T-Mobile US, Inc. (TMUS) Q1 2012 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the MetroPCS Communications First Quarter 2012 Conference Call. [Operator Instructions] This conference is being recorded, April 26, 2012. I would now like to turn the conference over to Mr. Keith Terreri, Vice President and Treasurer for MetroPCS. Please go ahead, sir.

Thanks, April, and good morning, everyone. Welcome to our first quarter 2012 conference call. Speakers with me this morning are Roger Lindquist, our Chairman and CEO; 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 our business; Tom will then provide an update on a number of operational results and initiatives; and finally, Braxton will review the financial highlights for the first quarter 2012 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 section. 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 meanings of federal securities laws. Forward-looking statements are any statements not of historical fact that involve risks, assumptions, projections, predictions 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 financial plans, our estimates of capital expenditures, our prospects for success, our strategies in our positioning in a highly competitive wireless industry. Furthermore, included in our forward-looking statements are statements regarding our competitive positioning and promotional strategies, our operational focus and objectives, the drivers of customer adoption of our services, the availability and pricing of 4G LTE handsets and RCS, the effects in demand for our services, anticipated benefits of 4G LTE, our marketing initiatives and their benefits, the reasons for reduced growth, the buildout of 4G LTE, statements regarding the impact of investment spectrum on capital expenditures and free cash flow, the manageability of our debt maturities, our position from a balance sheet perspective, capital expenditure guidance 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, but not limited to, the risk factors described in our earnings release and our annual report on Form 10-K, quarterly reports on Form 10-Q, including our 10-Q for the period ended March 31, 2012, filed 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 the Investor Relations section located under the About Us tab on our website or directly from contacting the Investor Relations department. Among these, for example, are risks related to competition, availability of spectrum, our ability of our networks to meet customer demands, the availability of 4G LTE handsets and the economy. We encourage you to review these documents. We've also provided supplemental slides that are available for download and printing on our Investor Relations website. 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 first quarter 2012 may not be reflective of results for any subsequent periods. 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 April 26, 2012, 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. At this time, I'd like to turn the call over to Roger.

Thank you, Keith. First quarter is normally the strongest sales quarter for the year for the No Contract segment. However, our net gains and EBITDA in the first quarter 2012 significantly underperformed expectations. The combination of uncertainty in the economy and growing competition in 3G data service makes our early investment initiatives in 4G LTE that much more important. Anticipating more competition in 3G data service, as well as continued economic headwinds, we elected in the first quarter to emphasize handset promotions that broadly appeal to individuals, not just family plan subscribers, that was offered in the first quarter of 2011. The result was a large proportion of existing subscribers upgraded their handsets. Consequently the increase in upgrade retention expense created additional EBITDA pressure in the first quarter of 2012 of approximately $70 million. First quarter operations provided a clearer picture regarding the significant demand for high-speed data services. Whereas considerable softness existed in the CDMA data service segment of our business, our 4G LTE subscribers nearly doubled in the first quarter. This occurred in spite of the average price of handsets approached $300, and equally important, churn for the 4G LTE segment is now at the 2% level. With these facts in mind, we intend to focus on operating margins and free cash flow over subscriber growth until we can mainstream our LTE for all initiatives with affordable handsets later this year. We believe the acceleration of 4G LTE adoption in the U.S. will rapidly drive lower smartphone cost and higher volume. As handset designs standardize on the iPhone, touchscreen and substrate design, product differentiation will be accomplished by screen size, resolution and processing power, enabling cost reduction that can be substantial. We expect full-featured affordable handsets with 3.5-inch to 4-inch screens will become available in the second half of 2012 in the sub-$150 retail range. We believe that demand will be ARPU accretive, given the high percentage of our customers electing the $50, $60 and $70 rate plans. There's no question that smartphone data consumption characterizes wireless service opportunities and challenges going forward. Speed does matter, and with our 4G LTE network targeted for system-wide completion by third quarter, the challenge is to effectively manage all network traffic such that the spectrum refarming can occur at the earliest practical time. With smartphone momentum, network capacity requirements bring focus on technology, as well as spectrum resources. The opportunity to expand capacity on 4G LTE networks is orders of magnitude utilizing picocells within macro cells whereby capacity can be approved by multiples of 3x, 4x or more times. We continue to seek spectrum opportunities, but enhancing network capacity through technology gains presents a cost-effective, nearer-term alternative. Once our microwave backhaul network is in place and fully operational, we expect a significant cost reduction improvement relative to fiber and T1 circuits. Microwave backhaul is key for data throughput and future cost-effective implementation of picocells. High-speed data at low latency is a key driver for user satisfaction, but so is the expanded menu of rich communication services, or RCS, that will serve to differentiate our premium 4G LTE services from our competitors' 3G data services. RCS supports simultaneous voice communication with multimedia messaging linking presence with address book contacts and more by the end of 2012. Our objective continues to be providing our subscribers with a premium postpaid service experience on a no-contract basis. 4G LTE service is not only about high-speed data service but also about the menu of services that it can support. Beginning the fall of 2012, we intend to move into high gear with our marketing initiatives that focus on 4G LTE handsets and services to extend our wireless leadership as the best deal in town. Affordable handsets are key to our LTE for All initiatives, and several of these handsets are currently in our labs for acceptance testing. Our objectives are clear: Prioritize operating margins and free cash flow over subscriber growth until we have affordable 4G LTE handsets later this year; two, capitalize on our 4G LTE for all initiatives and begin to introduce multi-capable handsets later in the second half of the year to begin refarming spectrum; and finally, build network capacity for future growth. Now I'll turn the call over to Tom.

Thanks, Roger. Good morning, everyone. Today, I'd like to focus my comments on 3 areas. First quarter 2012 results, discuss the drivers impacting these results, and lastly, review our roadmap going forward. Clearly, the first quarter of 2012 was challenging from a growth and profitability perspective, and results were below expectations. Regarding first quarter 2012 results. Our first quarter promotional investments, primarily consisting of instant rebates or mail-in rebates, generated just over $1 million gross additions during the first quarter. Consistent with lower gross addition activity in the quarter, we recorded net subscriber additions of approximately 132,000. Although our sales activity was muted, we did see retentive benefits from our promotions as our base continued to upgrade their handsets during the quarter. During the quarter, the transition of our customer base is important as mature users now benefit from our new handset selection and remain loyal to our brand. We believe this loyalty continues to show itself in positive net promoter scores that demonstrate the true viral nature and impact of our service in the communities that we operate in. As a result of this operated activity, churn for the quarter was at an all-time low for the company at 3.1%. Low churn was driven in part by the over 1.5 million upgrades recorded during the quarter, which represented 16% of our customer base. Our increased upgrade expenses, primarily driven by handset promotions, contributed to higher cost in the quarter. Our customer base continues to demand the experience afforded by a smartphone. At the end of the first quarter, approximately 46% of all subscribers are on a smartphone plan, up from roughly 1/3 at the end of 2011. Looking at upgrade activity. 76% of all upgrades ended up on a rate plan of $50 or higher. Additionally, 46% of the upgrades during the quarter were feature phone users that migrated upward to a smartphone. Progress that impacted the first quarter. Our strategy continues to focus on offering customers the best deal in town with all taxes and regulatory fees included in our service plan pricing. We believe there are a number of factors as to why we saw a decrease in gross additions in the first quarter of 2012. We believe factors include overall competition, delayed tax refunds and end-users' desire for high-speed data. Looking at the quarter, we saw some competitive 3G data offerings in the postpaid and MB&O spaces that put pressure on our acquisition model. As you may recall, on the fourth quarter of 2011 call, we spoke about the delay in tax refunds. We did not know how this delay would impact the quarter, but it appears that the delay led to consumers using their refunds for other, more immediate needs as discrete fund delay dynamic disrupted purchasing cycles that we have seen in past years. Finally, since introducing Android smartphones in the late 2010, we have placed the majority of our smartphones on our CDMA network. Speed has become an increasing part of a customer's buying decision, and consequently, the speed and superior experience of our 4G LTE network is compelling and a driver of new customer acquisition. In order to provide our customers with the high-speed data experience they expect, we need to provide handsets at an affordable cost that drives new user adoption. Looking at our operational roadmap going forward, we are focused on completing the build of our 4G LTE network. At the end of the first quarter, we have built approximately 80% of our total footprint covering roughly 9,500 cell sites. We anticipate covering our full CDMA footprint with 3G LTE-based stations by third quarter of 2012. With network speed and coverage quality gaining importance as consumers now differentiate between service providers, network backhaul becomes critical to the user experience. We have invested in and are implementing microwave backhaul in dense urban poor [ph]. This delivery will allow for the increased use of data. By deploying microwave backhaul, we will be able to take advantage of lower cost, highly targeted small cell deployments, which will be added to the network for capacity offloads. We anticipate first wave of affordable 4G LTE smartphones to be introduced prior to the back-to-school season. Given a near-term roadmap to affordable 4G LTE smartphones, our short-term reliance on CDMA smartphones for new customer acquisition will diminish during the second half of 2012. Currently, Samsung, LG, Huawei, ZTE and other manufacturers are developing low-cost handset solutions that will hopefully retail in the sub-$150 range as our 4G LTE for all campaign gets into full swing. In preparation for 4G LTE smartphones becoming widely available, we recently announced the change in our pricing to our 4G LTE service plans. This change helps build the foundation for the second half of 2012. We currently offer the nation's most affordable 4G LTE service for as low as $40 a month. All plans still offer unlimited talk and text. With these data tiers, consumers have greater control, allowing them to select the data plan that meets their needs. We are the only wireless service provider to offer a no-contract, unlimited 4G LTE plan, $70 a month with taxes and fees included. With a challenging quarter behind us, we believe the industry is transitioning to high-speed data delivery, and we are well on our way to a full 4G LTE deployment. We remain focused and believe our unique distribution model, no contract, tax and regulatory fee inclusive service plans and near-term 4G LTE smartphone roadmap, we can successfully work to meet our long-term goal of balancing growth with profitability. Now I'll turn the call over to Braxton.

Thanks, Tom. Good morning. Our first quarter results were challenging. We ended the quarter with 132,000 net additions and currently serve approximately 9.5 million total subscribers, an increase of 7% from the first quarter of 2011 and up 57% over the past 3 years. We have a very strong balance sheet and substantial liquidity with approximately $2.2 billion in cash and short-term investments at the end of the first quarter. We believe this liquidity positions us very well for future strategic opportunities, including spectrum acquisitions. We continue 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 March 31, 2012, was approximately 3.6x 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 first quarter was 5.9%. 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 3.1% and matches the lowest reported churn in company history. First quarter churn was down 60 basis points when compared to the fourth quarter of 2011 and was flat when compared to the first quarter of 2011. The sequential decline in churn we believe was primarily driven by a continued investment in our network, aggressive retention programs and normal seasonal trends. Our first quarter 2012 ARPU was $40.56, up $0.14 on a year-over-year basis and flat with the fourth quarter of 2011. The increase in ARPU was primarily attributable to continued demand for RALs and 4G LTE service plans, offset by an increase in family plan penetration from 35% of our customer base as of March 31, 2011, to 44% of our customer base as of March 31, 2012. Also impacting ARPU this quarter was the addition of family plan subscribers heavily-weighted to the back end of the fourth quarter of 2011. For the first quarter, our CPGA was $235, up $78 over the first quarter of 2011. This increase was primarily driven by increased promotional activities and lower gross additions as compared to the 3 months ended March 31, 2011. Our CPU for the quarter was $22.87 as compared to $19.79 in the prior year's first quarter. This year-over-year increase was primarily driven by the increase in retention expense for existing customers, costs associated with our 4G LTE network upgrade and roaming expenses with Metro USA. During the quarter, we experienced $7.13 in CPU directly related to handset upgrades compared to $4.60 in the prior year's first quarter. Adjusted EBITDA for the first quarter was $262 million, a decrease of 8% year-over-year. Our adjusted EBITDA margin for the quarter was 22.6%. Over the trailing 12-month period, adjusted EBITDA totaled $1.3 billion. I'd now like to highlight a few items from the income statement and cash flow statement. In the first quarter, our service revenue and cost of service grew 10% and 14% respectively to approximately $1.2 billion and $389 million, respectively, over the same quarter in 2011. The increases are primarily due to growth in our subscriber base. We generated $137 million in cash from operating activities in the quarter. We generated $21 million in consolidated net income during the first quarter, or $0.06 per share. We incurred capital expenditures of $144 million during the quarter. We reaffirm our 4-year 2012 guidance for capital expenditures of $900 million to $1 billion. Now we'll move to Q&A. Operator?

[Operator Instructions] And we'll first hear from Brett Feldman of Deutsche Bank.

Second quarter is usually sort of a seasonal down period for you guys. And it sounds like you're sort of waiting to reset the business around the LTE relaunch later in the year. How should we think about seasonal patterns going into the second quarter? Do you think that perhaps, they'll be a little more exacerbated than we've typically seen, notably around things like churn and gross adds?

I think that's a -- that would be a correct statement. I think seasonality is always going to be a part of our business, and the economy of course is not improving dramatically. So I would suspect that we would see a seasonality not untypical of our past years. The opportunity here, as we said, is to ensure that we meet our operating margins and free cash flow objectives and take subscriber growth that we feel is an order with the product offerings that we have today.

So if you run a little math around that and bake in what is usually the seasonal uptick in churn and the seasonal decline in gross adds, it suggests you probably have a net loss of customers in the quarter, and so with that as the probable outcome, what are some of the things you can do around margins to kind of make sure you're generating cash ahead of what's going to be a more interesting product launch later in the year?

Well, I think that, that is the -- exactly the job we've got at hand, and I think the churn, as we've indicated, has been more moderated. One of the benefits of the first quarter has been that there's a significant number of our subscribers that have upgraded to the Android service, and they now have a phone that, we feel, that satisfies them. So it's not so much a matter of changing out phones; it's a matter of providing the good service that we needed to provide and maintain those customers. The 3.1% churn is not the lowest in our industry, but it is equal to the lowest. So we think the churn is not going to be [ph] be the biggest factor going in, much different than we saw in the first quarter of last year when we promoted the family plan type retention plans.

And Brett, I think it's also important to know that we have substantially curtailed the handset promotions that were out in the marketplace during the first quarter. The primary promotion in the second quarter is a $25 talk and text plan. That does have a very different dynamic when it comes to acquisition cost. More importantly, you saw the key driver on our miss this quarter was about $70 million of incremental upgrade expense as compared to the prior year. The $25 plan, we think is very high from an MPV basis. There's no data, there's no web access; it's a talk and text plan, and we think it, from a promotional standpoint, is the right thing for us to do during the second quarter. It will obviously be somewhat of a drag on ARPU, but Tom talked about the substantial uptick that we're seeing in our new LTE rate plans, the new pricing that we did on that, so we hope to execute a fairly neutral ARPU during the next quarter.

What's the market like right now for the sort of legacy talk and text plans? I mean, one of your competitors is talking about the continued pressure from the Lifeline products? Is that why you're trying to put something like that into the market?

Brett, I think there's probably 2 reasons. One is, we went at this through a card-based product earlier on, and I think what we've realized is that we're a monthly subscription company first. So we think we'll get a better degree of traction there. Number two, we also think we've heard from the marketplace where not having a web-based product for children is really important. And this product does not get a family plan discount; that's a really important dynamic in terms of the economics for this, so there's no family plan discount. It can be certainly added to a family plan program to pay 1 bill, but there's no discount. And lastly, just probably as a farm team [ph] for people to come into MetroPCS to understand the first offering and then based upon our feature phone to smartphone upgrade pattern with higher ARPUs, because our lowest smartphone ARPU was $50, we think there's an opportunity for this to be ARPU accretive over time.

And we'll hear next from Rick Prentiss, Raymond James. Richard H. Prentiss - Raymond James & Associates, Inc., Research Division: A follow-up on Brett's question, maybe. When you think about the competition in the space, if you break it into kind of the low-end, on the Lifeline, maybe the high-end as far as what AT&T and Verizon might be planning to do also with family plans on the data being discussed. And then maybe a midzone with Sprint's version product and the WiMAX coming in the second quarter. Can you help us understand the competition on the low, medium and kind of high end, of who you're seeing out there and how you're addressing it?

I don't know that we address every single carrier separately. I don't think we've ever truly been able to do that and have tried to. We think there's probably 3 segments inside of our acquisition model today. The first we've just described, right, on the high value, low-end $25 talk and text. The other goalpost, if you will, #3, is really our premium service, our 4G LTE service, and as mentioned, we have a very, very good churn rate there presently. It's about 2%, which we enjoy, and we also came close to doubling that customer base in the first quarter. So we think that there's a really big opportunity at #3. #2 in the middle of cost is our 1xRTT smartphones, and what I think you saw us do is defend that base in the first quarter. But we can keep those customers on the network, give them the level of expectation to the best we can, as we transition the network to a full 4G LTE services and work on giving our customers what they've asked for over the long haul, and that's really good high-speed data. Richard H. Prentiss - Raymond James & Associates, Inc., Research Division: And as you think of that, how important is VoLTE, Voice over LTE availability, to making that occur for that opportunity, and then how does spectrum fit into that kind of game plan also?

To me, I'll try to do the first question, which is re VoLTE. It's inextricably linked with our spectrum needs. VoLTE is foundational obviously to be able to refarm CDMA spectrum in our business. We see that the opportunity there was going to back ended this year. We'll be introducing a device, the Samsung will be the first device to be introduced in the third quarter on VoLTE, and we will, I think, be the first, certainly in North America, if not in Europe and elsewhere, to offer VoLTE because it is foundational for us going forward in 2013 for us to begin to manage our way through the spectrum holdings that we have. So refarming is totally dependent on VoLTE, and we plan to do it as we have the experience and insight to offer service that is at least comparable to our CDMA voice service today. Richard H. Prentiss - Raymond James & Associates, Inc., Research Division: And as far as -- when do you need more spectrum, how critical is that given the VoLTE timeline and devices coming?

Well, the VoLTE timeline, as I mentioned, that they'll be coming in this year. In fact, we'll have at least 2, probably 3 devices that are on VoLTE this year. More are available if we choose to take them, but we want to make sure that we have a service that we have broadly understood how effective VoLTE is in terms of being comparable to our CDMA voice products. So it's -- the fact that it is available -- will become available, 2013 will be a much more volume year where we can take advantage of that and have the experience of really exploring and finding out what the level of service and the various intricacies are. It is a VoiP service. It is totally new, and we want to make sure that the quality of service is comparable or exceeds what we now have on CDMA.

Moving on, we'll hear from Jonathan Chaplin of Credit Suisse. Jonathan Chaplin - Crédit Suisse AG, Research Division: A couple of quick questions, if I may. So first on the microwave backhaul deployment. I'm wondering if you could give us some context for the positive impact that could have on CCU once it's fully deployed. Second, on small cells, are these deployments that you're making yourselves where the cost implications are all captured in your $900 million to $1 billion CapEx budget? Or are these deployments you're doing with third-party providers, entire companies where there's going to be incremental cost in CCU? And then thirdly, just in terms of your strategy, it totally makes sense to manage the business for margin and cash flow while you wait for 3G -- for cost-effective LTE handsets to become available. What was the thinking around this quarter, though, where it seems like you pushed handset subsidies dramatically and still didn't get doors swinging. I guess my concern is, we saw subsidies go up so much and still didn't see incremental demand. What would gross adds have been like if you hadn't incurred that level of cost to drive demand, or were your assets just very unproductive this quarter?

Jonathan, I'll take the third one first. So the thinking behind the quarter was that maintaining the base and retaining the base was equally as important as growth, and what we saw inside of the base is people who had come to MetroPCS prior, keeping them satisfied, letting them come to the next level of handset to evolve their technology use, feature phone to 1x Android, 1x Android to LTE, was extremely important to us. As we stated, we would have certainly liked to see more people, new customers, come through the door, but as we talked about in the beginning of March, we had a delayed tax season. I think we spoke about at the end of the fourth -- of our last call, and that delay gave us uncertainty into the latter part of the quarter, which is always a really heavy acquisition timeframe, so all the numbers got distorted by not having the same gross additions as we had in years prior.

I'll take the second one, and Roger will talk about microwave and small cells. Yes, the microwave and small cell initiatives are fully baked into the CapEx guidance of $900 million to $1 billion this year. Roger you want to talk about...

Yes. The key here, of course, is to “manufacturer capacity on an LTE.” And we know that data rates that we can expect in the -- depending on the spectrum use, but typically in a 5x5, we would expect 6 to 8 megahertz, and that is very dependent on backhaul. We've now provided fiber to a large majority of our sites in the core. We will be implementing microwave to take over because of cost benefits. Microwave is repriced by the $100 a foot on the dish side, so we could see very low fixed cost. We have the spectrum, so we want to make sure we address that so our backhaul is suitable for the maximum downlink speeds available to us. So we see a tremendous a lift in terms of capacity. The issue will be, is to get our phone service, that is, LTE handsets, sufficiently embedded in our base so we can take advantage of the refarming that would be a possible to us in 2013 for the VoLTE-capable handsets to use up that, shall we say, displace that capacity in CDMA. The fact is that we have, I think, a great opportunity in making that move. This is not an easy task, but the budget this year is meant to give us that foundation so we have the densification we need and also the extensive deployment of LTE system-wide.

Next, we'll hear from Phil Cusick of JPMorgan. Philip Cusick - JP Morgan Chase & Co, Research Division: I don't want to push this too hard, but I do want to do a little Monday morning quarterbacking on the CPGA, the move from -- at the end of February, we talked about sort of $195 million, came in at $235 million, and I understand that sort of things turned out differently, but what I'm trying to think is, can you help us on where that number probably goes in 2Q, and maybe a range, and what in particular changed, just from that, over that period of a month?

Phil, that's a fair question. I think there were several factors impacting it. First of all, there was a very large volume differential between what we thought we were going to achieve from a gross addition standpoint versus what we actually achieved. Secondly, the mix of handsets, and remember, there were different pricing schemes within the handsets before we had an MIR, and the actual mix of what sold was different than what we've assumed. The take rates on the mail-in rebates were higher than we initially had indicated. I think the final factor is that the brand advertising that we put out in the market, we did try to increase that in the first quarter, and that definitely also had an impact. Really looking forward, we've talked about packing off the handset subsidies, but -- you also have the numerator-denominator effect, and there are a lot of fixed cost within CPGA, and to the extent that you have lower gross additions, you're not getting the scale, and you do ultimately drive a higher CPGA, and that certainly should be the expectation given the gross adds and the statement that we're going to focus on, cash flows and profitability versus growth. I think the final comment, Phil, is when you look at the change year-over-year, it really wasn't about the acquisition. We did spend incremental subsidy on the gross adds that came in, but the volume drop pretty much offset that. The real change from the profitability and the trajectory that we had over a year ago was, in fact, near the upgrades, and we've given you very specific costs per user. I'll point you to the supplemental deck where we have highlighted historically what our upgrade costs were, and you can do the math on it, but that's really where the issue was. Philip Cusick - JP Morgan Chase & Co, Research Division: Okay. And as we think about the second half, as you bring out the sort of lower-priced LTE phones, should we be thinking about subsidies going back up to bring those to $150? Or do they stay on a sort of a unit basis? Is that at a sort of in-line price to where things have been historically, or are they more like 1Q in terms of unit subsidies?

Well, it's a very good question. Maybe I can try to tackle that by giving some data that's relative, because some people have come out with thoughts that CDMA or GSM handsets on Android smartphones will be very much less expensive. All I can do is talk about today and the roadmap for 2012, but the differential that we will see once we have the -- as I mentioned, the units that are now being tested in the acceptance testing, there'll be a $30 to $40 plus differential between what we can buy on CDMA Android versus LTE. I think the issue is that the attractiveness of the service is so very, very powerful, and what we've had to do in the first quarter is really to make up for this speed deficit, if you will, in the LTE versus the CDMA phones -- smartphones that we've been selling. So I think that we have a non -- shall we say first quarter will not carry over into the second half. There is no need for that, and we don't intend to do it, and we intend to be very much selective. Again, the focus is on margins and free cash flow, and that's really our -- and that's just going forward this year.

And we'll next hear from Matt Niknam of Goldman Sachs.

Just wondering if you can give us some more color on how the new $25 talk and text promo has been received in the marketplace so far? And just shed some light on how you consider the churn risks customers taking this plan present longer-term.

Matt, so far it's been just a couple of weeks, so I would call it a normal take rate. The real question that we think is important is, how many new people will come in the door to look at the offer. We've yet to really put it into mainstream advertising. It's simply been viral in our stores, word-of-mouth. We've done a little bit of text messaging to the base, so it's too early to tell that. The real intent of it is to allow families, people that have children that will not want web access and just have a real appetite for talk and text to be able to give them something that's affordable to try our service. And then once they try it and they come back to the store every month and pay their bill, there's an opportunity to look at the handset roadmap as we continue to introduce new products over the course of the year and then potentially see if their child or somebody else is ready to move to the next level of service with Metro. So it's early, but we think it's going to be another way to bring in a segment that we haven't tried to attract before into the store.

Next, we'll hear from Craig Moffett of Sanford Bernstein. Craig Moffett - Sanford C. Bernstein & Co., LLC., Research Division: It's been widely reported that you guys reached an agreement with Sprint during the quarter for a strategic transaction. As far as I know, I haven't seen any public comments on the strategic intent of that, what problems it would have solved and how you thought about the currency that was being exchanged? Could you talk about that a little bit and what you're thinking was and how that might inform thinking going forward for other strategic transactions.

Well, we love you, Craig, but no. Craig Moffett - Sanford C. Bernstein & Co., LLC., Research Division: No comment at all? Can you at least confirm the public reports and that they were accurate?

We -- there's no comment to that.

Michael McCormack of Nomura Securities.

Maybe just more of a holistic comment if you would. First regarding the importance of scale in this business, particularly as we move into this sort of 4G, higher smartphone penetration world. I mean, from a cash flow perspective, it seems like -- clearly we need more spectrum, network utilization probably going up as well, and just thinking about some of the largest competitors in the postpaid world. The cash flow profile per sub is clearly less than it was, so just thinking about your business going from what seemingly was a very highly accretive cash flow, voice and text only world into this new smartphone data world. How do we get comfort that you guys have the scale to compete there?

I think that's certainly a question in our mind, and we address it this way because we believe in it. That is that, the focus that we're finding in the 4G world, we were early into this business, we saw it as the opportunity. We didn't want to spend another $1 billion on a complete 3G network. We felt that we can leapfrog to 4G, and now that possibility is coming very, very evident to us. So the thought is that, we're early in the leadership, and we've worked with some of the handset manufacturers now for 2, almost, I would say 2.5 years. There is a broad differential between the people moving up to the contract space that want very high-cost handsets and full feature and they're using this as the top of the line to attract while they sell off their embedded base, which is on the 3G legacy type networks. So we are cutting new ground. The good news is that what we're looking at is standardization worldwide on a single technology, and we firmly believe that the manufacturers out there that are working with us see this as an opportunity to gain volume and leadership early because they know there's going to be a tremendous experience curve, cost reduction with this technology. So we think that in a nutshell, the big guys are going for the very high-cost handsets. I think this will be a premium service into the near future, certainly the '13 and maybe beyond, so that we expect that this is going to be a space that we can occupy, not just by ourselves, but the focus here is much different than what we see in the handset manufacturers market looking at the kind of full-feature phones we have versus the very stylish, very, very high-end phones, and you can see them in the retina displays, in tablets, which are going to go into future iPhones. You're going to see the Galaxy-type displays that are going to go into further Galaxy lines, and it's just a going left versus going right, and we see this space as being an opportunity for us, not an impediment.

And next, we'll hear from John Hodulik of UBS.

First a quick follow-up. I understand the focus on margins going forward, but given the typical seasonality and the sort of weakness in net adds in the first quarter we saw here, are you guys confident that, especially as you look out into the fourth quarter for 2012 as a whole, you can see positive growth in the subbase? That's number one, and then two, if you could just talk a little bit about your spectrum needs and maybe some of the options out there and maybe contrast and compare them. More specifically, how you see [ph] Verizon is going to be selling the -- some 700 megahertz spectrum. Is it possible that, that could potentially fit into your plans?

Yes. On the spectrum, we are absolutely interested in any options out there. We currently own some 700. It is a viable option; like all sources of spectrum, there are potential issues, but we will certainly be taking a very close look at that. The other potential sources we've commented on in the past; we continue to aggressively work all options.

Yes. And I think the growth story is one that we'd like to stay where we are, and that is that we are going to emphasize focusing on the profitability that this company can produce. LTE is going to be an important element, and is going to give rise to uncertainty as to where we land in sub-growth this year, but the fact is that I think we have a very strong position, and I am very encouraged by the handsets that we're seeing coming in just now as a means of supporting that program later this year.

And we've also said that into the future, we presently today have 3 LTE handsets, and as Roger mentioned, we've done very well in the first quarter on a limited basis with higher-priced handsets; we've got 6, 7, 8 handsets in our testing roadmap for this year with multiple vendors on multiple chipsets, so we don't think we have just a reliance on the 8960 that's out there. We've tried to give ourselves a little bit of breathing room and spread the risk out as we go into the back half of the year. And we've also seen, on our $50, $60 and $70 rate plan, the $70 is brand-new, we still have approximately 95% of all users on those plans and higher, so we are seeing people pick and choose their data plan based upon their needs, and we think that's going to be very important factor going forward.

Next, we'll hear from Jennifer Fritzsche of Wells Fargo.

Roger, maybe a bigger question, just a bigger-picture question. Given the competitive nature of the space and limited free cash flow now being generated, does it make sense, kind of following on John's question, to limit the business to the current footprint with the LTE initiatives you talked about like backhaul and picocells and pass on buying spectrum? I guess, just -- can you talk about the financial case around buying more spectrum, considering the pressures and seemingly excess capacity in the industry that isn't being solved through consolidation?

Well, that is an excellent question. Can you substitute technology for spectrum? And I think the answer is, we're going to do our very, global best to find out, but the fact is that if spectrum becomes available, given the fact that we have raised considerable funds that we have earmarked for the possibilities of acquiring such spectrum, that certainly we're open to that. In the meantime, as I mentioned, the near-term alternative is to focus on basically the LTE network where we can quote manufacturer capacity, whereby we simply can't do that except to further densify our network on CDMA. So we do have the opportunity; it is densification, but it's different. I think the microwave backhaul, which will take us from 2012 into 2013 to complete, will be a key element because you can almost always get power, but you can't always get backhaul capability. So our focus is basically on the technology side while we go hunting for a spectrum at cost we can afford.

Next, we'll hear from Simon Flannery of Morgan Stanley.

So continuing on that theme around the use of cash, is there any consideration at any point of using some of your cash balance to look at buybacks? Is there anything preventing you from doing that if you get an opportunity to buy the stock at an attractive level? And then on the network, I think you talked about 6 to 8 megabit speeds being possible with the 5x5. Is that something you should be able to deliver with the new handsets in the fall, or is that more -- once you complete all of the microwave backhaul next year?

Yes. I think the answer is mostly. We have a large penetration in the core. Let me speak to the 2 network segments that we have. One is really the core, where most of our users require service as opposed to outside the core. In the core, we have, I think, a very satisfactory amount of backhaul to achieve these backhaul 6 to 8 megabits rates. So the question is certainly not the handsets; it is the backhaul, it is the available spectrum, and that obviously multiplies quite considerably what we have in our CDMA network, even augmented with the BO carriers, as we have reported before.

And on the buyback question, Simon, we have in the past taken a look at buybacks. We will continue to do that in the future. I think the bottom line, we want to utilize our cash where we think we can get the highest potential return for it.

And there's nothing in indentures or anything to limit that?

We got adequate flexibility under our structure to do buybacks.

Our final question for today will come from Tim Horan of Oppenheimer. Timothy K. Horan - Oppenheimer & Co. Inc., Research Division: Just some questions on the pricing. The $25 talk and text promo, are you worried about that at all cannibalizing the base? And then secondly, it just seems the $70 price point for the LTE seems to be bumping up against what some of your competitors are charging out there. Just some of the thinking.

Let me take the last one. Remember, ours is taxes and fees included, so the $70 is $70. Our competitors start at $70 and end around $90, so there is a significant differentiation, and at this point, the one competitor that's doing this is really not offering a 4G LTE service. One of the things that we're going to find, I think, important going into this is that there's a element of future proofing in handsets that we'll be selling on LTE now because they can take advantage of the higher data rates whenever they become available, whether through technology or additional bandwidth that we could provide through refarming, so we have an opportunity that we haven't had before to "give customers the ability to enjoy greater performance as the network evolves." So I really believe there's a substantial differential here.

The question between the $25 plan and our normal $40 all-in plan for talk, text and web, we really try to wall this off for new acquisition. It is only available on 3 handsets, and you have to purchase a new handset; it's not transferable to an existing handset, and there's a difference between the 2 plans of $15. The $25 plan, as we mentioned, is not allowed to receive an additional discount on a family plan, so we think there's enough separation and space in terms of pricing and enough separation and space in terms of what's actually provided in the plan that we think it will be interesting to see if we test the new segment, which is the goal. And certainly, if we do believe we see a downdrift to a place we're not comfortable, we have the option to pull it.

And it's a promotional feature too. We shouldn't ignore the fact that we see customers coming in and seeing that plan as being attractive and then also seeing that an Android smartphone is a more desirable appliance to use, so there is always the opportunity to upgrade into a phone service that is more suitable for what we'd like to see our average customers have.

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

Ladies and gentlemen, this concludes the MetroPCS Communications First Quarter 2012 Conference Call. Thank you for your participation. You may now disconnect, and have a pleasant day.