T-Mobile US, Inc. (TMUS) Q4 2010 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the MetroPCS Communications Fourth Quarter and Year-End 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, Dave, and good morning, everyone, and welcome to our Fourth Quarter and Year-End 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: Roger will first provide an overview of our business; and Tom will provide an update on a number of operational results and initiatives. Then Braxton will review the financial highlights of the fourth quarter and year-end 2010 followed by a question-and-answer session. During today's call, we will refer to certain non-GAAP financial measures. These non-GAAP measures are not a substitute for GAAP measures. And we have reconciled these historical non-GAAP measures to GAAP measures at 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. We do not intend to refer to these slides during today's prepared presentation, but may do so in the question-and-answer session. Before I turn the call over to Roger, 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 or the timing of events or results to materially differ from those made in these 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 are statements not of historical facts or events and include, but are not limited to, statements we make regarding our future operational and financial plans, our strategy, 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 in prepaid services; growth of the pay-in-advance industry; the transformative nature of 4G LTE, consumer demand for smartphones, including 4G LTE smartphones; the anticipated timing of upgrades to our networks; benefits of 4G LTE; importance of Android, our ability to drive future growth; enhancements to profitability resulting from 4G LTE; sustainability of rates of churn; effects of improvement in economy and growth; anticipated delivery of 4G LTE handsets; higher handsets subsidies; increasing brand awareness; future products and services; balance sheet positioning; our estimates of capital expenditures; our financial strength and positioning; and other statements which are not historical. Management also may make additional forward-looking statements in response to questions. Our forward-looking statements are subject to a number of risk factors that are beyond our control, including general economic conditions, financial, competitive, business, political, regulatory and other factors, 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 encourage you to review these documents. I'd like to remind you that the results for the fourth quarter and year-end 2010 may not be reflective of results for any subsequent period. For anyone listening to a taped or webcast replay or reviewing a written transcript of today's call, please note that all information presented is current only as of February 24, 2011, and should be considered accurate only as of February 24, 2011, regardless of the date reviewed, read or replayed. 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 annual report on Form 10-K for the period ended December 31, 2010, with the SEC by March 1. At this time, I'd like to turn the call over to our Chief Executive Officer, Roger Linquist.

Thanks, Keith, and good morning. 2010 was a record year for the company, both operationally and financially. We reported record net additions, record revenue and adjusted EBITDA. These successes were primarily driven by tremendous acceptance of our Wireless for All service plans. While 2010 was a record year, we have been growing in a significant rate since we began this company in 2002. Over the past five years, we have grown adjusted EBITDA and subscribers at a 31% and 29% CAGR, respectively. Truly best-in-class growth rates within the wireless industry. The No-Contract Wireless Service segment is gaining increased acceptance and market share among the wireless subscribers. Recently, a Wall Street analyst talked about prepaid and paid-in-advance comprising 21% of total wireless subscribers, and in the last 12 months, contributed 45% of wireless industry growth. We believe these trends will continue. We are facilities-based low cost provider that has and continues to be foundational to our strategy. It is noteworthy to take a step back and look at our accomplishments. We have effectively managed our key metrics while adding costs from our 4G LTE network upgrade, increased retention costs from accelerated handset upgrades and associated costs, including taxes and regulatory fees in our Wireless for All service plans. While making a low cost part of our strategy, we have also pushed the envelope of innovation. This focus on innovation was and continues to be necessitated by our consideration for operating a low cost network and gaining spectral efficiency. We were pioneers in deploying spectral efficient technology, including six-sector cell and DAS technology, as primary network design elements. We launched the first ever AWS network in the United States. And in September of last year, we were first to commercially launch 4G LTE service. With all these enhancements, we kept the focus on our costs and continue to have one of the lowest cost per user metrics among facilities-based wireless carriers. 4G is transformational for the company in that LTE technology and the flat IP network structure will improve spectral efficiency and significantly moderate our CapEx spend as we continue to grow our subscriber base. The wireless experience is changing. From our vantage point, we are in the midst of a wireless tsunami, as more and more smartphones are introduced to customers. Demand for smartphones is increasing, and we will meet this growing consumer demand. We began planning for this changing requirement several years ago, while we made a decision to move towards an LTE platform. With our successful launch of LTE in 2010, we anticipate building up a majority of our footprint by the end of 2011. In our view, key benefits of moving to 4G LTE includes the worldwide industry concentration and ecosystems moving towards a single global platform. We see tremendous opportunity available in this move through a flat IP structure that 3G simply could not deliver. Additionally, mobilizing the world's handset and infrastructure manufacturing resources behind the 4G LTE common worldwide standard, whether FDD or TDD, provides the economies of scale to continue to fuel worldwide demand and penetration of new segments. In this rapidly evolving marketplace for multiple device connectivity, service contracts become an impediment and not a facilitator for sales. Additionally, with our initial focus on small screen smartphones, subscribers can use their handsets for video entertainment as well, while the company can effectively optimize the network using traffic conditioning, shaping and compression technologies. The handset ecosystem is developing also. We are proud and have recently launched the world's first 4G LTE Android smartphone from Samsung, the Galaxy Indulge. Importantly, it also provides our subscribers access to the thousands of apps available on the Android platform. In our view, Android has rapidly become the preferred operating system choice for handset manufacturers. We believe with the launch of 4G, our Android smartphones, both current and plan, our operating subscribers have superior wireless broadband experience. We expect to see massive move towards smartphones in the near term in the No-Contract segment, as we have already witnessed in the Contract or Post-Pay segments. We are positioned to support this data evolution, while maintaining our cost leadership position. Given these opportunities and our ongoing network transformation, we believe we can continue to drive significant subscriber growth and expand our addressable market. Many within the wireless industry believe penetration rates could exceed 100%, providing the potential for even more growth opportunity in the future. While it will take time to migrate our customer base to 4G, we believe once the tipping point is reached in 4G LTE handset shipments, the potential exists for rapid price reduction in the pursuit of global market share that will stimulate demand, enhance both our efficiency and profitability. In 2002, we foresaw an opportunity within the No-Contract Pay-In-Advance Wireless segment. We aggressively pursue this opportunity with the first U.S. launch of a full 1xRTT network in the emerging ecosystem for handsets. Now with over 8.1 million subscribers, numerous smartphones have national wireless coverage. We are the fifth largest facilities-based wireless carrier in the U.S. I'm extremely proud of the hard work of our employees throughout the year in successfully implementing a new go-to-market strategy, while launching the first 4G LTE network in the U.S. We believe this transformation to an LTE network helps us secure our leadership position as a low cost operator in this ever-changing data-centric world. We believe more change will occur in the wireless experience in the next two years than did in the previous 20. Now I'll turn the call over to Tom.

Thank you, Roger. Good morning, everyone. Operationally for 2010, we recorded consolidated net subscriber additions of over 1.5 million, the highest in company history. We also significantly lowered our monthly churn in 2010 by 190 basis points. Importantly, we believe this lower rate of churn is sustainable in the future. As acceptance of no-contract wireless continues to grow, we gained share, increasing penetration to 8.4% of covered POPs, up from 7.2% at the end of 2009. Financially, we reported consolidated adjusted EBITDA and grew margins year-over-year. Looking closely at the fourth quarter, we reported subscriber additions of 298,000 and gross additions of over 1 million. We also reported a sequential increase in ARPU of $0.10 in the fourth quarter. With the continued uptake of smartphone plans, offset by family plans and the continued migration to tax inclusive rate plans, we feel we have done a good job supporting ARPU. With our Wireless for All service plans and a 4G LTE network, we believe 2010 will be about the smartphone, and in particular, Android smartphones. In the fourth quarter, we introduced two Android handsets. In 2011 year-to-date through February 21, approximately 1/3 of the handsets we are selling, including both upgrades and new customers, are smartphones. Consumer appetite in the No-Contract segment for smartphones is growing. We are very pleased with the subscriber trends we're experiencing so far in the first quarter. We have continued to execute successfully, fine-tuning the balance between subscriber growth and profitability. Our hard work has delivered impressive results. In the past two years, we have added almost 3 million total subscribers, an increase of 52% in our subscriber base. In what some view as a mature industry, we have gained substantial share and we have done it profitably. Industry-wide, the third-party study shows that throughout 2010 in the markets we sell into, approximately half the gross additions shows a no-contract wireless service. In 2010, we saw our competitive environment more focused on segmentation versus price. During the year, we saw some movement in pricing of data cards. However, that's a service segment we strategically chose to stay away from and instead, maintained our focus on the small screen. In September of 2010, building on our longer-term network strategy, we introduced the first 4G LTE network in the United States. We launched the world's first commercially available 4G LTE phone, and two weeks ago, launched the world's first 4G LTE Android smartphone from Samsung, the Galaxy Indulge. We have launched LTE in 12 of our 13 major metropolitan areas, and we continue to build out coverage within our existing markets. We anticipate building out LTE in the majority of our footprint by the end of 2011. We offer 4G LTE service plans at $40, $50 and $60, providing subscriber data access consistent with their lifestyle and within their budget. While still early, we do see LTE subscribers responding positively to $50 and higher rate plans. Just recently, we launched the world's first 4G LTE Android smartphone, the Samsung Galaxy Indulge, is a cutting-edge touch screen in 4G smartphone. It's equipped with the latest Android 2.2 operating system and a one gigahertz processor. The Galaxy Indulge offers superior mobile broadband connectivity, allowing customers to experience entertainment features and access to music and video libraries with ease. Our handset roadmap is robust. We are currently working with multiple OEMs and hope to introduce additional 4G LTE handsets later in 2011. It should be noted that our higher-end LTE handsets carry a higher subsidy, which, on average, will cause upward pressure on consolidated CPGA. We believe the result of the higher subsidy is that we increase our brand awareness, we increase overall awareness by getting the handsets into subscriber's hands. During Q4 2010, an industry report was produced that measure the wireless carriers’ ability to have their customers positively promote their brand. Out of the top 10 wireless carriers in the U.S., MetroPCS ranked first in positive net promoter attainment, thus validating our decision to bring affordable and desirable handsets to our customers. This borrow brand awareness inside of our customer base has been important to our long-term success. Our 2010 operational success was rooted in our Wireless for All initiatives, introduced in January of 2010. Wireless for All was perhaps the single largest product transformation that the company has undertaken to date in its history. In the 12 months of 2010, we revolutionized our company with Wireless for All. With the history of innovation, we are suited for this pace of change. With projectable pricing that includes all applicable taxes and regulatory fees, we provide subscribers with predictable and affordable wireless service plans. We saw positive effects in this go-to-market transformation throughout 2010. For our existing subscribers, the move to Wireless for All provided an opportunity to reconfirm their choice in MetroPCS. During 2010, we saw just over 50% of our subscribers upgrade their handset. Additionally, we generated interest from these subscribers. A recent company survey, 1/3 of our customers surveyed were previously a contract wireless subscriber. Over the years, MetroPCS has worked hard to provide our customers with incredible value and be recognized as the best deal in town. Individuals can customize their plan and purchase what they want, be it a future phone, Android OS smartphone and now a 4G LTE Android smartphone. Families can literally save thousands of dollars over national brands and receive a great mobile broadband experience with the 4G LTE Android device. We have grown. We have grown profitably, and we will continue to focus on the customer experience and point-of-sale execution as we grow in 2011. Now I'll turn the call over to Braxton.

Thank you, Tom. Good morning. We reported strong fourth quarter and full year 2010 operational and financial results. We ended the fourth quarter with over 8.1 million subscribers, up approximately 23% over the previous year. Full year net additions totaled over 1.5 million, a record for the company. We recorded our highest fourth quarter adjusted EBITDA in company history of $315 million, up 25% year-over-year. This is the ninth quarter in a row in which we have reported year-over-year adjusted EBITDA growth of over 10%. Over the past five years, we have grown adjusted EBITDA at a 31% CAGR, nearly tripling the amount from just under $400 million in 2006 to nearly $1.2 billion in 2010. Our increase in adjusted EBITDA shows the ability of this business to generate cash. Our strong results this quarter and for the full year 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. In 2010, we significantly strengthened our capital structure through extending and staggering our debt maturity profile. During the summer, we modified certain terms in our existing senior secured credit facility, including extending the maturity of $1 billion our Term Loan B by three years. Additionally, we retired all of our 9 1/4% senior notes due 2014 through the issuance of $1 billion and 7 7/8% notes due 2018 and $1 billion and 6 5/8% notes due in 2020. As a result of these actions, we have a very strong balance sheet with substantial liquidity of approximately $1.2 billion in cash and short-term investments at year end. From an operational cash flow perspective, MetroPCS has turned the corner in 2010 as it was the first year the company was free cash flow positive on a levered basis. 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. Our total leverage was 3.3x computed in accordance with indentures governing our senior notes at the end of December, and our net leverage at the end of the year was approximately 2.2x. Be it upon a very manageable maturity schedule, weighted average cost of debt for the quarter of 6.7%, the majority of our debt fixed by its nature or through interest rate swaps and our significant cash and short-term investment balances, we believe we are very well positioned from a balance sheet perspective. Churn for the quarter was 3.5%, down 180 basis points year-over-year. For the year, churn was 3.6%, representing a year-over-year decline of 190 basis points. This decrease in churn was primarily driven by the acceptance of our Wireless for All offerings, including a decline in false churn as a combination of our realigned dealer incentives and stronger value propositions took effect. Our fourth quarter ARPU was $39.79, down $0.91 on a year-over-year basis, but up $0.10 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 included all applicable taxes and regulatory fees. The burden on 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 a full range of service plans. We are pleased with the continued stability that 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 the fourth quarter, our CPGA was approximately $162, up approximately $24 over the prior-year fourth quarter. This increase was primarily due to various promotional activities, as well as lower gross additions resulting from the reduction in false churn. As Tom discussed, as we introduce additional Android smartphones, we will see pressure on CPGA as these smartphones carry a higher subsidy. Our business plan continues to scale, and our CPU continues to be among the lowest in the wireless industry. Our CPU for the quarter was $18.83 as compared to $18.06 in the prior year's fourth quarter. This increase was primarily due to an increase in retention expense related to handset upgrades by existing subscribers, the inclusion of regulatory fees in our Wireless for All service plans, as well as costs associated with our 4G LTE network upgrade. Consolidated adjusted EBITDA for the fourth quarter of 2010 was $315 million, an increase of 25% year-over-year. Our consolidated adjusted EBITDA margin for the quarter was 32.4% compared to 30.5% in the fourth quarter of 2009. In 2010, we generated a record consolidated EBITDA of approximately $1.2 billion, up 23% year-over-year. Our 2010 adjusted EBITDA margin was 31.9% compared to 30.5% for 2009. This is particularly impressive given the potential margin dilution that could have occurred with the Wireless for All service plans and our 4G LTE network rollout. I'd like to highlight a few items from our income statement and cash flow statement. In the quarter, on a consolidated basis, our service revenue and cost of service grew approximately 18% and 3% to $972 million and $317 million, respectively. The increases are primarily due to the growth of our subscriber base. Our consolidated selling, general and administrative expenses were relatively flat at approximately $156 million for the fourth quarter of 2010, representing a slight increase of $5 million when compared to a year-ago quarter. We generated approximately $315 million in cash from operating activities in the quarter, an increase of $195 million from the prior year's fourth quarter. The increase was primarily driven by increases in operating income and cash flows from changes in working capital. We incurred capital expenditures of $242 million during the fourth quarter. During the quarter, our unlevered free cash flow was approximately $73 million. For the full year, we incurred capital expenditures of $790 million and generated unlevered free cash flow of approximately $386 million. Our results demonstrate our focus and ability to grow the business in a profitable manner. Our current estimate for total 2011 capital expenditures is $650 million to $800 million. We generated $193 million in consolidated net income during 2010. This amount includes approximately $59 million in net charges related to the extinguishment of our 9 1/4% senior notes and gains recognized on FCC license exchanges consummated during the year. On a non-GAAP basis, excluding the loss on extinguishment of debt and gains on FCC licenses, net income would have been $252 million or $0.70 per share for the year ended 2010 and $163 million or $0.46 per share in the prior year, representing year-over-year growth and net income of 55%. I want to thank everyone for their support during 2010. We'll now move to Q&A. Operator?

[Operator Instructions] And our first question will come from Brett Feldman, Deutsche Bank.

I was hoping we could just talk a little bit about ARPU. Over the course of the year, you've talked about how the migration to Wireless for All created a little bit of headwind. I was hoping you could give us an update on what percentage of the base has completed the migration over there so we can just think about when some of those pressures might alleviate? And then, if we look at what happened in the fourth quarter, you saw a little bit of a positive sequential response in the number that seems to be associated with the continued uptake of smartphones. With smartphones representing a pretty meaningful chunk of your handset sales now, isn't it reasonable to think that as that trend continues we might get a little bit of a tailwind around ARPU as we move through this year?

Brett, this Braxton. The tax inclusive base now represents 84% of our total subscribers at year end. So the vast majority of the migration of the base has already occurred. And certainly, one of the things we're very excited about with 4G LTE -- and I think importantly, 1x smartphones is that those are on rate plans that are $50 and higher. So obviously, when we have over 1/3 of our mix going to smartphones, that is very positive from an ARPU standpoint.

Let me add one thing, Brett. The migration, as Braxton said, is to a great degree completed really where there's probably more upside for a continued migration than downside because those that have not changed their plans largely are on some of the promotional family plans that we had outstanding, and those plans are no longer available. So the reason why I think people are not converting is because they have a very attractive family plan to begin with and probably any step they would make to go to a different plan would mean they would be different at a higher ARPU not a lower ARPU.

And just one other question to clarify something that Tom said. You mentioned you guys are pleased with what you've seen so far in terms of your first quarter subscriber trends. Historically, the first quarter has been a seasonally stronger period of the year than the fourth quarter. So when you sort of look at how things are shaping up and feeling pleased with the trend you've seen 2/3 of the way through, is that kind of what we're pointing towards?

Brett, this is Tom. I guess I'll reiterate what I did say in the call that we are very pleased with our results to date in the first quarter. I really can't comment further than that.

Yes, and one of the issues that we did see and I think everybody saw this in the industry is that the change in government policies for the RALs, the Refund Loans [Refund Anticipation Loans], were slow and delayed in getting through and they were basically processed in a much different way. So I think there's been a slight delay that's been introduced. But going back to Tom's comments, I think that he says it all.

But I think importantly, Roger, even though the quarter may have been slightly delayed to the Refund Anticipation Loans, we think that, that's timing and we saw a pickup a little bit later than we typically would in prior years without that issue. So we don't think that it's going to have any net impact on the quarter.

And next, we'll go to David Barden with Bank of America Merrill Lynch.

First, you guys kind of launched a two-for-one handset promotion over the Presidents' Day weekend. Obviously, as you guys noted, a very strong marketing quarter. In any event, was the intention to kind of clean out inventories to make room for new handsets or to try to turbocharge demand, if you could kind of elaborate on that a little bit? And then I guess, my second question is kind of the same question I've asked for a couple of quarters, which is, Braxton or Tom, are there any numbers or quantification that you can put around your experience on LTE to date to give us a sense as to the rate at which your investment and commitment to that strategy is paying off?

Dave, this is Tom. I'll take your first question regarding BOGO. Presently, only about 14% of our subscribers are taking a BOGO handset, so we believe that what we've done is a targeted promotion, versus what I would call a large net advertising in Q1. And by our targeted promotion, we allow people to come into the store, understand the offer, see if it's right for them. But while they're there, we also have affordable and attractive handsets in things like Android, obviously with 4G LTE smartphones and with our new introduction of the Android 4G LTE smartphone. So that kind of targeted POS at the store level which is viral, which is actually supported by the Net Promoter Score that I referenced in the call, is one of the things that some people call the secret sauce that brings people to the store and then gives them full choice. That we believe by offering that, it's not to get rid of older inventory because the handsets that we're featuring are current handsets in the lineup by solid OEMs, such as Kyocera, by Samsung, by LG, that people are finding really attractive for that particular segment. So we think it's a promotion that doesn't just put old inventory out there for people, but offers current handsets at an extremely affordable price.

David, I think you also mentioned the inventory management piece of it, and Roger referred to the smartphone tsunami that's occurring. And basically, we think that future phones are dead and that the future is all about the smartphone experience, in particular the Android with the open architecture and the development that's happening from an application standpoint. So there is an added benefit of clearing out low-end future phones with this type of approach, and I think you astutely pointed that out. On your question on more specificity on 4G LTE trends, I think the important thing is we've continue to talk about this as transformational. And in early January, we launched all the remaining markets except one, and the final market that isn't launched, we'll be launching fairly soon. And it's due to some spectrum clearing issues that we're dealing with, with the government versus having the network complete. So we've always talked about 4G LTE being transformational. We weren’t going to flip the switch and put a significant number of subscribers on overnight. It was more transformational and evolutionary or over a couple of years as we brought markets out. As the ecosystem developed, remember until two weeks ago, we only had one handset out there. So we don't think it's really meaningful at this point to be getting really specific about what we're seeing. I think more importantly, for your purposes, Tom talked about 1/3 of our sales mix is going to smartphones and that to us is the positive trend. And certainly, there's a mix in there from a 4G LTE standpoint and a 1x standpoint, but that's the significant tsunami that we're seeing with the company.

If I could just quick follow up on that, Braxton, on the 4G strategy, LightSquared in Barcelona said that they had signed contracts with two national carriers in the U.S. Is PCS one of those carriers?

Well, again, they weren't specific as to who was doing that. So we don't want to make announcements on behalf of LightSquared. Roger has been very clear that we're supportive of what LightSquared is doing, that if there are opportunities for us outside of our footprint to take advantage of a 4G LTE build from a roaming standpoint that, yes, we would be very interested in that. And that's about as far as we can go at this point.

And next, we'll go to Jennifer Fritzsche, Wells Fargo.

I believe you said 1/3 of your total subs are previously post-paid subs. And I wonder if you could talk a little bit about your change in distribution? I know there have been some talk about maybe moving a little bit more upscale in terms of your marketing? I'm not sure that's the right word. And then, if you could just talk about trends you're seeing early in Wal-Mart or any new thoughts on the big-box retailer strategy?

Jennifer, this is Tom. Just for clarification, I think what we spoke about were our survey were on new subs not the total base. So as we look at our survey, we did see 1/3 of our customers as we surveyed them had previously had a contracted experience and that remains consistent today. With reference to big box, as we've stated before, for us, it's de minimis. It's a very small part of what we do. It's not a large marketing effort on our side. So we think it's consistent where Wal-Mart has been, although they do change who they feature, as you can see, they will put different campaigns around different folks, but we don't think that it has been an important part of our mix to date.

One of the things, Jennifer, that I think is very important from our perspective is that the nature of the distribution channel now becomes more importantly, we believe as we move into a smartphone Android environment, we find that people really do want to understand how the phone works. So a consultative sale is really what the foundation of our distribution is built on as opposed to mass market bubble packing and checking out the counter with a bar swipe. So we think that this favors very significantly, people exploring whether or not they want to get into the, shall we say, the data-centric world, and so we feel very confident that we're in the middle of the stream that is obviously just taking off very substantially.

And can you just comment, has there been any change in -- and we've noticed a few new retail stores in not your typical areas of the market. Has there been any change to strategy there? Or is it just...

No, I think, Jennifer, as we grow our networks in every one of our cities, we always move our distribution closer to the edges. Though, you could argue that, that might be a Tier 2 strategy as you get away from the dense urban core and move out into the suburbs. So there's a natural addition to our distribution as we move out. But we think that's just a part of our handset selection, that's also a part of consumer demand for Android. And we'll continue to address that demand as we go forward.

And next, we'll go to Jonathan Chaplin with Crédit Suisse. Jonathan Chaplin - Crédit Suisse AG: On CapEx, first. I thought you'd said on the last call that sort of half of CapEx in 2010 was related to LTE and half of it was for everything else in the business. Given that a lot of the LTE spend happened in 2010, I'm surprised that CapEx guidance is as high as it is for 2011. I'm wondering if you could give us some color on what the sort of growth related CapEx in 2011 goes into? And give us some context for the high end and the low end of the range. And my second question is on data roaming. As you ramp up your smartphone base, how should we think about the impact to CCU from data roaming costs going forward?

So I'll take the first issue. On the CapEx, Jonathan, the implied midpoint of the range is $725 million, which would represent roughly 8% step down in CapEx. One thing that we've seen since the introduction of the Androids is a very significant usage pattern. And in refining our estimates for 2011 within the last month, watching the development of these trends, we have increased what our previous views were on CapEx. And it's a good news story. I mean, the good news story is we're bringing in customers who are enjoying a more full experience, but there is certainly capacity issues relating to providing that service in a seamless basis. Therefore, we have recently gotten a tad bit more conservative in our views on CapEx for 2010. We're certainly have a network that's prepared to handle this. Roger, would you like to comment?

Yes, I think that based on current data demands, we're confident we can effectively and efficiently evolve our network to support them. And let me just also indicate that the range here indicates the opportunity to put, shall we say, even next-generation 4G LTE infrastructure in place. So we may pace ourselves in order to do just that. But the question about buildout will be that our interest is to get coverage, because that's what our customers want when they buy a 4G LTE handset. I think the roaming part of your question, if I can go to that, data roaming is we think will be relatively moderate for us because roaming in itself is a category, is not a driving factor for our economics at this point. And we have appeal to subscribers that are much more home market centric, so we think this will be a moderate increase even in the world of the Android devices. Jonathan Chaplin - Crédit Suisse AG: Is the extra CapEx going into increasing your cell site density? You’re building out more cell sites, cell splitting to deal with the extra capacity that you're seeing coming on. Because I would have thought that deploying the additional carriers to put more spectrum into use was sort of the -- was what you'd already anticipated and had started doing in 2010.

I mean, part of this is ongoing. Clearly, when there's pressure, you react to it and we will continue our buildout densification. But I want to draw your attention to other technologies that in themselves do take CapEx, but the comments I made that what we can do at the core in terms of shaping, conditioning and compression is also a very major effort for us. So we want to be efficient with the traffic we do handle and not just brute force go in and sell, split, densify and do this on a much more, shall we say, brute force basis.

And next, we'll move to Ric Prentiss with Raymond James. Richard Prentiss - Raymond James & Associates, Inc.: First, can you share with us on the 2011 CapEx budget what percent of that is LTE if last year was about half?

Yes, it would be less than half this year. Richard Prentiss - Raymond James & Associates, Inc.: I see that you've mentioned in the slide deck that churn you think is sustainable in the 3% to 4% range. I heard the answer to Brett on the seasonality of net adds. Obviously, first quarter has been strong. It might be even stronger now that we're in a different kind of landscape. Question is on the smartphones, their effect on ARPU, sounds it like it could be quite positive, but also their effect on the subsidy side. Just wondering where you think ARPU and margins might be headed in this kind of new smart world?

Ric, I think you can look at our experience during 2010 and draw some conclusions as to how we manage the business from a balance standpoint. We had multiple expense pressures during the year that we've talked about. The Wireless for All with regulatory fees and the taxes, the upgrades and you'll see in the supplemental deck, the significant jump in upgrades that we've experienced during the past year, as well as OpEx related to our 4G LTE rollout, that's starting just now to scale. Even with those three significant factors, we grew margins during the year and there's always trade-offs. And we've always believed and we have consistently demonstrated that we want to grow, but we want to grow profitably. And we've also talked over the years about our view on CPGA. Certainly, there will be slightly more subsidy in our approach to the market with the Androids, but we've already talked about how important that is to our business. And that's really where customers want to go right now. But we look at CPGA really from a more holistic standpoint, which is the cost of churns. So taking CPGA and amortizing that over the life of the customer. And you'll also see in the supplemental deck our relative benchmarking against other carriers from that standpoint. So that's really our view and our overall philosophy is to grow the business profitably. You're not going to see a dramatic jump in CPGA. We continue to be best of class, but it is appropriate for us to let it be known publicly that we are doing more subsidy on the smartphones than we have with future phones in the past.

And next, we'll go to Philip Cusick with JPMorgan. Philip Cusick - JP Morgan Chase & Co: First, on the Ric's question, as you think about the smartphone subsidies, I would think that these are fairly high right now and that's completely understandable. But as you look at the LTE devices right now, you're at $300, $400. How do you anticipate those prices shifting through the year as you talk to your vendors? Is this something where we could see sort of much more mass market prices by the fourth quarter and really starting to drive volumes on those LTE devices? Or is it really more of a 2012 event there?

Phil, it's Roger. For us, it is '12 and beyond. The key part, which obviously we don't know, is that as this, shall we say, carrier demand builds on LTE, we think that, that has the greatest opportunity for fairly dramatic shifts in relatively short period of time. But for 2011, I think that it's pretty well locked in that they're going to be relatively high. The key part, though, is that we find that our customers do find attractive phones even at higher prices if they're truly world class. And so our job is to make sure that as we build the lineup on our phones that we really get to handsets that people would say are world-class phones, and that to us in the short term is a more immediate challenge. Philip Cusick - JP Morgan Chase & Co: And as we think about the upgrade rate as we go through the year, I could sort of see this happening, too, is one is that the handset base or the customer base really just says, okay, we want better phones and this sort of lifts fairly steadily through the year with a big upgrade rate. Or on the other side, it could take the case that the upgrade rates sort of trends with gross adds, right? Big in the fourth quarter, big in the first quarter when people have money and then fairly low in 2Q and 3Q. How do you anticipate that trending?

I would say that the only evidence we have is read the history that you just pointed to with seasonality. But I think we see that the customer upgrades that we're seeing, as Tom mentioned, has been very, very strong and that's really -- it's kind of a good news, bad news story. The good news is that our customers are building once again with us and they’re upgrading and getting into classes and categories of service that we think are much more fulsome and much more satisfying for them. The other hand, obviously, we bear the cost of retention. It's not creating a new customer, but we think that mix has worked very well for us even in the fourth quarter and last year. And we wouldn't anticipate any changes going forward this year. Tom, do you want to...

The one thing I would add to Roger's comment is that it's really about the business model on our distribution overlay, is that we get an opportunity to see the customer 12x. So as we introduce new handsets, they may not immediately want that or afford that. But over time, what we experienced at the store level was people will come in and say, I'll be back in three weeks, and sure enough they come back in and buy the new handset. And then once they buy the new handset, what we find is that they're willing to tell other people about what they did because they're emotionally attached to what they just did. And I don't want to undermine that principle that the Net Promoter Score that we spoke about is so critical when it comes to being able to have a targeted marketing campaign where we utilize subsidy instead of an over-the-top advertising promotion that doesn't guarantee anything because our targeted subsidy program pays for performance. That's a big difference rather than just overlaying a big spend in the first and second quarter and hoping to gain share.

Phil, I also would like to point out Slide 9 in our supplemental deck. In 2009, 30% of our base upgraded. With Wireless for All and repositioning of our handset pricing in the market, we saw significant spike up to 50% of the base, which is already embedded in our run rate. So we've already, for the full year of 2010, absorbed with margin expansion during the year and that's our upgrade rate.

And next, we'll go to John Hodulik with UBS.

As we move from future phones to smartphones, maybe this is a question for Braxton. How did the economics stack up versus future phones, you got higher ARPU, haven’t really commented on your expectations for churn in smartphones versus future phones. And then, you've got higher CPGA, but how does it all sort of come together? Is it proposition for the company? And then maybe also from a competitive standpoint, how do you expect the competition in 3G and 4G smartphones compared to future phones?

Well, I'll let Tom handle the competitive standpoint. I think every individual phone can have differences. Let's talk just more on a macro basis. Smartphones, with our pricing scheme, are in the $50 or higher rate plan. Now, we have significant family plan uptake. So there is dilution against that overall $10 increase over our average ARPU. So you can't fully count that full amount of the higher price plan. Offsetting that, certainly, you're going to have higher OpEx relating to smartphones from a usage standpoint and you're going to have slightly higher CPGA as we've discussed. I mean, look at it this way. If you're amortizing a $10 increase in CPGA over the life of the customer and looking at it on a per month basis, you are still bringing in a very profitable customer with potential margin improvement.

I'll jump on this. This is Tom and try to take the second. What we've seen from our share of the market, right, in our mature markets in most cases, we'll have a 50% share of all prepaid pay-in-advance sales in those markets. So what we find from a competitive standpoint is kind of a migration happening from people who had a post-paid experience, who are looking for that same experience but they want it in a no-contract environment. Obviously, the economy over the past 24, 36 months have driven people towards looking for better value, but not being encumbered with a long-term contract and not having to worry about what if I can't afford the next month service bill. As we put in our Wireless for All, which is tax inclusive, which makes a very predictable experience for the customer, as well as family plans, which we've noted, have been very helpful for us, that kind of predictability for the customer has really helped them come to our side of the fence to look at our offerings rather than just say, I need to get a bought down handset from a post-paid provider and I'll give you two years worth of guarantee, when they're finding that two-year guarantee is hard to give.

And next, we'll go to Craig Moffett with Sanford Bernstein. Craig Moffett - Sanford C. Bernstein & Co., Inc.: I want to follow up on the comments you made about the new subscribers. You said 1/3 of them are coming from formerly contract subs. Are the rest of them -- are you seeing a mix in the other 2/3? Are you seeing a shift from, historically, a lot of new subscribers that were new in the industry to now more subscribers that are moving around between prepaid plans?

Craig, this is Tom again. So yes, there is about 1/3 of our surveyed customers have had a contract experience. We see some people who come back to MetroPCS who have left us as they learn about our coverage enhancements and as they look at the handset lineup. And then there are certainly people who have tried other prepaid pay-in-advance offerings, who might have been on a card-based product who find, you know what, over the course of time, four cards in a month cost me $80, I'd much rather go for something in the $40 to $50 range. So that other 2/3 is kind of the jump ball that we're all after, but we think if we get our share of that jump ball, as Roger mentioned earlier, we have a good opportunity to keep it. Craig Moffett - Sanford C. Bernstein & Co., Inc.: I guess, what I'm asking, I mean historically, I think you said that a very large and surprisingly large portion of your incoming customers are new to wireless in general. Had that changed at all? Are you seeing that, that pool is starting to be exhausted? Or are you just constantly seeing an influx of young people that are getting their first wireless service from Metro?

There certainly is that in terms of our family plan growth, having mom or dad be able to have a sustainable and predictable experience for their kids, we definitely see that happening. I think we see less new adopters as we go forward and as our markets become more mature, because as we launch markets, especially in [indiscernible] in the northeast, we find people who haven't had a wireless experience before. And as we market early in a new market to that value segment, that's usually the low-hanging fruit that comes in first and then we find people who had an experience, but are now looking for something that's more predictable.

I think the answer directly to your question is that the new to wireless users, as a percent of total new users, is going down over time. I don't think right now we can report exactly what those numbers are, but they were as high, as you know, 50% at a point in time in the not-too-distant past. The key, though, I think is that the influx is obviously more from the youth group, and they do come into family plans primarily. But there's also immigration and quite frankly, it moves between cities. And I'm talking about south of the border to north of the border. So what we have is a diminishing, I think, source of new to wireless, but it's still pretty significant, and we simply haven't reported that statistic.

And at this time, I would like to turn the conference back to Mr. Braxton Carter for any additional or closing comments.

Thank you 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?