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MetroPCS sees slowdown in customer growth

The prepaid wireless provider's earnings fell below analyst expectations, and the company saw a sharp drop-off in growth.


MetroPCS saw a slight decrease in its third-quarter profit as its customer growth slowed significantly.

The prepaid wireless provider reported today a profit of $69 million, or 19 cents, compared with a year-earlier profit of $77 million, or 22 cents a share. Revenue rose 18 percent to $1.21 billion.

The company was expected to earn 23 cents a share on revenue of $1.22 billion, according to an average forecast taken by Thomson Reuters.

MetroPCS was hit by a triple whammy this quarter. On the high end, national carriers such as AT&T and T-Mobile USA made more aggressive moves into the no-contract business. On the low end, fellow prepaid provider Tracfone showed impressive performance thanks to distribution partners such as Wal-Mart. The third quarter, meanwhile, has typically been a weak period for the prepaid industry.

MetroPCS added more than 69,000 net new customers in the period, compared with the more than 223,000 added a year ago. More concerning, however, was the turnover rate, which rose to 4.5 percent in the period, nearly a percentage point higher than a year earlier.

The company blamed the higher customer defections on seasonal and economic weakness, but analysts were skeptical. Credit Suisse analyst Jonathan Chaplin said he suspects the slow smartphone service offered by its 2G network is a factor.

"MetroPCS has to manage a difficult balance over the next couple of quarters: (subscribers) are clamoring for smartphones and MetroPCS has a brand new, empty LTE network; however, LTE handset prices are still too high to appeal to their target customer base," Chaplin said in a research note this morning.

Prepaid remains one of the few sparks of growth in the wireless industry. With the economy still ailing and consumers more concerned with their spending, prepaid service has exploded in popularity because of its no-contract option and simple flat-rate pricing.

Leap Wireless yesterday posted a return to customer growth as it narrowed its third-quarter loss.