T-Mobile US, Inc. (TMUS) Q3 2011 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the MetroPCS Communications Third Quarter 2011 Conference Call. [Operator Instructions] This conference is being recorded today, November 1, 2011. 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, John, and good morning, everyone, and welcome to our third quarter 2011 conference call. The speakers with me this morning are Roger Linquist, our Chairman and Chief Executive Officer; Tom Keys, our President and Chief Operating Officer; and Braxton Carter, our Vice Chairman and Chief Financial Officer. The format for today's call is as follows: first, Roger will provide an overview of the business; Tom will then provide an update on a number of operational results and initiatives; and finally, Braxton will review the financial highlights of the third quarter of 2011 followed by a question-and-answer session. During today's call, we will refer to certain non-GAAP financial measures. We have reconciled these historical non-GAAP measures to GAAP measures in our earnings release, which is available at www.metropcs.com under the Investor Relations tab. 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 the federal securities laws. Forward-looking statements are any statements not of historical fact and involve risks, assumptions and uncertainties that may not occur or could cause actual results or 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, will 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, our strategies and our positioning in a highly competitive wireless industry. Furthermore, included in our forward-looking statements are statements regarding the momentum in and attractiveness of the no-contract segment; strength and growth of our business; our execution of our business plan, distribution channels and strategy; competitiveness of our service plans and products; our financial strength and positioning and the availability of corporate opportunities; the success of current and planned promotions; our expectations regarding smartphones, related products and features and their availability; our ability to project consumer demand for our products and services; the efficiency of our networks and spectrum use and ability of our networks to handle increased traffic demands; seasonality of our business; our views on churn and reasons for churn; expected completion of our network upgrades and deployments; our estimates of capital expenditures and our planned continued investments in our 3G and 4G LTE networks; the performance and efficiencies of our 4G LTE network and migration of customers; and other statements which are not historical. Management may make additional forward-looking statements in response to questions. Additionally, our forward-looking statements are subject to a number of risks, many of which are beyond our control, including the risk factors described in our earnings release, our supplemental slides and our annual report on Form 10-K, quarterly reports on Form 10-Q, including our 10-Q for the period ending September 30, 2011, which we filed earlier this morning, 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. We have also provided supplemental slides that are available for download and printing on our Investor Relations website. These slides also may contain forward-looking statements or risk factors and are subject to any forward-looking statement disclosure. We may refer to these slides during our prepared remarks and in response to questions. I'd like to remind you that the results for the third quarter of 2011 may not be reflective of results for the full year or 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 and should be considered valid only as of November 1, 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 public formal disclosure pursuant to Regulation FD. Certain terms that are used in today's call are registered trademarks of MetroPCS. At this time, I'd like to turn the call over to Roger Linquist, our Chief Executive Officer.

Thank you, Keith. Nine months into 2011 and almost 2 years into our Wireless for All transformation, we are adding additional data capacity to our CDMA network while we focus on transformation of our business to LTE For All in the second half of 2012. We anticipate that this transformation has the potential to be a major differentiator in the high-growth Android segment as 4G LTE becomes the dominant competitive technology by the end of 2012. 4G LTE also brings with it significant improvements in spectral efficiency. That should provide important spectrum management opportunities for MetroPCS. Smartphones have dramatically increased functionality, and as the number of applications on the Android OS expand with high-speed service, we expect the momentum for broadband mobile to continue to grow within the no-contract segment. To date, customer response has been strong. Since the beginning of 2010, we have added over 2.5 million subscribers. Additionally, driven in part by the popularity of smartphones we've introduced, we have upgraded a significant portion of our subscriber base. Importantly, we have done all of this with an eye towards continued profitability. We have managed our costs by selectively adding Ev-DO carriers in our high-traffic sites to increase data capacity but also to reduce the call attempt activity on our CDMA network inherent with Android smartphones. Additionally, we have been focusing on network core by implementing infrastructure to effectively manage data services such as compression technology to support video streaming applications on 1x CDMA DO network. By addressing the major video streaming sites and enabling easy Wi-Fi access, we believe we offer our customers a competitive quality service. While the majority of our smartphone users are currently on a 1x CDMA network, the entire wireless industry is rapidly moving towards 4G LTE. It is the future of wireless. Foreseeing this evolution several years ago, we have already built and introduced 4G LTE services in all of our major metro areas, and we expect to finish the majority of this network buildup by the end of 2011. With a spectrally efficient network, our eventual goal is to migrate all of our subscribers from 3G to 4G LTE once a range of affordable VoLTE-capable handsets are available. I'm pleased to report that we've completed our first VoLTE test call during third quarter. With this progress, we currently plan to introduce VoLTE cable handsets next year, which provide the opportunity to move voice as well as data onto our 4G LTE network. Consequently, we'll be in a position to begin converting our existing 3G CDMA subscribers to 4G LTE. This will be the catalyst to provide us with a re-farming path of our existing spectrum, which should lead to significant increase in smartphone subscriber capacity. The opportunities to move our subscribers to the spectrally efficient network are numerous. With the investments we have already made in our current 4G LTE build, we anticipate that we have the capacity today to add 4 to 5 million LTE subscribers onto this network. Once our LTE network is complete, along with our backhaul initiatives in 2012, we believe we'll have the capacity installed to support over 10 million 4G LTE subscribers. The challenge for us now in moving subscribers onto our 4G LTE network is making available a robust line of affordable 4G LTE smartphones. With our limited subsidy model, affordability of smartphones is key for our subscribers. A great deal of effort has gone into the development of our 4G LTE handset ecosystem, and I'm glad to report that through close collaboration with our suppliers, we expect that by the second half of 2012, we'll be in a position to provide affordable 4G LTE smartphones to our customers. Once 4G LTE smartphones reach a retail price point in the $99 to $150 range to subscribers, we believe there will be a substantial acceleration in 4G LTE adoption in major market segments. While mass migration to 4G LTE will take some time, it's also clear that the industry is moving in this direction, and that puts us exactly where we want to be again in the mainstream of consumer demand with an industry-leading cost structure. With the efficiencies gained in 4G LTE environment, we should have an opportunity for churn reduction and margin expansion through cost reduction based on a worldwide industry focus on a single technology, 4G LTE. This is the opportunity we planned for. We see it happening today, and we believe it will further solidify our cost leadership position. Our no-contract, low-cost service plans provide what has traditionally been viewed as a postpaid experience that has significant savings to the consumer. 4G LTE will revolutionize the wireless experience for the subscriber, and it will open new potential avenues of growth. We believe we are well positioned as one of the technology leaders in this space for continued future growth in subscribers, margins and importantly, free cash flow. Now I'll turn the call over to Tom.

Thank you, Roger. Good morning, everyone. This morning, I would like to talk with you about 4 things: third quarter results; performance of our network; opportunities for growth; and lastly, pressure points, including competition. Third quarter subscriber growth is primarily driven by typical seasonal trends, continued economic pressures, as well as increased competition. In the third quarter, we reported net subscriber additions of 69,000, and year-to-date, we have recorded nearly 1 million net subscriber additions. ARPU in the third quarter grew $0.31 sequentially. This is the fourth quarter in a row for sequential ARPU growth. With the continued uptake of smartphones plans, offset somewhat by recent family plan promotions, our current mix of net adds is ARPU-supported. Churn in the third quarter increased to 4.5%. As we discussed on both the first and second quarter calls, we believe this quarter's rate of churn is the result of seasonal pressures, out-performance in the first half of 2011, continued economic headwinds, as well as increased data demands on our CDMA network driven by Android penetration. We are established as the provider of choice for subscribers looking to save on their wireless bill. As the Internet has gone mobile, we are providing our customers access to services that were, for some, unattainable until recently. As the demand for Android devices increases, we continue to work to strike the proper balance between handset pricing, driving gross additions and promotional activities. This quarter, 49% of handsets sold were Android, and that number is 37% year-to-date. At the end of the third quarter, approximately 30% of our base was on a smartphone, up from approximately 25% at the end of the second quarter. Network performance. During the third quarter, we invested in our network to meet the demands from increased data usage. As we provide service to more Android smartphones, the increase in data usage can pressure our network, and we are working hard to continue to provide quality service and a positive customer experience. As a result of this Android evolution, we've taken steps to densify our network through self-supporting, fixed sector conversions, as well as investments in our switching network. In very dense areas with high usage, we also made the decision to insert Ev-DO carriers on a surgical basis in order to support data traffic from the switch. To be clear, this is not an Ev-DO overlay. Through the end of 2011, a cumulative investment in Ev-DO will be less than $100 million. This investment has provided a significant amount of capacity to our network, and our subscribers are experiencing an improved level of service. Our 4G LTE network has launched in all of our major metropolitan areas. Our 4G build continues, and we expect to have the majority of our footprint built by the end of 2011. On a recent trip to Asia, working with handset manufacturers, I was able to witness firsthand the evolution of the 4G LTE handset ecosystem. OEMs see the value in working with MetroPCS on a greenfield project that brings 4G LTE to the masses. In the near term, we expect to introduce higher-end Android devices. In the second half of 2012, we believe we will begin to offer customers 4G LTE Android smartphones at substantially lower retail prices. This is exciting as when this occurs, we will have an opportunity to potentially accelerate the customer migration towards 4G as well as continue to acquire new subscribers. Growth opportunities. For the remainder of this year and looking in 2012, it is clear that consumer interest in Android smartphones are strong. We are focused on driving demand, retaining customers and generating door swings. In the no-contract environment, our family plans provide significant value and are a big potential growth area. At the end of the third quarter, over 40% of subscribers were on family plans. Last week, we introduced a family plan promotion. We believe this 4 for $100 family plan promotion will generate door swings as customers seek value. Door swings allow our customers to view our full service portfolio and understand that MetroPCS now offers Android devices paired with Rhapsody music at an incredible value. We're excited about this potential to up-sell our customers and believe the promotion provides us a unique opportunity to capitalize on the continued industry shift from postpaid to prepaid services. The fourth quarter is an opportune time to provide value for families as many postpaid contracts expire. Currently, our average family plan has less than 2.5 lines and lower churn characteristics. The promotion is tiered in order to help minimize the potential impact on ARPU. Pressure on fourth quarter ARPU from this promotion could be somewhat mitigated by the continued interest in adding Android smartphones to the family plan. We will continue to promote brand awareness, our full suite of offerings, our compelling line of smartphones and our nationwide coverage through a new advertising campaign. Our focus is on execution and efficiently managing our network. We believe we offer consumers the best deal in town for quality wireless broadband experience. We believe that with a jump-ball for customers deciding whether to renew a contract or move to a flexible no-contract plan, we compete very well. This campaign will extol the positive virtues of our network, nationwide coverage, service offerings while highlighting our exceptional value. Looking at competition in the third quarter, wireless continues to be very competitive. We are monitoring an increase in competitive offerings. It will be interesting to see how things play out. MetroPCS continues to focus its distribution strategy on indirect dealer network. Our dealers operating storefronts in the neighborhoods where people live, we believe, are well suited to serve our customers and provide a better experience than they may receive with an unassisted big-box sale. We believe 4G LTE smartphones are best delivered with an assisted sale that only our unique distribution model provides within the no-contract space. From our vantage point, it has been clear for some time that no-contract is here to stay. Recent Wall Street research supports this idea. A leading cell site firm recently forecast prepaid share as a percentage of wireless could reach 30% by 2018, up from 23% today. Clearly, we are benefiting from this share shift as across our markets, we are 9.1% penetrated, up from 8.1% a year ago. As 2 distinct lines converge, the desire not to have a wireless contract and the understanding that economic headwinds are still strong, MetroPCS must be able to serve the needs of those with choice while continuing to play our part and value those who do not. Now I'll turn the call over to Braxton.

Thanks, Tom. Good morning. We ended the quarter with 69,000 net subscriber additions and over 9.1 million total subscribers, up 16% from third quarter 2010 and up approximately 45% over the past 2 years. Our adjusted EBITDA of $327 million for the quarter was up approximately 4% when compared to the third quarter of 2010. We have a very strong balance sheet and substantial liquidity, with $2.1 billion in cash and short-term investments. This liquidity positions us very well for future strategic opportunities, including spectrum acquisitions. We continued to evaluate various options to enhance our current spectrum holdings. We believe further investment in spectrum will significantly reduce future CapEx, will have a positive impact on free cash flows and further leverage our 4G LTE investment. Our total leverage as of September 30, 2011, was 3.7x computed in accordance with the indentures governing our senior notes. We believe our maturity schedule is very manageable, with our first substantial maturity of approximately $1 billion coming due in November 2016. Our weighted average cost of debt for the third quarter was approximately 6.1%. The majority of our debt is fixed by its nature or through interest rate swaps. Clearly, we believe we are very well positioned from a balance sheet perspective. Churn for the quarter was 4.5%. This increase in churn was primarily driven by an increase in gross additions adjusted for false churn in the first half of 2011 over the first half of 2010. We believe continued economic pressures on our subscribers, as well as increased data demands on our CDMA network driven by the Android penetration. Our third quarter 2011 ARPU was $40.80, up $1.11 on a year-over-year basis and up $0.31 on a sequential basis. The increase in ARPU was primarily attributable to continued demand for our Wireless for All and 4G LTE service plans. Our CPGA continues to be the lowest of any facilities-based wireless carrier in the U.S. For the third quarter, our CPGA was approximately $194, up $16 over the second quarter of 2011. This increase was primarily driven by increased promotional activities. Our CPU for the quarter was $19.52 as compared to $18.47 in the prior year's third quarter. This year-over-year increase was primarily driven by the increase in retention expense on existing customers, costs associated with our 4G LTE network upgrade and roaming expenses associated with Metro USA, offset by the continued scaling of our business. Adjusted EBITDA for the third quarter was $327 million, an increase of approximately 4% year-over-year. Our adjusted EBITDA margin for the quarter was 28.9% compared to 33.4% in the third quarter of 2010. Over the last 12 months, we generated record adjusted EBITDA of approximately $1.3 billion. I'd like to highlight a few items in the income statement and cash flow statement. In the quarter, our service revenue and cost of service grew 20% and 22%, respectively, to $1.1 billion and $382 million, respectively, over the same quarter in 2010. The increases are primarily due to the growth of our subscriber base. Our consolidated selling, general and administrative expenses were $162 million for the third quarter 2011, representing an increase of $15 million when compared to the year-ago quarter. We generated $69 million in consolidated net income during the third quarter or $0.19 per share, a decrease of $0.03 per share when compared to the prior year's third quarter. We generated approximately $272 million in cash from operating activities in the quarter, a decrease of $70 million from the prior year's third quarter. The decrease was primarily driven by a decrease in cash flows provided by changes in working capital. We incurred capital expenditures of $248 million during the third quarter. During the last 12 months, our unlevered free cash flow was approximately $343 million. Our results demonstrate our continued focus and ability to grow the business while generating cash flows over the long term. We have reaffirmed our full year 2011 guidance for capital expenditures of $900 million to $1 billion. Now we'll move to Q&A. Operator?

[Operator Instructions] We'll take our first question from Brett Feldman with Deutsche Bank.

During your remarks, you sounded like you provided a little bit of color around how you were thinking about 4Q on a few metrics. I just want to kind of revisit that quickly. For ARPU, it seems like you're talking about sort of a flattish trend. In other words, you implied that you would see some pressures on ARPU because of the family plan promo, but that could be offset by some up-selling if you're successful with that. And then on churn, I was a little less clear as to what you were sort of referring to. You did reference an expectation that some of the pressures on churn have continued. I'm just wondering, should we expect a seasonal directional change in churn like we usually see in the fourth quarter, meaning an improvement, or are you actually expecting that it might continue to run rate at higher levels?

Hi, Brett. This is Tom. I'll first take the first piece here, and we'll go with the ARPU. We certainly think there is going to be some pressure from family plans, although we do think it will be offset by our Android promotion. We have some promotions on Android handsets, and we have seen a mix in family plans where consumers will mix Android and feature phones. And depending upon how that's done, we could see this as being ARPU-neutral to the total ARPU inside the family plan depending upon how many devices get added. And we think that will be important to us. Churn in the fourth quarter, the one thing we have seen is that it is somewhat favorable. Early signs of our smartphones, we think our smartphones are showing us some signs of a better churn characteristic, albeit still early. We also believe that our LTE devices are showing a favorable churn characteristic over feature phones, but again, early because those bases are still new compared to our feature phone base which is somewhat mature.

And Brett, I'd like to add that there has always been a seasonal decrease in the fourth quarter and first quarter in churn. Just given some of the migration patterns in the U.S. and some of the other dynamics that we deal with, we wouldn't expect the seasonal trends to be different than they have been in the past.

And just as a follow-up since we're sort of alluding here to sort of net adds, and I know you don't give quarterly guidance, but you have talked about some of the increased competition. You've talked about some of the increased economic pressures. Gross adds have actually held in fairly well over the course of the year. It seems like it's been other metrics that have been impacted. Is that the way you guys are thinking about your fourth quarter as well?

Well, our fourth quarter, it's always backloaded, right? We always see a very, very high seasonal uptake once we get into the holiday season. So in terms of net additions, everything is always backloaded. And that could also impact ARPU depending upon when net additions come into the quarter. But at the same time, I would call it too early to give us full momentum for the quarter, but we're excited about the holiday season. We have a full lineup of handsets today. We have 5 Android handsets in the lineup. We have 3 LTE handsets in the lineup, and we have a robust set of handsets coming in the first and second quarter. So I think we're well positioned for the seasonal uptick.

And we'll take our next question from Phil Cusick with JP Morgan. Philip Cusick - JP Morgan Chase & Co, Research Division: I want to focus again a little bit on churn. Can you talk about a couple of things? One is are you seeing any higher returns than you used to? So people come in, they buy a phone, they take it home and don't like it and so bring it back. And then second, can you talk about sort of what segments in the base are churning? Is this sort of a higher, I'd call it, core churn within long-running customers, or are we still working off a higher gross adds and maybe a little bit of false churn coming from the first half?

So I'll take the first one, Phil. In terms of returns, we've always had a program out there called Metro Promise, right, where we allow individuals to buy a handset, within 7 days or 60 minutes of usage understand if they have the coverage they need inside their home. That's fairly flat. What you can't find inside Android devices -- when people come back to the store, they might not have understood an application. They may not have downloaded their Gmail first to make the Android store work for them, so sometimes, we have to do a better job of training, its a constant evolution inside of our doors. But sometimes, we'll get a no trouble found, where the person will come back in the store not understanding what to do, so we train better. But we haven't seen an increase in Metro Promise based upon any movement towards LTE or Android phones. We just have to train better at the store level.

Okay. So no increase either driven by sort of slower 1x speeds than people might think?

I think the congestion that we've seen in the network that we, I think, have been keen to address with the deal carriers has probably had some impact on the churn. But recall that, I think, we have in the Buy One Get One Free promotion that we've had in the second and in third quarters, that we've experienced, perhaps, an additional churn from those users who had early on picked up an additional line that may or may not be well used or well purchased. So I think from the standpoint of the deal carrier, I think that's been a major improvement, where a little bit more than halfway deployed would be fully deployed by the end of November. I think that gives us rates comparable on streaming, as I mentioned before, given the compression technology that we've implemented. So it's, from our point of view, very comparable with the 3G data experience.

And we'll take our next question from Simon Flannery with Morgan Stanley.

I think, Braxton, in your comments, you talked about your cash position and the attractiveness of buying spectrum. Perhaps you could just go into a little bit more detail about sort of the time frame. There's a lot of different balls in the air, some of them waiting for SEC approval, some of them waiting for mergers and so forth. So just talk about how you sort of navigate all the different options, what do you think about various frequencies, or do you have a preferred frequency band, and would you be interested in expanding Metro's footprint above and beyond your current footprint.

Sure, Simon. We have been very, very active in our continued search for spectrum. I mean, spectrum is the lifeblood of our business. You look at the projected growth and data rates. Positioning for the future is very important to us. And I think that will be more of a short-term benefit that when we do get and deploy a spectrum, we will see a fairly significant dropoff in our CapEx and a resulting increase in our free cash flows. Another point that we made is really, to get the true benefit of the speed of 4G LTE, we've deployed 5x5 in a lot of markets, but having more spectrum to deploy would definitely be a positive. So I think a lot of great rationale. You look at the various options out there, there are pros and cons with each individual option. Certainly, there's different propagation characteristics with different parts of spectrum. But there's an overriding issue here, what's the willingness to potentially part with some of the spectrum and what are the valuations and what is the timing. And that's the needle that we're trying to thread. We're looking again at multiple options and trying to do what's best for our company and our shareholders.

I was just wondering about this sort of the footprint expansion. There's been some talk about some of the portfolios are more national in scale or getting bigger from where you are today. How do you think about that?

I think there are various spectrum alternatives that certainly come in different, shall we say, bands and as well as geographical or interest to sell geographical areas. So it's really more on the seller's part than the buyer's part. At this point, our interest is to make sure our markets are adequately covered. The point I made earlier that we have, through, I think, our initiatives, certainly this year and next year, very substantial LTE capacity that's, at this point, in, we would call, excess capacity. So I think in the very near term, our real challenge is to get the LTE ecosystem functioning as we had indicated. And we see that really as a 2012 event, second half. So that figures very importantly in the time span that we would have to access spectrum, and it also impacts our planning for the eventual re-farming of our CDMA spectrum.

You know, Simon, just to go in a little bit more detail on the nationwide footprint, there is some interest in the nationwide footprint, but I think practically, the majority of the options that we're looking at, that wouldn't necessarily be the case. It's interesting optionality, especially in what we view spectrum being worth and appreciating in value over the next few years. But if we did obtain more of a nationwide footprint, at this point, we'd have no plans on continuing a build with so many different networks already in place. And particularly, with our business model going in and building, overbuilding other markets where there's model like this, there's definitely different return characteristic. So that would not be part of the plan. I mean, certainly, there's options with network sharing and other unique things that you might be able to do with it. But building out a full nationwide network is not part of the game here.

We'll take our next question from Ric Prentiss with Raymond James. Richard H. Prentiss - Raymond James & Associates, Inc., Research Division: A couple of questions for you, probably, Tom. When you think about the promotion for the 4 for $100 family plan to get the door swings, is this kind of driven by traditional holiday promotional thoughts? Is this from the competitive aspect? Any issues with Verizon Unleashed product going nationwide? And also, are you sensing or feeling anything since it's been launched in the last week or so? Anything going on with the iPhone buzz that's out there causing that?

Well, first, I'll deal with the iPhone buzz. There certainly is a buzz out there, you bet you, which probably gets to the whole wireless industry because everybody understands that devices are important. Consumers being satisfied, getting what they want is important. So at the end of the day, we probably all benefit from that because it keeps wireless top of mind. The family plan promotion specifically was not geared towards any one competitor. It was really geared towards a time of the year that we believe there's a jump-ball within the contract industry. Traditionally, more postpaid players have, let's say, lowered credit to get more people into contracts in the fourth and first quarter. So in this time of year, we have more people who are coming off of contracts. They have more ability to look, and as they look, we want to make MetroPCS available. We want to make sure they understand the opportunity to come to us. So by offering a family plan, we then get a lower demographic, like we get anybody from 12 up who would like to get a phone. We get parents who are looking for that no-contract opportunity, where they're not bound by 3 or 4 handsets for the next 24 months in an economy that seems like it's still having issues. So we think that the family plan is just a timing and a seasonal play much more than it is a specific response to any one competitor's activity. Richard H. Prentiss - Raymond James & Associates, Inc., Research Division: And then I think, Roger, you mentioned the Buy 1, Get 1, the BOGO promotion in second and third quarter. Tom, you were mentioning the family plan might have some pressure on ARPU depending on Android sales. As we think about the other line item, the CPGA, which has been elevated recently with some significant handset promotions, what are we thinking that trend line looks like as we look out this quarter or into the future?

I think we see CPGA as being somewhat stable but obviously hope to bring it down in due course. But I think at this point, where we're making the transition to our LTE network, that we're going to continue to support a strong lineup of Android phones, which, by and large, at this point, the price points really require us supporting them more than we have traditionally. So I think you'll probably see those numbers stay in place for the next couple of quarters anyway. Richard H. Prentiss - Raymond James & Associates, Inc., Research Division: And as far as smartphone sales, I think it was about 50% or so of your sales in the quarter. Where do you think that heads over the next couple of quarters? And then if you get out to that second half '12 when the ecosystem has changed around and we've noticed, when does the feature phone kind of go away?

That's a $64 question, I guess. There are still people like myself that, other than e-mail, it's really voice. I don't even do text because I'm really not that good at it. But the fact is that I think there's still a group of segment, if you will, that really looks to have voice and text services and they're minimally in the Web. So I think feature phones, certainly, the kind that look like the BlackBerry style, which we have, we call it the Freeform, are very, very interesting on our people because they allow for really good text and also Web browsing. So I think that they are going to be like the analog phone. I mean, it's going to hang around for a long time. I think what we're going to see and what we're really planning on in this acceleration the last half of next year is that this is the time that we feel that we can produce Android handsets with a screen size of real interest to people in the price range that I indicated before. And I do think that is a major turning point because 4G speeds, the mixture of the fiber and microwave backhaul we'll have available in that time period will allow for very significant download speeds, which means, for us, capacity. And clearly, the low latency is very attractive to users because when their screen pops right away, it's an indication that they're getting the service that they signed up for.

Ric, let me just add one thing. This is Tom. I generally get the short straw, and I make the trip overseas about 3 times a year. And I can tell you that literally, the roadmaps we have with 4, 5 players right now, we look towards the middle of '12, a little bit into the third quarter, and we're going to see devices, literally, with 4-inch screens or better. We're going to see processors of 1, 1.2 gigahertz or better. We're going to see front-facing, rear-facing cameras. We're going to see 5, 8 megapixel cameras in the back, 3 megapixels in the front for video chat. We're going to see dimensions that are about 13 centimeters, maybe even a little bit thinner. We're going to see batteries at the 1,500, 1,600, 1,800 milliamp level, and you're going to see, obviously, gingerbread move to ice cream sandwich. And everybody's doing this at a price point where they recognize that they can do this for MetroPCS. If they can hit this greenfield opportunity and we can convert the base to the capacity that Roger mentioned that's already built into the network, we think we'll see, number one, the opportunity for better churn characteristics; number two, the opportunity to convert people who can get that postpaid experience in a pay-in-advance world. And that's the important step for us, so we're going to bridge, as we take our handset lineup over the next 9 months, feature phones will absolutely be important. Putting people on 4 for $100 promotions will be important because that has a good churn characteristic for the company. And then once we get to that point in '12, we think it's a much different ballgame for us.

And we'll take our next question from Craig Moffett with Bernstein. Craig Moffett - Sanford C. Bernstein & Co., LLC., Research Division: Tom, if I could just follow up on your comments a second ago, so as I think about the roadmap for those 4G handsets, first, your commentary about waiting for VoLTE. I understand that that's necessary for re-farming the spectrum, but does that slow down the availability? Because it seems like that ecosystem is not quite as ready yet. And then are we assuming that those devices should be coming from Huawei and ZTE, or can we get a broader set of suppliers to try to hit that price point by the end of next year?

Well, I can tell you if you look at my passport recently, you will find a Chinese visa in there, Craig, absolutely a couple of times. And there's a few others that we're talking to as well, so obviously, ZTE, Huawei, we have extensive roadmap discussions going on there. China is certainly a price leader, but we also believe that our partners in South Korea are not wanting to be left out of this and are extremely engaged with us as they try to get their costs down. And I think the implied message here is that if everybody can build devices for MetroPCS and if we're going to be in the front of this and if other carriers go to an LTE model, then, of course, all the OEMs see this as not just a build specific for Metro, but actually, it's a build for the industry. With regard to VoLTE, we absolutely believe it's important to our devices to be able to re-farm. We think carrying voice and data on one channel is extremely important. Most of our carriers are working the VoLTE requirement into their releases into '12. We hope we can match that time frame with what we want. We'll see what happens. I don't think we would significantly impact our customers if we had a handset or 2 that couldn't meet that requirement. But I got to tell you that we have engaged our software partners. We have engaged our chipset partners. So everybody is working towards getting our devices to be VoLTE-capable as we do this LTE for All project in the middle of '12. Craig Moffett - Sanford C. Bernstein & Co., LLC., Research Division: Would you think about a dual chipset device as a bridge that might get you to a lower price point sooner if you didn't have VoLTE?

Yes, we have multiple options on the table right now, Craig. There's not just one chipset supplier. There are people who are doing different combinations. We're looking at all of those. And we're really trying to push the envelope here to make sure that we don't leave any stone unturned. And as we see different opportunities come up, we're going to look at something, and yes, if it does meet our requirement, we think we can take advantage of it. But right now, the party line, if you will, is we would love to have VoLTE because it's great for the network, but we'll look at every opportunity when it comes to a cost-competitive device.

And we'll take our next question from David Barden with Bank of America.

Two if I could. Maybe first, both for Tom maybe. Number one, Tom, now that you guys have had the longest available LTE network that's been out there to this point in time, obviously. The handsets have been a barrier a little bit to the adoption. But could you tell us about how many subscribers you've been able to kind of get on that business? And when you sell smartphones, what percentage are coming on on the LTE network at the margin? And then second, within the context of the smartphone that you're selling, I think you were saying that LTE handsets kind of have to come into that $99 to $150 range in order to be competitively palatable. With respect to the smartphones that you're selling and the spectrum of pricing that you have, I think you have a low-end pricing of $60 and maybe $150 is maybe at the higher end. Are people buying the more advanced higher-end Android devices when they're coming to the stores, or are they gravitating more to the lower-end price points?

I think I got most of those questions written down. Let me see how I do here. First, on our LTE numbers, we really don't break out the numbers, as you probably know. I will tell you that as of right now, although it's early, I think I mentioned this, the characteristic of churn on the network, people are enjoying the LTE experience, and we're seeing a really good churn characteristic on our LTE devices. Today, we only have 3 LTE devices in the network, and they're relatively new compared to the embedded base of feature phones. We just launched the LG Esteem as an example. We've got it at a price point right now of $249. It's out there at $349. There's a $100 mail-in rebate on it. And that device has gone well in certain places where we are more well known, places where we've been in business longer. And then in places where we have stores and a higher demographic, we've seen, in some cases, a 17%, 18% take rate of that one device out of that total store's take rate, which is really good for a higher-price 4G LTE device. In terms of the price points on our just 1x Android devices, right now, we're finding that one of the more high-priced devices, which is the Admire. The Samsung Admire versus the Huawei 835 is probably a 50-50 split in terms of what the consumers are taking because they're also willing to pay for higher-feature sets. They're willing to pay for a bigger screen. They're willing to pay for a faster processor. And our job at the door -- why this is so important is unassisted versus assisted sales that we talked about, it's really just not to highlight what big-box doesn't have, it's really to highlight what we have. We've got 5,300 dealer doors in the community that are telling everybody what our phones do. They're demonstrating what the phones do so that kind of walking out with the phone working with an understanding of what Android is is so important because the different processor speed will give you a different experience, and then the perception of the network is that much better when, actually, it's the same network in 2 different handsets. So higher-end handsets have value. Our customers are willing to pay for value. We just have to do the best job possible getting the word out through our promotions and then training the doors.

We'll take our next question from Todd Rethemeier with Hudson Square Research.

I've got 2, if I could. First, do you think an MVNO strategy to go out of region is a viable one, and is that something you would consider? And then just second, housekeeping, can you remind us what the NOL balance is and just what your outlook for cash taxes in the next few years would be?

Let me take that one first if I can, Todd. For us, the MVNO strategy puts us in a different business model. And at this point, with the interest of the nationals that we're seeing with the prepaid and payment-in-advance world, along with the other MVNOs that have been fairly significant over the last year now, developing Androids probably in the last 3 to 6 months, that this is a very competitive big-box type approach. And quite frankly, we think that we're much better off with the opportunity we have in the 105 million covered POPs that we have because we just really, we think, have scratched the surface in the family segment. The family segment is, as you know, a very substantial part of all the contract companies today, and our 4 to 5 million-type customers on that service just barely scratched the surface. So we have so much knitting to do in our own markets, in our own coverage area that, from our standpoint, extending beyond into this very, very crowded and competitive big-box arena is not that attractive.

Todd, on your question on cash taxes and our NOL position, we have a very significant NOL. And at this point, we do not anticipate paying any cash taxes until mid-2014.

We'll take our next question from John Hodulik with UBS.

Maybe a couple of questions more on the near-term network evolution. If you could talk about -- you got some sort of conflicting trends from a network quality standpoint. 30% of the base now is smartphones, but at the same time, you're trying to add cell sites and going to fixed sectors and the DVO overlay. Can you talk about what kind of network performance you've seen sort of quarter-to-quarter, and have you -- are you sort of keeping up with the capacity you need? And then maybe in the markets where you've done the DO carrier rollout, I think it's improving there. And what kind of devices do you have? I mean, do the existing devices, are they able to access those carriers, or do you need to get new devices into the markets, so you can take use of that capacity? And then switching gears a little bit, you had the Verizon Unleashed plan and also a $50 plan from AT&T rolled out during the quarter. Did you see any meaningful impact from those plans on sort of the high end of your segment?

I'll take the last part. Anytime a competitor wants to nationally advertise pay-in-advance prepaid services, I think that actually makes the acceptance of having a no-contract offer a little bit greater. It allows people to realize that this is a segment that is not just value-driven but its absolutely practical. So we really don't mind that. It just highlights the importance of getting our message out there and letting consumers and our 100 million covered POPs understand the value that Metro brings with the quality of network. Just one anecdote from Dallas/Fort Worth, where we've rolled out some surgical DO, that when we implanted the DO into the network, we saw a 30% offload of our switch, which helped in the congestion side. So by offloading the switch that way, by giving consumers a better experience, it's always our goal, and we do feel that the timing and the roadmap that we've put together is adequate for the demand that we're forecasting into the future.

Yes, so as I mentioned before, our deployment has been very selective, and as such and as Tom also indicated earlier, the CapEx expenditures have been far less. Probably about 1/7 or 1/8 of total overlay. So we really are looking forward to the LTE network. I've indicated how much latent capacity we have to begin to sell on that once the handsets become in the affordable price range. But the handsets that we have currently, which are 1x and DO, so all of our Androids that we have been selling for the last 6 months are DO-capable, so they all can enjoy the increase in capacity coming about by the additional DO carriers that we have put them in the high-use, high-traffic cell sites.

And we'll take our next question from Jonathan Chaplin. Jonathan Chaplin - Crédit Suisse AG, Research Division: A quick one for Tom and Braxton. How much of the 70 basis points increase in churn would you attribute to false churn and the sort of the $200,000 also higher gross adds as opposed to the impact of the network congestion issue? And then as a follow-up to that, you made it very clear that the network is going to be in a great stage in the middle of 2012 once Android handset prices drop. Why push Android sales now when you're putting them onto sort of an overstuffed 2G network that's leading to higher churn? Why not continue pushing family plans now but wait until 2012 when the handsets are ready and the network is ready before you start pushing Android?

I guess the best example is if I could push the fish on Monday, I guess that would be acceptable for everybody. But we really find that our consumers are really looking for Android. They're looking for the open OS. They're looking for the more than 300,000 apps. But I do want to highlight that with our DO implementation, we believe that the experience on DO will be really satisfying to our customers. It's the reason why we did it, and we're not trying to set a trend that simply says we can sell more and create additional congestion. So we believe the importance that we have to do is maintain our roadmap, maintain our installation roadmap and then be able to monitor the network, make sure that the switches don't have congestion and deliver the level of service that we believe we can into the future. I can tell you that if I try to take the 70 basis points churn and split it up between what was network congestion and what was false churn, the one thing we don't get very well from our customers is why did they leave us. We simply find the customer who gapped out generally didn't pay their bill. Whenever we find anecdotal evidence of a consumer problem, of a network problem, we certainly address it as quickly as we can, but it's really hard to put a number on that 70 basis points. Jonathan Chaplin - Crédit Suisse AG, Research Division: So Tom, when you look -- I think you said earlier that you're upgrading about 20% of your cell sites for DO. Is all of the increase in churn that you're seeing from network congestion just in those markets, is that enough to get rid of the congestion issue, I mean, the higher churn generally?

Churn across all of our markets, it's pretty well peanut butter spread, and a lot of this effect can be on the economy, right? So one of the reasons why we went back to the 4 for $100 is because when we did this about 2.5 years ago, we had a very good churn characteristic from that particular promotion. Now if you can allow people to get a benefit of an unlimited feature phone service and keep their family together, have the security communications and give them a lower price in arguably the worst economy we've seen potentially since the Great Depression, we think that's got to do things for the brand. It's got to do things to help churn over the long run. So there's various levers that we're trying to push, but we also want to make sure that everybody understands that MetroPCS does have high-end handsets, does have Android handsets that people want at rate plans that are extremely affordable inside of this economy. So we have to have a little bit of both. If we just went with one plan versus the other, I don't think that would be prudent.

At this time, I'd like to turn the call back over to Braxton Carter for any closing remarks.

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's continued progress. Operator?

Thank you. That does conclude today's conference. Thank you for your participation. Ladies and gentlemen, that concludes the MetroPCS Communications Third Quarter 2011 Conference Call. Thank you for your participation. You may now disconnect, and have a pleasant day.