MetroPCS new broader strategy faces pitfalls

The evolution of MetroPCS from the carrier of people with “no choice” to those “with choice” is experiencing some growing pains. Today the operator reported just 69,000 net subscriber adds and a chilling 70-basis-point increase in its churn rate. MetroPCS has begun offering smartphones, new data services and even an LTE network, drawing in new customers in droves. The problem is they don’t seem to be sticking around very long.

Still, part of the strategy MetroPCS chief operating officer Tom Keys outlined last week at 4G World seems to be working. During his opening keynote address, Keys detailed how Metro is expanding beyond the traditional demographic of prepaid. Rather than merely attracting customers who can’t afford the premium plans of the nationwide operators or who can’t pass a postpaid credit check—the consumers with no choice—MetroPCS, Keys said, is increasingly signing up consumers who have the option and resources to go with traditional postpaid operator but choose not to, whether their reasons are price or flexibility (CP: MetroPCS plays the equal-opportunity operator).

MetroPCS has been executing that strategy in bits and pieces for the last two years, introducing nationwide voice plans through roaming agreements, launching LTE and procuring smartphones to capture the critical data segment and bring to market premium services like Rhapsody. Only three full quarters after introducing its first Android device, some 30% of Metro’s customer base uses a smartphone. MetroPCS is also adding new smartphone customers at an equally rapid pace. In Q3, 46% of all sales were Android devices. It’s also enjoyed a revenue boost from all of those new data subscribers. Average revenue per user rose $1.11 per month year over year and 31 cents quarter over quarter to $40.80.

Before last quarter, Metro was on pace to add almost 2 million subscribers this year, a tremendous feat considering it has just short of 10 million total subs today.

The problem is there is a mismatch between the two halves of its data strategy. LTE was supposed to be its data network, standing in for the 3G network it never built. But Metro remains an operator focused on the budget minded. Since CDMA-only smartphones are a lot cheaper than dual-mode LTE devices, Metro’s customers have gravitated toward the former. Metro’s 1X data network can’t support the kinds of high-bandwidth apps smartphones were designed for.

Are customers buying up CDMA smartphones, becoming disappointed by the 2G speeds and then cutting loose to join a nationwide operator for the price of a subsidized device? It’s hard to say, but customers are definitely leaving and these smartphone customers seem to be the ones “with choice” that Metro is now targeting. Metro’s churn rate for the quarter was 4.5%, up from 3.8% last year and from 4% in the previous quarter. MetroPCS attributed the spike to normal seasonality, the prevailing economic conditions and “other factors.”

Metro is trying to bridge the disconnect between its network and devices. Last month, it revealed it would begin adding EV-DO carriers to its CDMA network, taking a step back in its 4G strategy (CP: After skipping 3G for LTE, MetroPCS moves back to EV-DO). EV-DO, however, will give it access to cheaper smartphones—really the same devices it already uses—while providing a much more tolerable mobile data experience.

But the real key for Metro is to secure cheap LTE phones. It is aiming to sell Android devices with all of the usually bells and whistles for a price point of $99. MetroPCS, however, doesn’t expect smartphones to fall to that price level until the latter half of next year.