August 3, 2010 / 10:32 PM / 7 years ago

UPDATE 4-Leap results disappoint, plans improvement

* Loses customers, analysts expected gain

* Q2 loss/shr $0.24 vs est. $0.23

* Q2 rev $633.5 mln vs est. $671.8 mln

* Shares fall nearly 5 pct after-hours, extending decline

(Adds details on churn, co's name change plans)

NEW YORK/BANGALORE, Aug 3 (Reuters) - Low-cost wireless carrier Leap Wireless LEAP.O posted a wider-than-expected quarterly loss as customers quit its service, prompting a sell-off in the shares despite the company's plans to improve sales.

Leap said it lost a net 112,000 customers in the second quarter, surprising analysts who expected a gain in customers.

Leap said it plans to stem such losses and unveiled a plan to launch more smartphones and rent network space from bigger rival Sprint Nextel (S.N) so it could offer nationwide wireless services. It also tweaked its service pricing.

"Customer results encountered seasonal challenges, but we believe business model changes will address key issues experienced in the quarter," Chief Executive Doug Hutcheson said.

But the changes were not dramatic enough to impress investors and the shares fell 4.8 percent to $11 after-hours. That was in addition to the 5.8 percent decline during normal trading on Nasdaq after the company flagged the weak results at an analyst day event.

Roe Equity Research analyst Kevin Roe expected Leap to add 193,000 customers in the quarter.

"It was materially worse than expectations," said Roe referring to the subscriber numbers. "The changes they made were necessary but as long as they're a follower and not an innovator they'll continue to lag peers ... Things aren't going to get easier."

Roe said the best thing Leap could do to recover is merge with rival MetroPCS PCS.N. Analysts have long expected the companies to merge but that they have not been able to agree on the terms of a deal.

Leap also competes with Sprint-Nextel unit Boost Mobile and America Movil's (AMXL.MX) (AMX.N) Tracfone.

"This (report) makes a combination with MetroPCS even more necessary," Roe said.

Later this year, the company plans to change its corporate name from Leap Wireless to Cricket, given its planned investments under the brand.

Leap posted a net loss of $19.3 million, or 24 cents a share, compared with $61.2 million, or 89 cents a share, a year ago. Analysts expected a second-quarter loss of 23 cents a share, according to Thomson Reuters I/B/E/S.

Revenue rose 6 percent to $633.5 million but lagged analyst expectations for $671.8 million.

Leap's churn rate, a measure of customer cancellations, was 5 percent for the quarter, up from 4.4 percent a year ago.

The churn rate was higher due to the impact of less-tenured customers, including those of the Company's newer Cricket Broadband and Cricket PAYGo services businesses, the company said.

Nearly 75 percent of the broadband customer base is less than six months old and less tenured customers have a greater tendency to churn, the company said, adding that it expects the second quarter to be the softest quarter for net additions in 2010.

The company said it expects customer dropouts to begin to decline as it adds new devices and launches fresh service plans.

Leap said it has entered into a five-year deal with Sprint, which will allow its prepaid mobile services brand named Cricket to offer products and services over Sprint's 3G network throughout the United States.

It also said it intends to launch a total of 15 new devices, including Research in Motion's RIM.TO RIMM.O BlackBerry Curve and Kyocera's (6971.T) Sanyo ZIO, by the end of the year.

Leap said it expects increasing penetration of smartphones and new broadband pricing to continue to lift its average revenue per user (ARPU) into 2011. [ID:nWNAB2975]

Reporting by Manasi Phadke in Bangalore and Sinead Carew in New York; Editing by Bernard Orr

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