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Feb. 26, 2010

Leap Wireless posted a larger fourth-quarter net loss yesterday as expenses grew even more than anticipated.

To be sure, Leap posted a net loss of $61.9 million, or 82 cents per share compared with a loss of $55.6 million, or 82 cents per share, in the same 2009 period.

Overall, Leap had more outstanding shares in the latest quarter, which lowers per-share results.

Revenue rose 16 percent to $599.3 million from $518.9 million. On average, wireless industry analysts were expecting a loss of 65 cents per share on revenue of $633.7 million.

The quarter's operating costs rose 15 percent to $593 million. Leap added about 298,000 net new mobile customers during the quarter, bringing its total users to almost 5 million at the end of the period.

Revenue rose 22 percent to $2.38 billion. Doug Hutcheson, the company's president and CEO, said Leap expects its churn (customer turnover rate) to remain higher than historical levels over the short term.

For the full year, the company posted a loss of $239.5 million, or $3.30 per share, compared with a loss of $150.2 million, or $2.21 per share, in the previous year.

But Hutcheson added that the company is looking forward to "improved performance over the long-term due to expected improvements in customer tenure in our newly launched markets, potential lower unemployment levels among our customer base and the impact of new enhancements we are introducing."

These include an expanded calling footprint and the launch of a BlackBerry device and an Android phone later in the year, the company said.

Shares fell 19 cents to $14.60 in after-hours trading. The stock had closed up 19 cents at $14.79.

A few weeks ago, some rumors suggested that Leap Wireless could be in the market to sell its business or possibly merge with another wireless carrier.

The Wall Street Journal is saying that Leap has hired a few advisers and formed a special board committee to evaluate its options.

Citing some individuals familiar with the matter, the Journal says Goldman Sachs was hired to advise Leap Wireless as it looks at its various options.

The concept of Leap Wireless selling its business or otherwise merging with another mobile carrier comes up quite frequently.

In September of 2007, the company rejected an unsolicited proposal from MetroPCS Communications to merge.

Then a year later, the two reached a national roaming agreement and settled litigation related to intellectual property.

A Leap Wireless spokesman said the company doesn't comment on rumors or speculation.

According to the WSJ, Leap's advisers have been "testing the waters" of larger wireless carriers such as AT&T and Verizon Wireless to see if they would be interested in acquiring the company.

If merger talks were to progress further, any transaction would likely face tighter scrutiny by the FCC than years past. The largest wireless carriers already have acquired many smaller ones – through deals approved by previous commissions – and the current composition of the FCC has signaled an aggressive stance in overseeing the competitiveness of the mobile service industry.

According to the WSJ, Leap's committee to assess strategic options includes Ronald Kramer, William Roper and former CEO of Nextel Partners John Chapple.

Leap reports its fourth-quarter results on Feb. 25.

At the end of the 2009 third quarter, the no-contract carrier reported about 116,000 net new customer additions.

Leap stock was up about 13.2 percent yesterday after the Wall Street Journal reported that the company is once again exploring its merger options. The stock is down a bit today, however.

Similarly, Verizon Wireless and AT&T Mobility are often mentioned as likely partners, but both mobile carriers would face increased scrutiny from federal regulators who already worry too much that the nation's No. 1 and No. 2 operators have too much influence in the wireless industry.

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Source: Leap Wireless.