Broadband Customer Losses Drag at Leap's Q2

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Cricket provider Leap Wireless (NAS: LEAP) reported a gain of only 29,000 voice customers in its second quarter, a notable reversal from the 300,000 voice customers it added during the first quarter of this year. The company improved, however, on its second-quarter 2010 performance, when it lost around 73,000 voice customers.

Leap also lost around 132,000 broadband customers during the quarter, though the losses were largely expected as Leap has said in past quarters it is working to winnow the number of its broadband subscribers in order to reduce the strain such customers place on its network. Doug Hutcheson, Leap's president and chief executive officer, explained that Leap is essentially working to move broadband customers off Leap's network in order to make room for higher-value smartphone customers.

Leap also announced it plans to deploy LTE across approximately two-thirds of its current network footprint over the next two to three years, with a commercial trial market scheduled to be launched in late 2011.

"We surpassed last year's gross voice additions, and net voice additions improved by more than 100,000 customers year-over-year," Hutcheson said. "New and existing customers continued to select our smart and Muve Music devices, which comprised nearly 50 percent of new handset sales during the quarter. Voice churn for the second quarter was 3.6 percent, demonstrating the continued structural improvements we expected, even with some pressure in the quarter from our selective network management techniques and billing system transition. The business remains focused on our initiatives intended to accelerate customer growth."

Here's a breakdown of Leap's key quarterly metrics:

Customers: Leap reported a net gain of around 29,000 voice customers and a net loss of approximately 132,000 broadband customers during the second quarter of 2011, resulting in a total net loss of 103,000 customers. Leap blamed the year-over-year decline in net broadband additions on higher device pricing, a reduction in broadband marketing and increased "network management initiatives," meaning, throttling users' speeds. Leap ended the second quarter with 5,745,600 customers, which the carrier said was an 8.7 percent increase from its customer base at the end of the second quarter of 2010.

In comparison, Leap rival MetroPCS (NAS: PCS) added around 199,000 subscribers in the quarter, down from around 303,000 in the year-ago period and 725,000 in the first quarter. MetroPCS served 9.08 million customers at the end of the second quarter, up 19 percent year-over-year.

Churn: Leap's churn for the second quarter of 2011 was 4.2 percent, a decrease from 5.0 percent in the comparable period of the prior year. The carrier's voice churn for the second quarter of 2011 was 3.6 percent, down from the 4.6 percent it reported in the prior-year quarter.

ARPU: Leap's ARPU for the second quarter of 2011 was $40.15, an increase of $2.44, or 6.5 percent, from the prior year quarter, and an increase of $0.80, or 2 percent, from the first quarter of 2011. Leap said the year-over-year jump reflected increased sales of the company's smartphones and all-inclusive service plans, an improved device portfolio and improved churn.

Financials: Leap's operating income for the second quarter of 2011 was $12.3 million, way down from the $49.2 million it reported in the second quarter of 2010 but a reversal of the operating loss of $18.1 million it posted in the first quarter of 2011. Leap's service revenues for the second quarter of 2011 clocked in at $704.1 million, a 11.6 percent jump from the year-ago quarter.

LTE: Leap said it plans to deploy LTE across approximately two-thirds of its current network footprint over the next two to three years, with a commercial trial market scheduled for launch in late 2011. The company said its aggregate capital expenditures for the LTE deployment will be less than $10 per covered POP, excluding capitalized interest. However, Leap warned: "The actual amount that the company will spend to deploy LTE will depend upon multiple factors, including the scope and pace of the company's deployment activities."

Smartphones: Leap said nearly 50 percent of its new handset sales in the second quarter of 2011 were for smartphones and Muve Music devices. The carrier said around 8 percent of its customer base upgraded their handsets during the quarter, typically to better devices coupled with higher-ARPU service plans.

Interestingly, Leap said it plans to launch up to nine new devices in the second half of this year, including a holiday smartphone priced "well below" $100.

Muve Music: Leap said it counted 150,000 Muve Music customers at end of July. Muve Music provides unlimited music downloads on Muve-capable phones. The company said its Muve Music subscribers have downloaded a total of 130 million songs, and listen to an average of three hours of music per day via the service.

The company said in the coming months it plans to take Muve Music nationwide, and will offer the service via additional pricing plans and on smartphones.

This article originally published here. Get your wireless industry briefing here.

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