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MetroPCS IPO up sharply in market debut

NEW YORK (Reuters) - Shares of wireless service provider MetroPCS Communications Inc. PCS.N rose 20 percent in their U.S. market debut on Thursday as investors jumped to take a stake in a fast-growing niche in the telecom market.

SurTerre Research analyst Todd Rethemeier said the $1.15 billion initial public offering generated huge interest because MetroPCS is a good growth story, like its rival Leap Wireless International Inc. LEAP.O

“People have seen the success Leap Wireless has had, and they wanted a piece of that,” Rethemeier said, though he questioned whether the current share price was sustainable, because it gives MetroPCS a richer valuation than Leap.

The IPO price of $23 a share is 12.6 times Rethemeier’s estimate for MetroPCS’s 2008 earnings before interest, tax, depreciation and amortization, and compares with 12.1 times for Leap, Rethemeier said in a note to clients.

Both MetroPCS and Leap serve the market for cell phone users who may not have a good enough credit rating for bigger telecom operators such as AT&T Inc. T.N or Verizon Wireless, a venture of Verizon Communications VZ.N and Vodafone Group Plc VOD.L.

MetroPCS’s 50 million share offering, the biggest IPO of the year in terms of deal value and the largest telecom or technology IPO since 2004, was priced above the forecast range of $19 to $21.

The stock closed up 19 percent at $27.40 after rising as high as $27.61 on the New York Stock Exchange.

Rethemeier officially started coverage of the stock with a ‘hold’ rating, saying that while he liked the company’s prospects, he thought it fairly valued at its IPO price.

Leap shares appeared to have been boosted by the MetroPCS debut, finishing up $2.10 or almost 3 percent at $77.38.

FAST GROWTH RATE, PROFITS

In the market served by MetroPCS and Leap, the number of subscribers increased 33 percent in 2006, compared with total U.S. wireless subscriber growth of 12 percent, according to Rethemeier.

Investors may have been spooked by troubles at other companies that serve such customers, particularly lenders who provided mortgages to people with poor credit histories and have been hurt by rising defaults.

But telecom providers in this market are still drawing investor interest.

Part of the reason for this is that MetroPCS and Leap customers pay for calls in advance, which helps mitigate bad debt risks, analysts said. Many also have no home phones, which makes them likely to maintain their mobile service even if they fall on hard times.

MetroPCS is among a small group of pure wireless investment plays that include Sprint Nextel Corp. S.N and Alltel Corp.

AT.N.

Its debut is in sharp contrast to that of Clearwire Corp. CLWR.O, a high-speed wireless Internet provider whose shares fell as much as 2 percent on its debut. They rose 7.91 percent to $17.74 on Thursday, which compared with their IPO price of

$25.

Analysts said investors saw Clearwire as a risky bet because it has yet to turn a profit, whereas MetroPCS was better established.

“It makes all the difference in the world that this company is profitable,” said Ben Holmes, publisher of Morningnotes.com, an independent research firm based in Boulder, Colorado.

MetroPCS earned almost $54 million in 2006 on more than $1.5 billion in revenue and has remained in the black since first offering services in 2002.

Some investors may also be betting on a further boost from MetroPCS if it ends up merging with Leap, as some analysts have speculated, because companies have similar business models and operate in geographic markets with little overlap.

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