--Leap Wireless first-quarter loss widens; customer losses
continue
--Total subscribers drop 16% from year ago
--Expects iPhone shortfall to resolve over time
(Updates throughout with details and company comment beginning
in the second paragraph.)
By Thomas Gryta and Drew FitzGerald
Leap Wireless International Inc.'s (LEAP) first-quarter loss
widened as the discount mobile-phone service's customer base
continued to erode.
The pay-as-you-go wireless carrier, which offers cellphone
service under its Cricket brand, added about 474,000 customers in
the period--down from about 860,000 a year ago--but wasn't able to
offset cancellations, resulting in a net customer loss of 93,000.
It ended the year with 5.2 million subscribers, a 16% decline from
the year prior.
Shares fell 3.9% to $5.50 after-hours Tuesday as the company's
bottom-line result missed analysts' expectations, extending the
stock's 14% decline year-to-date.
Leap has embarked on a major business overhaul to attract
higher-income customers with pricier smartphones, including Apple
Inc.'s (AAPL) iPhone.
But the turnaround hasn't been easy. JPMorgan analyst Philip
Cusick downgraded his rating on Leap to neutral from overweight
Monday, citing weakening subscriber trends, increased competition
and "challenging cash flow."
With T-Mobile USA's acquisition of MetroPCS Communications Inc.
(PCS) expected to close this week, Leap will have more competition
coming as the MetroPCS service will expand to new markets that will
overlap with Leap. T-Mobile is a unit of Deutsche Telekom AG
(DTE.XE, DTEGY).
After seeing its traditionally lower-income customer base hit
hard by high unemployment, the new higher-end strategy has helped
boost the average amount of revenue it generates from customers but
so far has failed to halt the stream of subscribers leaving the
service.
The company earlier this year also acknowledged it might sell
half as many iPhones as it committed to sell by June, when the
first year of its contract with Apple ends. The shortfall could
burden the company with $100 million worth of unsold iPhones by the
middle of this year. Leap doesn't break out its iPhone sales.
Leap began selling the iPhone last year, striking a three-year
deal with Apple to spend $900 million in volume purchases.
On a conference call Tuesday, Chief Executive S. Douglas
Hutcheson said the iPhone sales volumes "will resolve over time,
and we're comfortable that the relationship we have with Apple will
allow for an appropriate resolution."
The company doesn't expect to buy "any additional iPhones in
excess of the sales demand in the first year of the contract," Mr.
Hutcheson said.
The company also expects to introduce increased device-financing
plans later this year.
Average revenue per user improved 2.7% to $43.72, while churn, a
gauge of customer turnover, rose to 3.6% from 3.3% a year
earlier.
The average device selling price rose to $129 from $68 a year
ago, the company said, something that helped to boost equipment
revenue and partially offset some of the service-revenue loss.
Leap hasn't turned a quarterly profit since 2007, aside from the
third quarter of 2012, which benefited from a large gain on the
exchange of spectrum licenses.
In the latest quarter, Leap reported a loss of $111.3 million,
or $1.43 a share, compared with a year-earlier loss of $98.4
million, or $1.28 a share. Revenue dropped 4.3% to $789.9
million.
Analysts polled by Thomson Reuters recently had forecast a $1.53
per-share loss with $736 million of revenue.
While it has been left out of the latest round of industry
consolidation, Leap has made it clear that it is open to
alternative strategies including selling some or all assets.
"We have long said that industry consolidation and strategic
partnership may make sense," Mr. Hutcheson said.
Write to Thomas Gryta at thomas.gryta@dowjones.com and Drew
FitzGerald at andrew.fitzgerald@dowjones.com
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