MetroPCS (NYSE: PCS) had a darn good fourth quarter, with its earnings beating analysts' estimates by 56%. Maybe it wasn't Apple (Nasdaq: AAPL) spectacular, but it made a good impression nonetheless, causing its share price to surge more than 13% after the company released its earnings statement.
Earnings for quarter one, though, are not expected to cause the same reaction. Twenty-five analysts polled by BusinessWeek expect the carrier to earn just $0.18 a share, down 28% from the last quarter's $0.25.
MetroPCS' business model is different from that of the four so-called Tier 1 wireless carriers. It provides only prepaid month-to-month mobile services, compared twith the post-paid long-term contract services that Verizon (NYSE: VZ), AT&T (NYSE: T), Sprint Nextel (NYSE: S), and T-Mobile primarily rely on. Since MetroPCS subscribers pay all or most of the price for their handsets, the carrier is free from making profit margin-shaving subsidizing deals to carry the high-end smartphones, such as the carriers that wish to carry Apple's iPhone must do.
During last quarter's conference call, MetroPCS COO Thomas Keys revealed another part of the equation for the company's good fortune. The "secret sauce," according to Keys: "We see people 12 times a year. It helps us sell more phones because a lot of people come into the store to make payments with somebody else who's not presently a customer. That works on the viral nature of how we advertise, at how we move a product."
The MetroPCS way, though, places a premium on the carrier's ability to provide phones at the lowest price point to pull in customers. One of the challenges now facing MetroPCS is being able to provide 4G LTE handsets at an affordable cost. MetroPCS Chairman and CEO Roger Linquist said during that same conference call: "We are quite simply moving the industry in the direction of low-cost 4G LTE handsets. We will continue to ... push for more affordable, high-performance handsets."
How close the company has gotten toward its goal of being able to charge its claimed $99 to $149 sweet spot for a 4G LTE phone with no, or little, subsidizing, is something that could determine how well it will do in the quarters to come.
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