MetroPCS Case Study
Snapshot: MetroPCS, the nation’s leading provider of unlimited wireless communications service for a flat rate with no signed contract, represents M/C’s largest investment to date -- a total of $83M from 2000 to 2003. At the time of M/C’s initial investment, MetroPCS was preparing to exit bankruptcy and required funding to execute on its bold and disruptive strategy for shaking up the wireless industry with unlimited minute, flat rate pricing. When most investors believed that the wireless market was too saturated to support a new entrant, M/C was aligned with founder Roger Linquist’s vision that a new operator offering a differentiated strategy could not only survive, but flourish. While other investors had less conviction, M/C stepped in as lead investor in a $350 million round of financing that fully funded the Company’s initial market build outs of Miami, Atlanta, San Francisco and Sacramento. MetroPCS launched in March 2002 and went on to become the fastest growing wireless company in the industry’s history and eventually going public in April 2007. With more than three million subscribers today and revenues of $551 million for Q2 ‘07, the Company plans to expand into additional key markets, including New York, Boston, Philadelphia and Las Vegas starting in the 2008-2009 timeframe.
MetroPCS Communications, Inc. (NYSE:PCS)
8144 Walnut Hill Lane Suite 600
Dallas, TX 75231
www.metropcs.com
Roger D. Linquist
Chairman of the Board and CEO
214-265-2551
rlinquist@metropcs.com
Industry sector: Wireless Telecommunications
Number of employees: Approximately 2,000
M/C partners:
Jim Wade was the lead M/C Venture Partners investor in MetroPCS in 2000. From the time of the original investment through November 2007, Jim was an active member of the board of directors. Brian Clark joined M/C in 2001 and became an observer on the MetroPCS board of directors until the Company’s IPO on April 19, 2007.
Services, Market Segment:
MetroPCS is the nation’s leading provider of unlimited wireless communications service for a flat rate with no signed contract. This service is aimed at cost-conscious, high-volume minute users and is a good option for customers with big wireless bills. Eighty percent of the Company’s customers use wireless phones as their primary phones – and many do not have landline phones at all.
M/C investment:
MetroPCS represents M/C’s largest investment. From July 2000 and over three subsequent years M/C invested a total of $83M in Series D funding over two of its funds. M/C was the largest and lead investor in the initial $350M round of financing.
Challenges:
March 2000 was a difficult point in the capital market. Deregulation had led to a flood of new, smaller telephone service providers and many of them were in trouble. MetroPCS had been in bankruptcy and was emerging from it. There was still a federal appeals process going on and there was a risk that the FCC would recapture Metro’s license. While there was no specific precedent for this happening, there was no guarantee that this appeal would work in Metro’s favor.
In addition, Metro’s business model was largely unproven. However, it targeted a niche in the wireless market that was largely underserved. M/C saw a lot of room in that niche and saw the value of going after it. So even though wireless communications was a very competitive industry, M/C took a risk.
Solution, results, benefits:
In its role as a lead investor in MetroPCS, M/C helped form a syndicate of investors that would ensure enough funds for the Company to build out its market in areas where it had the spectrum. M/C also assisted the Company in getting a top-notch management team in place that had the skills to take full advantage of the underserved market. As an active member of Metro’s board of directors, M/C was able to provide key strategic advice. The Company built out its markets and launched its services in March 2002.
Metrics:
MetroPCS went on to great success, building its markets and going public on April 19, 2007. With more than three and half million subscribers today, the Company is continuing to build on its success. In Q3 results announced November 2007, the Company had an Adjusted EBITDA of $184M, up 70 percent over Q3 2006. It also announced quarterly service revenues of $489M, up 47 percent over Q3 2006. MetroPCS currently owns or has access to wireless licenses covering a population of approximately 140 million in the United States, including 14 of the 25 largest metropolitan areas in the country. As of September 30, 2007, the Company had launched service in eight of the 25 largest metropolitan areas covering a licensed population of approximately 39 million, and had more than 3.6 million total subscribers.
Future directions:
MetroPCS started in South Florida and Northern California and then expanded to Dallas, Detroit, Los Angeles, Tampa and Orlando. It will be expanding further to New York, Boston, Philadelphia, and Las Vegas in the late 2008, early 2009 timeframe.
From the CEO:
“M/C’s belief in our business strategy and leadership in the key initial round of funding was a critical factor in our success. With their backing, we were able to make our vision of unlimited wireless communications service at flat rates with no signed contract a reality,” said Roger Linquist, MetroPCS Chairman of the Board and CEO. “M/C helped us prove that a new player with a different approach can produce superior results and achieve market leadership, regardless of the competition”
M/C’s Role in creating an “Unlimited Category”:
Building on the success of the MetroPCS strategy and consistent with its thesis driven approach, M/C has made subsequent investments in three additional regional operators executing on the flat rate, unlimited business model. These investments include lead or co-lead roles in Revol Wireless in the Midwest; MobiPCS in Hawaii; and Open Mobile in Puerto Rico.
