T-Mobile US Inc (TMUS) 2009 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 2009 conference call.

During today's presentation, all participants 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 5, 2009.

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

Keith Terreri, Vice President and treasurer of MetroPCS.

Please go ahead.

Thank you and good morning, everyone.

Welcome to our third-quarter 2009 conference call.

Speakers with me 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 and Braxton will review the financial highlights of the third quarter of 2009 followed by a question-and-answer session.

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

We have reconciled these historical non-GAAP measures to GAAP measures in our earnings release, which is available in the investor relations section of our website at metropcs.com under the investor relations tab.

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

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

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

We can not 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 also would like to remind you that the results for this third quarter may not be reflective of results for any subsequent period or the entire year.

I'd also like to remind everyone of our segment reporting format.

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

The Change in the composition of our segments became effective on January 1, 2009 and we filed a current report on Form 8-K on June 9, 2009, which retrospectively adjusted our 2008 financial and operational results to reflect this change.

We encourage you to review the 8-K.

For anyone listening to a taped or webcast replay, or reviewing a written transcript of today's call, please note that all the information presented, including our reaffirmation and update of guidance for 2009 is current only as of November 5, 2009 and should be considered valid only as of November 5, 2009, regardless of the date reviewed, read 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 GFD Certain terms used in today's call are registered trademarks of MetroPCS.

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 third-quarter 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 quarterly report on Form 10-Q for the period ended September 30, 2009 by Monday, November 9.

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

Good morning, everyone, and thank you for joining us.

I'd like to start today's call with a review of 2009 results and then discuss where I believe our business is headed, I would also like to take a moment and state that, while we delivered strong financial results this quarter, we were disappointed with this quarter's subscriber growth.

Our gross additions, and particularly our net additions were below our expectations.

Over the last few years we have helped redefine the wireless industry by pioneering our no-contract, unlimited flexible wireless service experience.

Understandably, our success has encouraged other competitors to enter the no-contract, unlimited wireless service segment and a substantial direct competitive environment has materialized.

These new competitors are, in fact, the traditional post pay carriers who are making possible the resale of unlimited minutes and bites through [MV&Ls].

However, the post-pay carriers will continue to sensitive to cannibalizing their own core business, and consequently, we believe, motivated to restrict their no-contract segment resellers to reselling basic services, such as talk, text and web.

In that regard we have both the desire and the capability to offer the most value and a wide choice of wireless services and handsets for our subscribers now and in the future.

We serve over 6.3 million subscribers today and provide service to over 11,000 towns and cities.

Moreover, we are the first US wireless Company offering an unlimited international calling plan.

Regardless of what type of innovative services we intend to offer we expect to continue to deliver attractive margins enabled by our industry-leading, low-cost structure.

We believe we can deal with this economic and competitive environment in all elements of our business system.

Going forward additional adjustments will be required to create the subscriber perception of exceptional service value that we have built our business on.

While we believe we are the best deal in town, the competitive landscape has changed since the beginning of the year and the consumer now has more competitively-priced, unlimited, no-contract service options.

Further, the ability to provide nationwide service has become has become a basic requirement, which is why we have and will continue to add roaming partners.

As pioneers and leaders in the unlimited, no-contract wireless segment we will continue to make adjustments to differentiate our services and strengthen the value proposition to our subscribers, and that has been the source of our successful growth.

As we continue to evolve the business, we recognize the need for change.

This quarter's weakness in gross and net additions are evidence of the increasing challenging economic and competitive environments.

The effect of this difficult economic environment are even more pronounced when viewed from the unemployment statistics in many of our markets.

Nevertheless, we believe the opportunity for subscriber growth exists both within our core markets, as well as a significant opportunity within our Northeast markets.

In August this year we enhanced the affordability of our unlimited voice, text, social networking, navigation and other web browsing services to strengthen our value proposition to subscribers.

It's becoming clear that early adopters driving the smartphone revolution, particularly the iFone and its applications, signal the successful transformation of the cell into an application-centric mobile web browsing appliance.

In this environment it is important to have a continuous plan for differentiation, through the addition of attractive and affordable services that provide a rich choice for the customer.

I would also like to point out that even with the service price adjustments we made in August we still produced record EBITDA result in third quarter.

In September we announced the selection of our LTE vendors for our initial launch of 4G services.

The internet is going mobile and our 4G LTE network, which Ericsson is the infrastructure provider, will enable a dual-mode LTE CDMA smartphone offering from Samsung.

Throughout 2010 we plan to aggressively and economically build our 4G network and look forward to our initial launch beginning the second half of 2010.

We believe our moved to 4G enables us to provide an improvement in data throughput when compared to 3G networks and further enables us to manage our spectrum in the most cost-effective manner.

Furthermore, we believe carriers around the world are likely to accelerate their 4G LTE build programs as they seek to capture the significant performance and economic benefits available and thereby strengthen the 4G ecosystem.

As the web increasingly goes mobile we also foresee a huge opportunity for the wireless industry with the potential for subscriber penetration rates to exceed multiples of 100%.

MetroPCS in a 4G environment can manage a network of multiple devices, including smartphones, as well as other wireless devices, therefore further strengthening its position in the no-contract segment.

Although the transition period to reach an all IP broadband infrastructure will take time it's also important from a cost and spectrum management standpoint to minimize the air interface technology steps, such as EBDO, that bring incremental costs with legacy subscribers and implicit spectrum allocation requirements.

Increased competition in the rapidly-growing unlimited no-contract segment is not unexpected.

For us it is about measuring our actions in light of rapidly-evolving technology, getting it right and making adjustments that differentiate us while driving continued growth and profitability.

What has been unexpected is the depth and duration of this economic downdraft.

This economy isn't simply about tightening family budgets, but it's about rationing money families of unemployed wage earners that have diminished prospects for new jobs.

We structured our Company on the design-to-cost principles to be the low-cost provider, which provides significant competitive differentiation.

Certainly in times of rapid technological change and new competitive entrants, low-cost provider is in the best position to not only weather the storm, but to shape the future growth in the industry.

We intend to be aggressive with our execution and firmly believe that the no-contract service model will be the key growth in the wireless service industry, particularly when LTE becomes the universal air interface technology.

Now, I'd like to hand it over to Tom to discuss third-quarter operations.

Thanks, Roger, and good morning.

As Roger discussed, while we delivered solid financial results this quarter our third-quarter gross and net subscriber additions came in below our expectations.

We are looking at all elements of the business to ensure that we are doing the right things in the environment to drive profitable growth.

The unlimited, no-contract wireless space has been and continues to be a dynamic market place.

Third-parties continue to conclude that pay-in-advance and prepay continue to be the significant areas of growth within the wireless space.

We believe that the economy will drive consumers to search for value while demanding quality.

With the continued growth and interest in our space, competition has increased.

Over the past few quarters unlimited offerings have been introduced by other operators looking to enter this growing market.

Among other things this weak economy, coupled with the increased competitive environment and the seasonality of the business in the third quarter, has resulted in our weak net-add performance.

While our total share of decisions in the Q3 was solid, we are continuing to work on consumer messaging, product offerings and customer support activities to provide a better end-to-end experience.

Expect to see upcoming announcements that support this.

Looking at churn and gross additions during the third quarter, churn was flat on a sequential basis, but was up year over year.

Churn continues to be higher than we would like and we are reviewing ways to reduce churn over time.

We are working on internal changes to increase overall customer satisfaction that we believe will lead to rater retention.

Gross additions in the quarter were up on a year-over-year basis, but were below our internal expectations.

During the quarter we saw some weakness in gross additions, we believe, as a result of a weak economy, increased competition and upward price adjustments we implemented on lower cost hand sets.

In early August we added additional value to our service plans, specifically, in our $40 and $45 plans.

These adjustments were intended to meet competition.

Additionally, we continue to see strong interest in our recently-launched unlimited international calling plan.

This product is an example of our continued innovation, as well as a new feature that many of our existing users can take advantage of.

As the unlimited space in the wireless industry has become more crowded we continue to aggressively position MetroPCS to attract and retain customers.

Recently we began three Q4 promotions; a family plan offering four lines for $100, a $30 service plan which includes nationwide talk and text, and third, a mail-in rebate program on selected handsets.

Our handset lineup continues to evolve.

We are working on our 2010 lineup, which will see a strong emphasis on Qwerty, Touch Qwerty, Smartphone and other featured handsets.

Recently we launched our first Windows-based mobile handset, the Samsung Code, which has been well received.

The continued evolution of our handset lineup will allow for an increase in social networking and location-based applications as we transition to our 4G network.

As a result, we believe the demand will increase for devices that handle higher-end applications.

As I mentioned, we have some fourth quarter promotions we recently launched.

Along with the enhancements we made to our service plans in August and with the new handset lineup for the holidays, we significantly enhanced the attractiveness and affordability of our service for the customers.

We believe reducing churn is important.

We are in a tough economic times.

Some of our customers are finding it difficult to make their payments each month, which results in churn.

In order to aid our customer retention and increase customer satisfaction, we are evaluating the development of programs to help them continue their service.

Given national wireless penetration rates we recognize that a portion of our customers have likely had a prior wireless provider, and given the tough economy have been compelled to search out more affordable prices while meeting their service needs.

Another potential opportunity to increase customer satisfaction is developing a seamless nationwide service plan.

As you know, we recently signed additional roaming agreements that expanded our nationwide coverage.

Finally, we are also reviewing our current advertising programs and campaigns to make sure we are making additional efforts to educate customers no only our new customers, but also existing customers on the increasing value of expanding national coverage, as well as newly developed products and services.

With an evolving competitive space it is important we effectively communicate our tremendous value proposition.

We have increased our nationwide coverage footprint, we continue to explore new distribution partners and we understand the need to evolve and execute going forward.

With that, I'd like to turn the call over to Braxton.

Thanks, Tom.

Before I get into my discussion of the quarterly results I would like to emphasize a couple of points for everyone.

We reported strong third quarter consolidated adjusted EBITDA results, due to our superior cost structure, our focus on cost control and lower gross additions than planned.

As you can see, our Company's ability to generate positive cash flow is a significant differentiator.

We believe adjusted EBITDA and cash flow generation are keys to building long-term shareholder value.

We have a very strong balance sheet,with approximately $1.2 billion in cash and short-term investments.

We believe our strong financial position and liquidity is also a significant differentiator and it will allow us to capitalize on unique opportunities for future growth, as well as evolving to a 4G network and, frankly puts us in the best position to compete with others in our space.

Our total leverage was just over four times computed in accordance with the indentures governing our 9.25% senior notes at the end of September and our net leverage was 2.74 times.

With debt maturity in 2013 and '14 the weighted average cost of debt for the quarter of below 8.5%, substantially all of our debt fixed by its nature or through interest rate swaps and with approximately $1.2 billion in cash and short-term investments we are very well positioned from a balance sheet perspective.

I'd now like to touch on a few of our subscriber metrics.

Churn was essentially flat on a sequential quarterly basis, but was up over 100-basis points year over year.

The increase in churn was related to incremental growth additions of 1.5 million customers during the nine months ended June 30, 2009 as compared to the same period in 2008, coupled with churn from an increased competition.

ARPU in the third quarter was up sequentially.

OUr third-quarter 2009 ARPU was $41.08, up $0.56 when compared with $40.52 in the second quarter of 2009.

In the third quarter, consistent with last quarter, we reclassified approximately $12.5 million from service revenue to equipment revenue.

This reclassification was related to the sale of promotionally-priced handsets.

Similar to last quarter, this reclass is related to the acquisition of the customer and does not effect ongoing service revenue.

Please note that we expect the amount of this reclassification to increase in the fourth quarter, due to the promotional handset rebates.

While we have seen a third-quarter ARPU left, the rate plan changes we made in August and our fourth-quarter promotions will result in downward pressure in ARPU over time.

Our CPGA continues to be the lowest of any facilities-based wireless carrier in the US.

For the third quarter our CPGA was approximately $154, as compared to $128 in the prior-year's third quarter.

The year-over-year increase in CPGA is due to the continued hatch of our Northeast markets, as well as the effects of the increased spending on promotional activities.

Lower gross additions than planned as a result of economic headwinds and more competitive environment also impacted CPGA.

Our business continues to scale and our CPU continues to be among the lowest in the industry.

Our CPU for the quarter as $17.27 as compared to $18.18 in the prior-year's third quarter.

This decrease was due primarily to continued cost reduction efforts and the increasing scale of our business, partially offset by expenses related to our recent launches and a ramp up of operations in the Northeast markets, and costs associated with our international long-distance program.

The sequential increase in CPU over the second quarter is primarily related to costs associated with our unlimited international calling product.

Consolidated adjusted EBITDA for the third quarter was $272 million, the highest in Company history.

Our consolidated adjusted EBITDA margin for the quarter was approximately 33.5% compared to 32.9% in the third quarter of 2008.

These results were after an adjusted EBITDA burn of approximately $44 million for the third quarter in our Northeast markets.

Year to date our Northeast markets have burned $173 million in adjusted EBITDA.

Our core market adjusted EBITDA margin was 42.7% compared to 38.9% in the third quarter of 2008.

I would like to point out that within our core markets on a year-to-date basis we have reported adjusted EBITDA up to $878 million, representing adjusted EBITDA growth of approximately 33% when compared to the same period of 2008.

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

In the quarter, on a consolidated basis, our service revenue and cost of service grew 33% and 36% respectively to $812 million and $298 million respectively.

The increases are due to a growth of our subscriber base.

Our consolidated selling, general and administrative expenses were $138 million for the third quarter of 2009, representing an increase of approximately $22 million when compared to the year-ago quarter.

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

We generated $313 million in cash from operating activities in the quarter, an increase of approximately $117 million from the prior-year's third quarter.

Offsetting this operating cash flow we incurred capital expenditures of approximately $181 million during the quarter.

We also generated approximately $74 million in consolidated net income during the third quarter, or $0.21 per share.

Net income for the quarter includes approximately $18 million relating to the reduction of the state unrecognized tax benefit associated with the expiration of statute of limitations.

Due to MetroPCS's view that the US economy will continue to experience weakness, at least through the end of the year, and the increased competition in the world's market, MetroPCS will be reaffirming, in part, and revising, in part, our annual for 2009, originally provided by the Company on November 5, 2008.

Except as reaffirmed or revised MetroPCS does not provide or reaffirm any operational or financial guidance for fiscal-year 2009.

For the year ended December 31, 2009 MetroPCS today reaffirms the following guidance originally provided on November 5, 2008 and reaffirmed on August 6, 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 21, 2009 and currently expects to reach free cash flow positive on an unlevered basis in late 2009.

For the year-ending December 31, 2009, MetroPCS provides the following updated guidance.

MetroPCS currently expect full-year net subscriber additions to be in the range of one to 1.2 million.

The Company currently expects consolidated adjusted EBITDA to be in the range of $850 million to $950 million for the year ending December 31, 2009.

For the year ending December 31, 2010 MetroPCS does not intend to provide guidance at this time, given the uncertainties in the economic and competitive environment, and pending the development of MetroPCSs current and planned marketing and sales initiatives.

Thank you.

We'll now move to the Q&A.

Operator?

(Operator Instructions).

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

Thanks, morning, guys.

Morning, Ric.

First question I've got is, within the I think a lot of people were probably pleased with where ARPU ended up, up sequentially.

It looks like the international calling plan has helped.

You've talked a little bit about the promotional plans coming out; the family plan, four for $100, and the $30 service nationwide.

Can you talk a little bit about how long those promotions might stay in place.

Are you trying to achieve churn production, or what exactly are you trying to piece together with those promotions, and what do you think the impact on ARPU might be?

Ric, this is Tom.

On the promotion front we actually started those November 1st and we anticipate those to last November and December of this year.

On the ARPU front we're not at place where we can really publicly make a statement about where we think we're looking at at this point.

I think, Ric, what the intent is here is to create the -- shall we say the interest and we don't expect everybody coming through the door to insist on these programs.

But they do, I think ,deal with what's important right now, which is in the very difficult economic environment they're attractive to a certain cross section of the population and we want to make sure that we have our share of fresh recruits coming in, looking at this service and they can see the value of our other services that we also have promoted.

So it's not necessarily churn reduction, sounds more like gross add production, maybe, and then get people in the store?

I really think it's both because there is -- I would say primarily it's -- we're looking at the so-called fresh recruits, but there will be a balance of that.

And, Ric, I think the final point here, we're not providing forward-looking guidance, but we have clearly said that these will cause some pressure on ARPU.

Other sales and marketing initiatives that we have done will cause pressure on ARPU, but I think that the third quarter clearly demonstrate MetroPCS is focused on being innovative in our marketing and service offerings and that margins and EBITDA growth are very, very appropriate.

So that's, I think, the appropriate way to look at it.

And then, Roger, you mentioned nationwide's a basic requirement now.

You guys are adding and continuing looking to add roaming partners.

How important is a nationwide brand to have, as we look at Sprint Boost out there, Virgin Mobile coming inside to Sprint some time soon.

Isn't it important to have a nationwide brand, as well as a nationwide footprint for roaming provision-type services?

Well, I guess our view, Ric, is that we are adding roaming partners.

We think it is about the footprint.

The other part of the equation means that you can market to a wider population, but I think the key element is being able to provide service, which we now have, to a large section of the entire population, so that really is our focus.

Obviously, we can't market in areas where we don't provide the infrastructure and service.

So the footprint's more important than the brand possibly?

Footprint's more important to us.

Okay.

Thanks, guys.

The next question comes from the line of David Barden with Banc of America-Merrill Lynch.

Hey, guys, thanks a lot for taking the question.

Braxton, just first on the guidance.

The implication for 4Q sub adds is somewhere between 45,000, which is down sequentially from the third quarter, and 245,000 marketed footprint is up 50% year over year and you're in brand new markets.

When I think of the economic environment it doesn't sound like it's probably changed that much in the next 90 days, so is this -- are you trying to just lower expectations, or subsequent to the price cut, has September and October just gone so badly that you really think that it could be this tough in an seasonally-better fourth quarter?

And then the question is the question you've got to anticipate, which is that if it's about footprint and it's about expanding your reach what is the best reason you guys are not going back to Leap to try to create a strategic partnership there?

I notice they expanded their board, added some new independent directors, I imagine they might be more open to that these days than they would've in the past.

If you can comment on that that'd be helpful.

Thanks.

David, I think that the appropriate way to look at the guidance for 2009 is that it would be very foolish for MetroPCS to do anything but to provide very conservative guidance.

We're in a very fluid environment from a competitive standpoint.

There have been numerous moves over the last six months.

Some of things and tests and issues that we're dealing with are very new.

We need to say how these initiatives develop.

And finally, the economy situation, why on a macro business it looks like growth is returning to the economy, we're still losing jobs.

You look at -- overall MetroPCS -- and we're mid America.

Mid America's still hurting from the current economic environment and our view is that that will continue through the fourth quarter.

So we are being conservative in our presentation and after the last couple of quarters I'm sure you can appreciate why.

The final question Roger will take.

We presently have no, shall we say, interest in pursuing the transaction you're talking about and the primary reason right now is, if on some circumstances in the future there could be an opportunity, obviously we would be open to tha, but we have the footprint.

The key from our standpoint is, we have the coverage, we feel we're beyond the critical mass of a nationwide footprint that is important to our customers, so that to us is the key element.

All right, guys, I appreciate it.

Thanks.

Thanks, David.

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

Thanks, good morning.

And Roger, could you expand a little bit on your 4G comments, talk a little bit about what we can expect in terms of -- are you doing a trial market or two next year, or you're really planning to rollout to your broad footprint over a 12 or 18 month period?

And what are seeing in terms of cost dilution.

Is there much coming this year, or do you expect much next year, or is it going to be able to -- are you going to be able to sustain margins and capital intensity at similar levels?

And then also on -- you talked about cost side the international, are you comfortable with the usage profile of the international customers, or might there be some risk of negative carry on some of that -- on some customers there?

Thank you.

Okay.

These multiple questions always challenge one to remember the last one.

LTE, we intend to do a rollout across the country as these markets are built and reach critical mass, so this is not just a trial.

We'll be building throughout this coming year, and as we've indicated, it really will be second half before we'll be able to put together a -- shall we say, the network coverage that we're seeking in, at least, the few early markets.

But we'll be building throughout the year and our hope is to have many of our markets actually turned and operational, and we're focused on the smartphone as opposed to the card and the dongle.

We think this is a great opportunity to help differentiate the brand, particularly in our no-contract segment.

Number two is the margins that begs the guidance going through next year.

As we've indicated we are really focused on the cost control.

I can't emphasize enough that our business was built on the design-to-cost basis and that may not mean a lot to a lot of people, but for us it means that everything we do has a very strong cost element so we're not cavalier about it and that kind of touches on your third point, which is that -- are the international customers.

Is there a section or subset of those that are problematic and will that likely change.

I think we're comfortable with our service.

It is innovative and we do feel that we have this under control.

Okay, thank you.

Your next question comes from the line of Jason Armstrong with Goldman Sachs.

Hey, thanks.

Good morning.

Maybe just a follow-up question on the $30 pricing.

You started out in a few markets and moved it more broadly across the base.

I guess I can see the logic for extending this in certain areas, but maybe if you can talk about the division to do this more broadly.

It just seems like maybe there's some markets where we're very early in the penetration curve where you potentially didn't need to go to this level of pricing, or alternatively you've got big markets with big penetration stats at this point where you risk pricing subs down.

So just how you thought about that holistically and rolling this out broadly?

Well, I think first of all what we see is that here we're in the holiday season and there's a blizzard, as there always is, in the promotions and advertising during the fourth quarter, and from our standpoint, in order to effectively position ourselves without choking on the advertising and the other costs that are normally in a runaway mode in the fourth quarter, we chose to use this as a way for new activations only.

And I'm not sure if that became clear that we offer this product and we offer -- we also see this as a way of simply distinguishing ourselves from the what now is it a very large number of new competitors, not to speak of the -- only MV&Os, but as know, others that have entered earlier in the year.

Okay, thanks.

Your next question comes from the line of Todd Rethemeier with Hudson Square Research.

Thanks.

If we could just talk a little bit more about the weakness in the gross adds which -- I guess there were three reasons you gave for it; the economy, the competition and the pricing changes that you made.

If you could just rank those three, which do you think was most important?

And then related to that, what was the trend like month to month in the quarter?

Todd, I think I would probably look at the economy as number one right now.

As we've mentioned -- I think Braxton alluded to it -- the lose of what you'll call middle America jobs, it's still going on.

It really hasn't stemmed the tide inside of our markets, as well as nationwide.

I the economy has a pronounced effect on how people allocate their dollars and as we've seen people have to make really hard choices now.

So we think trying to be attractive in the fourth quarter and give customers value is really, really important.

Obviously Roger alluded to increase in MV&Os.

It seems like we have round two of the MV&Os.

Three years ago we had probably more service-based MV&Os.

Today we have more voice and text MV&Os, so I think that is certainly a reality that we look at and we consider as we look at our promotions and our pricing in the third quarter.

So that's how I would rank it on a one-two basis.

Okay.

And the trend of gross adds during the month in the third quarter?

We really don't report on any trending inside of the quarter.

Okay, thanks.

Your next question comes from the line of Mike McCormack from JPMorgan.

Morning.

(inaudible).

First, just looking at the 4Q guidance can you give us a sense for magnitude of impact of gross add weakness versus higher churn?

And then secondly on the revised EBITDA, just thinking about if it is in fact a gross add issue, which I'm assuming that's at least part of it due to competition, why we wouldn't see better EBITDA metrics with a lower gross?

Mike, I think that -- again, we want to reiterate that we think it'd be very imprudent to be anything but extremely conservative on our guidance for 2009.

In looking at historical trends on churn, churn does have a seasonal component, churn is highest in the second and third quarter, typically does come down in the fourth quarter and the first quarter.

And you also have to look at the aspect that on a trailing 12-month or nine-month basis that we've had a significant spike in year-over-year growth that we've been working through the last couple of quarters.

And we've talked on that in previous calls and had disclosures on that in our public filings and that has been a very significant driver of the churn.

And the fortunate part is we are working through that spike.

On a trailing nine-month basis, going into the quarter we had over 1.5 million incremental gross additions in trailing nine months before this quarter versus the same trailing nine months of the last-year's quarter, and that's a pretty significant spike.

We've also talked about how the churn profile is highest in the third month and it takes about 12 months to get down to maturation, so that's something that's positive.

Now we did clearly say that competition is also having some impact on churn, but to put it in perspective for the third quarter, over -- just ballparking it three-quarters of the churn increase year over year of 100-basis points is really related to the incremental growth.

And the other quarter is related to other factors, again which we think is primarily competition.

So there's several puts and takes there, but I think that gives you a basis to model and to make the conclusions that our guidance on the fourth quarter is really being driven by views of competition, the economy, as we've noted here, and is very gross-add sensitive.

And you're absolutely right that the gross adds do have a significant impact on the overall profitability of the Company.

ANd again, doing anything but being conservative in each individual piece of our guidance at this point would be imprudent.

I hope that's helpful.

It is.

Thanks, Braxton.

Your next question comes from Tim Horan with Oppenheimer.

Good morning, thanks, guys.

Two questions, if you don't mind.

I was just more focused on what customer base you think makes the most sense for you to target going forward?

It might sound like a stupid question, but it seems like Sprint, TracFone and T-Mobile are more targeting the middle class and more suburban areas and just curious if you think what niche makes the most sense for you going forward?

And then secondly, on the margins longer term, do you think the overall Company can get to where the legacy markets are in terms of profitability?

Thank you.

Tim, I'll take the first one.

In terms of our servable base and who we go after, we really don't have a discriminating aspect inside of our messaging and branding.

We believe that there are certain segments that'll probably have a greater tune, i.e., families, i.e, younger demographics that believe that things like social networking, navigations, being able to go places like mobile My Space, even our hispanic demographic who uses Univision quite a bit, we think we're open to every demographic and there's really not a discriminating aspect.

As a retailer our doors swing open for everybody.

So we're constantly working on ways to message to people where we think we have the greatest opportunity to bring in the widest selection of folks.

And as you've seen, we have a variety of rate plans, we have a variety of handsets and features and services, so what we're trying to be is really a wide-open area for people to come and shop, not just to get us into one vertical niche that's too narrow, and we've always tried to be that way.

Clearly you have a choice of marketing dollars and on distribution points and it's difficult to be all things to all people and I think your competitive advantage is being a little bit more focused than some or the incumbents.

Well, true.

Our distribution is out there today.

We're constantly trying to evolve that going forward and we're always looking for new opportunities to put the product in the marketplace.

I think, though, that what you're really talking about is the branding message and how we appeal to people.

Right now I think most of us will agree that a value message for all consumers, not just in a low demographic, but mid tier, high tier is something we look about, and think most of us would agree that we're searching for value and if we're not demanding high quality then we're probably off the mark today as people who are putting products out there.

Are you seeing many people trade down from Verizon, AT&T down to your type of service?

Have you seen any change in that since the economy has weakened?

I would say all services are the same, they're high quality, so there's not a real difference in service, quite honestly.

There's a difference in contract and no contract, and we absolutely believe that you really don't need a contract today to be a wireless subscriber.

We actually think there's no need to ever have a contract in this space so that's the implication on trade down and we think that's a phenomena that'll continue, as it has.

Let me comment on that because I think there's a misperception perhaps, because we have offer the widest choice of services of any of the no-contract segment players.

In fact, if we look forward to 2010, clearly we'll be in the app store business and we'll be going there with android-type products, so we see that we provide maximum choice of both services and handsets.

If you look at our price plans, particularly in the $45 price plan, we offer navigation, social networking and several other service that is we feel are really fundamental for everybody else.

Thanks.

And then on the long-term margin question?

I think t', Tim, the right way to look at this in the context of what we have said today is that we will continue be very focused on our cost structure and our cost control.

Roger emphasized that that is a significant part and it's foundational to our strategy and it always has been, and focusing on those basics is very, very important to us, that coupled with our previous comments that there will be ARPU pressure.

We've been very clear about that.

So, going farther and actually giving guidance on forward margins, again, I hope you can appreciate given the current competitive environment, the economic headwinds and the development of a lot of things that we're working on we're not in a position to do that.

Your next question comes from Michael Rollins with Citigroup.

Hi, good morning.

Just a couple of questions for you.

First of all, curious if you go back to the trial markets that you tested the $30 plan in, can you give us a sense of your success in upselling customers, picture messaging and web versus just simple texting.

If you could give us some sense, maybe, on that mix that would be great?

And the second question I had for you is -- it's more of a strategic question.

This goes back, Roger, maybe to some of the paging days on reselling, but what's your though on actually hi offering the service for resale versus just simply being a retail company if some of the resellers are representing the incremental competition to your business model?

Thanks.

Michael, I'll take the first question.

It's Tom.

Our trials we put out there -- I think you're referencing Atlanta and Detroit -- it was a limited time.

We didn't surround it with a lot of fanfare, with a lot of marketing and we tried different elements inside each of the trials and as we're messaged before that we will constantly try different plans, different services and then we'll try to see where we think we get the greatest traction.

So by rolling out the trial to the -- to all of our markets, as Roger mentioned, we think in the fourth quarter it's important for us to have visibility, to be relevant and to give consumer choice and right now we think that choice is centered around value.

But once they come into our store what we're finding is that there's not a mad rush just for one product.

Our wide variety of products in the portfolio, our wide variety of handsets allow people to do many things on there beyond simple voice and text and voice mail.

And to your point about voice mail there hasn't been anybody saying one voice mail product trumps the other and that's the overriding piece of this promotion.

So it's really a vehicle to bring people into the store to see our products and then from there we give them the widest choice possible, and that's really what we're trying to do here.

Let me deal with the question on resellers.

Resellers are effective if you look at the fact that you don't really have local distribution and what you're seeing from the MV&Os is that you've got companies who have been in paging and you've also been dealing with cards that have some present distribution.

We feel very comfortable with our local distribution model, and so it's really the national retail side and that's certainly, at this point a crowded environment.

So really, to pick more resellers and to create MV&Os for ourselves is just eating our own young, if you will.

We feel we are very comfortable with our local distribution.

Obviously that's a point that can be dynamic going forward, but we're comfortable right now.

Thank you.

Your next question comes from the line of Romeo Reyes with Jefferies.

Good morning.

I just want to follow up on Tom's last point here.

Historically there have been companies that have had these big headline promotions.

I'm thinking about a company in the UK that had voice, video, data for like 30 pounds, it was like three for 30, and what they found out is that when they got customers in the store the customers weren't the -- outgoing ARPU from 45, 50 pounds, much higher than the headline-grabbing three for 30 ARPU.

My question to you is, when you look at the point-of-sale ARPU that you're expecting on the $30 unlimited plan that you're putting out, this headline-grabbing number, what is the outgoing ARPU for the customers that are coming in the door.

Is it something closer to $30, is it something closer to $40, is it something in the middle?

If you can give us something along the lines that'd be helpful.

And then secondly, as we look at our ARPU,as well, when you look -- I think this international LD product that you launched in June should have quite a bit of an impact., what was the penetration rate, if you can share with us, on incremental gross adds and also on your customers, and how are you marketing that, or are you just sending a text to your customers?

How is that -- how's that message getting to your customer base> Thanks.

That's a lot of questions, Romeo, I'll try to get them right here.

First part ism to your pain about when you message something to swing doors I think all retailers look to bring interest to their product and we've done that historically very well.

In the fourth quarter, as you know there's an opportunity for contracts to expire in the first and fourth quarter so we think there's an opportunity to see new (inaudible) and see new people, so by messaging that promotion nationwide it's our intent to swing doors.

Now, when people come in we have modeled internally through our finance group, as we always do, various scenarios as to what might be the take rates, but we also continue to train at our stores, at our dealers, based upon what our new handsets can do, what social applications are out there and what rate plans are out there that people will find attractive.

So what you find is more people will ask questions about the whole portfolio and there's not a modeling that we have that every person who came in that saw an ad for a $30 promotion will get X amount of ARPU.

It's impossible to do that.

It's more of a collective pool that we look at on a modeling basis because we have a lot of people coming in that aren't interest in the promotion.

It's just simply not what they want to get.

How the word gets out there, what you'll find right now in the last part of this quarter is we put a rotational campaign out there that will talk about our family plan and the $30 promotion.

We do that, as you know, through a series of after [executions at a home, as well as Gorilla], and then you'll see us be on selected media, where we think we have the opportunity to reach people that may not have known us before in the fourth quarter.

As you know, it's a crowded environment in the fourth quarter.

There's a lot of media dollars spent in wireless advertising and we're fairly particular of where we place our advertising and where we get the eyeballs for people to come into our dealer locations, as well as our retail stores.

So part of of the execution is surrounding distribution with as many points and as many looks that people can get on what our promotions are.

It's a little bit different than the bigger players, because we do use our dollars wisely in most of all of our markets.

Then on international, if can you give us any sense of how successful that's been in terms of penetration rates,or ARPU lifts, or anything like that?

We definitely said, Romeo, that it's been accretive to ARPU.

You've got to remember that the ARPU with an international subscriber is a minimum of $50, but we don't go further on the rates or anything like that.

Okay.

And then -- hello?

Hello?

What?

Just one additional data point -- rather a quick question.

In the past you've talked about three to four quarters to break-even on new markets.

that's going to reach around -- three to four quarters is going to be Q1 of 2010, have -- on the northeast markets, Boston and New York.

Are you comfortable that your break-even point has not shifted out materially on new launches?

Romeo, I think in all fairness we're not giving any guidance on 2010 and we've gone over the reasons why, so, thank you.

Your final question comes from the line of Will Power with Robert Baird.

Great, thanks.

I guess a follow-up question of sorts on churn, which actually held flat sequentially in Q3, whereas normal seasonality would have it up.

Is that just a function of Q2 being abnormally high, or were there any other factors there that I should be thinking about?

And then secondly, you talked, obviously, about the price promotions in the marketplace to help drive subscriber growth, can you give us any of the details around the handset rebate offers that are out there, as well" Thanks.

Yes, I'll take the first one.

I think -- we've gone over the detail on the churn.

Both the second and third quarter are historically quarters that have the highest churn of the year, just given the seasonality and also following periods of higher growth.

Remember, when you look at our growth, our growth additions on a trailing nine-months basis going into both quarters, we've been working through a very large growth blip, which has negatively impacted the churn.

And I did quantify for Mike earlier on the call that the 100-basis points, I think the appropriate way to look at that is about three-quarters being related to that incremental growth and the other quarter being related to other factors, including competition.

Hey, Will, this is Tom, I'll take the second part on the promotions and I appreciate the question because one of the things that we've here, for the fourth quarter and the first quarter, we have a substantial increase in the rotation in our handset lineup in the fourth quarter.

We've got -- six of our OEMs are going to be introducing new products -- low end, mid range, high end, Qwerty's, touches, full-featured phones -- so what we generally do is we will have a sponsored promotion for a given time and in this particular next two months we have a Samsung promotion coupled with a Motorola promotion in December, and then MetroPCS has layered on a promotion for all handsets, as well, during that period of time, and they're all mail-in rebate promotions, we've done this in the past.

We see good results, it brings people in, it gives them plenty of choice, but we also think, importantly, when they come into the store they're going to see up to ten new handsets over the next 60 days that are in the store that are refreshed, that give people choice, and this is the absolute right time for us to rotate the handset lineup as we go into Q4, so we're pretty excited about it.

Okay, thanks.

I would now like to turn the conference back over to Braxton Carter for closing remarks.

Thank you, again, 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.

Operator?

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

Thank you for your participation.

You may now disconnect and have a pleasant day.