Feature Article

February 20, 2013

Disappointment for Leap Wireless as It Loses Customers and Shares Drop

Leap Wireless International, Inc. is an American public telecommunications company. It provides wireless services through its subsidiary, Cricket Communications. Leap Wireless was founded in 1998. It was built on the premise that it wanted to deliver unlimited services with no contracts and no credit checks. By doing this, they could provide access to wireless services for customers who couldn’t otherwise afford it, or who didn't want the long term commitment of a one or two year contract.

Cricket Communications, Inc., also known as Cricket Wireless, was founded in 1999. It now provides wireless services to over seven million customers in the U.S. Leap Wireless owns and operates the seventh largest wireless telecommunications network in the U.S. In August 2010, Leap Wireless and Sprint Nextel announced a five year agreement that allows Cricket Wireless to offer nationwide 3G service to its customers using Sprint's 3G network. In May 2012, Cricket Wireless became the first wireless provider to start offering the iPhone as an off-contract device.

Unfortunately, Leap Wireless shares are trading lower today after they posted disappointing fourth quarter 2012 results. Leap Wireless reported revenue of $756 million. This figure was down 1.5 percent from fourth quarter 2011. Service revenue was down by four percent. Leap Wireless had 419,000 gross customer additions in the quarter; however, they also had a 337,000 net customer loss. According to analysts on Wall Street, they expected to see a loss of only about 55,000 customers.

New Street Research is an independent, partner owned research firm. They specialize in equity and debt research. Jonathan Chaplin, a New Street analyst said subscriber losses, which compared with customer growth in the fourth quarter 2011, had “deteriorated drastically” in the quarter.

Hudson Square analyst, Todd Rethemeier questioned whether the company would be able to turn around on its own. Some analysts feel that the best investors could hope for is an eventual sale of Leap Wireless.

"In the last three quarters they've lost about 14 percent of their subscriber base," said Rethemeier. "Management seems unable to find a strategy to reverse that. The only reason the stock is trading as high as it is because people think there's potential for a buyout."

 Kevin Roe, analyst for Roe Equity Research, an Independent sell-side investment research specializing in the global telecommunications, said that Leap Wireless suitors like Sprint and MetroPCS may not be able to make a bid for the company for some time. Sprint is currently seeking to buy Clearwire Corp. It is also looking to sell 70 percent of its own shares to SoftBank Corp. MetroPCS is looking to merge with T-Mobile USA. "What Leap has to do is conserve cash to survive until the next round of consolidation," Roe said.

Edited by Brooke Neuman

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