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Leap sees more growth in mobile broadband business

Leap Wireless International continues to see strong growth in the mobile broadband business, which could yield even more customers down the line, according to Chief Financial Officer Walter Berger.

The pre-paid wireless business has been brutally competitive over the past year, with new entrants and lower pricing plans applying pressure on all players. But Leap has been able to differentiate itself with a pre-paid mobile broadband product, which was the primary driver of net customer growth in the third quarter.

Roughly half of its mobile broadband customers use another wireless carrier for their cellphone, and the company hopes those users will eventually make the full switch once their contract is up, Berger told Dow Jones in an interview on Thursday.

"This business will continue to grow at a great pace," he said.

The mobile broadband business makes up 10% of the company's customer base. Berger said he sees that share increasing over time. The business has been weighed down by expenses related to network deployments and marketing, but he said that it would contribute to cash flow by next year. Eventually, mobile broadband should have the same margins as its voice business, he added.

Leap, based in San Diego, targets the youth demographic and several ethnic communities. Instead of DSL or cable service, its customers are more willing to sign up for mobile broadband as their primary Internet connection.

Since Leap came out with its mobile broadband product, others have followed suit with their own no-contract offerings. Verizon Wireless in November launched its own pre-paid service, followed by AT&T Inc. and Deutsche Telekom AG's T-Mobile USA. Leap, traditionally the low-cost provider, offered its product for $10 less than its rivals.

Wireless voice has quickly become a standard service facing pricing pressure as players get more aggressive. Sprint Nextel Corp.'s Boost Mobile kicked off the trend early this year with a flat-rate $50 service, which Leap and fellow regional player MetroPCS Communications Inc. eventually followed.

Leap has responded to the competition and the new prices have taken off, Berger said.

Still, the increased pressure has some industry analysts worried about the company. Shares have fallen by roughly 65% in the second half of the year. Leap shares closed up 0.8%, at $14.71.

Berger touted the company's ability to cut costs and improve its margins, notable for a business that can't rely on the vast size of a nationwide player. On an adjusted basis, operating income margins were at 42%, a year-over-year improvement even during the seasonally weak third quarter. Those high margins gives the company flexibility to respond to competition, he said.

He declined to comment, however, on any future pricing plans.

The competitive environment in the pre-paid business will continue into next year, Berger said, demurring from making specific calls. The economic problems and the continued high rate of unemployment remains a drag on the business. He noted that earlier in the downturn, when unemployment was below 10%, Leap was benefiting from the "flight to value." But as the problems persist, he noted the company's targeted demographic got harder hit than the average consumer.

Berger was also hesitant to talk about potential economic improvement. He declined to comment on fourth-quarter results, but said that he wouldn't put too much stock into any upswing in the period, saying he would look to the first quarter and beyond to get a true indication of consumer confidence.

Источник: Total Telecom

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