MetroPCS’ Fall Presages Two-telecom Future

MetroPCS (NYSE: PCS ) had a rough Tuesday . The stock dropped more than 30%
before midday, its shares crumbling above $16 to just around $11. Its not
surprising. The mobile phone provider reported its second-quarter earnings
Tuesday morning, and its results could be described in the same way as a
hurricane hitting the coast: disastrous. In the first quarter of 2011, MetroPCS
reported its best-ever period of customer growth, but it added fewer than
200,000 new customers in the second quarter, far below the estimates of 225,000
from analysts at JPMorgan. The company shed customers at a rate of nearly 4%
during the quarter, and it expects declines to continue. Profits came to $84
million and revenue totaled more than $1 billion year-on-year increases of 5%
and 19%, respectively, but still well below analyst expectations. We do see it
being tough out there currently, said Metro PCS COO Thomas Keys. Thats putting
it lightly. As the costs of both smartphones and data plans for AT&T (NYSE: T )
and Verizon s (NYSE: VZ ) 3G networks drop, the role smaller mobile telecoms
like MetroPCS play in the mobile market is diminishing at an alarming (at least
for their shareholders) rate. Leap Wireless (NASDAQ: LEAP ) suffered nearly as
much as MetroPCS on Tuesday, shedding more than 18% of its value before even
reporting its second-quarter earnings Wednesday. This is, unfortunately, the
nature of the mobile provider business going forward. Metro PCS and Leap are the
sixth- and seventh-place mobile providers in the United States, with customer
bases of approximately 9 million and 7 million consumers. In contrast, AT&T has
nearly 96 million subscribers. If and when it merges with T-Mobile USA at the
beginning of 2012, its subscribership will grow to nearly 130 million. Not only
that, but T-Mobile also will bring in a system of lower-cost phone and data
plans the services that providers like Metro PCS and Leap specifically
specialize in. Those smaller companies will continue to lack access to popular,
cheap phones like previous generations of Apple s (NASDAQ: AAPL ) iPhone. The
fact is that by 2013, there might be just three mobile phone providers in the
United States. Unless something dramatic happens for Sprint (NYSE: S ) the
current third-place mobile provider, with a base of around 52 million
subscribers its possible the sole remaining players in the mobile telecom
business will be Verizon and AT&T. Can MetroPCS, Leap and their peers turn
things around? Possibly, but only if they reinvent their services. Smaller
telecoms could find safety in reorienting their business model around Web access
rather than phone services and using VoIP (voice over Internet protocol)
services like Microsoft -owned (NASDAQ: MSFT ) Skype for voice plans. Even then,
it would have to undercut AT&T and Verizon so heavily on price, for both service
and devices, that it might not be worth it. Welcome to the new mobile market. As
of this writing, Anthony John Agnello did not own a position in any of the
stocks named here. Follow him on Twitter at