How MetroPCS Pulled Off the Year's Biggest Telecom IPO

MetroPCS Wireless Inc. is still the telecom industry’s biggest IPO of the year. The company in mid-April wowed Wall Street with one of the largest IPOs since 2004.

The company debuted on the Nasdaq with 50 million shares priced at $23 each, for a total offer value of $1.15 billion. At press time three months later, the stock remained just shy of $40 per share.

The company’s target demographic is ethnic minorities, immigrants and people with bad credit.

While targeting those with bad credit has been the downfall for some MVNOs of late, that’s clearly not the case for MetroPCS. The company is thriving because it relies on its own network and only builds out as it can afford it. Additionally, forcing customers to pay upfront assures the provider of collecting its money, rather than falling into the Amp’d Mobile trap of having to chase delinquent subscribers. And equipment costs less than it did when other cellcos were building their networks.

The company has parlayed these positives into cheap, unlimited usage plans for customers. The drawbacks are that MetroPCS can’t offer the quality of service that companies such as Verizon Wireless can, because it owns fewer cell sites and covers less area. But MetroPCS users favor price over quality, so if they have to return a dropped call, it’s no big deal, says analyst Michael Nelson of Stanford Group Co., a financial services company with an investment advisory arm.

“They have exceeded expectations — significantly exceeded expectations — thus far,” Nelson says.

MetroPCS recorded $536.69 million in revenue and $218 million in gross profit for the first quarter of 2007 alone. In all of 2006, when it still was privately held, the company said it brought in $1.5 billion in revenue and $624.7 million in gross profit. The provider was scheduled to release its second-quarter earnings after this issue had gone to print.

Dallas-based MetroPCS serves 3.4 million customers in Atlanta; Dallas/Ft. Worth; Detroit; Miami, Orlando, Sarasota and Tampa, Fla.; and Sacramento and San Francisco, Calif. It also is launching in Los Angeles and will expand into Boston, Las Vegas, New York City and Philadelphia, thanks to the Advanced Wireless Service (AWS) spectrum it won in last year’s FCC auction.

This was the year for MetroPCS to go public because consolidation has led to rational pricing, Nelson says. With wireless telecom stocks performing “extremely well,” the timing was right.

As they say, timing is everything. MetroPCS tried going public before — once in 1997, under the name General Wireless Inc., and again in the summer of 2004. General Wireless went bankrupt and emerged as MetroPCS, which halted its intended 2004 IPO because of accounting problems that revealed lower profits and sales than believed.

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