The Little $1bn+ IPO That Could, MetroPCS

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Second time's the charm for once bankrupt local wireless provider MetroPCS (PCS), which had to cancel its initial IPO plans in 2004 because of pesky accounting issues. The $1bn+ MetroPCS IPO today, however, stands as the largest US telco IPO of the 21st century. Let's wish it a better fate than Vonage.
Despite a slightly down day in the market, the MetroPCS IPO priced at $23, well above its target range of $19-$21. The stock is currently up over 15% to around the mid $26 range. The 50 million shares in the IPO are poised to raise well over the targeted $1.15bn in proceeds for the company. Shares of MetroPCS’ primary comparable, Leap Wireless (LEAP) are down slightly at $75 a share.
The big names on the S-1 are Bear Stearns, Banc of America Securities, Merrill Lynch and Morgan Stanley while the tiny names are UBS, Thomas Weisel, Wachovia and Raymond James. Goldman and JPMorgan are written in invisible ink.
The risk factors section of the S-1 is nearly 20 pages long, and always contains that jarring first risk, usually along the lines of “A meteor may hit the earth and our company will inevitably fail because everything we do is questionable.” In this case, it’s the rather direct, “Our business strategy may not succeed in the long term.” Fair enough, but some “risky” highlights:
-Along with current wireless, VoIP and MVNO (mobile virtual network operators (the Boosts and Virgin Mobiles of the world) providers, MetroPCS faces emerging competition from WiMax and 700MHz band next-gen networks in development from the Googles of the world.
-Spectrum, spectrum, spectrum. As more companies want it and bid on it, spectrum is increasingly expensive, and MetroPCS can be outbid by the big boys in the future. The company had to raise $1.6bn last time it acquired significant spectrum rights, to gain access to the NY, Las Vegas, Phili and Boston metro areas, which was an insta-leverage pop of over 4x. Although Adj. EBITDA has grown an average of 40% over the past two years, future acquisitions of spectrum, and fully developing the areas within the current domain the company paid for, may require raising money that places significant leverage on the company (although the $1.15bn+ raised in the IPO won’t hurt). Some good news for margins – the % increase in ARPU (Avg. Revenue Per User) is outpacing the % increase in CPU (cost per user). Since 2006, ARPU increased by 4.5%, while CPU increased by 3.6%.
One of the things that jumped out while looking through the S-1 is that MetroPCS is still waiting to fully realize growth from its “expansion markets,” which created a near $100mm negative hit to EBITDA in 2006. Penetration of MetroPCS expansion markets, which include Tampa/Sarasota, Dallas/Ft. Worth, Detroit, Los Angeles, Orlando and portions of northern Florida has been met with assorted legal stroppiness from Leap, as well as other local players.
MetroPCS marks first IPO of '07 to top $1 bln – [MarketWatch]
Metro PCS S-1 [SEC]
Telecom: Up From The IPO Ashes – [BusinessWeek]

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