MetroPCS's 4G isn't exactly greased lightning

Not all 4G networks are created equally. Just look at MetroPCS.

The prepaid provider and Verizon Wireless may share the same 4G technology, Long-Term Evolution, but the two have little else in common. It's a fact well known in the industry but less clear to consumers: MetroPCS's 4G service is significantly slower than the one Verizon is offering.

"The carrier's average speed is like a very good 3G network," PC Mag's Sascha Segan reported from the publication's speed tests earlier this year.

MetroPCS's 4G network was born out of the company's desire to remain competitive and continue drawing in customers who were increasingly demanding data services. Prior to 4G, it only had a sluggish voice-centric 2G network to rely on. Instead of a late 3G network, it opted to build an early 4G one, hoping the speed claim would keep customer growth going.

MetroPCS certainly hasn't been coy about playing up the similarities with its marketing efforts. Its 4G LTE title is synonymous with Verizon's own branding, allowing the prepaid company to draft behind the substantial advertising dollars spent by the national wireless giant. You can't afford Verizon's 4G LTE network? You can get the same for less at MetroPCS.

MetroPCS's Web site touts the "lightning-fast Internet browsing" capabilities enabled by its 4G network, evoking the lightning-filled TV commercials blasted on the air by Verizon.

With so many different variations of 4G services out there, Verizon has worked hard to establish 4G LTE as the gold standard in the category, something MetroPCS benefits from. Sprint uses an older technology called WiMax, while AT&T and T-Mobile are using an enhanced version of 3G called HSPA+.

And with Verizon and AT&T both adopting a tiered data plan, users may be tempted to switch to MetroPCS for its unlimited offering. But the slower speeds present their own natural limit for how much data a person can consume. The company also has language in its terms and conditions that allow it to block excessive data or phone call usage, a process called throttling that AT&T recently embraced.

The 4G smartphone edge
MetroPCS's 4G network, as well as its move to sell smartphones, has been instrumental in keeping MetroPCS competitive in a tough market. The company reported yesterday an increase in second-quarter revenue and profit, although the number of net new customers added in the period came in below expectations.

MetroPCS added 199,000 customers, well below the 254,000 Wall Street expected. The company blamed seasonal pressures and the continued weak economy. But bringing little comfort was the company's warning that the weakness may continue into the third quarter, which is also typically weak for the prepaid business.

In defending MetroPCS's weaker customer growth, Chief Operating Officer Thomas Keys said that a quarter of its base owned a smartphone, a trend that would benefit the company in the coming quarters. The company didn't break out how many customers used its 4G plan, but executives cited it as a positive catalyst.

Keys said he expects to complete a majority of its LTE rollout by the end of the year.

A different strategy

MetroPCS was the first U.S. carrier to offer 4G LTE service when it launched in September--more than two months ahead of Verizon. But the company launched in only one city, Las Vegas, and with one LTE phone, a more basic handset called the Samsung Craft. It has since launched a 4G Android phone, the Galaxy Indulge, also from Samsung.

MetroPCS was employing a strategy that greatly differed from its larger rivals. Instead of going for sheer speed, the company just wanted to offer data services as its customers began clamoring for more than just cheap phone service.

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• 4G: What's in a name?

The company bypassed the 3G route, banking on the fact that the LTE network would be mature and affordable enough to roll out quickly throughout its territory. Unlike the national carriers, the company offers its service in select metropolitan markets, making network deployment much easier.

For MetroPCS, the move to 4G from 2G was significant, with some customers getting a tenfold increase in data speeds. While nowhere near as fast as Verizon, which offers another tenfold increase in speed on top of that, it was still fast enough for early adopters of data services.

MetroPCS has used the network to help deliver music and video services that have been successful with its subscribers.

What MetroPCS hasn't offered are devices that highlight the network's slower connection. The company only offers the two phones and has no plans to offer data cards or mobile Wi-Fi hot spots. While one of the phones is standard smartphone, it isn't a supremely high-end one requiring a super-fast network. The other is more of a basic handset good at playing media.

"Neither of those devices are fast enough to really take advantage of full 4G speeds," Segan said. He added customers may start to notice once they start using services such as streaming video more often.

Rival options
The competition isn't slowing down either. Sprint said yesterday that it will offer its 4G network on a wholesale basis, allowing smaller carriers--including prepaid ones--to compete with a faster service.

T-Mobile, meanwhile, represents the best combination of speed and affordability, Segan said. The uncertainties surrounding its pending acquisition by AT&T have kept some consumers from signing up with the carrier.

MetroPCS hasn't played up the speed aspect of its network too aggressively, preferring to let Verizon set the tone for a 4G LTE network.

"They're not promising it as a crazy fast service," said Avi Greengart, who covers consumer electronic devices for Current Analysis.

MetroPCS may start to feel the pressure to increase its network speeds. The company, however, is constrained because of the limited spectrum it owns. Chief Executive Officer Roger Linquist said on the call that there were some options for available spectrum, and that the company would look at the economics of potentially purchasing some.

In the recent months the company moved to increase the capacity of its fiber backhaul network. Linquist said the company is starting to spend more capital on a microwave backhaul network to offer better service.

MetroPCS needs to act fast before it loses the sheen off of its 4G LTE network.