(Updates with executive comments and background throughout.)
By Roger Cheng
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- MetroPCS Communications Inc. (PCS) posted a 64% increase in its third-quarter profit, but saw the number of new customers slide amid intensifying competitive pressure on the pre-paid end of the wireless industry.
The Dallas wireless provider's customer growth came in well short of expectations, and the company cut its estimates for full-year subscriber growth and earnings, further illustrating the toll taken from the game of brinksmanship played among the various low-end players.
The business of offering pre-paid service - where customers pay ahead of time for the minutes they use and aren't required to sign a contract - has exploded over the past year as consumers seek better bargains. The wireless industry sees it as one of the final pockets of growth, drawing players willing to cut prices and bundle more services, forcing each company to one-up each other.
MetroPCS appears to have taken a hit, adding 66,000 new customers, or nearly half what Wall Street had expected and down 73% from a year ago.
"Its recent disappearing act and lack of guidance do not instill confidence that it has any idea what is or will happen in U.S. wireless," said Philip Cusick, an analyst at Macquirie Securities.
MetroPCS Chairman and Chief Executive Roger Linquist said he was disappointed in the subscriber growth, and largely cited the "depth and duration" of the economic downturn.
"The effects of this difficult economic environment are even more pronounced when viewed from the unemployment statistics in many of our major markets," he said.
MetroPCS reported earnings of $73.5 million, or 21 cents a share, up from $44.8 million, or 13 cents, a year earlier.
Revenue jumped 30% to $895.6 million, with a 33% increase in services revenue and a 9.5% jump in equipment sales.
Analysts polled by Thomson Reuters had most recently forecast earnings of 9 cents on $869 million in sales.
In addition to the macro weakness, the company faces competition from Sprint Nextel Corp.'s (S) Boost Mobile, which recently reported stellar growth. Wal-Mart Inc. (WMT) has gotten into the game with partner Tracfone Wireless, which is the largest pre-paid provider in the country. AT&T Inc. (T) recently lowered the price of its Go Phone pre-paid plan.
In response, MetroPCS recently launched a $30 voice-and-text plan, a family plan, and a mail-in rebate program for selected handsets. Further down the line, the company plans to lean on a better selection of phones, expand its coverage through roaming partnerships, and eventually upgrade to a faster fourth-generation, or 4G, network.
The company's subscriber growth was driven by its continued expansion into new markets in the Northeast, such as New York and Boston, where it add 120,598 customers. In its existing, or core markets, it lost 54,441 customers. In total, it has a base of 6.3 million customers.
With the added competition, the rate of customer defection jumped to 5.8% from 4.8% a year ago, although average revenue per user rose 35 cents to $41.08.
MetroPCS cut its full-year customer growth forecast by 450,000 to 1 million to 1.2 million, and slashed its adjusted earnings before interest, taxes, depreciation and amortization estimate by $200 million to $850 million to $950 million.
Chief Financial Officer J. Braxton Carter defended the lower expectations, saying it was prudent to be conservative given the economic and competitive environment. As a result of the uncertainty, he declined to provide the customary estimate for next year.
"The goofy guidance implies zero confidence in the fourth quarter," Cusick said.
MetroPCS shares fell 7.6% to $6.12, and are down 29% since Sept. 30.
-By Roger Cheng, Dow Jones Newswires; 212-416-2153; roger.cheng@dowjones.com