(Updates with comments from Leap's chief executive)
By Roger Cheng
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- MetroPCS Communications Inc. (PCS) and Leap Wireless International Inc. (LEAP) both saw customer growth slide in the third quarter amid intensifying competitive pressure on the prepaid end of the wireless industry.
Leap and MetroPCS, which operate similar regionally based prepaid wireless services, both relied on new cities for growth in the period, but lost customers in their existing markets. Both cut their expectations for growth for the year.
The business of offering prepaid 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 and one-up each other.
The economic downturn was initially cited by both companies as a boon to their businesses, since consumers were willing to trade down to a less expensive service to save money. But they now say that the prolonged weakness and high rate of unemployment are starting to have an impact.
Early Thursday, 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.
But the company added only 66,000 customers, nearly half of what Wall Street expected and down 73% from a year ago. 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 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.
The Dallas wireless provider cut its estimates for full-year subscriber growth and earnings, further illustrating the toll taken from the game of brinkmanship played among the various low-end players.
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.
"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.
Leap, meanwhile, posted a loss of $65.4 million, or 85 cents a share, compared with a year-ago loss of $47.3 million, or 72 cents a share. Revenue jumped 21% to $599.5 million.
Analysts surveyed by Thomson Reuters expected a loss of 53 cents on revenue of $620 million.
Leap added 116,182 new customers, a decline of 25% from a year ago. The company's growth was attributed to 97,000 customers who signed up for its prepaid wireless high-speed Internet access.
The company cut its full-year estimate for new customers to 1.1 million to 1.3 million, from a prior forecast of 1.5 million.
The third quarter is typically a weaker one, according to Leap Chief Executive Doug Hutcheson, who believes a "seasonal rhythm" will return in the current period. While turnover is expected to continue to rise on a year-over-year basis, it should begin to fall on a sequential basis in the coming quarters, he said.
In addition to the macro weakness, both companies face competition from Sprint Nextel Corp.'s (S) Boost Mobile, which recently reported stellar growth. Wal-Mart Stores Inc. (WMT) has gotten into the game with partner Tracfone Wireless, which is the largest prepaid provider in the country. AT&T Inc. (T) recently lowered the price of its Go Phone prepaid 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.
Leap similarly said it had launched new service plans, including a daily pay-as-you go option, as well as cellphones. The company is also relying more on its wireless broadband product for growth.
MetroPCS shares closed down 9.2%, and were up 3 cents to $6.04 in after-hours trading.
Leap's stock fell 6.5% to $13.03 in regular hours, but was up 2.5% to $13.35 late Thursday.
-By Roger Cheng, Dow Jones Newswires; 212-416-2153; roger.cheng@dowjones.com