UPDATE 3-MetroPCS net profit falls 65 pct, revenue growth slows

Tue Feb 26, 2013 1:08pm EST

* Fourth-quarter profit $0.09/share vs estimate of $0.11

* Revenue $1.28 bln, in line with estimates

* Expects 2013 capex of $800 mln-$900 mln

* Says confident shareholders will OK T-Mobile USA deal

Feb 26 (Reuters) - MetroPCS Communications Inc's quarterly net profit fell 65 percent and revenue growth slowed for an eighth straight quarter as the wireless service provider lost customers ahead of its proposed merger with Deutsche Telekom AG unit T-Mobile USA.

MetroPCS shares edged lower in early afternoon trading after the results on Tuesday, but investors focused mainly on whether MetroPCS will be able to complete the T-Mobile USA deal, which needs regulatory and shareholder approval.

The company, which is facing opposition from at least some shareholders who are waging a proxy battle, told analysts on its quarterly conference call that it is "highly confident" the T-Mobile USA will be approved at its shareholder meeting on March 28. Analysts expect regulators to give the deal their blessing.

MetroPCS said subscriber numbers on its older CDMA network suffered while it focused on expanding its newer high-speed wireless service based on Long Term Evolution technology. It plans to phase out the older service after the deal with T-Mobile USA, which is also betting its future on LTE.

Guggenheim Securities analyst Shing Yin said it made sense for MetroPCS to operate as if the deal will be approved as he believes that the odds it gets voted down is "pretty low."

"The results alone wouldn't cause shareholders to be more positive or negative about the deal," Yin said.

On top of its technological strategy change, MetroPCS, which serves cost-conscious consumers who pay for calls in advance, also said it was facing increasing competition and economic pressure. It announced in January that it lost a net 93,000 subscribers in the quarter.

The report comes a week after another prepaid service provider, Leap Wireless, posted huge customer losses, citing softness in the prepaid market and an increase in its phone prices that drove some customers away..

But while MetroPCS also cited economic issues, executives told analysts that its business might not be the best measure of industry health because its weakness was largely due to strategy changes.

Guggenheim's Yin said it was too soon to say whether this was an indication of general weakness in the market, even though the fourth quarter is usually strong for prepaid operators because consumers shop for phones in the holiday season.

WEAK RESULTS/PROXY BATTLE

MetroPCS earnings fell to $31.7 million, or 9 cents per share, in the quarter ended Dec. 31, from $91.3 million, or 25 cents per share, a year earlier.

Earnings per share fell short of Wall Street expectations for 11 cents per share, according to Thomson Reuters I/B/E/S. Revenue rose 4 percent to about $1.28 billion, in line with analyst expectations.

MetroPCS said it expects its deal with T-Mobile USA to close in early April.

It agreed in October to a reverse merger deal with T-Mobile USA that would leave Deutsche Telekom with a 74 percent stake in the combined company. Under terms of the deal, MetroPCS will declare a 1-for-2 reverse stock split and pay $1.5 billion to its shareholders.

P. Schoenfeld Asset Management LP, an investment adviser to shareholders holding about 2 percent of MetroPCS shares, has said it intends to vote against the merger due to the deal valuation and the high debt levels of the merged company. It is leading a proxy battle against the deal.

Another shareholder, Paulson & Co, has also criticized the terms of the deal but has yet to announce how it will vote.

MetroPCS said it expects capital expenditure of $800 million to $900 million this year.

Shares of the company fell 5 cents, or 0.51 percent, to $9.71 on the New York Stock Exchange early Tuesday afternoon. The stock is almost 16 percent lower than it was before it emerged that T-Mobile USA and MetroPCS were planning a deal.

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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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