(By Mani) Shares of MetroPCS Communications, Inc.
) could see at least 40 percent upside over the next 12 months as the wireless carrier is on the brink of several catalysts, including its LTE roll-out, which is expected to boost growth in subscribers and average revenue per user (ARPU).
MetroPCS is the fifth largest facilities-based wireless carrier in the United States and offers no annual contract, unlimited wireless communications service for a flat-rate. As of June 30, 2012, MetroPCS had about 9.3 million subscribers.
Dallas based, MetroPCS is on track to launch a wide lineup of attractively priced LTE devices later this quarter, a move that would reestablish its position as the value leader in wireless similar to the success it had with its "Wireless For All" campaign in the first quarter of 2010.
"We believe that we may be looking at a similar turnaround when PCS launches 4G LTE For All in late 3Q. If we are correct, then we could see material upside to net adds as early as 4Q and ARPU during 2013," Deutsche Bank analyst Brett Feldman said in a client note.
Though, it is admittedly late in launching a competitive 4G offer in the prepaid market, the company has a strong track record of well executed product launches.
"In our view, PCS will have a better product. While T-Mobile and Sprint claim to have 4G offers their prepaid plans are actually based on networks that are not technically 4G," Feldman noted.
Relatively, Sprint's 4G prepaid plans are delivered over Clearwire's (NASDAQ:CLWR) WiMAX network, and T-Mobile's are delivered over its HSPA+ network. While these platforms deliver an adequate broadband experience, they do not have the same high speed and low latency potential of LTE, a feature critical for streaming apps, especially video.
The company has a track record of success with transformative product launches in the prepaid market, where its brand is well established. A good example is its launch of "Wireless For All", the industry's first truly "all-inclusive" flat rate plans without contracts.
The company was late to this trend, as well. In early 2009 Sprint launched a mostly-inclusive – some taxes and fees were extra – prepaid offer under its Boost brand.
Regardless, when MetroPCS came out with its own plans they were an instant success and boosted its first quarter 2010 gross additions in excess of 20 percent and the company reported net additions that were more than 2 times the consensus estimates.
Meanwhile, the company's LTE pricing is generally 25-40 percent above its 3G offers. For example, its most compelling LTE plans are priced at $50 to $70 vs. $40 to $50 for its most popular 3G plans.
"Despite this improved plan mix, we are modeling only 2% growth in ARPU next year. This is arguably the most conservative metric in our model as only 8% of PCS's subs are currently on LTE plans," the analyst said.
Moreover, the company's most immediate strategic priority is gaining access to new spectrum, primarily to support its LTE network. The company currently has a paired 5x5 MHz AWS-1 spectrum configuration dedicated for LTE in most its markets and expects to offer LTE service to 97 percent of its footprint by the third quarter of 2012, up from 90 percent as of June.
It also expects to gradually re-farm its 1900 MHz spectrum bands as it transitions its CDMA subscribers to VoLTE starting late this year.
"We believe this network deployment, along with its microwave backhaul upgrade and ongoing site densification, will provide PCS with sufficient LTE capacity and competitive 4G data speeds into late 2014," Feldman said.