LEAP’s ‘National’ Strategy Should Create Minimal Channel Conflict With PCS

Analysts at Deutsche Bank maintain their "buy" rating on MetroPCS Communications PCS. The target price for PCS is set to $14. Deutsche Bank says, “LEAP reported a substantial 2Q miss including a net loss of 73k voice subs vs. consensus for a net gain of 67k. Based on the commentary by LEAP management during its analyst meeting yesterday, we believe this miss was mostly due to internal issues. These include a stale pricing structure (i.e. no “all-inclusive” plans), inventory shortages and branding challenges in newer markets. This is a stark contrast with the trends we identified during 2Q for PCS through more than 80 store checks. Unlike LEAP, PCS has been offering all-in plans (i.e. all taxes and fees included within the advertised rate) since January with a unified marketing campaign across all markets.” The analysts add, “LEAP also disclosed a new wholesale agreement with Sprint, which will allow the carrier to offer its Cricket-branded voice/data services nationwide, including in PCS’ markets. LEAP does not expect to launch this ‘national’ strategy until 2011 and will limit its out-of-region offers to major retail channels. Historically, PCS has generated an immaterial portion of sub growth from these channels, such as Walmart and Best Buy, so we see limited competitive impacts from LEAP’s planned resale offering. Furthermore, LEAP expects to pursue a pricing strategy designed to drive higher ARPU, so we do not expect the carrier to under-price PCS (which in any case maintains a cost advantage in-region vs. LEAP by virtue of operating its own network).” More Analyst Ratings here