T-Mobile US, Inc. (TMUS) Q3 2010 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the MetroPCS Communications Third Quarter 2010 Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Keith Terreri, Vice President and Treasurer for MetroPCS. Please go ahead, sir.

Thank you, Wendy, and good morning, everyone. I'm Keith Terreri, and I'd like to welcome you to our Third Quarter 2010 Conference Call. The speakers with me this morning are Roger Linquist, our Chairman, President and Chief Executive Officer; Tom Keys, our Chief Operating Officer; and Braxton Carter, our Executive Vice President and Chief Financial Officer. The format for today's call is as follows: first, Tom will provide an update on a number of operational results and initiatives. Then Braxton will review the financial highlights of the third quarter of 2010, and Roger will provide an overview of our business followed by a question-and-answer session. During today's call, we will refer to certain non-GAAP financial measures. We reconciled these historical non-GAAP measures to GAAP measures on our earnings release, which is available at www.metropcs.com, under the Investor Relations tab. Also, this quarter, supplemental slides are available for download and printing on our Investor Relations website. These slides may contain forward-looking statements and may refer to publicly available information. Before I turn the call over to Tom, I want to remind you that certain information that we will discuss in this conference call may constitute forward-looking statements within the meaning of Federal Securities laws. Forward-looking statements involve risks and uncertainties that could cause actual results with the timing of events to materially differ from those made in the forward-looking statements. Words such as believes, anticipates, expects, intends, plans, should, could, would, view, estimates, projects and other similar expressions typically identify forward-looking statements. Forward-looking statements include, but are not limited to, statements we make regarding our future operational and financial plans, our prospects for success and our positioning in the highly competitive wireless industry. Furthermore, included in our forward-looking statements are statements regarding customer demand for our services, our ability to service customer demand, future products and services, our ability to expand the addressable market, our estimates of capital expenditures, benefits of upgrading our networks to 4G and multi-customer demand for video and entertainment on wireless handsets, and other statements which are not historical. Management may make additional forward-looking statements in response to questions. Our forward-looking statements are subject to general economic conditions, financial, competitive, business, political, regulatory and other factors that are beyond our control and you should not place undue reliance on these statements. Additionally, our forward-looking statements are subject to the risk factors described in our earnings release and our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, copies of which can be obtained free of charge from the SEC at www.sec.gov, or from our website or directly from contacting the Investor Relations department. We encouraged you to review these documents. I'd like to remind you that the results for the third quarter may not be reflective of results for the full year or any subsequent periods. Also, I'd like remind everyone that effective January 1, 2010, we now aggregate our 13 operating segments into one reportable segment. For anyone listening to a tape or webcast replay, or reviewing a written transcript of today's call, please note that all information presented is current only as of November 4, 2010, and should be considered valid only as of November 4, 2010, regardless of the date reviewed, read or replay. MetroPCS disclaims any intention or obligation to revise or update any forward-looking statements whether as a result of new information, future events or developments or otherwise, except as required by law. The company does not plan to update or reaffirm guidance except through formal public disclosure pursuant to Regulation FD. Certain terms that are used in today's call are registered trademarks of MetroPCS. We intend to file our quarterly report on Form 10-Q for the period ended September 30, 2010, with the SEC by November 8. At this time, I'd like to turn the call over to our Chief Operating Officer, Tom Keys.

Thank you, Keith. Good morning, everyone. I'm pleased to report third quarter results that have significantly improved from the third quarter 2009. Net subscriber additions of 223,000, churn of 3.8% and gross additions of over one million drove record third quarter adjusted EBITDA of over $315 million, up 16% to year-over-year. Our Wireless for All initiatives continue to be our area of focus. Our year-over-year improvements in operations and financial results have exceeded our expectations and are attributable to the success we have had experienced with our wireless role rollouts. Our existing subscribers have responded positively to the elimination of our first month free and our corresponding reduction in handset price. As a result, false churn has declined as our subscribers continue to upgrade their handsets at higher levels than last year. This increase in upgrade activity has substantially reduced false churn. And going forward, we believe we could manage churn in a 3% to 4% range on a sustainable basis. The no-contract wireless industry continues to be dynamic and over the past nine months, we have optimized our business and continue our leadership position. Existing subscribers are reconfirming their choice in MetroPCS as evidenced by the increase in upgrade activity. Wireless customers are gravitating towards no-contract wireless offerings and we are providing new subscribers with a greater predictability, flexibility and affordability. Since the introduction of Wireless for All in early January, we have added over 1.2 million net subscriber additions and upgraded approximately 35% of our existing subscriber base, including approximately 12% in the third quarter. We continue to see wireless subscribers looking for alternatives to contracted wireless service. Recently, internal survey data indicates that approximately 1/3 of our new gross additions were previously contracted wireless subscribers. Our no-contract service offering is continuing to attract users looking for alternatives to long-term commitments. At the end of the Third Quarter 2010, MetroPCS has achieved a total market penetration of 8.1%, based on approximately 97 million covered POPs, of which we added four million covered POPs during the year. Additionally, nearly one quarter of our total covered POPs are under two years old. At the end of the third quarter, approximately 80% of our subscribers were on tax inclusive plans. One of our goals in moving towards Wireless for All was to improve the overall customer experience. Our Committed network of indirect exclusive dealers are a key component of the success of Wireless for All. Well-trained, helpful, enthusiastic brand ambassadors ensure that our value quality and technology messages are being heard and understood. As the sales network engages on a monthly basis with our customers, answering questions, describing handset capabilities and offering the latest selection of services, our brand value is reinforced and promoted. This customer touch point philosophy is a key differentiator and sets us apart from a traditional, non-assisted big-box transaction. Late in the quarter, we were very proud to be the first U.S. wireless provider to commercially launch 4G LTE services in Las Vegas and Dallas/Ft. Worth. We launched service with the Samsung Craft, the first 4G LTE handset in the world. Since our initial launches, we have expanded 4G LTE services to Detroit, Los Angeles and Philadelphia and we'll continue to introduce 4G LTE service into our markets throughout the remainder of 2010 and into early 2011. Our launched 4G LTE networks are performing well. While still early, subscribers are responding positively to the enhancements afforded by the 4G LTE network. Interest in MetroSTUDIO, our 18 channel video library powered by RealNetworks and utilizing content from NBC, Univision, DET and others is growing. Through Wireless for All, and as we launch additional 4G LTE markets, our subscribers have demonstrated a willingness and a desire for newer handsets. Increasingly, our subscribers are looking for handsets that offer a wide range of functionality that allows for access to the latest content sources. We believe that this desire will continue and we plan to provide our customers with the rich assortment of device options. In Q4, we anticipate launching multiple Android devices. Additionally, in early 2011, we expect to introduce our first 4G LTE Android smartphone. Today, we introduced Metro USA, which allows MetroPCS subscribers to use their service in a footprint that now covers over 280 million POPs. This increased coverage provide subscribers with incredible value and brings parity when compared to the larger national carriers as we continue to provide a postpaid experience in a pay-in-advance no-contract model. This is the future of wireless. We have the best-in-class cost structure and we are constantly working to leverage this cost structure to increase our market share. Building on our no-contract legacy, we have continued to evolve our offerings and design products that are accretive to our existing portfolio. Recently, we introduced a by-the-minute trial, exclusively in Wal-Mart that exemplifies this goal. This card's product feature includes unlimited text, web access and metered minutes in either $20 or $30 cards. This by-the-minute product could expand our addressable market opportunity, has been introduced a new segment of customers to the MetroPCS value proposition. Launching our 4G LTE services, offering a national footprint with our new Metro USA coverage platform and expanding our serviceable market with by-the-minute cards are examples of our desire and our ability to innovate and grow. At the beginning of the year, we announced the transformation of our business. Now, nine months into the year, we are pleased with the results and we have demonstrated sustainable improvements in key operating metrics, highlighted by lower churn and continued subscriber growth. Operationally, we continue to focus on execution at every level and we are focused on continuing our profitable growth into the future. It is a very competitive environment but for the nine months of 2010, I'm very pleased with our ability to plan, execute and deliver outstanding results. Now I'll turn the call over to Braxton.

Thanks, Tom. Good morning. We reported strong third quarter 2010 operational and financial results. Third quarter net additions totaled 223,000. We ended the quarter with approximately 7.9 million subscribers, up 24% from third quarter 2009 and up 18% from the beginning of 2010. We recorded our highest third quarter adjusted EBITDA in company history of $315 million, up approximately 16% year-over-year. This is the eighth quarter in a row in which we have reported year-over-year adjusted EBITDA growth of well over 10% and over the past three years we have grown quarterly adjusted EBITDA at over a 20% CAGR. Our strong results this quarter are largely due to two factors. Our successful launch and execution of Wireless for All service plans, coupled with our focused management on our superior cost structure. We have a very strong balance sheet and substantial liquidity with approximately $1.9 billion in cash and short-term investments. This includes $687 million of cash we are holding that has been used to return outstanding 9 1/4% senior notes at the call date of November 1, 2010. We continue to look at attractive and accretive ways to deploy our cash, including organic growth, general corporate purposes, opportunistic spectrum acquisitions, corporate development opportunities, future technology initiatives or the retirement of outstanding debt. In September, we continue to extend and stagger our debt maturity profile on our balance sheet, with the issuance of one billion and new 7 7/8% senior notes due 2018, of which 313 million was used to retire 9 1/4% senior notes in the third quarter. This refinancing coupled with the one billion amend and extend of our senior credit facility completed earlier this summer where key steps in turning out maturity schedule of our capital structure. These are key milestones in our capital structure formation for the next decade. Our total leverage pro forma the redemption on November 1 was 3.3x computed in accordance with the indentures governing our 9 1/4% senior notes at the end of September, and our net leverage at the end of the quarter was approximately 2.2x. Based on a very manageable maturity schedule, our weighted average cost of debt for the quarter are below 7.5%, the majority of our debt fixed by its nature of interest rate swaps and our significant cash and short-term investments. We believe we are well positioned from a balance sheet perspective. During the month of October, we successfully executed the forward interest rate swap on $950 million of our senior secured credit facility for an average rate of 4.6% all-in for the period February 2012 to February 2014. Churn for the quarter was 3.8%, down 200 basis points year-over-year. This decrease in churn was primarily driven by the acceptance of our Wireless for All offerings, including a decline in false churns as a combination of our realigned dealer incentives and stronger value propositions took effect. Our third quarter ARPU was $39.69, down $1.39 on a year-over-year bases and down $0.15 on a sequential basis. The decrease in ARPU year-over-year was primarily due to the introduction of our new Wireless for All service plans in January 2010, which include all applicable taxes and regulatory fees. Deferred non-ARPU for our tax inclusive plans is in the $4 range per subscriber. We were able to mitigate the majority of this dilution with the sale of our full range of service plans, including a $60-world unlimited offering. We are pleased with the continued stability which we have experienced with ARPU. Our CPGA continues to be one of the lowest of any facilities-based wireless carrier in the U.S. For third quarter, our CPGA was $161, up $7 over the prior year third quarter. The increase is primarily due to lower gross additions. As can be seen in our supplemental slides, our current cost churn is approximately $6, which is truly best-in-class. Our business continues to scale, and our CPU continues to be among the lowest in the wireless industry. Our CPU for the quarter was $18.47 as compared to $17.27 in the prior year's third quarter. This increase was primarily due to an increase in retention expense related to handset upgrades by existing subscribers and the inclusion of regulatory fees in our Wireless for All service plans. Consolidated adjusted EBITDA for the third quarter was $316 million, an increase of approximately 16% year-over-year. Our consolidated adjusted EBITDA margin for the quarter was 33.4%, compared to 33.5% in the third quarter of 2009. Over the trailing 12 months, we've generated record consolidated adjusted EBITDA of $1.1 billion. This is particularly impressive, given the potential margin dilution that could've occurred with the Wireless for All service plans and our 4G LTE's network rollout. I'd like to highlight a few items from the income statement and cash flow statement. In the quarter, on a consolidated basis, our service revenue and cost of service grew 16% and 5%, respectively, to $942 million and $314 million, respectively. The increases are primarily due to the growth of our subscriber base. Our consolidated selling, general and administrative expenses were $147 million for third quarter of 2010, representing an increase of $9 million when compared to a year ago. We generated $342 million in cash from operating activities in the quarter and the increase of $29 million from the prior year's third quarter. The increase was primarily driven by an increase in cash flow from working capital. We incurred capital expenditures of $233 million during the third quarter. During the quarter, our unlevered free cash flow was approximately $82 million. Our results demonstrate our focus and ability to grow the business while generating cash flow's over the long term. With our current outlook for future adjusted EBITDA and CapEx, we believe free cash flows will increase significantly as we complete our 4G LTE deployment in 2010 and 2011. Our current estimate for total 2010 capital expenditures is $750 million to $850 million. We generated $77 million in consolidated net income during the third quarter, representing year-over-year of 5% or $0.22 per share compared to $74 million and $0.21 per share in the prior year quarter. I'd like to now turn it over to Roger.

Thank you, Braxton. Our financial and operational performance during the third quarter was strong. This quarter's performance, as well as our year-to-date performance, is a result of the continued success with what we have launched in the beginning of 2010, the Wireless for All family of service plans. With our recent introduction of Metro USA, we now offer service which bring us to parity with postpaid offerings. This expanded set of service offerings provides in our view incredible value to our subscribers and also expands our addressable market. While Tom and Braxton focused their comments on third quarter operational and financial results, I would like to spend some time discussing our long-term strategy at MetroPCS. MetroPCS has been on the leading edge of network technology since we launched our business in 2002. We were the first to launch an all 1xRTT CDMA network back in 2002. We were the first to pioneer widespread six sector cell technology. We were the first to launch an AWS network in the U.S., and we were the first company to use DAS as a primary network design component in major metro areas. All the technological innovations by MetroPCS were driven by the consideration for cost and spectral efficiences. Our commitment and our investment in 4G LTE was in large part predicated on the idea that we wanted to invest in the next evolution of wireless technology. Strategically, we made the decision to avoid an investment in the legacy technology with a limited life and instead pursued the global race to a worldwide standard, 4G LTE. To make our rollout of 4G LTE even more efficient, our approach was an incremental overlay to our existing network. We have launched 4G LTE service in five metropolitan area so far this year, with more to be launch through the end of the year into next year. These were the first commercial launches of 4G LTE service in the United States. In addition, we were the first in the world to offer a dual mode, 4G CDMA LTE handset. We received this technological transformation as a game changer. We have previously mentioned that we decided to bypass 3G EVDO in favor of 4G LTE because LTE is far more efficient, both in terms of data rate and cost. We started working on the 4G LTE strategy three years ago, with an eye towards being one of the first carriers in the United States to launch for 4G LTE service with an LTE handset. We did this to provide leadership and drive the development of the ecosystem to address our unique business requirements with our 4G LTE launches we continue to innovate and evolve. As we introduce our markets with 4G LTE service, we are planning for the future and making way for migrating voice to VOLTE. While the ecosystem will evolve over time, once we move towards VOLTE, we expect important spectral efficiencies and cost savings will be achieved. With our adoption of 4G LTE and the movement to VOLTE, for the first time, we will be able to realize the benefits of a worldwide standard, which will include scale that comes from worldwide production being on a global standard. The GSM operators have enjoyed this advantage historically. So with LTE, MetroPCS will also benefit from a global standard. Further with combined voice and data, we'll have the ability to build capacity without regard to whether it will be used for voice or data. This was one of the key attributes of 1xRTT CDMA and this will once again be the case with the 4G LTE. In the first half of 2011, we intend to trial VOLTE and we look forward to transitioning our smartphone customers to LTE on voice and data. This holds the promise for significant leverage of both CapEx and OpEx cost savings. While still early, we expect 4G LTE to be the transformative technology to usher in a sea change in overall network efficiency to support the ever-increasing demand for data. Additionally, as handset ecosystems develop with an increasing emphasis on smartphones and QWERTY handsets, subscribers will have additional choices in finding the best wireless broadband device that meets their needs. Our focus has been and continues to be meeting customer needs as they relate to the small screen, smartphone or QWERTY handsets. We believe the small screen is where we have the greatest wireless broadband opportunity, and we are pursuing this opportunity aggressively. We are also committed to bringing smartphones to our subscribers that operate on the Android operating system. We have traditionally focused on voice, text and web service. However, with the development and inherent advantages of 4G LTE, we see an opportunity to transform our business. Increasingly, streaming video and audio are becoming a large and more important part of the wireless experience. We believe demands for video will grown significantly over the next few years. Our belief is that we are entering an environment in which subscribers will be viewing increasing amounts of video for purposes of news and entertainment. Our MetroSTUDIO service was deployed with entertainment in mind. With our MetroSTUDIO service, we believe our smartphones and services can become a true entertainment device, which allows subscribers to view and enjoy entertainment while on the go. Wireless broadband experience comes down to coverage and costs. We believe we are well positioned with our current service offerings, our 4G LTE network roadmap, as well as our future handset lineup to continue driving subscriber growth. As the cost leader in the wireless industry with a state-of-the-art 4G broadband network and a strong network of exclusive distributors, we are in an excellent position to continue our leadership in the no-contract segment. We continue to scale the business and we intend to deliver accelerated free cash flow in the future. The efficiencies and economies to be gained through moving now to a 4G LTE network enable for the first time EBITDA and cash flow to move in the same direction. This change has the potential to enhance profitability throughout the industry and from our current view, enhance profitability conservatives and [ph] important to drive future wireless valuations.

Wendy, we'll move to Q&A now, please.

Operator Instructions] And our first question comes from the line of Brett Feldman from Deutsche Bank.

In the end there, you were talking about the importance of LTE and smartphones and it does sound like you got a pretty good pipeline here of new devices and new 4G markets coming up in the near term. I'm just curious how you feel about, first of all, your service pricing? You decided to set that higher. Are you still comfortable charging where you are with smartphones and with the 4G services and if you think there is any merit to maybe lowering the price a bit to accelerate adoption? And there's definitely [ph] on the handset side, what's your sort of outlook for the next 12 to 24 months to where we could see smartphone and LTE handset prices go at a retail level for your customers?

That is a bit of a crystal ball. We do see a part of it. Let's take the first one. We will have a handset roadmap next year. I can't say specifically it's not totally in place, but it will be at least half a dozen handsets that we'll introduce in LTE next year. And it was critical for us, given the objectives that we have to use existing spectrum and due course to reform it to have both the narrow band as well as the wideband capability in the handset. So we needed that and we needed to focus on the PCS and AWS band.So we had to get in front of this, and this is an important development. The good news is that we have the handsets that we think we need for our smartphone lineup next year, pretty well in place, with just one or two shall we say products that need to be firmed up. But I think that this trial that we have this year is to see what we have in terms of usage, in terms of we have in customer preference. We're very pleased with the fact that people have opted for the more premium service that contains the MetroSTUDIO. And that gives them this entertainment dimension we talked about. As far as changing pricing in the future, I think right now, we're into a test phase so that will be determined by the outcome of this.

On the handset side, I know it's hard to predict where the cost go. In general, do you think there are certain sweet spots where you can meaningfully ramp the adoption of smartphones by getting a retail price points say under $200 or under $150. I just -- from your experience with the other phones, where do you really feel like you can move product?

Yes, I think we're entering a bit of a different phase, so let me try to answer the question. I think you're going to see smartphones that qualify for that level or certainly 4G phones between $200 and probably $500 next year and at wholesale. So given that, they're still an elevated price. One of the things that we're finding with our customers however, is that in terms of the touch phones as the phone is that we've introduced that people will pay up for the service and we're trying to find the right combination of both service pricing and as well as handphone prices that will move this. But people do demand "a touch QWERTY plus, shall we say, the app store/Android experience."

And your next question comes from the line of David Barden. [BofA Merrill Lynch]

I would like to follow up on the LTE stuff, you guys are as you say the first commercial launch and there is tons of questions I think people have about what are the speeds that you're getting? What are you advertising? How is the market reacting differently? Where or when you're coming up against Clearwire? How are you selling it? The mix of higher versus lower plans, if you could give us anything with a number in it, Roger, that would be great. And then second would be just this quarter, especially it seems that we've seen a real rise to prominence of the ultra low-end prepaid plans, TracFone kind of pioneer that and Sprint's Assurance brand has been following in their wake. And it seems like that has been a ripe opportunity for a lot of carriers. Are you guys at all contemplating about maybe dipping a toe downmarket into that area or is it really about focusing in your current sweet spot and up towards the smartphone data plans?

If I can keep track of the thoughts that you have, I'll start with the last thought. We have at this point, no plans to offer a lifeline or a government phone, if you will. I think the by-the-minute plan that Tom indicated gives us an opportunity for our customers to have the handset that they want and the service pricing that could very well fit into their budget. So I think over time, you'll see our approach to be really focused on people who want the handset experience in that group, but also very pressed for economics and what they can afford to spend month by month. So no, not directly, but I think we will have a broader opportunity to address at least a portion of that market. The other part and I'll aggregate this question speeds, I think we're seeing what I think Verizon has talked about. We see and it depends on the, let me predicate this, it depends on the SINR even more than the output power. So with a reasonable SINR environment, we're seeing typically around 8 Mbps in the throughput. Now go into to a house, get into a low SINR, or Signal Interference Noise Ratio, if you go into such indoors, you'll probably be cut down to in the two megabit or two Mbps range and even below, but we have a pretty broad strong signal, we've driven -- drive test our markets and we're very pleased that we can get what we expect out of this in a reasonable, not real good signal, but a reasonable signal. We have tested on a 10 by 10, I'll give you another number that we have put out but we have tested 10 by 10 and we're north of 70 Mbps, which I think is certainly as good as others have done. I think others have tested a 20 by 20 at 120, and so we're very, very pleased we could do better than that on LTE, if we have that spectrum to test on. So I think that we're very satisfied. We see the data rates, we see also the opportunity, which is hidden in this cost of ownership and the equipment because what we'll put in place is literally a base station called e-mail B [ph] that's good for 20 by 20. And the incremental cost of adding to the spectrum as we do in CDMA is, I would say, orders at least an order of magnitude different, given the -- in other words to be able to expand the capacity of that individual base station. So that's why we're so bullish on the fact that going forward, as we make this conversion, which will take a few years, that we have an opportunity to really drive free cash flow.

And Roger, as Verizon comes out with their LTE product and kind of presumably it's going to take a lot of the active now [ph] on the marketing atmosphere, do you have a specific plan to kind of draft their heavy lifting and educating the consumer and try to slip in there with the cheaper product and more visibility or any plans around that?

Well, I'd be surprised if we didn't. The fact is though that, let me just finished the other one, I didn't include one thought, we get about the same performance that I think Lowell McAdam has indicated on Verizon, about a 10x improvement over deal Rev. A on average. So we're very pleased and the key there is average throughput. So I think that yes, we'll draft on anybody, but this is no longer just Verizon. What we're looking at is a global standard. There is no doubt in our mind that LTE, whether in a frequency division duplex or time division duplex form will be the world standard, and there will be no question that there'll be devices with both capabilities. And so for the first time, we have a true global standard. So we're not seeing and perhaps in the next year or two, drafting perhaps on some of the other major companies that need dual mode, but we're seeing going forward a huge opportunity to draft on worldwide production and consumption.

And your next question comes from the line of Ric Prentiss. [Raymond James] Richard Prentiss - Raymond James & Associates: I appreciate the color you gave us today on the churn, it looks like it's normalizing in the 3% to 4% range, I think it does feel like the retention spending is kind of a new fact of life out here and customers do want these smartphones. As you guys look at the CCPU effect, it was up over a block I guess year-over-year. Where do you think the -- and I think you said 12% of your base upgraded in the quarter and 35% of the bases updated year-to-date. How do you think about the mixture between churn and the 3% to 4% monthly retention spending needed to keep people on board and the ARPU trends, just kind of how the math works in the new model?

Let me take the first bite of that and then I'll turn it over to Braxton and Tom. Remember, we're building a total new system and one of the elements of that is licensing cost, utility costs and all important backhaul. So we're carrying a few bricks in our saddlebags right now, which don't have the corresponding revenue to offset this but will be building for the future the retention cost, I'll open that up.

Yes, I think that Ric, we look at the retention as really a good news story. As people reinvesting on the MetroPCS value proposition, and we've certainly seen an increase in that this year, given the more affordable handset pricing that we put in place by eliminating the first month free. And by reinvesting the value proposition, we're seeing a lot of gravitation towards higher and better quality phones. So we think it could have a good, long-term positive impact on our retention and churn numbers. It definitely has impact on CPU but we have two other even more significant issues going on with CPU. First is the inclusion of the regulatory fees, which we've talked about per calls is upwards to $0.75 per subscriber, and that is being absorbed now in 80% of the base. And we also have the impacts of rolling out our 4G LTE network and putting in the backhaul and the other OpEx items that are associated with that rollout. So there's multiple things going on with CPU but the important thing is we continue to scale and scale nicely. Tom, do you want to add anything?

Yes, I would just say that the upgrades phenomenon is really our people do have money for handsets. We've mentioned on previous calls that phones are fashion, phones have utility. For a lot of our customers, it's a four for one utility. It is home voice, it's mobile voice, it's home broadband and now mobile broadband and as that's dependent on the device as scene, the average customer probably touches our keypad 3x to 4x more than a different service. So to that end, the desire to constantly upgrade, they will upgrade not always when they desire a phone but when they economically can. So our base might upgrade anywhere between 2x to 2.5 times a year depending upon what that user wants in the handset. Richard Prentiss - Raymond James & Associates: And then to say back on Roger's comments about the backhaul utility and licensing cost, can you give us any color about how much it is causing you from an OpEx and CapEx standpoint to overlay the LTE network? And just as we look into the free cash flow accelerating over the next couple of years, what kind of market POPs, just to give us a sense of what we're looking at spending OpEx and CapEx as you rollout LTE over the next couple of years at all your markets, it sounds like it?

Yes, the disclosures that we've made, Ric, are more on the CapEx side. And that is roughly half of our CapEx spending is related to the rollout of the LTE 4G networks. We haven't gotten granular on the OpEx side other than there is incremental pressure. But I think it's really important to note that what we're trying to do is, of course, this is efficiently as possible by combining voice and data traffic into ethernet, which does have a significant upfront cost that if you combine your current voice traffic it's fairly mitigated where the places where that's available. And what's really interesting is the scale that you get off of that because as you increase overall usage, the cost curve is very, very flat. Roger, would you like to add?

Yes, I think the key that we see is that we're building now. So this is 2010, 2011 as we complete the network build, we'll have complete overlay, we'll use our existing cell sites, our existing plumbing to a very great extent on the towers and rooftops. And so we've done this on a very incremental basis. The real benefit on OpEx as Braxton was indicating comes when we see the additional data traffic, which we will get and we believe we have some ARPU opportunities for is the price elasticity of the demand to go to a 10 Mbps to 100 Mbps in backhaul with an ethernet combining both CDMA and LTE traffic, is enormous. It's in the order of 10x cost reduction. So yes, we pay more but the price per bit goes down by nearly a factor of 10.

Your next question comes from the line of Simon Flannery with Morgan Stanley.

Could you talk a little bit more about the Wal-Mart by-the-minute deal? Is this something that you might expand to other retailers or is this likely to be an exclusive? Are you rethinking your big box strategy here with this? And then Braxton, there was a slide in the deck on quarterly net adds talking about absence of market launches could increase levels of seasonality. I just wanted to understand that you haven't launched market for some time now, so do you think what we're seeing right now is sort of what we'll see going forward?

Simon, on the big-box play, it is a trial. It is exclusive at Wal-Mart for a period of time, we want to test and see how the $20 and $30 cards do. We believe it is accretive. We think it's a new market that we'll introduce people to MetroPCS. And where they go from there, if they go to a monthly plan, if they go to LTE, our absolute possibilities but we think it's the right pay to be inside of what we consider one of the largest big boxes for [indiscernible] cards. Braxton, you want to talk about the second part of the question?

Yes, the chart that we have in our supplemental deck makes the point as you noted that market launches can affect the level -- the relative percentage of net ads in any given quarter. And that was very true when we had significant market launches in the past and since we're showing historical data, we wanted to make that point. I think your point is very well taken going forward, we are passed significant market launches at this point and we should revert to more normal seasonality, which is Q1 being absolutely the strongest quarter followed by the fourth quarter and then you have the second and third quarter, which are you're seasonally softer quarters. So you'll see more of a normal return to that trend absent large market launches.

Your next question comes from the line of John Hodulik with UBS.

Just want to get back to the LTE strategy one more time. Obviously, we're seeing the smartphone phenomenon start to -- in the postpaid side but it would stand [ph] a reason and you're probably seeing that it's making its way down market to the prepaid market. Can you talk about your -- this is sort of forward-looking, but maybe Roger your view of how that's going to affect your business over the next couple of years? And can we get to a point where we start to see ARPU move in the right direction as LTE gets rolled out, penetration of these devices starts to increasing your base? And then also maybe talk about the competitive market in prepaid as we move to 4G. Seems like a lot of competition we're getting right now is baked on resellers and it doesn't seem like that, that should develop similarly as we move to this new model in the prepaid market?

Again, I'll maybe take in the reverse order. Competition, obviously, will always be a factor. I think what we're seeing is that at least for now, some bit of focus on segmentation as opposed to parties dropping their price structure and having some across-the-board dramatic impact. I think you see a more mature market now in prepaid and paying in advance. I'd like to group both of those in no-contract. So I think there's an element of stabilization, but in the segmentation, I think there's going to be a lot of creativity that occurs. We think that the importance of moving to the smartphones in the no-contract market is a critical step and also it's a very important step for us to provide the very best experience that customers could get based on data rates and handset capability. So next year, 2011, is an opportunity for us probably towards the second half of the year to be able to put up handsets and services that are truly at parity in the postpaid industry. Bringing this to the no-contract market we think has a very important initiative because our view is 2009, late 2010 was really the period of the QWERTY in the no-contract market and we think that's moving very strongly to the smartphone touchscreen going forward in 2011 and beyond. So we want to be well positioned with a variety of products based on handset prices and overall comprehensiveness of service packages that could deal with this. And we do think that as we go into the more, shall we say, extensive service packages, that there's an opportunity for some lift in ARPU, remember if we've got a base of roughly 8 million subscribers moving to ARPU for the whole company will be a challenge, but we do see an opportunity in LTE.

Are you seeing greater uptake of smartphones in the LTE market than you do in non-LTE markets? [indiscernible]

We only have at this point on phones. So it's reminiscent of when we started, you can have anything you want as long as it's a $23.35 [indiscernible].

And your next question comes from the line of Michael Rollins with Citigroup.

I'm just curious to explore with you guys over the last few years, I think whether there's been outperformance or underperformance, there's been a greater level of variability to maybe even your own internal expectations as you evolve the business model. And I'm wondering if you could talk about how you feel the visibility today in terms of predicting the future, the budgeting process and maybe some of the things that have changed in the last few quarters with the new rate plan strategy versus maybe what you saw in that process in the past couple of years?

Let me try the first one because see volatility as kind of an exogenous event. It's not something that we create. I think we had a major change as we recognized with Wireless for All early this year and this was really from the major carrier, Sprint, that introduced I think a very strong program to capture the predictability as well as affordability in the no-contract segment. We move to that, that's a major changes in our billing system, took us a half a year to get it all done. But we think that we are now planted our feet on solid ground, so volatility now has gone back to the perception I guess in the marketplace. We think it's somewhat of a misplaced perception because postpaid is probably going to have as much volatility as any segment of the wireless market. But I think, nevertheless, we are seeing a degree of stabilization and I think that the opportunity going forward is that the small screen is going to turn into an entertainment device. We absolutely believe this. I think we're seeing every evidence of this. There is cost levels and we need to see the ecosystem develop particularly for LTE. But when it does, it will be I think a very substantial movement that will give rise to greater opportunities. So we're not going to be thinking about one handset per person, wherein we're thinking more about how many appliances a person has and who has the opportunity to support those appliances. So tablets, all items, we think, cameras, everything will turn to wireless. So we see the opportunity going forward. We think it's the question of who services these segments the best. And one thing for sure we know, if you are the cost leader that you have the greatest opportunity to select and choose what you'd like to do. Braxton, you want to comment?

Yes, you mentioned the budgeting process and visibility. I think there's definitely a large difference between this year's process and last year's process. When you do a comprehensive transformation of your business on multiple fronts, there's even more of a crystal ball than usual. Seeing the power of Wireless for All, and the execution that our operations team has performed during the year, definitely, I think helped us in our views on 2011.

Your next question comes from the line of Romeo Reyes from Jefferies. Romeo Reyes - Jefferies & Company, Inc.: Two questions here, the first to Braxton. How are you thinking about normalized recurring facts and what I mean by that is exclusive of any sort of LTE overlays or exclusive of market builds in terms of either percentage of revenues or percentage of or over dollars per cover POP? How are you thinking about what the recurring CapEx for the business is? And then the second question for Roger and/or Tom, with respect to spectrum LTE, I guess, works best in I guess in a 20 by 20 and those are obviously very hard to come by. How are you thinking in terms of the sources of spectrum? The FCC has outlined that they want to have 100 megahertz in spectrum at some point and there's going to be a deficit of 275 megahertz by 2014. Where do you think that spectrum will come from? I mean there is only going to be like 40 to 60 from AWS-2 and AWS-3, and there's a little bit from WCS and NSS, and then the key block [ph] from 700. But it seems like some of those are going to be extraordinarily well built for by some of your larger competitors. So just trying to get sense as to where you think the source of spectrum is going to be for you?

On the CapEx piece, Romeo, we've updated our CapEx guidance in this call to be $750 million to $850 million, you'll see that in Q when it gets filed on Monday. And we've made previous public comments with half about it is LTE. And you can see that are LTE build-outs really are the main, dense, highly populated parts of our footprint. We certainly expect CapEx next year will drop from current levels and we will be providing disclosures in our year end call and then the MD&A relating to the 2011 CapEx. I think it's fair to say that we're very interested in having a full 4G experience across our footprint. And while we will see a step down in '11, what will continue to fully built the footprint '11. Once we get passed that build, you've heard Roger talk a little bit about the CapEx efficiencies that are present with LTE, not having to -- have significantly for every carrier that you add into CDMA versus an LTE, either it be where you have essentially 20 megahertz of capacity with some small RTU fees as you grow the usage on the systems. So I think that it's a very significant point that you're making. We should see some very nice downward trajectory in our spend, barring any new market builds or other strategic items that we would do, so we're quite encouraged with that trend. Roger, you want to talk about the spectrum [ph]?

Yes, spectrum question, I guess is on everybody's mind. Yes, i think there is a bit of a misperception because of the holdings of the very largest carriers in the country between 80 and 100 megahertz and then you have Sprint with more than that Clearwire. The fact is that there are tremendous economies just with having the -- which we do have roughly 10 megahertz set clear in all our markets say one that we are intend to launch LTE on. And our objective is really a reforming objective and that is to use the spectrum that we currently have, that's why it was so important to develop the ecosystem around the bands of our interest which is PCS and AWS. Others have a very strong interest in 700. And so I guess the answer to the question is we never saw a megahertz we didn't like at the right price. But on the other hand, we have a reforming plan now and we feel that, that plan is adequate for our needs because we are intending to support the small screen. Tablets are interesting, we'll see what that might develop, but at this point in time, we're looking at the small screen handsets. Romeo Reyes - Jefferies & Company, Inc.: With respect to kind of the government, I guess trying to ease some of the restrictions on MSS, I know you guys have a look at that in the past. What are current your thoughts on that your current thoughts 99 hertz [ph] piece that's out there?

Well, we're not quite sure what the government has done. We've heard what LightSquared has their arrangement, but I think this is one of the uncertainties we have in their view of MSS and when the availability of the AWS spectrum is going to be announced. That's obviously a more direct application for us. So we're keen to know when they're going to offer AWS spectrum.

Our next question comes from the line of James Ratcliffe with Barclays.

This is Sandeep for James Ratcliffe. Can you talk about the economic impact of the Metro USA offerings in terms of the incremental roaming cost and also [ph] roaming revenues? And also does this offering give you the flexibility to sell in markets where you don't have an equity yourself that is more than MVNO?

Yes, we have no interest in the MVNO relationship. I think the right way to look at the Metro USA is this is an incremental expansion to our national footprint from 220 over 280. Certainly, it will have some costs associated with it, but we don't see that cost as being significant to our results or significantly impacting our margins. And we also believe that from a retention standpoint that we could actually probably more than fully offset economically any additional cost from the service.

And I think the big picture for us is, quite frankly on this topic, perception sells more than reality. And I think our customers or the customers in the segments that we don't enjoy right now feel the table stakes are a nationwide system and we want to be into consideration of those customers who have in the past rejected Metro because the perception was were a regional or local service company. We want to make sure we dispel those thoughts, so we see the upside much greater than the actuality of the cost side of the equation.

Well, thank you all again for participating on today's call. We appreciate your interest and support of MetroPCS, and we look forward to our next quarter of continued progress. Operator?

Ladies and gentlemen, this concludes the MetroPCS Communications Third Quarter 2010 Conference Call. Thank you for your participation. You may now disconnect, and have a pleasant day.