Leap Wireless Strategy Paying Off

After a gap of two consecutive quarters, Leap Wireless International Inc. (LEAP), a small-sized prepaid wireless services provider in the U.S. operating under the brand name “Cricket,” has generated net customer additions in the fourth quarter of 2010.

This turnaround was mainly due to management’s strategy to introduce high-end smartphones, especially those running on Android operating system of Google Inc. (GOOG). The company sold 400,000 Android-based smartphones during the fourth quarter of 2010.

The smartphone market is highly lucrative and offers sustainable growth and margin improvement. One of the significant features of the Leap Wireless service is the smartphone, which requires no contract, while for all other national wireless carriers, it is first required to enter into a service plan. We believe the launch of a series of smartphones was a desperate attempt by management to revive the company’s financial position.

As the prepaid wireless market is becoming more competitive, Leap is suffering asits major peers such as Metro PCS Communications Inc. (PCS), Boost Mobile, a subsidiary of Sprint Nextel Corp. (S), and Tracfone, a subsidiary of America Movil SAB (AMX), continue to attract subscribers with their competitive service plans, greater network coverage and better product offerings.

During the fourth quarter of 2010, Leap Wireless gained approximately 435,000 customers including 115,000 net customer additions and 320,000 former customers of Pocket Communications with which Leap Wireless formed a joint venture in last October. The company’s net customer additions for the fourth quarter include 162,000 voice net customer additions and a net loss of 48,000 broadband customers.

Total net customer additions in 2010 reached approximately 249,000. At the end of 2010, Leap Wireless had around 5.53 million subscribers, up 12% year over year. Customer churn rate in the fourth quarter of 2010 was 4% compared with 4.7% in the prior-year quarter and 5.5% in the previous quarter.

Leap Wireless remains one of the low cost wireless service providers in the U.S., which enables it to roll-out a range of cheap service plans that start as low as $35 per month. The company has strategic plans to expand coverage in urban and suburban markets and avoid less populated areas to keep its infrastructural cost low. After establishing its network in a new market, the company will promote its services mostly through less expensive media.

Recently, Leap Wireless has decided to offer unlimited music download facilities to its 3G wireless subscribers. The new digital music service will be called “Muve Music.” The company is the first wireless service provider in the U.S. to launch this innovative music service.

With a  minimum  service plan of $55, Cricket customers will get a combined package of voice, data and text together with unlimited music download on the nationwide 3G network of Leap Wireless.

LEAP WIRELESS (LEAP): Free Stock Analysis Report

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1 Comment on Leap Wireless Strategy Paying Off

  1. I’m a tracfone fan, but really, it’s nice to see prepaid getting some love. The idea of getting bills with crazy charges and having to sign a contract is crazy. It’s about time America got with it.

    I get great coverage and never get a bill. Great value too.

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