T-Mobile US Inc (TMUS) 2012 Q2 法說會逐字稿

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

Welcome to the MetroPCS Communications second-quarter 2012 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 July 26, 2012.

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 Yvonne, and good morning, everyone.

Welcome to our second-quarter 2012 conference call.

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

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 second-quarter earnings release, which has been filed as an 8-K with the SEC, and is also available within the investor relations section of our website.

Before I turn the call over to Roger, I want to remind you that information presented on this call may contain forward-looking statements about our plans, objectives, beliefs, opinions expectations, strategies, goals, financial expectations, future capital expenditures, performance, financing needs, competition, planned future events, and financial results, or other statements which are not of historical fact.

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

These statements are subject to risks assumptions and uncertainties, many of which are beyond our control and that may not occur or could cause actual results or the timing of events to materially differ from those made in the forward-looking statements.

The risk factors that may affect the forward-looking statements in our future operational and financial results are set forth in the Safe Harbor statement available in the accompanying slide deck to this oral presentation, and in the section entitled risk factors found in our annual report on Form 10-K, quarterly reports on Form 10-Q, including our 10-Q for the period ended June 30, 2012, which was filed earlier this morning, and our current reports on Form 8-K.

Copies of any of these filings may be obtained free of charge from the SEC at www.SEC.gov, or from our website, or directly from contacting our investor relations department.

For anyone listening to a taped or webcast replay, or doing a written transcript of today's call, please note that all information presented is current and should be considered valid only as of July 26, 2012, regardless of the date reviewed, read, or replayed.

At this time I like to turn the call over to our Chairman and Chief Executive Officer, Roger Linquist.

Thank you Keith.

The exciting transition towards 4G LTE is close at hand.

As we stated on our first-quarter call, during the second and third quarters, we would focus on operating margins and enhancing cash flows over subscriber growth.

With this focus, I'm pleased to report both the highest quarterly adjusted EBITDA and EBITDA margins in Company history.

Our revolution began in MetroPCS in 2010 with the proliferation of smartphones.

Now only 2.5 years later, the revolution continues as 4G LTE is about to transform the wireless experience for the no-contract segment.

At the end of the third quarter, affordable 4G LTE handsets will be available and we will be very near completion of our 4G LTE network buildout with over 97% of all our pops covered.

With these two elements of our next generation business complete, we can rapidly accelerate our 4G LTE for All initiatives.

We have been the best deal in town in the voice-centric world and we are aiming to be the best deal in town in this evolving data-centric world, taxes and regulatory fees included of course.

With our leading position in 4G LTE, we have an advanced network fully operational that is more advanced than many others in the wireless industry.

Worldwide production driving the experience curve is rapidly moving 4G LTE's standardization in chipsets and handsets design that will lead a lower unit cost in the future.

This should drive lower cost to reduce handset subsidies and help manage CPGA costs in future years.

Furthermore, we are taking steps in the network to ensure that we can support our business growth with our current spectrum holdings.

However, we continue to look at spectrum acquisition opportunities for the most cost-effective approach to meet our capacity requirements.

By the end of the year, most of our markets will be 4G LTE ready with a 5X5 megahertz channel bandwidth.

We are also an industry leader in deployment of VoLTE capable handsets, since VoLTE service is foundational in our ability to refarm CDMA spectrum for LTE service.

During the third quarter, we plan on introducing the first VoLTE enabled handset.

We plan to introduce additional VoLTE handsets this year to further capitalize on the benefits of this technology and prepare for refarming spectrum.

We also are focused on developing and deploying rich communication services, or RCS, this year which supports simultaneous voice communication with multimedia messaging as well as other advanced data services.

RCS will further differentiate premium 4G LTE services from competitor's 3G data services.

Once launched, for the first time MetroPCS customers with RCS will have a feature set available to them that has previously only been available to post-paid subscribers.

We will offer this to our subscribers at an unmatched value.

Consequently, RCS enables us to have significantly distanced ourselves from MVNOs and other service providers which do not offer such services.

Our objectives are clear.

We will capitalize on our 4G LTE for All initiatives when it is ready, and move towards VoLTE later in 2012 and 2013.

With our move towards VoLTE we have been able to migrate customers off our CDMA network and onto our more efficient 4G LTE network.

This migration, combined with other initiatives, such as microwave backhaul, will provide us with capacity needed for planned subscriber growth.

With affordable 4G LTE smartphones and an advanced 4G LTE network, we believe we will be well-positioned to drive revenue growth and earnings performance in the future.

Now I'll turn the call over to Tom.

Thank you, Roger.

Good morning, everyone.

I want to focus my comments today on our need to transition the business to 4G LTE services, our second-quarter results, as well as provide an update on our 4G LTE for All initiatives.

Our transition from 3G to 4G LTE.

The industry continues to be challenging and competitive.

With that being said, the global movement towards 4G LTE is clear and it's happening now.

The handset ecosystem for 4G LTE continues to develop and, during this transition, the best way for MetroPCS to manage the business is to balance growth, retention, ARPU, brand expansion, and EBITDA.

We believe the Company needs to grow its subscriber base over the long-term.

By focusing on our 4G LTE services, we will be able to differentiate our product offerings and return the Company to its legacy of subscriber growth.

While in this current transition period, we are managing the business to generate adjusted EBITDA, while preparing for the launch of 4G LTE for All later in the third quarter.

Throughout the quarter, we focused on generating EBITDA versus subscriber growth.

With lower handset subsidies and moderated marketing spend throughout the second quarter, both upgrades and gross additions declined on a year-over-year and on a sequential basis.

In the second quarter, gross additions totaled 781,000, down 38% year-over-year.

As expected, upgrade activity also declined in the quarter, coming in at 9% of total subscribers, compared to 13% in the second quarter of 2011, and 16% in the first quarter of 2012.

As you can see in our supplemental slide deck, upgrade costs this quarter accounted for $3.06 of CPU versus $3.73 in the second quarter of 2011, and $7.13 in the first quarter of 2012.

With lower gross additions, combined with continued investments in our network, we managed churn to 3.4% for the second quarter.

During the quarter, approximately 50% of what we sold was a smartphone, and at the end of the quarter, 47% of all subscribers were on a smartphone plan.

At the end of the second quarter, 42% of subscribers were on family plans.

During the quarter, we ran a $25 unlimited talk and text plan.

We believe this plan addresses the needs of a specific demographic of customers and have been pleased with the uptake on this promotion.

From a network utilization standpoint, the talk and text plan uses up significantly less capacity on our network than a typical data-intensive smartphone customer.

Moving into the third quarter, we are continuing the $25 talk and text promotion.

The evolution of 4G LTE.

We anticipate that as more affordable 4G LTE smartphones become available to our customers, our 4G LTE network will be ready to handle their data requirements.

At the end of the second quarter, we are nearing completion, having built approximately 90% of our total footprint with 4G LTE, up from 80% at the end of the first quarter.

We continue to expect additional 4G LTE smartphones to become available throughout the remainder of the year.

We are working closely with various OEMs and plan to introduce 4G LTE smartphones in the $99 to $149 price range in late August.

We believe that in addition to the various 4G LTE smartphones at the $149 level, we will launch additional smartphones at various price points during the remainder of the year.

Importantly, we will also introduce multi-capable smartphones as well as a DTV smartphone later this year.

When we approach the fourth quarter of this year, we plan to have 4G LTE for All in full swing.

With the lighting fast 4G LTE network, we believe it will be an exciting holiday season.

With existing 3G Android customers, having the ability to upgrade to a 4G LTE service, and we hope to expand our subscriber base by being the only facilities-based no-contract provider selling 4G LTE service in the United States.

The combination of a 4G LTE network -- both featured, yet low-cost devices and service plans that offer unparalleled value will be the drivers of our 4G LTE for All promotion that will be kicked off later in the third quarter.

Now, I will turn the call over to Braxton.

Thanks Tom.

Good morning.

Our second-quarter results demonstrate the ability of our business to generate significant cash.

With lower promotional activity during the second quarter, we generated both the highest adjusted EBITDA in Company history, and also the highest consolidated adjusted EBITDA margins in Company history at 41%.

We ended the quarter with approximately 9.3 million total subscribers, an increase of 2% from the second quarter of 2011, and up 49% over the past three years.

Churn for the quarter was 3.4%, down 50 basis points when compared to the second quarter of 2011.

This decline in churn was primarily driven by continued investments in our network and lower year-to-date subscriber growth.

Our balance sheet continues to be strong, and we have substantial liquidity, with approximately $2.3 billion in cash and short-term investments at the end of the second quarter.

We believe this liquidity positions us very well for future strategic opportunities, including spectrum acquisitions.

We continue to evaluate various options to enhance our current spectrum holdings.

We believe further investment in spectrum will significantly reduce future CapEx, will have a positive impact on free cash flows, and further leverage our 4G LTE capacity.

Our total leverage as of June 30, 2012, was approximately 3.3 times, computed in accordance with the indentures governing our senior notes.

We believe our maturity schedule is very manageable, with our first substantial maturity of approximately $1 billion coming due in 2016.

Our weighted average cost of debt for the second quarter was 5.8%.

The majority of our debt is fixed by its nature or through interest rates swaps.

We believe we are very well positioned from a balance sheet perspective.

Our second-quarter 2012 ARPU was $40.62, up $0.13 on a year-over-year basis, and up $0.06 from the first quarter of 2012.

The year-over-year increase in ARPU was primarily attributable to the continued demand for our Wireless for All and 4G LTE service plans, offset by promotional service plans and an increase in family plan penetration, from 38% of our customer base as of June 30, 2011, to 42% of our customer base as of June 30, 2012.

For the second quarter, our CPGA was $191, up $13 over the second quarter of 2011.

This increase is primarily driven by lower gross additions, partially offset by decreased promotional activities, as compared to the three months ended June 30, 2011.

On a sequential basis, CPGA declined $45, primarily due to less promotional handset activity.

With the introduction of 4G LTE for All in late third quarter and during the fourth quarter, we do not expect the traditional decrease in fourth-quarter CPGA from second- and third-quarter levels.

Our CPU for the quarter was $18.40 as compared to $18.94 in the prior year second quarter.

This year-over-year decrease was primarily driven by a decrease in retention expense for existing customers, as well as a decrease in long-distance costs and taxes and regulatory fees.

These items were partially offset by an increase in cost associated with our 4G LTE network upgrade and roaming expenses associated with Metro USA.

During the quarter, we experienced $3.06 in CPU directly related to handset upgrades, compared to $3.73 in the prior year second quarter, and compared to $7.13 from the first quarter of 2012.

Adjusted EBITDA for the second quarter was $477 million, an increase of 33% year over year.

Our adjusted EBITDA margin for the quarter was 41.1%.

Over the first half of 2012, we have generated over $739 million in adjusted EBITDA, compared to $643 million in the first half of 2011, representing an increase of 15%.

With the launch of 4G LTE for All late in the third quarter, we expect adjusted EBITDA to decrease sequentially as a result of lower subscribers, promotional activities, higher upgrades which will pressure CPU, and higher CPGA.

I would now like to highlight a few items from the income statement and cash flow statement.

In the second quarter, our service revenue and cost of service grew 4% and 1% respectively, to approximately $1.2 billion and $368 million respectively over the same quarter in 2011.

The increases are primarily due to the growth of our subscriber base over the second quarter of 2011.

We generated $320 million in cash from operating activities in the second quarter.

We generated $149 million in consolidated net income during the second quarter, or $0.41 per share.

We incurred capital expenditures of $182 million during the second quarter.

Over the first six month of 2012 we've spent a total of $326 million in capital expenditures.

We reaffirm our full-year 2012 guidance for capital expenditures of $900 million to $1 billion.

Now we will move to Q&A.

Operator?

(Operator Instructions)

Brett Feldman, Deutsche Bank.

As we think about the broader launch of LTE product later this year, I was wanting get a little more color on what you think is the key ingredients of making that a successful value proposition.

Because if we go back to your legacy products of voice and text it was pretty simple.

It was unlimited voice and text at a ridiculously low price compared to all the other options.

It's a little more nuanced here when we get into broadband, so what are going to be the key things, other than just inexpensive phones that you expect to bring customers back into the stores?

Let me take that one Brett.

I think the world of data-centric phones and service has brought about the need for substantial download and upload speeds.

Those speeds we have achieved only in part with our combined 1X and DO network.

The key for us is the service that is expected, and the handsets that are capable of delivering that, we think will be met with our third quarter beginning, or late third quarter, as I should say, beginning introduction which we feel will be impacting fourth quarter.

So we see parity in terms of handsets.

We will be I think certainly in the hunt on download speeds well beyond those which we would think necessary for the main services that our customers want, which are highly focused towards YouTube and Pandora and applications as such.

So, we think we have a very substantial service.

It's much superior to most 3G services, excluding those that can catenate frequencies to get the HSPA Plus does.

Download speeds, once the minimum is reached, I think the service satisfaction goes up exponentially.

So, we hope to have, with the handsets being affordable and in the general region of what you can buy the 3G phone sets for, that's one element.

The other element is that we will be building and introducing later this year what I mentioned is the RCS platform, or our move to IMS, which I think will bring about a very substantial change, which is really, I guess in a phrase, an ability for our customers to share life experiences.

They can call and simultaneously send videos or still images, or determine presence on the phone book, or for that matter enhance messaging service.

So, we think we will have the full set of services that have not been present for the no-contract segment.

And then how do we think about competitive positioning versus some of the so-called 4G prepaid offers all ready out there?

You've got a WiMAX offer in the spring, you've got a HSPA Plus offer at T-Mobile.

Do you think that the LTE moniker resonates well enough with consumers that even if the price points are not materially different your products will still stand out in the crowd?

Well yes, I think it does.

The answer is that the WiMAX system as we all know is being phased out, and so that product as end of its life, and those handsets are not inexpensive.

So, I think there is a pretty significant disadvantage.

HSPA Plus, those services depending upon who you're talking about, branded, prepaid, versus the standard MVNOs may or may not be available, but that is coming to its life's end too, and it doesn't have a future; it has long-term evolution.

So, we see our handset as being -- giving our customers a chance to future proof their purchases, and we don't see the other technologies that are really built on 3G expanding their lives, a la HSPA Plus, really being that competitive.

And the hope is we can market that and create that very clear message.

Thanks.

Just a quick housekeeping one for Braxton.

Could you remind us where we are with NOLs and the outlook for cash taxes?

I think the last time you gave guidance you said you would not pay cash taxes until I think after 2014.

Is that still the guidance?

Yes Brett, that would still be the guidance.

Okay, great.

Thank you.

Rick Prentiss, Raymond James.

When you're talking about the LTE for All, Tom you mentioned you were hoping that would help stimulate subscriber growth as you look into the fourth quarter and then on into '13.

What about on the ARPU side?

What do you think the LTE for All means to you guys, do you think, on ARPU?

Was that an ARPU question, Rick?

You broke up a little bit, I'm sorry.

It's a question on what LTE for All can help on the share of ad and get positive ads.

What is your thought on what 4G LTE means on ARPU?

I think the first thing would be from upgrade perspective we will see some degree of upgrades greater in the fourth quarter than we have in the second and the third.

And that should be accretive, as we will have high rate plans as people move from featured phones and/or 1X DO plans, if you will, into our LTE plans.

So, we think that will be accretive.

The fourth quarter starts a movement where we would like to see everybody migrate to our 4G LTE platform.

The good news is that in the last five months of the year we will be introducing what looks like between six and seven LTE handsets, which will give our consumers much greater choice.

And as we mentioned we'll have some of those handsets between the $99 and $149 range as we introduce the LTE for All program.

So, I think in the long run that will help ARPU, but there's always going to be some pressure from family plans, and if we look to continue the $25 promotion, that's probably an offsetting factor.

Okay.

And then when you think about CapEx, maintaining the guidance this year of $900 million to $1 billion, then somewhat as we've seen across the industry, a slow start to the year, do you think the second half really does ramp up like that?

And then as you think early on to 2013, will capital intensity come down once you've got this network built, or there will be a need for more capacity?

Rick, I'll take that one.

We absolutely reaffirmed our guidance on CapEx this year.

We do fully plan on spending up to that guidance, so first half is just really a timing issue.

You've got to remember that Roger made a statement that almost all of our major metropolitan markets are going to have a 5X5 for LTE, so there is a lot of efforts being put into densification to free up additional spectrum to really provide that type of bandwidth.

And you've also heard us talk in previous calls about our microwave backhaul initiative, which is really key and very efficient from a cost standpoint.

Really looking forward as we've talked about in the past, it's dependent on do we really get additional spectrum and a level subscriber growth?

We do plan on returning to our legacy of subscriber growth with really what customers are looking for, which is more high-speed broadband services which 4G LTE is very, very well positioned in the prepaid space.

But with the lack of spectrum we will need to continue working on the capacity of our network, and we don't see a catalyst for any significant decreases in CapEx.

Conversely if we are able to obtain additional spectrum, per our previous commentary, we do expect to see significant savings in CapEx and enhancement of free cash flow.

Great.

Thank you.

Jonathan Chaplin with Credit Suisse.

I'm wondering if you could -- we could walk through some of the options on the spectrum front a little bit?

So firstly, coming out of Verizon it looks like there's going to be some A-block spectrum.

I'm wondering how you guys look at that given some of the interference issues.

And then aside from that, it seems like the only other fellow spectrum out there at the moment is Clearwire spectrum.

Leap signed an agreement with Clearwire.

I'm wondering if you can give us some color on what your thoughts are around 2.5 gigahertz spectrum and how easy that would be -- how easy it would be to wrap TD LTE spectrum into your existing network build?

And then are there any other opportunities on the spectrum front out there that we're not thinking about?

Thanks.

Okay.

That was a pretty comprehensive question.

Let me try the A-block and 700.

I think there is substantial difficulties yet with the 700 block.

I think in due course they will go away.

I think it remains a more distant option for us.

Clearly the spectrum is valuable if interference from broadcasters could be eliminated in a predictable way.

At this point, the FCC has left it up to arm's-length agreements and everybody seems to have short arms.

So, going out to the Clearwire, there is definite spectrum there and as you know the 2.5 gigahertz is slightly less effective in terms of range.

In fact it's considerably short on range, still would be very useful for companies like ourselves, which operate principally in the larger markets, where we have more dense conditions.

The real other side of the issue of course is the tie-in division, which is probably the only practical way of using the spectrum.

And TD LTE is still in its experimental phases, and so there is tie-in to market questions there.

But as far as spectrum, the whole spectrum can be used and we like all spectrum.

The problem is at what point in time can it be commercialized?

So, as far as other spectrum goes, the Verizon transaction and AWS that was announced several weeks ago made it pretty clear about that.

There always are some trading opportunities and certainly we will look forward to that to the extent they exist.

But as you mentioned the Leap offer that leases spectrum from Clearwire, that is -- I think that option is sitting out there.

It is not the desired option from our standpoint, because at the end of the day, I think it's a high-cost option, but nevertheless it may be an option.

What are focus is on is what I indicated that we are densifying our networks, we're getting to what we think is an important and critical part of getting the full 10 megahertz bandwidth be applicable for LTE, and use that as a platform for our refarming effort.

We think it can be made very efficient.

We will be improving the network, making sure that we have -- in some places we will have quad poles, which gives us a very strong forward and substantial uplink.

We will be converting to MIMO where we think that makes sense, in many of our locations.

And probably most importantly, that we have acquired microwave backhaul spectrum in all their markets, and we have a major program which is now factored in our 2012, even though we will go into 2013 first half, the CapEx for significant capacity on back haul.

And that has both the cost reduction implication, operating cost that is, as well as capacity implication, because if you can't get more out of the forward link then you can truck away on the back haul side.

So, we think all of those initiatives gives us a very strong opportunity to grow our Business and the game of counting spectrum is, as you know, a very difficult one.

So, we'll be very opportunistic.

Thank you.

Phil Cusick, JPMorgan.

Can you just start by helping me out on cost of service.

Was it down sequentially?

What is the driver there, and how should we think about it going forward?

It sounds like that could get even better as you shift over to 4G?

I will take the first.

I think that the cost of service -- and here is Phil, where it becomes a little bit difficult.

We still have a pretty substantial voice business, but for right now it's very clear data is dominating, and we think that the cost once we have microwave backhaul fully employed in 2013, can have a significant moderation to what we experience today.

The question I guess that is raised is, when that shall we say tipping point where we are actually reducing our CDMA base significantly, so that we can get back and really use that spectrum for LTE.

That will have an important implication, because the more spectrum we put into LTE the more efficient our operating performance becomes.

Okay.

(Multiple Speakers) Go ahead.

When you really look at the cost of service it was up slightly year-over-year.

And you would expect more given the investment of 4G LTE as Tom commented that we went from 80% of our footprint to 90% of our footprint.

Obviously, we are adding more backhaul and interconnect getting ready for 4G LTE for All.

If you look at the commentary that we have in our MD&A, there are continued costs related to the network, and we're excited that we have approximately 8% of our customers on the LTE network, but we are still nowhere near the scale on the investment that's there.

So, we do see a lot of opportunity.

I think what is surprising you a little bit is, even as cost efficient as we are, we are constantly striving to do things better and to provide more efficiencies in our operations.

During the quarter and first quarter we implemented some innovative solutions in our long-distance area both from an international standpoint and domestic standpoint that drove some costs out of providing long-distance services in the business.

We are very, very focused on taxes and regulatory fees, because remember when we went tax and regulatory fees inclusive with Wireless for All, those items have a significant impact on us, and through a lot of hard work we were able to provide some efficiencies in that area.

So that offset some of the traditional pressure you would have expected as we increase our footprint on 4G LTE.

That is the way that I look at it.

And, of course, we continue to look at cost control and other ways to drive efficiencies in the business.

I was going to say those things, Braxton, should be sustainable right, so there's no reason those are one-time changes.

Those are going forward should be regular, right?

Long-distance regulatory fees taxes.

That's correct.

One thing I would raise Phil, that's not immediately obvious is that what we put in place in LTE isn't effectively not a 5X5, but a 10X10 capability in the equipment that we installed.

So we're waiting to get additional spectrum whether comes from refarming our CDMA or in certain cases are able to acquire other spectrum.

Even on TD LTE if we have our base stations now are multi-mode.

So we are capable of within the present cabinet to go to a more modular upgrade.

So, if the spectrum is available that we can put to work commercially, as soon, certainly, as the ecosystem develops.

Thank you.

If I could bring in one more.

Given the low gross adds in the first quarter and second quarter as well, typically we'd see churn pickup in the third quarter.

I know you have a decent level of visibility out the next 60 days or so.

Can you give us an idea as to whether we might see churn actually down sequentially in the third quarter?

Thanks.

I really don't see that, Phil.

You go back and you look at the historical phasing of churn, you always see a churn pickup in the third quarter.

We're in the dog days of summer right now.

And even though we will definitely be significantly less than a year ago as we've been trending year to date, you will see an uptick in churn in the third quarter.

Thanks guys.

Tim Horan, Oppenheimer.

Obviously, you have a choice here if you don't have a lot of spectrum out there and CapEx is really high.

Is there any way maybe to, over time, creep up prices for LTE, given it should be an incredible offer, or fees, or maybe even on the handset subsidy side, you think you can see them trend down a little bit?

Thanks.

Yes, I think the opportunity for ARPU on LTE should be a good bit stronger.

And as you know now we have a plan that runs the gamut from $40 to $70 a month for unlimited, of course that is taxes and fees included.

And I think this is going to be an evolution in the industry.

So, as you've seen the Verizon plan quickly followed by AT&T on sharing, I think that our focus continues to be not on the cross-platform business which iPad, notebooks, iPhones, et cetera.

But more singularly on the smartphone itself, and then to date we don't have any -- we don't see a great deal of opportunity in the M2M business for us.

That could change, and we are exploring that.

So my point is, I guess, that I would expect that we could stabilize and get some lift in ARPU as we move towards -- more towards an LTE service company.

But that will take the better part of, I think, 2013 to really see that emerge.

I appreciate your comments on T-Mobile and Sprint, but do you expect them to be aggressive here the next six to nine months with their really higher-speed prepaid data offering?

And how do you get the message out there that LTE is really the long-term solution?

Are customers really going to understand the difference?

And do you expect those companies to be aggressive?

Well I guess we do.

The important point is that, as you know, Sprint is still building out there network vision.

That very -- I would say our network vision is already 90% in place, number one.

And so, certainly that, over time that will occur.

I think what we see any way from a distance is that the MVNO business or the wholesale business seems to be more attractive to both Sprint and to T-Mobile, which are the shall we say the most aggressive in this space.

And quite frankly it's I think going to be a little bit of time before they are very premium services.

And I wouldn't rule out this notion of RCS because we are investing in that, we do have it in our capital plan and it is an IMS platform we believe it that will provide services that will significantly enhance over and above just speed.

So, we feel pretty good about our product and the fact that will these carriers who have managed their postpaid business, are they really willing to aggressively price their most premium product.

Simon Flannery, Morgan Stanley.

I wondered if you could just talk about LTE roaming.

Have you been able to have any discussions there, any expectations that you've been able to get some progress on that either, you hosting other companies or vice versa?

And we've talked about the LTE advantage.

Once the network is loaded as you get substantial subscribers on in 2013, what sort of speeds do you think you will be able to offer to customers?

Thanks.

Okay, let me take the last piece first.

As you know that the -- in a 5X5 configuration until we get to release 11, that we are probably with backhaul not being a chokepoint, we're probably in the 8 to 12 megahertz (sic - "megabits") on the downlink, and we're probably in the I would say 6 to 10 or 6 to 9 megabits in the uplink.

We have I think an adequate service.

If we can add additional spectrum of course that can grow dramatically.

On test trials here in Dallas where we have 20 megahertz (sic - "megabits") where we've tested on, or a 10X10 we've had speeds that are not average, because I quoted average speeds but we've achieved speeds up to 80 megabits.

So, there is tremendous speed possibilities available with the proper tech configuration, and I think the growth here is going to be very important over time.

So, average speeds will be roughly 2X of that, a bit higher than 2X.

So I think the capacity will be here.

What we are very focused on is getting our network teed up so that we can go to a refarming without the need of having to have additional spectrum, which, I think, with the possible exception of one or two markets, we will achieve by first quarter of next year.

LTE roaming -- I think part of that is we do have under discussion now with parties LTE roaming agreements.

As it was noted in the prior discussion, Clearwire is interested in transactions because as they move to a LTE system assuming that they can accomplish that.

So I think we will have LTE partners in the future, but we built our business on being much more of a regional local company and we see that as really the strength that we have and continue to have today.

Thank you.

Matthew Niknam, Goldman Sachs.

We saw family plan penetration of your base tick down from 1Q, I'm just wondering if you could give us some more color on what drove this.

And secondly, it looks like there is now a family plan promo offering a $10 discount for additional line.

Can you talk about the expected impact on ARPU from this and the continuation of the $25 plan in the third quarter?

Thanks.

Matthew this is Tom.

42% is where we ended the quarter.

We haven't seen any real strong uptick in family plans.

Number one, the $25 promotion is not family plan eligible, so we think that stands alone just trying to serve the needs of those who just want voice and text services.

We did offer, we will call it a small promotion, giving customers an additional $5 off if they signed up for a family plan, and we like the retentive value of a family plan over time.

Do I think it will have a large impact on ARPU?

No.

Do I think it will be able to bring some additional family members in that otherwise might not have considered us?

Quite possibly.

So we think it's a small element of what we are doing in the second and into the third quarter.

But nothing more than that, in terms of large volumes and how it affects ARPU.

Matt, I think it's fair to say that I would not look for any accretion in ARPU during the third quarter.

It was a $25 promotion out there, as well as the family plan.

We're certainly adding LTE subscriber and adding smartphone subscribers on higher-end rate plans, but given those two items out there don't look for ARPU to go up.

Mike McCormack, Nomura Securities.

I know you mentioned this a second ago, just the competitive landscape out there.

Maybe just a fraction your thought on the very low churn numbers we are seeing from some of the other carriers whether or not you view that as a positive or negative for Metro.

And then maybe a quick thought on the plan changes at AT&T and Verizon, where, obviously, you've got voice and text all included at a low rate.

Is there a threat in your view that they come in with a lower-end data plan they might be more attractive to some of your subs?

Thanks.

Sure.

And I will let Tom take the second half of that question but really to talk about the first half.

It's really been an interesting second quarter, when you look at what the carryover results have been so far.

Really record profitabilities, lower upgrades.

And more rationalization when it comes to how people are approaching the market.

And I do think all of that is positive.

What we have done this year is really stop chasing growth with our 1XRTT offering, and really are positioning to ramp our growth back up with a really high-speed 4G LTE offering, which quite frankly is what our customers want today.

So yes, I look at these dynamics as being positive and positive for our industry and positive for MetroPCS.

You saw the impact of being less aggressive both on our profitability, our upgrades, and other key drivers.

And when we get to 4G LTE, where you have a service that customers really expect and demand today, I think they're going to be much happier customers going forward.

So, we are excited about the imminent end of third quarter launch of this initiative.

To the second point regarding anything from AT&T or Verizon, one, I think it implies that there is growth in the no-contract segment supported by what they're looking to do.

So number two, Roger spoke about the prospect of offering a premium service and possibly seeing some of their plans being cannibalized.

That's something they'll have to look at and see if that is the right way to proceed on their side.

But what we look at from our customer set is they've always been attracted to us by handset, value, by service, and support.

I think the support we now bring with an LTE network.

We've yet to be able to really bring them the price for LTE handsets that we will at the beginning of the fourth quarter end of the third.

So we think that those two things are somewhat bifurcated.

Yes, there's going to be more competition in the prepaid segment, because that is where some of the growth is going to occur as the economy stays where it is and potential customers look not to have any commitment for 24 months.

So we think for the first time ever we're going to be able to market our product and services in the no-contract segment with premium devices at a value price with service plans that will be unmatched.

And at the same time be able to get our messaging locally and in media all wrapped around one consistent theme, that the network is full 4G LTE and the services that are provided are no-contract, taxes and fees included.

So, we think we have some separation between the two and it might also help the segment grow as more people look into the prepaid side of the house as opposed to possibly contracts.

James Ratcliffe, Barclays.

Two if I could.

First of all can you talk about the impact that the tightened Lifeline assistance standards are likely to have with either positive or negative?

And also it looks like handset upgrades spend per handset upgrade, in addition to the absolute numbers, came back down to more typical levels in 2Q versus a spike in 1Q.

Should we expect to see this level of subsidy for the rest of the year?

Or what it move back up with more smartphones later in the year?

Thanks.

Let me take that as the second part.

Yes, both in our earnings release and in our commentary in the script, James, we do expect that with the 4G LTE for All initiative that, especially in the first wave of it as it starts in the third quarter going into the fourth quarter, that we will see an increase in upgrades.

Consumers want the higher speed more seamless 4G LTE experience, and we do expect to see an uptick.

So, I think Q2 is really more of a function of what is happening overall in the industry, as well as us really backing off aggressive handset promotions.

And your first question, could you repeat that related to Wi-Fi?

Is the impact of tightened Lifeline assistance standards for the other Lifeline assistance program, if you see that as helping or hurting the business.

From our standpoint we have used -- the central core of that question is Wi-Fi --

Lifeline assistance subsidized handsets (Multiple Speakers).

I did get that.

The Lifeline assistance as far as we're concerned, we've always supported and we continue to support, and the question is that if the tightening up, is it really affects all the other carriers.

Quite frankly, we've never entered that segment and we don't, at this point, have any designs on it.

And just a clarification on the other question.

In addition to a larger volume of handset upgrades, would you also expect the cost per upgrade to rise as we move into the back half of the year?

Yes we would.

Specifically we talked about you typically see a decrease in CPGA in the fourth quarter from second and third quarter levels and our commentary was, don't expect that with our 4G LTE initiative.

So, by definition that would also apply to upgrades in CPU.

Great.

Thanks.

That concludes today's question-and-answer session.

Mr. Carter I will turn the conference back over to you for any additional or closing remarks.

Well 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 that concludes the MetroPCS Communications second-quarter 2012 conference call.

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