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Executives

Amy Wakeham – Director Investor Relations

S. Doug Hutcheson – President, Chief Executive Officer & Acting Chief Financial Officer

Jim Seines – Vice President Investor Relations & Acting Director

Albin F. Moschner – Executive Vice President Sales & Marketing Operations

Glenn T. Umetsu – Executive Vice President & Chief Technical Officer

Analysts

Simon Flannery – Morgan Stanley

Romeo Reyes – Jefferies & Co

Scott Malat – Goldman Sachs

Analyst for Phil Cusick – Bear Stearns

Christopher Larsen – Credit Suisse

Steve Clement – Pacific Crest Securities

Leap Wireless International, Inc. (LEAP) Q1 2008 Earnings Call May 8, 2008 5:00 PM ET

Operator

Good day ladies and gentlemen and welcome to the first quarter 2008 Leap Wireless International earnings conference call. At this time all participants are in a listen only mode. We will be facilitating a question and answer session towards the end of today’s conference. (Operator Instructions) As a reminder, this conference call is being recorded for replay purposes. I will now turn your call over to Ms. Amy Wakeham, Director of Investor Relations.

Amy Wakeham

Good morning and welcome to Leap’s first quarter 2008 conference call. This call is being recorded and will be available for playback in the United States through the close of business on May 22nd by calling 1-866-286-8010. Callers from outside the United States will need to dial 1-617-801-6888. The passcode for both calls is 84394897. This conference call with the accompanying presentation is also being webcast live and will be available for replay on the investor relations section of our website at Investor.LeapWireless.com shortly after the completion of our live call.

Joining me on the call today to discuss our first quarter results are Doug Hutcheson, our President, Chief Executive Officer and Acting Chief Financial Officer and Jim Sienes, our Vice President Investor Relations and Acting Treasurer. Following our prepared remarks JD will come back on the line with instructions for the question and answer portion of the call. Al Moschner, our Executive Vice President and Chief Marketing Officer and Glenn Umetsu, our Executive Vice President and Chief Technology Officer will join Doug and Jim for the question and answer session.

The results that we discuss today including customer information reflect the consolidated results of Leap, its subsidiaries and its non-controlled joint venture LCW Wireless, LLC and Denali Spectrum, LLC for the periods indicated. Also, as used in today’s conference call and accompanying presentation the term new initiatives refers to the company’s new market launch activity and its mobile broadband offering. The term existing markets refers to the company’s markets in operation as of December 31, 2007.

During our call today we will discuss some non-GAAP financial measures. For a GAAP reconciliation of non-GAAP financial measures I would like to refer you to the notes to the financial statements contained in today’s earnings release and also to the financial reports page of the investor relations’ section of Leap’s website at Investor.LeapWireless.com. Turning to our forward statement slide I would like to remind you that statements made today that are not historical in nature including statements about future events and performance and statements including words like expects, plan, intend and other similar terms are forward-looking statements. Our actual results could differ materially from those stated or implied by such forward-looking statements. Factors that could cause actual results to differ from our forward-looking statements are detailed in the section entitled risk factors including in our annual report on Form 10K for the year ended December 31, 2007 and in our other publically filed reports including our Form 10Q for the quarter ended March 31, 2008 which we plan to file shortly.

For anyone listening to a taped or webcast replay or viewing a written transcript of our first quarter call, please note that all information presented is current only as of today’s date, May 9, 2008. The company disclaims any duty or obligation to update any forward-looking information whether as a result of new information, future events or otherwise.

With that, I would now like to turn the call over to Doug.

S. Doug Hutches

Thank you to all of you for joining us today. I appreciate both your flexibility and understanding on our call timing. Today we share our continuing progress in building our business with attractive, strong first quarter results. Total customers increased 21% year-over-year with the addition of 230,000 net new customers in the first quarter. Service revenues were up 24% year-over-year from the attractive customer growth and stable ARPU performance we’ve achieved. The business produced a 59% year-over-year increase in adjusted OIBDA, nearly $119 million representing both our progress on our existing business and with our new initiatives. Our existing business OBIDA grew 80% year-over-year reaching approximately $135 million as margin percentage increased to 34% up over 10 points year-over-year.

As we look at customer growth the business saw strong customer activity begin after Black Friday in the fourth quarter and as evidenced by these results it has continued. The 230,000 new customers added were across the business and delivered with both the expected ARPU and better than expected CPGA. Our first quarter results reflect typical customer buying patterns as well as the introduction of several new handsets. During the quarter we introduced the Cricket EZ handset, a new low cost handset that typically sells for less than $100 and is available to promote as low as $50. We also continue to see the progress with our footprint expansions which we’ll update you with our progress on this call.

As we look ahead we have several drivers of additional customer growth. First, our ongoing business execution, we continue to see and deliver attractive results. Next, our footprint expansion and an acquisition that we’ll share with you today have increased our ability to grow customers. We expect late in the second quarter and through the third quarter there may be a positive effect from the tax rebate and with the expected launch of eight million new markets this quarter we’ll begin to see contributions from the new market launches. As we discussed in today’s release we expect to have launched up to eight million new covered POP by the end of the second quarter. As the graph indicates, customer growth tends towards accelerating subject to some seasonality in the next few quarters after we launch new markets. Lastly, today we’ll share with you our initial forecast as we expand our mobile broadband initiative and it also begins to contribute to our growth.

Our business operates in the macro economy and we have from time-to-time seen effects on that as well as higher gas prices so as we look at these we’ll continue to monitor that closely and drive our business ahead. Churn performed as expected during the quarter at 3.6%. It was sequentially down as expected due to seasonal trends our business follows. Year-over-year first quarter churn performance improved before upgrades and tenure. We continue to see the programs that we’ve introduced have a good positive effect on our ability to manage churn. The progress we saw on customer tenure and upgrade activity has been consistent with our expectations and we expect the effect to work through the business by mid 2008 by our market launches we completed in 2006 and 2007. As we look ahead and with the new market launches that we shared with you today, we expect churn performance for those markets will follow performance similar to what we saw on our Auction 58 launches.

The business has demonstrated the ability to deliver not only attractive customer growth but we’ve also done this while demonstrating our ability to manage ARPU. Our ARPU is consistent with our expectations of about $45 and it was up nearly $6 since the first quarter of 2005. As we look ahead we expect ARPU to remain flat as we have previously disclosed. We’ve built an attractive value proposition over a range of price points. We continue to see good acceptance of our high value service plan offerings and have had success with targeted offers to address the by the minute category of customers we service as well. As we look at the competitive landscape we are pleased with the progress we’ve seen as pricing has remained rational and it’s allowed us to continue to drive our business ahead and we expect to balance the relationship between ARPU, customer growth and costs as we look ahead.

During the quarter the CPGA was ahead of our expectations with total CPGA at $159. These acquisition costs were primarily better as a result of lower than expected new store launch activity related to the footprint expansion we did during the first quarter, those costs we would expect to return in the second quarter. The new low cost handset I’ve discussed already provides an attractive vehicle for competitive promotional pricing without increasing our subsidy. In addition, we continue to gain momentum on our new initiatives. Our new initiative spend of $7 per gross add in the first quarter of 2008 relates to both our new market launches and the introduction and expansion of our mobile broadband initiative. As we look forward we expect 2008 CPGA trends to reflect our normal seasonal patterns.

Turning to CCU, it was consistent with our expectations for the quarter at $21.73. The existing business CCU performed as expected at $20.32. During the quarter we included the cost associated with the now more than 400 sites we’ve added on our footprint expansion which per every 100 sites increases our costs by approximately $1 million per quarter. In addition, we had higher upgrade activity which is seasonal as well as significant end of life handset purchases as we support those handsets in our aftermarket support. And, we continue to make progress on our market launch activity, these effects have been offset by the effects of scale. Our new initiative spend of $1.41 per user reflects costs associated again with our continuing new market launches and the introduction of our mobile broadband. We expect as we look ahead CCU will remain in the low $20 range through 2008 as we see our existing business CCU decline offset by the cost associated with the new initiatives.

As we look at customer profitability for the quarter we again delivered good performance. We maintained ARPU as a result of our new product offerings and the CCU performance was affected by the business expansion and as I discussed previously offset by the benefits of scale. And, we were successful in management of our acquisition costs. The existing business operating CCPU at the end of the quarter was $19.19.

Jim Seines

Turning to Slide 14, you can see that we significantly drove adjusted OBITDA during the first quarter of 2008 and saw good improvements in our operating margins. Adjusted OBTIDA margin improved by 6.5 percentage points year-over-year to approximately 30% on an as reported basis. Included in the reported adjusted OBITDA results is $16.3 million in spending for new initiatives which we have narrowed this quarter to represent negative OBITDA associated with the expansion of our business through both new market launches and our mobile broadband products. Excluding these costs adjusted OBITDA margin for existing business which now includes the cost associated with footprint expansion grew by nearly 11 percentage points year-over-year to 34% for the quarter.

Although margin for the non-product portion of costs of service remained essentially even with the prior period due to new initiative costs we continued to see an underlying margin improvement within our existing business due to ongoing cost reduction efforts in scale benefits. These improvements were enough to absorb increase in product related cost of service which is associated with costs of third party services enabling the delivery of value added services such as directory assistance, messaging, Web, roaming and ring back tones. The year-over-year improvement in our net equipment subsidy reflects both the introduction of activation fees for new customers which were not charged during the prior year period and the launch of the Cricket EZ handset in February of this year. The low cost handset which provides opportunity for competitive pricing will not negatively impact in subsidy.

The improvement in the sales and marketing margin of our existing markets reflects the benefit of scale on an expense line that is approximately two thirds fixed. During the quarter we saw significant improvement in our customer care and billing margins reflecting an expense that was essentially flat year-over-year even with the 563,000 increase in average customers. In addition, we saw modest decrease in G&A margin primarily reflecting an increase in staffing expenses as the company prepares for the launch of our new AWS markets.

In summary, we are achieving the margin improvements we expected and believe we will continue to see improvements in operating margins as a result of both further penetration of our existing markets and our ongoing focus in the development and implementation of cost reduction initiatives. As we’ve noted in the past, our ability to deliver OBITDA margins that exceed 40% in our more mature markets bodes well for existing business as it continues to grow and gain additional scale.

Turning to Slide 15 operating income in the first quarter 2008 improved by $27.6 million from the year ago period as total revenues improved by nearly $75 million and total operating expenses including depreciation and amortization increased by $46.1 million. Net loss improved by $6.1 million year-over-year. Of the primary factors contributing to the relative difference in the year-over-year change in operating income and net loss first was the $7.4 million increase in net interest expense due to the company’s higher total debt balance in the period. Please note that 72% of our debt is currently at a fixed rate and we have executed $355 million of floating to fixed rate swaps under our term loan. As of March 31, 2008 the effective interest rate on our term loan was 6.6% including the effect of these swaps.

The second contributing factor was a $7.3 million increase in the income tax expense over the year ago period primarily effecting the deferred tax effect of higher amortization of wireless licenses resulting from the change in tax treatment for those licenses in the third quarter of 2007. The new tax method accelerates our tax amortization of wireless licenses as it’s recorded as a tax expense for accounting purposes due to the deferred tax effect of our current net operating loss position. We expect that we will recognize income tax expense for full year 2008 despite the fact that we have recorded a full evaluation allowance under deferred tax assets. We expect ongoing tax expense to be approximately $10 million per quarter for the remainder of 2008.

Finally, expenses associated with the minority interest in consolidated subsidiaries increased by $2.4 million year-over-year primarily reflecting increased accretion expense associated with the redeemable equity held by certain investors in our joint ventures. The equity and net loss of investee of $1.1 million reported for the first quarter reflects our investment in a regional wireless provider in Mexico.

Turning to Slide 16, total cash on hand at the end of the first quarter was approximately $509 million, a decrease of approximately $103 million from our cash position at the end of 2007. Included in this change in cash was approximately $70 million of cash deposited with the FCC in early January related to our participation in Auction 73. With the conclusion of this auction we received this deposit back in early April. Excluding the $70 million deposit we used just over $30 million cash during the first quarter. Our current cash investments are largely as outlined at last quarter’s conference call. In general, the company vests its cash in money market funds, short term treasury securities, obligations of US government agencies and other securities such as prime rate short term commercial paper and investment grade corporate fixed income securities.

As we discussed last quarter, our joint venture Denali which holds two issues of asset backed commercial paper with an aggregate face amount of $21.6 million. During the first quarter we adjusted the carrying value of these securities by approximately $4.3 million bring the accumulative adjustment to our carrying value to $9.7 million. Although we may see further deterioration in the fair market value of these two securities, our maximum exposure is $11.9 million should these securities be written down to zero.

Turning to Slide 17, capital expenditures for the first quarter were $157 million of which approximately $46 million related to our existing business and footprint expansion program. Approximately $98 million related to the development of our new AWS markets. For the quarter, capitalized interest associated with new market expansion was approximately $13 million. Looking ahead, we continue to expect aggregate capital expenditures for new market build activity to be approximately $26 per cover POP excluding capitalized interest. This [inaudible] represents required capital expenditures to support our new markets through their first year of operation after which annual capital expenditures are expected to be in the mid teens as a percentage of service revenue. Note that any capital investments associated with significant footprint expansion of our launch markets is not included in this ongoing capital expenditure number.

To assist investors in their understanding of the timing of this new market related cap ex, we have provided a profile of pre and post launch spending. As you can see in general we expected 75% of the total new cap ex to be incurred prelaunch with approximately 50% incurred during the six months prior to launch. The remaining 25% is expected to be spent during the six months after launch. Note that there are specific factors associated with each market that can cause a variance between actual spending and this profile.

In closing, the financial overview section of today’s call I would like to reiterate that between our current cash position, our ability to generate cash from operating activities in 2008 as our markets mature and our business continues to grow and the flexibility inherent in the business to modulate the pace of our new market launch activity, Leap is afforded with the ability to manage this liquidity. In addition, to help the liquidity position, our total leverage has come down to 4.7 times on an LTM basis, a reduction of nearly 35% since the closing of our senior unsecured add on in June, 2007 and a sequential improvement of half a turn from the 5.2 times at the end of the fourth quarter. We believe that our capital structure allows us to opportunistically look across multiple markets and make relative tradeoffs between markets when or if we raise additional capital to fund the expansion of the business. As we look to our future growth, we remain focused on a disciplined approach that balances investment in our existing markets with expansion opportunities in new markets in order to maximize value for all stakeholders.

With that, I would now turn it back over to Doug.

S. Doug Hutches

As we look towards the future we want to remind investors that last year we shared a number of initiatives at our analyst day that we thought would drive additional penetration not only in our existing markets but with our new markets. And, as well, at our last earnings calls we shared with you that within 11 quarters we had previously doubled the size of our business. Well now, we look ahead and we believe we have a similar opportunity. Whether it’s looking at the enhanced coverage footprint that will provide the stronger market presence or the new service offerings that we’ll outline today, we continue to see further penetration in our existing markets. Today, we’ll outline the role of mobile broadband in our business as we provide an initial business outlook and we’ll share with you the revised schedule for the new market launches. We believe these plans provide a strong opportunity for us to achieve a three year adjusted OBITDA outlook of 30% to 40%.

The initial results on our new network launches have been positive. Through the first quarter of 2008 we launched more than 400 of the planned 600 total sites. We expect the remaining sites to be completed by the first half of 2008. Our early results continue to indicate this expansion is yielding good results. In most markets we’ve increased year-over-year sales by 20% or more and the improvements in churn we had expected to see are being realized. As we look ahead on this market expansion, we believe that sales in the effected market may increase in the low double digit percentage and churn may improve between .1% and .3%. With these effects we think we’ll achieve greater long term penetration and reduce our off network calling costs and we expect the results to provide a greater than 30% long term IRR.

Based on these results we are considering additional footprint expansion beginning late this year or early in 2009 and as we complete the analysis on this we’ll look forward to sharing with you our next steps. In addition, during the quarter, the company has developed an ability to extend our unlimited coverage area through utilizing the networks of some of our roaming partners and we expect to continue our progress in this area. We believe additional improvements are possible in our market level presence and we believe those improvements will drive additional growth. We’ve completed a comprehensive analysis across the markets that have identified four key areas to drive incremental cross add performance. These include enhanced direct store operations, increased performance from our indirect channel, expanded market level awareness and increased density in optimized store location. We expect to share additional details with you in the coming quarters on this.

Turning to our service plans, the second quarter is typically when we refresh our annual service plans. We began trialing new offers during the fourth quarter and continued that through the first quarter of this year. Today, we’d like to share with you the new rate plan lineup that we expect to provide not only more value to our customers and address our entry level pricing but also provide a strong basis for increased penetration. We’ve increased our value by providing a $30 plan that includes anytime local minutes and caller ID, included unlimited text to Mexico in our $40, added mobile web to our $45 plan and also on our $50 plan added a small number of nationwide roaming minutes. These plans will be rolled out next week and based on the trial results we’ve completed we feel strongly that we’re headed in the right direction to not only continue to grow our customers but manage our ARPU effectively.

Over the last several years the company has upgrade its networks and we now have a number of product portfolio opportunities. First, the company now utilizes EvDO Rev A ready, or in the case of our new market launches Rev A operating networks across our entire footprint. We’ve identified at least one full-time EvDO carrier in all markets and we’ve connected those to our data super highway. This improvement requires approximately $6 million of fixed costs to support the network and this burn will remain in our new initiative burn rate through 2008. We believe this step has been important, not only does it provide an effective migration to Rev A as we’ve overlaid most of our markets with an additional 10 megahertz of spectrum but allows us to continue to move forward smoothly as we introduce additional Rev A handsets in the coming year and transition our business to a Rev A platform. But, in addition this upgrade provides the capability to expand our mobile data applications for our existing customers whether that’s with mobile video, music, social networking or email. Our customers continue to be early strong adopters of all of these services.

In addition, this upgrade now allows us to capture a wireless broadband opportunity. We’ve trialed and introduced Cricket Wireless Internet service. This, for $40 a month provides unlimited monthly access with speeds comparable to DSL. During the quarter and in to this quarter we introduced our first Rev A tri-band USB device, the first one in the world. This device works in not only desktops but laptop computers and provides a user experience that is comparable to or better than many other mobile broadband products. So, with that we’re now pleased to provide an initial outlook on how we think this impacts our business. For the second quarter we expect to add approximately 10,000 customers during the quarter. After a market is launched we expect the first year penetration to be about .5% and the cost of achieving that to be less than $0.50 covered POP. With that $0.50 investment, we expect at the market level OBITDA breakeven will be achieved within three full quarters after launch. As of the end of the first quarter we had 7.5 million potential POP coverage and by the end of the second quarter we expect that number to have grown to 13.5 million. As you can see on this Slide, the introduction of the USB modem has really strengthened the growth rate and we look forward to that continuing throughout the year.

We previously announced a small acquisition Hargray Wireless. This acquisition which was $30 million closed in early April of 2008. It provides licenses in Savannah and Hilton Head adjacent to our existing markets and we continue to offer a mobile voice product bundled for the current ILEC. Having closed that will add 46,000 subscribers and about .6 million additional covered POP during the second quarter of 2008. We are now underway and also upgrading this network. We do have other potential opportunities that we’re reviewing here and we’ll explore those opportunities to supplement our existing spectrum, fill in gaps or expand our footprint. The acquisition benefits are expected to include improved penetration, related churn and lower costs.

Turning to our market expansion, we’ve acquired a significant portfolio of attractive POPS currently at 187 million. We have spectrum in 35 of the top 50 US markets and in those spectrum we believe there are up to 85 million additional potential covered POPS. During this process of assembling this spectrum portfolio we’ve also overlaid the majority of our footprint with additional spectrum. The company has been and remains a disciplined value purchaser of spectrum. In the Auction 58 and Auction 56 we were among the lowest bidders and achieved attractive footprint at good values. The company participated but made no purchases in the last auction, Auction 73 for the 700 megahertz spectrum an auction that we found the pricing not to be in line with our objectives. We also have and will close during the quarter a small spectrum exchange that will provide us additional spectrum in New Jersey for some spectrum that we were currently using only on a limited basis. Also, the company expects to increase our footprint through an affiliate program. This program, should we go ahead with it will be focused on smaller markets and the creation of complimentary clusters. We expect we may retain a significant interest.

So, why have we selected the markets and why do we believe our business will continue to grow? Well, we find that our penetration strongly correlates to three key characteristics: ethnic diversity; income; and related coverage. This enables us to provide an estimate of what we think our penetration potential is by market and these three conditions explain 50% of our variance allowing us to have a good idea of what our potential return is. Well, it’s working. As we can see in the lower two bar charts now 30% of our markets have surpassed their market score penetration potential and remember, many of these markets have only been recently launched and are growing robustly. We expect most markets will achieve their market score potential in the coming quarters. We believe our business has substantial additional penetration potential possible. Not only does that exist in our existing business but also as a result of our focus on market quality and being a cost effective purchaser we believe this reduces our risk and increases our potential return as we look ahead to launching new markets. As you can see in the bar chart on the left, throughout the growth process we have gone through over the last three years, we have steadily improved our long term penetration potential for the markets that we’re building. And, as you can see on the bars on the right, this leads to improving overall market quality and we believe potential return for our investors.

Well, the new launches have begun with the launch of Oklahoma City in early April, South Texas last week and Las Vegas set for next week. We’ve launched that with four Rev A devices operating in the AWS spectrum and we’re looking forward to launching eight million covered POPs by the end of the second quarter. We’re pleased with the development and the progress that we’re making here as we’ve cleared the spectrum and allowed us to effectively move ahead on this. We have additional markets under development. We expect including the eight million POPs we’ve disclosed to be launched in the second quarter to launch up to 36 million by the first half of 2009 and up to 50 million by year end 2010. We continue to have good support from our AWS handset vendors and we look forward to transitioning our business to a tri-band handset line up later this year or early next year. The increasing progress we’re seeing on Rev A is building an attractive handset selection for us.

The last thing that I want to call out is that the team has done a good job in working together to clear that spectrum and we feel comfortable that we’re in a position to roll out with the planned near term launches. As we look at where we are at Leap is a strong continuing growth story. We’ve delivered our results, we’ve seen good continued customer growth, we continue to deliver on our ARPU objective and our year-over-year financial performance has been attractive. We’ve moved through a business cycle and we find out business remains resilient and our model both proven and scalable. As I’ve outlined today, we have a number of attractive future growth opportunities and continue to see good initial results from those whether that’s the growth from our existing business, the expansion of our broadband initiatives or overtime another doubling of our footprint. We do this with the disciplined long term approach to growth and expansion. We expect to file our 10Q later today or Monday. I want to thank the employees for all of their efforts to deliver these results and I want to thank Steve Martin who’s supported this process and thank Jeff Nachbor for joining the company in his role helping us with our financial operations. Lastly, let me express my appreciation to the management team and I look forward to seeing you all in the coming weeks.

With that I’ll turn it back to the moderator.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question will come from the line of Simon Flannery – Morgan Stanley.

Simon Flannery – Morgan Stanley

I wanted to come back to the launch timing if I could please. In the past calls you talked about up to 12 million by the end of the summer and you had also given sort of the year end 08 targets. If you could just talk about how the new guidance relates to the old guidance? And also, if you decided not to raise additional funding, what would you think your ability to build by mid 09 would be without reaching external funding?

S. Doug Hutches

First off on our last call we had said up to 12 million by the end of the summer and what we’ve highlights is in fact we’ve been able to pull in the launches and get up to eight million done in the second quarter. We’ll update you on when the next launches are as we progress ahead. As far as the change on the guidance from 30 million by the end of the year to 36 million by the middle of 2009 throughout that I’ve said some of those markets are pretty big that we’ll be launching and small changes in timing may affect when we actually launch those markets. So, what we’re trying to do is rather than have an annual year-end make it hard for people to figure out exactly where it is, what we did is we moved to the other side of any variability we’ll see on that to provide you the 36 million covered POPs by mid 2009. With that remember, the 36 million does include the eight million covered POPs that we already discussed.

From a self funded standpoint we’re a little bit better than 20 million in a position to do that and that 20 million covered POPs could include not only new market launches but based on the results we’re seeing on the footprint expansion we may decide to also continue to do some additional coverage there.

Simon Flannery – Morgan Stanley

So you’re basically going full steam ahead on up to 20 million right now and then the other stuff will be more gated. Is that right?

S. Doug Hutches

We’ll certainly have launch activities going on in a number of markets and are fully funded to launch up to about 20 million covered POPs.

Operator

Your next question comes from the line of Romeo Reyes – Jefferies & Co.

Romeo Reyes – Jefferies & Co

A couple of questions, first on the ARPU, I guess a year ago we were talking about 60% to 65% of your customers take the $50 ARPU plans or higher. It’s notable that you guys eliminated the $55 plan here in the new plans that you’re launching. Can you give us some sort of like what percentage of your base is taking $50 plus size of a plan or the growth adds rather? And, also related to ARPU typically there’s [inaudible] on the ARPU, are we going to see a Q1 number that you just put upon on the ARPU [inaudible] and then see a decline through Q3 and then up in Q4 as we’ve seen in the past? Or, is that changing a little bit with the new plans that you have in place? Then, the second thing is related to one of your [inaudible] JV with Revol, your LCW relationship, when does the put get exercised? How does that work?

S. Doug Hutches

First, on the ARPU we have said we expected ARPU to flatten so you’ll see a little of variability on ARPU during the quarters and there’s a little bit of sensitivity as we show previously on churn but, we expect it to maintain in the mid $45 range and so you may see some quarters where ticked up a little and some where it moves around a little but I think you’re going to watch us modulate that as we currently see it and feel comfortable that we’ll maintain it in the mid $45 range. As far as the rate plan uptake, if we’re going to modulate the ARPU in the mid $40 range I think what goes along with it is we still continue to see good uptake for our higher value rate plans. In fact, what you saw us do with the rate plans that will roll out next week is drive a nice attractive bundle of services that we do, we majorly drive more value at our customers. It’s what we do well that we think will continue to keep attractive uptake on our higher end rate plans. We haven’t shared today specifically what the mix was but we’ll take a look as we move ahead. We’ll take a look at what we can share with you on that.

As far as the LCW joint venture, it appears to be going well. I think the put that is involved in that we will make sure we include the details in the 10Q but isn’t likely going to be exercised in the near future here. So, I think that’s outside our time horizon right now that we’re tracking closely.

Romeo Reyes – Jefferies & Co

Can you [inaudible] was it in cash or was it in shares?

S. Doug Hutches

Yes.

Operator

Your next question comes from the line of Scott Malat – Goldman Sachs.

Scott Malat – Goldman Sachs

I just wanted to ask a question on Las Vegas, I was wondering if you had accelerated this roll out considering you had a competitor jump in there? I can’t imagine that a month long head start changes much for the long term penetration outlook but I just wanted to check that. But, I guess more importantly it’s an interesting market with three unlimited players. Can you help us just sort of understand how you differentiate in this type of market? What are your expectations? And, how do you model penetration and returns?

S. Doug Hutches

Well, first off one of the things that we’ve noted because we’ve had a number of unlimited players competing in our markets, I think I’ve shared over the years that we’ve had a number, more than 10 different unlimited players that what we most frequently see is the penetration available in the market actually increases so it’s not splitting the same pie. In fact, the pie frequently gets bigger and provides an interesting opportunity to us. From a differentiation standpoint, we have our service offerings that are attractive that we drive a lot of value. We’ve been quite successful with how we’ve differentiated ourselves from others with our data opportunities and clearly, with the continuing progress that we’ve seen on our mobile broadband initiative we’re pleased. In addition, in the Las Vegas area we’re going to be launching a footprint with 41,000 square miles so it will be a large attractive footprint and it will cover not only deeply cover Las Vegas, the core Las Vegas but it brings together the greater Nevada area as well as connects us to some of our other markets. So, we think we have a robust, attractive footprint. I think we feel like we’re well positioned to move ahead and we look forward to the launch next week.

Scott Malat – Goldman Sachs

Just a modeling question, just to help me model as we go through the year, I know 2Q and 3Q obviously have some seasonal impacts but just from a new launch perspective you didn’t launch many POPs two or three quarters ago and you have some new market launches now. Just as we think through the impacts on the next two quarters, it seems like a little less kind of artificial pressure than last year. I just wanted to see if that’s the right way to think about it.

S. Doug Hutches

When you say artificial pressure, can you help me with that?

Scott Malat – Goldman Sachs

Yes, I just mean in the tenure because when you launch new markets I just think of that as artificial, you launch new markets and you have very, very low penetration for a few months, or zero penetration almost. Then, you have higher penetration just because you have low tenure then it kind of moderates. Since you launched a lot at the third quarter of 06 timeframe and then those would be kind of high churn last year. I just wanted to understand if I’m thinking of that in the right way?

S. Doug Hutches

I think you are but let me explain it my way and see if we line up here. The second quarter we kind of outlined it, the second quarter last year had quite a bit of upward pressure related to customer tenure effects and those customers tenure effects were related to the strong last year 2006 launch profile. And, as we look towards the second quarter this year you’ll see that that has inverted or you’ll see that the tenure effect has become smaller than what we had in the second quarter of last year so you’ll see, we believe, a attenuation certainly relative to last year’s turn performance, you’ll see a nice attenuation on that. I did suggest to investors today that remember we’re now starting to launch new markets and the tenure effect or the churn effect of those new markets is they initially in the first quarter after launch tend towards reducing churn and then the second and third quarter they move the tenure, the shorter life customer churn, the pressure is generally upwards and then you watch that subside as markets mature. I don’t have any data right now that says we won’t follow that same path on these new market launches so we’ll continue to watch that and if there’s changes to what we’ve already previously disclosed we’ll work towards updating people.

Operator

Your next question comes from the line of Phil Cusick – Bear Stearns.

Analyst for Phil Cusick – Bear Stearns

With a lot going on in terms of management time and focus, where are you kind of ranking M&A possibilities, roaming partner discussions and affiliate partners?

S. Doug Hutches

Well there is a lot of exciting initiatives that we’ve shared with you that we started six months ago that are delivering results and we’re pretty pleased with what we see there and we expect to continue to stay focused on those and continue to deliver results on that. We clearly have done a little M&A activity when you look at the swap and the Hargray acquisition so we’ve done the due diligence and the work to bring those online as well and will continue to look for opportunities like that. The rest of that, the business there’s a number of people involved with the company, they are good people. We have people focused not only on building our business but also in addressing those other opportunities that might be out there and when we have an update on that we’ll share that with you.

Analyst for Phil Cusick – Bear Stearns

In terms of the adds in the first quarter which were pretty strong and given the mobile broadband product and the Cricket EZ handset kind of what percentage of the adds were made up in the first quarter and then what can we expect in terms of the second quarter how much of the 10K in terms of adds should we expect in the second quarter or the mobile broadband?

S. Doug Hutches

Well, the end of period customers we’re expecting to be about 10,000. Most of those customers will be added during the quarter so we were running it in a relatively small trial base until we were comfortable. We had things where they were so we’ll update you but I think assume most of the 10,000 is added during the quarter. Does that answer on the mobile broadband?

Analyst for Phil Cusick – Bear Stearns

Yes. Then the Cricket EZ, how much [inaudible] the same color?

S. Doug Hutches

Lower priced handsets tend towards being roughly about half our volume. It varies quarter-over-quarter but our entry level handset typically runs about half our volume. It can go up or down depending on where we’re at with handsets, sometimes a little bit higher during promotional periods but there’s other times we’ll move it down because there’s a hot handset at the higher end. But, overall it typically runs about half our volume.

Operator

Your next question comes from the line of Christopher Larsen – Credit Suisse.

Christopher Larsen – Credit Suisse

A couple of questions, on the new market launches the eight million by the end of the summer is that inclusive of the Oklahoma and the stuff that was launched in 2Q? And, of the 10 million in new market launches are those expenses that you had to incur and couldn’t capitalize despite the fact that the Oklahoma and the other markets hadn’t launched until 2Q? I just want to be clear on that. Then, churn, obviously it was down materially, can you talk a little bit about comebacks and are you seeing any impact from rebate checks? Then lastly, I’ll throw out the question that I know we’re going to get is there anything you can say relative to Metro PCS regarding M&A and/or partnering discussions.

S. Doug Hutches

First off, I want to not let Glenn get off the hook here, it’s eight million by the end of the second quarter, not by the end of the summer. So, I think with the Las Vegas launch we’ll be part way there but there’s some other activity that the teams are working on and we’ll update you as part of our second quarter earnings process how we see things going from there. On the churn, as far as comebacks we had nothing out of the normal of what we see, normal returns of customers. Remember, the first quarter tends towards being seasonally our strongest quarter for when we see customers return and this year was no different and there are always evolutions or programs that we have to do that but those programs that we had in place weren’t materially different than what we would do. On the rebate effect, I think it’s early. Typically when customers have a little bit more disposal cash that tends towards providing a little bit of a stronger reactivation pressure but we’re not in a position to update, we don’t know where that money is going to go with $4 gas. There’s also going to be some pressure at the pump which I tried to highlight. And again, at this point on the M&A front I don’t have anything to update you on.

Operator

Your next question comes from the line of Steve Clement – Pacific Crest Securities.

Steve Clement – Pacific Crest Securities

I’m just looking for a point of clarification on the covered costs reporting 53 million at the end of the quarter. I thought that you were at 54 million at the end of 2007. Can you clarify what the 53 million compares to for the last fiscal quarter? Then also looking for some insight on linearity in Q1, it seems like based on where you are at the end of February that March was a bit better than expected. What do you see as having driven that and wondering how that momentum carried in to April?

Jim Seines

On the covered POP number we’ve gone back and rescrubbed those numbers and adjusted that so the starting point for the year was at 53 million so hopefully that answers that particular question.

S. Doug Hutches

Then on the March versus the other months, I think the initiatives that the team had that we normally put in place in late January and ride through most of the first quarter worked as we typically see so I think March was a good month, not abnormally strong nor did we do anything to abnormally stimulate the month, it just followed our normal rhythms. As far as April, or other months, our business is a seasonal business and so in periods where it slows down a little we wait it out then it comes back. April is not typically, it’s not a December for us but we don’t see anything in any one month that seems out of expectations. We seem like what we see is as we’ve anticipated it and believe we’re doing fine looking forward to moving in to the year. I think as I look at customer growth this year, we have more attractive initiatives to roll out that are working that cause us to look in to the middle of the year and feel positive that there’s a lot of opportunity for us. And we’ll wade, the economy as we said is going through its transition and the gas prices and such but I think the company is clearly done well at getting itself positioned to move through this time period so we look forward to moving in to it and advancing and updating you on our progress.

Operator

Your last question will be from the line of Todd Rethemeier – Soleil – Sur Terre Research.

Todd Rethemeier – Soleil – Sur Terre Research

In the fourth quarter you were running a $25 promotion plan, I’m just wondering, have you seen anything on that in the first quarter in terms of churn or any other metrics that you can share with us that you’ve tracked how those customers have compared to your normal base?

S. Doug Hutches

Remember first off that the fourth quarter is typically a gift giving quarter and first quarter is the customers typically have disposal income and the actual user tends towards being the buyer. So, what we’ve seen on the fourth quarter customer is actually attractive. We’ve been pleased with the results that we’ve seen and what we expect is going to occur is in fact occurring, a number of those customers are upgrading to the more feature rich plans as it moves from a gift and moves in to being the phone that they use every day. So, I think the promotional plan that we laid out did a nice job. I will say that we didn’t do a lot of similar promotions in the first quarter so the results that you see in the first quarter had a time period where we were running a little bit a $30 rate plan but most of the quarter was at a $35 rate plan so I think as we look at thing we’re pleased where we see ourselves on the ability to manage the ARPU and think the rate plan mixes that we’re doing are being effective.

Amy Wakeham

Thank you for participating on our call today. We appreciate your interest and support and look forward to updating you on our business progress during our next quarterly conference call. If you have any further questions about our first quarter results or need additional clarification on the information we’ve presented today, please feel free to call us at 858-882-6084. Thank you.

Operator

Thank you for your participation in today’s conference. This concludes our presentation and you may now disconnect.

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