TMUS

Business Context and Reporting Period

This Form 10-Q is filed by MetroPCS Communications, Inc. for the quarterly period ended June 30, 2009. MetroPCS is a wireless telecommunications carrier operating in major U.S. metropolitan areas. The company aggregates its operations into two reportable segments: Core Markets (established markets) and Northeast Markets (newly launched markets including Boston, New York, and Philadelphia). The filing includes unaudited condensed consolidated financial statements.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 27% year-over-year for the three months ended June 30, 2009, driven by a 28% increase in service revenues. This growth was fueled by net customer additions of 205,585 in the quarter and the launch of services in the Northeast Markets.
• Profitability Decline: Net income decreased 48% to $26.2 million for the quarter compared to $50.5 million in the prior year period. This was primarily due to a 54% increase in interest expense and a 15% decrease in income from operations.
• Interest Expense: Interest expense rose significantly to $70.5 million (quarterly) due to the issuance of $550 million in new 9 1/4% Senior Notes in January 2009 and increased capital lease obligations.
• Segment Performance: While Core Markets Adjusted EBITDA increased 27% to $294.0 million, the Northeast Markets reported an Adjusted EBITDA deficit of $60.2 million due to heavy launch and ramp-up costs.
• Customer Metrics: Total customers reached 6.26 million. Average Revenue Per User (ARPU) declined to $40.52 from $42.05, attributed to higher participation in Family Plans and reduced revenue from a la carte features.

Guidance, Outlook, Risks, and Unusual Items

• Capital Expenditure Outlook: Management expects consolidated capital expenditures for the full year 2009 to range between $0.7 billion and $0.9 billion, focusing on network build-outs to cover approximately 40 million people.
• Auction Rate Securities (ARS): The company holds $133.9 million in principal of ARS which have experienced failed auctions since July 2007. The estimated fair value at June 30, 2009, was only $3.8 million. The company recorded an impairment charge of $0.5 million for the quarter and $1.5 million for the six months. Full recovery is deemed not probable.
• Liquidity and Debt Covenants: The company maintains a senior secured leverage ratio of 1.88 to 1.0 (well below the 4.5 to 1.0 covenant limit). Management believes existing cash and operating cash flows are sufficient to fund operations and expansion despite volatile credit markets.
• Regulatory Risks: The FCC is expected to issue new backup power rules following a court vacatur of previous rules, which could require additional capital expenditures.
• Unusual Items: A loss on disposal of assets of $14.0 million was recorded in the quarter, primarily due to retiring older network technology.

Key Facts for Investor Verification

• Debt Structure: Verify the impact of the new $550 million Senior Notes issued in January 2009 on future interest obligations and cash flow.
• ARS Valuation: Monitor the valuation of the $133.9 million auction rate securities portfolio, as further impairments up to the full remaining value are possible.
• Northeast Market Ramp-up: Assess the timeline for the Northeast Markets to reach profitability, given the current significant Adjusted EBITDA deficit.
• Customer Churn: Review the increase in churn rates (5.8% in Q2 2009 vs. 4.5% in Q2 2008) and its impact on long-term revenue stability.
• Capital Expenditure Execution: Track actual capital spending against the $0.7 billion to $0.9 billion full-year guidance to ensure network expansion targets are met without over-leveraging.