot about wireless substitution and things like that, but I think there is a debate about how impactful this business is on the national postpaid players.

And do the national postpaid players need to kind of react to it and push back on you?

And I think it would be helpful if you could kind of give us a sense, you know how-- what percentage of the customers you're getting are new to wireless?

How many are coming from existing prepaid businesses?

And how many are coming from, as a percentage, from the national postpaid players, would be helpful?

Thanks.

Okay.

Okay well the first question, breaking down our POP guidance to market or segment specific.

Dave we just-- we're not going to get that granular.

It's a dynamic situation.

And we've already put out, Roger said, the additional build that has not had to this point is in the 15 to 17 million range.

We will of course continue to evaluate that.

You know there may be more incremental growth.

We're certainly funded to do so.

But that's about all we can say there.

I like your math on the incremental margins.

And again part of our theme here today has been the incredible efficiency of the model that MetroPCS has deployed.

And Roger mentioned even though we're not disclosing our old core market segment, he disclosed that legacy and this is transitional disclosure, that's a 48% EBITDA margin for the first quarter, which was incredible.

You got to remember that when you're launching markets of the magnitude that we just launched, and there's some pretty significant burn as you can now see what the transparency that we've given you on the northeast market.

But any more chunky costs coming through from an OpEx standpoint, nothing would really come to mind that would have the impact of very, very, very large market burn.

I think your last question I think is probably best addressed by Roger.

And just to recap, just looking at the effect of competition on our business, would the big guys potentially be attracted to these types of offerings?

And remember our cost structure advantages.

And then any information that we can give you on new to wireless or coming from existing carriers, I'll hand that question cover to Roger.

Okay thanks Braxton.

A number of years ago, I would say probably three years ago, we were saying that more than 50% of our customers were new to wireless.

And that was partly due to the fact that we had such a significant attraction among the teens and then going to tweens.

There was also for a significant number of people that were not able to meet the credit requirements, as the very early wave.

But since then, we've moved on in a number of ways, certainly into higher discretionary income groups.

And now that number has gone and it's beginning to go to about a third coming from new.

And the rest being share or people shifting service providers.

I think foundationally the issue that we're not terribly concerned about though obviously competition does get our attention but the key for us is our cost structure.

I think Braxton has indicated in the past that our cost structure in the very mature markets, which is the only ones that we can really reflect on, is pressing the $14 and lower range.

And as we get to the $13, $14 range, we're almost one half that of the major carriers.

So our cost structure gives us a lot of latitude to enjoy very profitable customers, even as we get more aggressive on our pricing if that were the case.

Appreciate it guys.

I guess the only-- I guess I was kind of thinking of, a lot of people wonder since you're a $40 RPU plan, you must be taking share from $50 RPU national players.

But to the point of wireless substitution, you can take a $10 TracFone customer if that customer's also paying $40 for a fixed line telephone.

So presumably all the prepaid base is an opportunity for you if you think about wire line and wireless and that your growth can come from taking some of those 12 million TracFone and 9 million go-phone and 4 million Boost and 5 million Virgin customers.

And it's not obvious to me that you have to grow by taking national player share and even risking that they'll have to push back on you.

Is that a fair statement?

That's absolutely fair.

It's difficult to track because people who are going into prepaid, they're typically into a number of providers.

But we do see that.

And I think it's a very astute observation.

Well I agree.

Thanks Roger.

Bye-bye.

Well we would again like to thank all of you for participating on today's call.

We appreciate your interest and support of MetroPCS.

And we look forward to our next quarter of continued progress.

And we look forward to seeing many of you at our analyst day next week.

Operator?

Ladies and gentlemen, this concludes the MetroPCS Communications 2009 first quarter conference call.

Thank you for your participation.

You may now disconnect.