MetroPCS, Leap fall on concern about competition

Shares of MetroPCS Communications Inc. and Leap Wireless International Inc. sank Wednesday after an analyst said the companies face a great deal of competition.

Competition in the unlimited prepaid market will increase significantly over the next year, Pali Research analyst Walter Piecyk wrote in a note to investors. Meanwhile, the market opportunity for wireless voice revenue in the U.S. has already reached its peak and is gradually declining, he said.

Unlike other companies in the industry, MetroPCS and Leap have targeted landline replacement users with simple and affordable rate plans, Piecyk said. But expected competition from carriers like T-Mobile USA Inc., Sprint Nextel Corp. and America Movil SA, the Mexico-based parent of U.S. prepaid service TracFone, will have a significant impact on their growth, he said.

"It is disappointing to us to have to make this call given our high respect for the MetroPCS management team," Piecyk said, but given the competitive pressure, "the risk of owning either of these stocks however is just too great."

TracFone poses the biggest threat as it plans to launch an unlimited rate plan under the Verizon Wireless brand, which will likely "stun industry participants," he said.

Piecyk initiated coverage of MetroPCS with a $9 price target, and Leap with a price target of $16 and assigned a "Sell" rating to both stocks.

Shares of MetroPCS lost 74 cents, or 5.6 percent, to $12.57 in afternoon trading, while Leap shares fell $2.92, or 9 percent, to $30.