Edgar Filing: METROPCS COMMUNICATIONS INC

e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number

000-50869

METROPCS COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)


Delaware		20-0836269
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

8144 Walnut Hill Lane, Suite 800
Dallas, Texas		75231-4388
(Address of principal executive offices)		(Zip Code)

(214) 265-2550
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes o No þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes þ No o

On March 31, 2007, there were 157,135,815 shares of the registrant’s common stock, $0.0001 par value, outstanding.

METROPCS COMMUNICATIONS, INC.
Quarterly Report on Form 10-Q

Table of Contents


	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)		1
Condensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005		1
Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2006 and 2005		2
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005		3
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3. Quantitative and Qualitative Disclosures about Market Risk		48
Item 4. Controls and Procedures		49
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		50
Item 1A. Risk Factors		51
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		*
Item 3. Defaults Upon Senior Securities		*
Item 4. Submission of Matters to a Vote of Security Holders		*
Item 5. Other Information		51
Item 6. Exhibits		51
SIGNATURES
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906


*		No reportable information under this item.

PART I.
FINANCIAL INFORMATION

Item 1. Financial Statements.

MetroPCS Communications, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets
(in thousands, except share information)
(Unaudited)


	September 30,		December 31,
	2006		2005
CURRENT ASSETS:
Cash and cash equivalents	$	116,265	$	112,709
Short-term investments		229,546		390,422
Inventories, net		39,648		39,431
Accounts receivable (net of allowance for uncollectible accounts of $1,806 and $2,383 at September 30, 2006 and December 31, 2005, respectively)		23,506		16,028
Prepaid expenses		25,854		21,430
Deferred charges		21,442		13,270
Deferred tax asset		10,365		2,122
Other current assets		22,870		16,690

Total current assets		489,496		612,102
Property and equipment, net		1,207,982		831,490
Restricted cash and investments		6,163		2,920
Long-term investments		2,272		5,052
FCC licenses		681,475		681,299
Microwave relocation costs		9,187		9,187
Long-term deposits		200,165		84
Other assets		29,434		16,847

Total assets	$	2,626,174	$	2,158,981


CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	281,789	$	174,220
Current maturities of long-term debt		200,000		2,690
Deferred revenue		78,600		56,560
Other current liabilities		2,989		2,147

Total current liabilities		563,378		235,617
Long-term debt, net		902,594		902,864
Deferred tax liabilities		196,314		146,053
Deferred rents		20,104		14,739
Redeemable minority interest		3,823		1,259
Other long-term liabilities		24,023		20,858

Total liabilities		1,710,236		1,321,390
COMMITMENTS AND CONTINGENCIES (See Note 11)
SERIES D CUMULATIVE CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED STOCK, par value $0.0001 per share, 4,000,000 shares designated, 3,500,993 shares issued and outstanding at September 30, 2006 and December 31, 2005; Liquidation preference of $442,093 and $426,382 at September 30, 2006 and December 31, 2005, respectively		437,955		421,889
SERIES E CUMULATIVE CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED STOCK, par value $0.0001 per share, 500,000 shares designated, 500,000 shares issued and outstanding at September 30, 2006 and December 31, 2005; Liquidation preference of $53,263 and $51,019 at September 30, 2006 and December 31, 2005, respectively		50,294		47,796
STOCKHOLDERS’ EQUITY:
Preferred stock, par value $0.0001 per share, 25,000,000 shares authorized, 4,000,000 of which have been designated as Series D Preferred Stock and 500,000 of which have been designated as Series E Preferred Stock; no shares of preferred stock other than Series D & E Preferred Stock (presented above) issued and outstanding at September 30, 2006 and December 31, 2005		—		—
Common Stock, par value $0.0001 per share, 300,000,000 shares authorized, 156,213,663 and 155,327,094 shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively		16		15
Additional paid-in capital		157,701		149,584
Deferred compensation		—		(178	)
Retained earnings		268,762		216,702
Accumulated other comprehensive income		1,210		1,783

Total stockholders’ equity		427,689		367,906

Total liabilities and stockholders’ equity	$	2,626,174	$	2,158,981

The accompanying notes are an integral part of these condensed consolidated financial statements.

MetroPCS Communications, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income

(in thousands, except share and per share information)

(Unaudited)


	For the three months ended						For the nine months ended
	September 30,						September 30,
	2006			2005			2006			2005
REVENUES:
Service revenues	$	332,920		$	221,615		$	916,179		$	631,209
Equipment revenues		63,196			41,940			177,592			118,990

Total revenues		396,116			263,555			1,093,771			750,199

OPERATING EXPENSES:
Cost of service (excluding depreciation and amortization expense of $33,315, $20,260, $87,602 and $57,270, shown separately below)		113,524			72,261			313,510			201,940
Cost of equipment		117,982			77,140			330,898			210,529
Selling, general and administrative expenses (excluding depreciation and amortization expense of $3,296, $1,651, $8,585 and $4,625, shown separately below)		60,220			39,016			171,921			116,206
Depreciation and amortization		36,611			21,911			96,187			61,895
(Gain) loss on disposal of assets		(1,615	)		5,449			10,763			(218,292	)

Total operating expenses		326,722			215,777			923,279			372,278


Income from operations		69,394			47,778			170,492			377,921

OTHER EXPENSE (INCOME):
Interest expense		24,811			17,069			67,408			40,867
Accretion of put option in majority-owned subsidiary		203			62			564			187
Interest and other income		(4,386	)		(3,105	)		(15,106	)		(4,876	)
(Gain) loss on extinguishment of debt		—			—			(244	)		46,448

Total other expense		20,628			14,026			52,622			82,626

Income before provision for income taxes		48,766			33,752			117,870			295,295

Provision for income taxes		(19,500	)		(13,196	)		(47,245	)		(115,460	)


Net income		29,266			20,556			70,625			179,835

Accrued dividends on Series D Preferred Stock		(5,295	)		(5,295	)		(15,711	)		(15,711	)
Accrued dividends on Series E Preferred Stock		(756	)		(263	)		(2,244	)		(263	)
Accretion on Series D Preferred Stock		(118	)		(118	)		(355	)		(355	)
Accretion on Series E Preferred Stock		(85	)		(30	)		(254	)		(30	)


Net income applicable to Common Stock	$	23,012		$	14,850		$	52,061		$	163,476


Net income	$	29,266		$	20,556		$	70,625		$	179,835
Other comprehensive income:
Unrealized (loss) gain on available-for-sale securities, net of tax		(330	)		64			(847	)		104
Unrealized (loss) gain on cash flow hedging derivative, net of tax		(335	)		1,495			896			1,495
Reclassification adjustment for gains included in net income, net of tax		(107	)		(30	)		(622	)		(30	)


Comprehensive income	$	28,494		$	22,085		$	70,052		$	181,404

Net income per common share: (See Note 10)
Basic	$	0.08		$	0.06		$	0.19		$	0.67

Diluted	$	0.08		$	0.05		$	0.19		$	0.58

Weighted average shares:
Basic		156,003,088			130,982,204			155,672,061			130,552,251

Diluted		159,644,818			152,259,743			159,525,993			152,030,694

The accompanying notes are an integral part of these condensed consolidated financial statements.

MetroPCS Communications, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	For the nine months ended
	September 30,
	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	70,625		$	179,835
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		96,187			61,895
Provision for (recovery of) uncollectible accounts receivable		64			(38	)
Deferred rent expense		5,365			3,091
Cost of abandoned cell sites		2,069			251
Non-cash interest expense		3,702			3,766
Loss (gain) on disposal of assets		10,763			(218,292	)
(Gain) loss on extinguishment of debt		(244	)		46,448
(Gain) loss on sale of investments		(1,875	)		49
Accretion of asset retirement obligation		469			103
Accretion of put option in majority-owned subsidiary		564			187
Deferred income taxes		41,792			113,580
Stock-based compensation expense		7,750			3,302
Changes in assets and liabilities:
Inventories		(220	)		14,825
Accounts receivable		(7,542	)		(3,721	)
Prepaid expenses		(7,365	)		(1,890	)
Deferred charges		(8,172	)		(4,443	)
Other assets		(2,974	)		(4,804	)
Accounts payable and accrued expenses		49,121			40,060
Deferred revenue		22,055			10,830
Other liabilities		2,554			1,981

Net cash provided by operating activities		284,688			247,015

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(453,864	)		(204,450	)
Change in prepaid purchases of property and equipment		2,427			(4,336	)
Proceeds from sale of property and equipment		2,548			123
Purchase of investments		(737,088	)		(427,732	)
Proceeds from sale of investments		900,189			171,725
Change in restricted cash and investments		(3,291	)		(50,510	)
Purchases of FCC licenses		(176	)		(235,330	)
Deposit to FCC for licenses		(200,000	)		(268,599	)
Proceeds from sale of FCC licenses		—			230,000

Net cash used in investing activities		(489,255	)		(789,109	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Change in book overdraft		22,993			11,105
Proceeds from bridge credit agreements		200,000			540,000
Proceeds from credit agreements		—			750,000
Payment upon execution of cash flow hedging derivative		—			(1,899	)
Debt issuance costs		(15,313	)		(28,801	)
Repayment of debt		(2,446	)		(753,080	)
Proceeds from minority interest in majority-owned subsidiary		2,000			—
Proceeds from issuance of preferred stock, net of issuance costs		—			46,688
Proceeds from exercise of stock options and warrants		889			764

Net cash provided by financing activities		208,123			564,777


INCREASE IN CASH AND CASH EQUIVALENTS		3,556			22,683
CASH AND CASH EQUIVALENTS, beginning of period		112,709			22,477

CASH AND CASH EQUIVALENTS, end of period	$	116,265		$	45,160

The accompanying notes are an integral part of these condensed consolidated financial statements.

MetroPCS Communications, Inc. and Subsidiaries

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited)

1. Basis of Presentation:

The accompanying unaudited condensed consolidated interim financial statements include the balances and results of operations of MetroPCS Communications, Inc. (“MetroPCS”) and its consolidated subsidiaries (the “Company”). MetroPCS indirectly owns, through its wholly-owned subsidiaries, 85% of the limited liability company member interest in Royal Street Communications, LLC (“Royal Street Communications”). The consolidated financial statements include the balances and results of operations of MetroPCS and its wholly-owned subsidiaries as well as the balances and results of operations of Royal Street Communications and its wholly-owned subsidiaries (collectively “Royal Street”). The Company consolidates its interest in Royal Street in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46-R, “Consolidation of Variable Interest Entities,” because Royal Street is a variable interest entity and the Company will absorb all of Royal Street’s expected losses. All intercompany accounts and transactions between the Company and Royal Street have been eliminated in the consolidated financial statements. The redeemable minority interest in Royal Street is included in long-term liabilities. The condensed consolidated interim balance sheets as of September 30, 2006 and December 31, 2005, the condensed consolidated interim statements of income and comprehensive income and cash flows for the periods ended September 30, 2006 and 2005, and the related footnotes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

The unaudited condensed consolidated interim financial statements included herein reflect all adjustments (consisting of normal, recurring adjustments) which are, in the opinion of management, necessary to state fairly the results for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the fiscal year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

On March 14, 2007, the Company’s board of directors approved a 3 for 1 stock split by means of a stock dividend of two shares of common stock for each share of common stock issued and outstanding at the close of business on March 14, 2007. Unless otherwise indicated, all share numbers and per share prices included in the accompanying unaudited condensed consolidated interim financial statements give effect to the stock split.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment,” (“SFAS No. 123(R)”), the Company has recognized stock-based compensation expense in an amount equal to the fair value of share-based payments, which includes stock options granted to employees. SFAS No. 1 23(R) replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” (“SFAS No. 123”) and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related interpretations (“APB No. 25”). The Company adopted SFAS No. 123(R) on January 1, 2006. Stock-based compensation expense recognized under SFAS No. 123(R) was $3.8 million and $7.8 million for the three and nine months ended September 30, 2006, respectively.

2 . Share-Based Payments:

Prior to the first quarter of 2006, the Company measured stock-based compensation expense for its stock-based employee compensation plans using the intrinsic value method prescribed by APB No. 25, as allowed by SFAS No. 123.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R) using the modified prospective transition method. Under that transition method, compensation expense recognized beginning on that date includes: (a) compensation expense for all share-based payments granted prior to, but not yet vested as of, January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation expense for all share-based payments granted on or after January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). Although there was no material impact on the Company’s financial position, results of operations or cash flows from the adoption of SFAS No. 123(R), the Company reclassified all deferred equity compensation on the consolidated balance sheet to

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

additional paid-in capital upon its adoption. The period prior to the adoption of SFAS No. 123(R) does not reflect any restated amounts.

MetroPCS has two stock option plans (the “Option Plans”) under which it grants options to purchase common stock of MetroPCS: the Second Amended and Restated 1995 Stock Option Plan, as amended (“1995 Plan”), and the Amended and Restated 2004 Equity Incentive Compensation Plan, as amended (“2004 Plan”). The 1995 Plan was terminated in November 2005 and no further awards can be made under the 1995 Plan, but all options granted before November 2005 will remain valid in accordance with their original terms. As of September 30, 2006, the maximum number of shares reserved for the 2004 Plan was 14,100,000 shares. In December 2006, the 2004 Plan was amended to increase the number of shares of common stock reserved for issuance under the plan from 14,100,000 to a total of 18,600,000 shares. In February 2007, the 2004 Plan was amended to increase the number of shares of common stock reserved for issuance under the plan from 18,600,000 to a total of 40,500,000 shares. Vesting periods and terms for stock option grants are determined by the plan administrator, which is MetroPCS’ Board of Directors for the 1995 Plan and the Compensation Committee of the Board of Directors of MetroPCS for the 2004 Plan. No option granted under the 1995 Plan have a term in excess of fifteen years and no option granted under the 2004 Plan shall have a term in excess of ten years. Options granted during the three and nine months ended September 30, 2006 and 2005 have a vesting period of three to four years.

Options granted under the 1995 Plan are exercisable upon grant. Shares received upon exercising options prior to vesting are restricted from sale based on a vesting schedule. In the event an option holder’s service with the Company is terminated, MetroPCS may repurchase unvested shares issued under the 1995 Plan at the option exercise price. Options granted under the 2004 Plan are only exercisable upon vesting. Upon exercise of options under the Option Plans, new shares of common stock are issued to the option holder.

The value of the options is determined by using a Black-Scholes pricing model that includes the following variables: 1) exercise price of the instrument, 2) fair market value of the underlying stock on date of grant, 3) expected life, 4) estimated volatility and 5) the risk-free interest rate. The Company utilized the following weighted-average assumptions in estimating the fair value of the option grants in the three and nine months ended September 30, 2006 and 2005:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
Expected dividends		0.00	%		0.00	%		0.00	%		0.00	%
Expected volatility		45.00	%		50.00	%		45.00	%		50.00	%
Risk-free interest rate		4.70	%		4.11	%		4.76	%		4.11	%
Expected lives in years		5.00			5.00			5.00			5.00

Weighted-average fair value of options:
Granted at fair value	$	3.96		$	3.44		$	3.37		$	3.44
Weighted-average exercise price of options:
Granted at fair value	$	8.67		$	7.14		$	7.37		$	7.13

The Black-Scholes model requires the use of subjective assumptions including expectations of future dividends and stock price volatility. Such assumptions are only used for making the required fair value estimate and should not be considered as indicators of future dividend policy or stock price appreciation. Because changes in the subjective assumptions can materially affect the fair value estimate, and because employee stock options have characteristics significantly different from those of traded options, the use of the Black-Scholes option pricing model may not provide a reliable estimate of the fair value of employee stock options.

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

A summary of the status of the Company’s Option Plans as of September 30, 2006 and 2005, and changes during the nine month periods then ended, is presented in the table below:


	As of September 30,
	2006					2005
				Weighted					Weighted
				Average					Average
				Exercise					Exercise
	Shares			Price		Shares			Price
Outstanding, beginning of period		14,502,210		$	4.18		32,448,855		$	0.92
Granted		3,822,939		$	7.37		4,982,385		$	7.13
Exercised		(315,774	)	$	2.82		(298,215	)	$	2.01
Forfeited		(1,104,162	)	$	4.00		(967,344	)	$	4.03


Outstanding, end of period		16,905,213		$	4.94		36,165,681		$	1.68


Options exercisable at period-end		10,948,080		$	3.66		33,463,236		$	1.24

Options vested at period-end		8,637,588					28,546,431

The following table summarizes information about stock options outstanding at September 30, 2006:


	Options Outstanding						Options Vested
			Weighted		Weighted				Weighted
			Average		Average				Average
	Number of		Contractual		Exercise		Number of		Exercise
Exercise Price	Shares		Life (Years)		Price		Shares		Price
$0.08 - $0.33		851,991		6.18	$	0.12		851,991	$	0.12
$1.57 - $1.57		4,068,396		5.07	$	1.57		3,989,013	$	1.57
$1.87 - $6.31		2,978,049		7.16	$	3.97		1,837,446	$	3.68
$7.13 - $7.13		3,540,762		8.84	$	7.13		1,407,069	$	7.13
$7.15 - $8.67		5,466,015		9.40	$	7.31		552,069	$	7.15

		16,905,213						8,637,588

In October 2005, Madison Dearborn Capital Partners and TA Associates consummated a tender offer in which they purchased from existing stockholders shares of Series D Preferred Stock and common stock in MetroPCS. In connection with this transaction, 22,102,287 options granted under the Option Plans were exercised for 22,102,287 shares of common stock, resulting in a significant decrease in options exercisable as of September 30, 2006 compared to options exercisable as of September 30, 2005.

During the three and nine months ended September 30, 2005, 252,360 and 298,215 options granted under the Option Plans were exercised for 252,360 and 298,215 shares of common stock, respectively. The intrinsic value of these options at exercise date was approximately $1.1 million and $1.3 million and total proceeds were approximately $0.5 million and $0.6 million for the three and nine months ended September 30, 2005, respectively. During the three and nine months ended September 30, 2006, 147,669 and 315,774 options granted under the Option Plans were exercised for 147,669 and 315,774 shares of common stock, respectively. The intrinsic value of these options at exercise date was approximately $0.7 million and $1.6 million and total proceeds were approximately $0.5 million and $0.9 million for the three and nine months ended September 30, 2006, respectively.

As of September 30, 2006, options outstanding and exercisable under the Option Plans have a weighted average remaining contractual life of 7.68 and 6.79 years, respectively.

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

The following table summarizes information about unvested stock option grants:


				Weighted
				Average Grant-
Stock Option Grants	Shares			Date Fair Value
Unvested balance, January 1, 2006		7,582,659		$	3.00
Grants		3,822,939		$	3.37
Vested shares		(2,599,362	)	$	2.82
Forfeitures		(538,611	)	$	3.07


Unvested balance, September 30, 2006		8,267,625		$	3.23

The Company determines fair value of stock option grants as the share price of the Company’s stock at grant-date. The weighted average grant-date fair value of the stock option grants for the three months ended September 30, 2006 and 2005 is $3.96 and $3.44, respectively. The weighted average grant-date fair value of the stock option grants for the nine months ended September 30, 2006 and 2005 is $3.37 and $3.44, respectively. The weighted average exercise price of the stock options granted during the three months ended September 30, 2006 and 2005 is $8.67 and $7.14, respectively. The weighted average exercise price of the stock options granted during the nine months ended September 30, 2006 and 2005 is $7.37 and $7.13, respectively.

The Company has recorded $3.8 million and $0.3 million of non-cash stock-based compensation expense in the three months ended September 30, 2006 and 2005, respectively, and an income tax benefit of approximately $1.5 million and $0.1 million, respectively. The Company has recorded $7.8 million and $3.3 million of non-cash stock-based compensation expense in the nine months ended September 30, 2006 and 2005, respectively, and an income tax benefit of approximately $3.1 million and $1.3 million, respectively.

As of September 30, 2006, there was approximately $24.1 million of unrecognized stock-based compensation cost related to unvested share-based compensation arrangements, which is expected to be recognized over a weighted average period of approximately 1.46 years. Such costs were originally scheduled to be recognized as follows: $2.8 million in the remainder of 2006, $9.1 million in 2007, $7.6 million in 2008, $3.8 million in 2009 and $0.8 million in 2010.

The total aggregate intrinsic value of stock options outstanding and exercisable as of September 30, 2006 was approximately $63.0 million and $54.8 million, respectively. The total fair value of stock options that vested during the three months ended September 30, 2006 and 2005 was $1.9 million and $1.2 million, respectively. The total fair value of stock options that vested during the nine months ended September 30, 2006 and 2005 was $7.3 million and $3.6 million, respectively.

The following table illustrates the effect on net income applicable to common stock (in thousands, except per share data) and net income per common share as if the Company had elected to recognize stock-based compensation costs based on the fair value at the date of grant for the Company’s common stock awards consistent with the provisions of SFAS No. 123:

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


	Three Months			Nine Months
	Ended			Ended
	September 30,			September 30,
	2005			2005
Net income applicable to common stock—as reported	$	14,850		$	163,476
Add: Amortization of deferred compensation determined under the intrinsic method for employee stock awards, net of tax		202			1,981
Less: Total stock-based employee compensation expense determined under the fair value method for employee stock awards, net of tax		(811	)		(1,855	)


Net income applicable to common stock—pro forma	$	14,241		$	163,602


Basic net income per common share:
As reported	$	0.06		$	0.67

Pro forma	$	0.05		$	0.67

Diluted net income per common share:
As reported	$	0.05		$	0.58

Pro forma	$	0.04		$	0.58

During the nine month period ended September 30, 2006, the following awards were granted under the Company’s Option Plans:


			Weighted		Weighted		Weighted
	Number of		Average		Average		Average
	Options		Exercise		Market Value		Intrinsic Value
Grants Made During the Quarter Ended	Granted		Price		per Share		per Share
March 31, 2006		2,869,989	$	7.15	$	7.15	$	0.00
June 30, 2006		534,525	$	7.54	$	7.54	$	0.00
September 30, 2006		418,425	$	8.67	$	8.67	$	0.00

Compensation expense is recognized over the requisite service period for the entire award, which is generally the maximum vesting period of the award.

The fair value of the common stock was determined contemporaneously with the option grants.

In December 2006, the Company amended stock option agreements of a former member of MetroPCS’ Board of Directors to extend the contractual life of 405,054 vested common stock options until December 31, 2006. This amendment will result in the recognition of additional non-cash stock-based compensation expense of approximately $4.1 million in the fourth quarter of 2006.

In December 2006, in recognition of efforts related to the Company’s pending initial public offering and to align executive ownership with the Company, the Company made a special stock option grant to its named executive officers and certain other eligible employees. The Company granted stock options to purchase an aggregate of 6,885,000 shares of the Company’s common stock to its named executive officers and certain other officers and employees. The purpose of the grant was also to provide retention of employees following the Company’s initial public offering as well as to motivate employees to return value to the Company’s shareholders through future appreciation of the Company’s common stock price. The exercise price for the option grants is $11.33, which is the fair market value of the Company’s common stock on the date of the grant as determined by the Company’s board of directors. In determining the fair market value of the common stock, consideration is given to the recommendations of our finance and planning committee and of management based on certain data, including discounted cash flow analysis, comparable company analysis, and comparable transaction analysis, as well as contemporaneous valuation. The stock options granted to the named executive officers other than the Company’s CEO and senior vice president and chief technology officer will generally vest on a four-year vesting schedule with 25% vesting on the first anniversary date of the award and the remainder pro-rata on a monthly basis thereafter. The stock options granted to the Company’s CEO will vest on a three-year vesting schedule with one-third vesting on the first anniversary date of the award and the remainder pro-rata on a monthly basis thereafter. The stock options

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

granted to the Company’s senior vice president and chief technology officer will vest over a two-year vesting schedule with one-half vesting on the first anniversary of the award and the remainder pro-rata on a monthly basis thereafter.

3. Property and Equipment:

Property and equipment, net, consisted of the following (in thousands):


	September 30,			December 31,
	2006			2005
Construction-in-progress	$	206,599		$	98,078
Network infrastructure		1,244,749			905,924
Office equipment		28,545			17,059
Leasehold improvements		21,428			16,608
Furniture and fixtures		5,938			4,000
Vehicles		185			118

		1,507,444			1,041,787

Accumulated depreciation		(299,462	)		(210,297	)


Property and equipment, net	$	1,207,982		$	831,490

4. FCC Licenses:

Auction 66

The Federal Communications Commission (“FCC”) auctioned 90 MHz of spectrum to be used for Advanced Wireless Services (“AWS”) in Auction 66 which commenced on August 9, 2006. On July 17, 2006, MetroPCS AWS, LLC, an indirect, wholly-owned subsidiary of MetroPCS II, Inc., submitted an upfront payment to the FCC in the amount of $200.0 million to qualify to participate in Auction 66.

Auction 66 concluded on September 21, 2006 and the Company was declared the high bidder on licenses covering a total unique population of approximately 117 million, with total aggregate winning bids of approximately $1.4 billion (See Note 16).

5. Accounts Payable and Accrued Expenses:

Accounts payable and accrued expenses consisted of the following (in thousands):


	September 30,		December 31,
	2006		2005
Accounts payable	$	59,446	$	29,430
Book overdraft		32,913		9,920
Accrued accounts payable		92,429		69,611
Accrued liabilities		8,624		7,590
Payroll and employee benefits		13,535		12,808
Accrued interest		29,664		17,578
Taxes, other than income		37,896		23,211
Income taxes		7,282		4,072


Accounts payable and accrued expenses	$	281,789	$	174,220

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

6. Long-Term Debt:

Long-term debt consisted of the following (in thousands):


	September 30,			December 31,
	2006			2005
Microwave relocation obligations	$	—		$	2,690
Secured Bridge Credit Facility		200,000			—
Credit Agreements		900,000			900,000


Total		1,100,000			902,690
Add: unamortized premium on debt		2,594			2,864


Total debt		1,102,594			905,554
Less: current maturities		(200,000	)		(2,690	)


Total long-term debt	$	902,594		$	902,864

Bridge Credit Agreement

In February 2005, MetroPCS Wireless, Inc. (“Wireless”) entered into a secured bridge credit facility, dated as of February 22, 2005, as amended (“Bridge Credit Agreement”). The aggregate credit commitments available under the Bridge Credit Agreement totaled $540.0 million. The lenders funded $240.0 million and $300.0 million under the Bridge Credit Agreement in February 2005 and March 2005, respectively.

The Bridge Credit Agreement provided that all borrowings were senior secured obligations of Wireless and were guaranteed on a senior secured basis by MetroPCS, Inc. and its wholly-owned subsidiaries (other than Wireless). The obligations under the Bridge Credit Agreement were secured by security interests in substantially all of the assets of MetroPCS, Inc. and its wholly-owned subsidiaries, including capital stock, except as prohibited by law and certain permitted exceptions, as more fully described in the Security Agreement and the Pledge Agreement both dated as of February 22, 2005, as amended.

In May 2005, Wireless repaid the aggregate outstanding principal balance under the Bridge Credit Agreement of $540.0 million and accrued interest of $8.7 million. As a result, Wireless recorded a loss on extinguishment of debt in the amount of approximately $10.4 million.

FCC Debt

On March 2, 2005, in connection with the sale of a 10 MHz portion of a 30 MHz PCS license in the San Francisco-Oakland-San Jose, California basic trading area, the Company repaid the outstanding principal balance of $12.2 million in debt payable to the FCC. This debt was incurred in connection with the original acquisition of the 30 MHz PCS license for the San Francisco-Oakland-San Jose basic trading area. The repayment resulted in a loss on extinguishment of debt of $0.9 million.

On May 31, 2005, the Company repaid the remaining outstanding principal balance of $15.7 million in debt payable to the FCC. This debt was incurred in connection with the Company’s original PCS licenses acquired by the Company in the FCC auction in May 1996. The repayment resulted in a loss on extinguishment of debt of approximately $1.0 million.

$150 Million 10³/4% Senior Notes

On September 29, 2003, MetroPCS, Inc. completed the sale of $150.0 million of 10³/4% Senior Notes due 2011 (the “10³/4% Senior Notes”). MetroPCS, Inc. was subject to certain covenants set forth in the indenture governing the 10³/4% Senior Notes. On November 3, 2004, MetroPCS, Inc. received and accepted consents from the holders of a majority of its 10³/4% Senior Notes to a limited waiver, for up to 180 days, of any default or event of default arising

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

from a failure of the Company to comply with a reporting covenant in the 10³/4% Senior Notes. Accordingly, the reporting covenant was waived until the close of business on May 2, 2005.

On May 10, 2005, holders of all of the 10³/4% Senior Notes tendered their 10³/4% Senior Notes in response to MetroPCS, Inc.’s cash tender offer and consent solicitation. As a result, MetroPCS, Inc. executed a supplemental indenture governing the 10³/4% Senior Notes to eliminate substantially all of the restrictive covenants and event of default provisions in the indenture, to amend other provisions of the indenture, and to waive any and all defaults and events of default that may have existed under the indenture. On May 31, 2005, MetroPCS, Inc. purchased all of its outstanding 10³/4% Senior Notes in the tender offer. MetroPCS, Inc. paid the holders of the 10³/4% Senior Notes $178.9 million plus accrued interest of $2.7 million in the tender offer, resulting in a loss on extinguishment of debt of $34.0 million.

First and Second Lien Credit Agreements

On May 31, 2005, MetroPCS, Inc. and Wireless, both wholly-owned subsidiaries of MetroPCS, entered into a First Lien Credit Agreement, maturing May 31, 2011, and a Second Lien Credit Agreement, maturing May 31, 2012 (collectively, the “Credit Agreements”), which provided for total borrowings of up to $900.0 million. MetroPCS, Inc. and its wholly-owned subsidiaries also entered into Guarantee and Collateral Agreements, dated as of May 31, 2005, in connection with the Credit Agreements, in which the lenders hold a security interest in substantially all property, including capital stock, now owned or at any time acquired by MetroPCS, Inc. and its wholly-owned subsidiaries, except for certain permitted exceptions or as prohibited by law. Royal Street did not enter into any Guarantee and Collateral Agreements in connection with the Credit Agreements, however, MetroPCS pledged the intercompany promissory note that Royal Street Communications has given the Company in connection with amounts borrowed by Royal Street Communications from Wireless as collateral. On May 31, 2005, Wireless borrowed $500.0 million under the First Lien Credit Agreement and $250.0 million under the Second Lien Credit Agreement.

On December 19, 2005, Wireless entered into amendments to the Credit Agreements and borrowed an additional $50.0 million under the First Lien Credit Agreement and an additional $100.0 million under the Second Lien Credit Agreement. Under the amendments to the Credit Agreements the total amount available under the First Lien Credit Agreement increased by $330.0 million and the total amount available under the Second Lien Credit Agreement increased by $220.0 million, for a total increase in the amounts available under the Credit Agreements of $550.0 million.

Interest Rate Cap Agreement

On June 27, 2005, Wireless entered into a three-year interest rate cap agreement, as required by its Credit Agreements, to mitigate the impact of interest rate changes on 50% of the aggregate debt outstanding thereunder. This financial instrument is being accounted for in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS No. 133”). SFAS No. 133 addresses the accounting for financial instruments that are designated as cash flow hedges and the effective portion of the change in value of the financial instrument is reported as a component of the Company’s other comprehensive income and reclassified into earnings in the same periods during which the hedged transaction affects earnings. Comprehensive income is comprised of net income and includes the impact of a deferred gain on the change in the fair value of the financial instrument. Wireless paid $1.9 million upon execution of the agreement and the financial instrument is reported in other current assets and long-term investments at fair market value, which was $4.4 million and $5.1 million as of September 30, 2006 and December 31, 2005, respectively. The change in fair value is reported in accumulated other comprehensive income on the condensed consolidated interim balance sheets, net of income taxes.

$1.25 Billion Exchangeable Senior Secured Credit Agreement

In July 2006, MetroPCS II, Inc. (“MetroPCS II”), a wholly-owned subsidiary of MetroPCS, entered into an Exchangeable Senior Secured Credit Agreement and Guaranty Agreement, dated as of July 13, 2006 (“Secured Bridge Credit Facility”). On that same date, MetroPCS II and one of its wholly-owned subsidiaries, MetroPCS AWS, LLC, also entered into a related Security Agreement, and MetroPCS II, MetroPCS AWS, LLC, and MetroPCS II’s immediate parent, MetroPCS III, Inc., also entered into a related Pledge Agreement. Under the

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

Security Agreement, the lenders under the Secured Bridge Credit Facility hold a security interest in substantially all property, including capital stock, now owned or at any time acquired by the parties to that agreement, except for certain permitted exceptions or as prohibited by law. Under the terms of the Pledge Agreement, the lenders under the Secured Bridge Credit Facility hold a security interest in the capital stock of the subsidiaries of the parties to the Pledge Agreement.

The aggregate credit commitments available under the Secured Bridge Credit Facility total $1.25 billion. The Secured Bridge Credit Facility provides that all borrowings are senior secured obligations of MetroPCS II and all borrowings are guaranteed by certain subsidiaries of MetroPCS II. On July 14, 2006, the lenders funded $200.0 million under the Secured Bridge Credit Facility.

7. Asset Retirement Obligations:

The Company accounts for asset retirement obligations as determined by SFAS No. 143, “Accounting for Asset Retirement Obligations,” (“SFAS No. 143”) and FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143,” (“FIN No. 47”). SFAS No. 143 and FIN No. 47 address financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the related asset retirement costs. SFAS No. 143 requires that companies recognize the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the estimated useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement.

The Company is subject to asset retirement obligations associated with its cell site operating leases, which are subject to the provisions of SFAS No. 143 and FIN No. 47. Cell site lease agreements may contain clauses requiring restoration of the leased site at the end of the lease term to its original condition, creating an asset retirement obligation. This liability is classified under other long-term liabilities. Landlords may choose not to exercise these rights as cell sites are considered useful improvements. In addition to cell site operating leases, the Company has leases related to switch site, retail, and administrative locations subject to the provisions of SFAS No. 143 and FIN No. 47.

The following table summarizes the Company’s asset retirement obligation transactions (in thousands):


	September 30,		December 31,
	2006		2005
Beginning asset retirement obligations	$	3,522	$	1,893
Liabilities incurred		972		1,206
Accretion expense		469		423

Ending asset retirement obligations	$	4,963	$	3,522

8. Income Taxes:

The Company records income taxes pursuant to SFAS No. 109, “Accounting for Income Taxes,” (“SFAS No. 109”). SFAS No. 109 uses an asset and liability approach to account for income taxes, wherein deferred taxes are provided for book and tax basis differences for assets and liabilities. In the event differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities result in deferred tax assets, a valuation allowance is provided for a portion or all of the deferred tax assets when there is sufficient uncertainty regarding the Company’s ability to recognize the benefits of the assets in future years.

Income before provision for income taxes for the nine months ended September 30, 2005 included a gain on the sale of a 10 MHz portion of the Company’s 30 MHz PCS license in the San Francisco-Oakland-San Jose basic trading area in the amount of $228.2 million. At December 31, 2005, the Company has approximately $228.7 million and $102.5 million of net operating loss carryforwards for federal and state income tax purposes, respectively. The federal net operating loss will begin expiring in 2023. The state net operating losses will begin to

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

expire in 2013. The Company has been able to take advantage of accelerated depreciation and like kind exchange gain deferral available under federal tax law, which has created a significant deferred tax liability. The reversal of the timing differences which gave rise to the deferred tax liability, future taxable income and future tax planning strategies will allow the Company to benefit from the deferred tax assets. The Company has no valuation allowance as of September 30, 2006 and a valuation allowance of $0.2 million as of December 31, 2005, relating primarily to state net operating losses.

On May 18, 2006, the Texas Governor signed into law a Texas margin tax (“H.B. No. 3”) which restructures the state business tax by replacing the taxable capital and earned surplus components of the current franchise tax with a new “taxable margin” component. Because the tax base on the Texas margin tax is derived from an income-based measure, the Company believes the margin tax is an income tax and, therefore, the provisions of SFAS No. 109 regarding the recognition of deferred taxes apply to the new margin tax. In accordance with SFAS No. 109, the effect on deferred tax assets of a change in tax law should be included in tax expense attributable to continuing operations in the period that includes the enactment date. Although the effective date of H.B. No. 3 is January 1, 2008, certain effects of the change should be reflected in the financial statements of the first interim or annual reporting period that includes May 18, 2006. The Company has recorded a deferred tax liability of $0.1 million as of September 30, 2006 relating to H.B. No. 3.

Internal Revenue Service Audit

The Internal Revenue Service (the “IRS”) commenced an audit of MetroPCS’ 2002 and 2003 federal income tax returns in March 2005. In October 2005 the IRS issued a 30-day letter which primarily related to depreciation expense claimed on the returns under audit. The Company filed an appeal of the auditor’s assessments in November 2005. The IRS appeals officer made the Company an offer to settle all issues in July 2006. The expected net result of the settlement offer should create an increase to 2002 taxable income of $3.9 million and an increase to the 2003 net operating loss of $0.5 million. The increase to 2002 taxable income would be offset by net operating loss carryback from 2003. The Company owes additional interest on the 2002 deferred taxes of approximately $0.1 million, but no additional tax or penalty. In addition, the IRS Joint Committee concluded its review of the audit and issued a closing letter dated September 5, 2006.

9. Stockholders’ Equity:

Common Stock Issued to Directors

Non-employee members of MetroPCS’ Board of Directors receive compensation for serving on the Board of Directors, as defined in MetroPCS’ Non-Employee Director Remuneration Plan. The annual retainer provided under the Non-Employee Director Remuneration Plan may be paid, at the election of each non-employee director, in cash, common stock, or a combination of cash and common stock. During the nine months ended September 30, 2006, non-employee members of the Board of Directors were issued 43,845 shares of common stock as payment of their annual retainer.

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

10. Net Income Per Common Share:

The following table sets forth the computation of basic and diluted net income per common share for the periods indicated (in thousands, except share and per share data):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
Basic EPS—Two Class Method:
Net income	$	29,266		$	20,556		$	70,625		$	179,835
Accrued dividends and accretion:
Series D Preferred Stock		(5,413	)		(5,413	)		(16,066	)		(16,066	)
Series E Preferred Stock		(841	)		(293	)		(2,498	)		(293	)

Net income applicable to common stock	$	23,012		$	14,850		$	52,061		$	163,476
Amount allocable to common shareholders		57.1	%		53.6	%		57.0	%		53.7	%

Rights to undistributed earnings	$	13,136		$	7,951		$	29,691		$	87,858

Weighted average shares outstanding—basic		156,003,088			130,982,204			155,672,061			130,552,251

Net income per common share—basic	$	0.08		$	0.06		$	0.19		$	0.67

Diluted EPS:
Rights to undistributed earnings	$	13,136		$	7,951		$	29,691		$	87,858

Weighted average shares outstanding—basic		156,003,088			130,982,204			155,672,061			130,552,251
Effect of dilutive securities:
Warrants		—			2,829,153			147,258			2,307,975
Stock options		3,641,730			18,448,386			3,657,050			18,392,685

Weighted average shares outstanding—diluted		159,644,818			152,259,743			159,947,369			151,252,411

Net income per common share—diluted	$	0.08		$	0.05		$	0.19		$	0.58

Net income (loss) per common share is computed in accordance with EITF 03-6,”Participating Securities and the Two-Class Method under FASB Statement No. 128” (“EITF 03-6”). Under EITF 03-6, the preferred stock is considered a “participating security” for purposes of computing earnings or loss per common share and, therefore, the preferred stock is included in the computation of basic and diluted net income (loss) per common share using the two-class method, except during periods of net losses. When determining basic earnings per common share under EITF 03-6, undistributed earnings for a period are allocated to a participating security based on the contractual participation rights of the security to share in those earnings as if all of the earnings for the period had been distributed.

For the three months ended September 30, 2006 and 2005, 139.4 million and 132.7 million, respectively, of convertible shares of Series D Preferred Stock were excluded from the calculation of diluted net income per common share since the effect was anti-dilutive. For the nine months ended September 30, 2006 and 2005, 136.1 million and 129.4 million, respectively, of convertible shares of Series D Preferred Stock were excluded from the calculation of diluted net income per common share since the effect was anti-dilutive.

For the three months ended September 30, 2006 and 2005, 5.8 million and 1.9 million, respectively, of convertible shares of Series E Preferred Stock were excluded from the calculation of diluted net income per common share since the effect was anti-dilutive. For the nine months ended September 30, 2006 and 2005, 5.7 million and 0.6 million, respectively, of convertible shares of Series E Preferred Stock were excluded from the calculation of diluted net income per common share since the effect was anti-dilutive.

11. Commitments and Contingencies:

The Company has entered into pricing agreements with various handset manufacturers for the purchase of wireless handsets at specified prices. The terms of these agreements expire on various dates during the year ending December 31, 2007. In addition, the Company entered into an agreement with a handset manufacturer for the purchase of 475,000 handsets at a specified price by September 30, 2007.

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

EV-DO Revision A

The Company acquired spectrum in two of its markets during 2005 subject to certain expectations communicated to the United States Department of Justice (the “DOJ”) about how it would use such spectrum. As a result of a delay in the availability of EV-DO Revision A with VoIP, the Company has redeployed EV-DO network assets at certain cell sites in those markets in order to serve its existing customers. There have been no asserted claims or assessments to date and accordingly, no liability was recorded as of September 30, 2006.

Litigation

The Company is involved in various claims and legal actions arising in the ordinary course of business. The ultimate disposition of these matters is not expected to have a material adverse impact on the Company’s financial position, results of operations or liquidity.

The Company is involved in various claims and legal actions in relation to claims of patent infringement. The ultimate disposition of these matters is not expected to have a material adverse impact on the Company’s financial position, results of operations or liquidity.

Rescission Offer

Certain options granted under the Company’s 1995 Stock Option Plan and 2004 Equity Incentive Plan may not have been exempt from registration or qualification under federal securities laws and the securities laws of certain states. As a result, the Company is considering making a rescission offer to the holders of certain options. If this rescission offer is made and accepted, the Company could be required to make aggregate payments to the holders of these options of up to $2.6 million, which includes statutory interest, based on options outstanding as of September 30, 2006. Federal securities laws do not provide that a rescission offer will terminate a purchaser’s right to rescind a sale of a security that was not registered as required. If any or all of the offerees reject the rescission offer, the Company may continue to be liable for this amount under federal and state securities laws. Management does not believe that this rescission offer will have a material effect on the Company’s results of operations, cash flows or financial position.

AWS Licenses Acquired in Auction 66

Spectrum allocated for AWS currently is utilized by a variety of categories of commercial and governmental users. To foster the orderly clearing of the spectrum, the FCC adopted a transition and cost sharing plan pursuant to which incumbent non-governmental users could be reimbursed for relocating out of the band and the costs of relocation would be shared by AWS licensees benefiting from the relocation. The FCC has established a plan where the AWS licensee and the incumbent non-governmental user are to negotiate voluntarily for three years and then, if no agreement has been reached, the incumbent licensee is subject to mandatory relocation where the AWS licensee can force the incumbent non-governmental licensee to relocate at the AWS licensee’s expense. The spectrum allocated for AWS currently is utilized also by governmental users. The FCC rules provide that a portion of the money raised in Auction 66 will be used to reimburse the relocation costs of governmental users from the AWS band. However, not all governmental users are obligated to relocate. The Company may incur costs to relocate the incumbent licensees in the areas where it was granted licenses in Auction 66.

12. Supplemental Cash Flow Information:


	Nine Months Ended
	September 30,
	2006		2005
	(in thousands)
Cash paid for interest	$	34,225	$	21,022
Cash paid for income taxes		525		—

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

Non-cash investing activities:

Net changes in the Company’s accrued purchases of property, plant and equipment were $34.8 million and $1.4 million for the nine months ended September 30, 2006 and 2005, respectively.

See Note 7 for non-cash increases in the Company’s asset retirement obligations.

Non-cash financing activities:

MetroPCS accrued dividends of $15.7 million and $15.7 million related to the Series D Preferred Stock for the nine months ended September 30, 2006 and 2005, respectively.

MetroPCS accrued dividends of $2.2 million and $0.3 million related to the Series E Preferred Stock for the nine months ended September 30, 2006 and 2005, respectively.

13. Related-Party Transactions:

The Company had the following transactions with related parties (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
Professional services to a law firm, a partner of which was a director of the Company	$	15	$	61	$	44	$	179
Professional services to a law firm, a partner of which is related to an officer of the Company		11		167		28		1,095

One of the Company’s current directors is a general partner of various investment funds affiliated with one of the Company’s greater than 5% stockholders. These funds own in the aggregate an approximate 17% interest in a company that provides services to the Company’s customers, including handset insurance programs and roadside assistance services. Pursuant to the Company’s agreement with this related party, the Company bills its customers directly for these services and remits the fees collected from its customers for these services to the related party. During the three months ended September 30, 2006 and 2005, the Company received a fee of approximately $0.7 million and $0.4 million, respectively, as compensation for providing this billing and collection service. During the nine months ended September 30, 2006 and 2005, the Company received a fee of approximately $1.9 million and $1.8 million, respectively, as compensation for providing this billing and collection service. In addition, the Company also sells handsets to this related party. For the three months ended September 30, 2006 and 2005, the Company sold approximately $3.1 million and $3.9 million in handsets, respectively, to the related party. For the nine months ended September 30, 2006 and 2005, the Company sold approximately $9.8 million and $9.7 million in handsets, respectively, to the related party. As of September 30, 2006 and December 31, 2005, the Company owed approximately $2.7 million and $2.1 million, respectively, to this related party for fees collected from its customers that are included in accounts payable and accrued expenses on the accompanying consolidated balance sheets. As of September 30, 2006 and December 31, 2005, receivables from this related party in the amount of approximately $1.1 million and $0.7 million, respectively, are included in accounts receivable.

14. Segment Information:

Operating segments are defined by SFAS No. 131, “Disclosure About Segments of an Enterprise and Related Information,” (“SFAS No. 131”), as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Chairman of the Board and Chief Executive Officer.

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

As of September 30, 2006, the Company had eight operating segments based on geographic region within the United States: Atlanta, Dallas/Ft. Worth, Detroit, Miami, San Francisco, Sacramento, Tampa/Sarasota/Orlando and Los Angeles. Each of these operating segments provides wireless voice and data services and products to customers in its service areas or is currently constructing a network in order to provide these services. These services include unlimited local and long distance calling, voicemail, caller ID, call waiting, text messaging, picture and multimedia messaging, international long distance and text messaging, ringtones, games and content applications, unlimited directory assistance, ring back tones, nationwide roaming, mobile Internet browsing and other value-added services.

The Company aggregates its operating segments into two reportable segments: Core Markets and Expansion Markets.

	•		Core Markets, which include Atlanta, Miami, San Francisco, and Sacramento, are aggregated because they are reviewed on an aggregate basis by the chief operating decision maker, they are similar in respect to their products and services, production processes, class of customer, method of distribution, and regulatory environment and currently exhibit similar financial performance and economic characteristics.

	•		Expansion Markets, which include Dallas/Ft. Worth, Detroit, Tampa/Sarasota/Orlando and Los Angeles, are aggregated because they are reviewed on an aggregate basis by the chief operating decision maker, they are similar in respect to their products and services, production processes, class of customer, method of distribution, and regulatory environment and have similar expected long-term financial performance and economic characteristics.

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. General corporate overhead, which includes expenses such as corporate employee labor costs, rent and utilities, legal, accounting and auditing expenses, is allocated equally across all operating segments. Corporate marketing and advertising expenses are allocated equally to the operating segments, beginning in the period during which the Company launches service in that operating segment. Expenses associated with the Company’s national data center are allocated based on the average number of customers in each operating segment. There are no transactions between reportable segments.

Interest expense, interest income, gain/loss on extinguishment of debt and income taxes are not allocated to the segments in the computation of segment operating profit for internal evaluation purposes.


			Expansion
Three Months Ended September 30, 2006	Core Markets		Markets			Other			Total
	(in thousands)
Service revenues	$	285,313	$	47,607		$	—		$	332,920
Equipment revenues		50,594		12,602			—			63,196
Total revenues		335,907		60,209			—			396,116
Cost of service (1)		83,498		30,026			—			113,524
Cost of equipment		87,614		30,368			—			117,982
Selling, general and administrative expenses (2)		38,541		21,679			—			60,220
Adjusted EBITDA (deficit) (3)		128,283		(20,112	)		—
Depreciation and amortization		28,796		6,890			925			36,611
Stock-based compensation expense		2,030		1,751			—			3,781
Income (loss) from operations		98,864		(28,545	)		(925	)		69,394
Interest expense		—		—			24,811			24,811
Accretion of put option in majority-owned subsidiary		—		—			203			203
Interest and other income		—		—			(4,386	)		(4,386	)
Income (loss) before provision for income taxes		98,864		(28,545	)		(21,553	)		48,766

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


			Expansion
Three Months Ended September 30, 2005	Core Markets		Markets			Other			Total
	(in thousands)
Service revenues	$	221,614	$	1		$	—		$	221,615
Equipment revenues		41,923		17			—			41,940
Total revenues		263,537		18			—			263,555
Cost of service		69,161		3,100			—			72,261
Cost of equipment		77,042		98			—			77,140
Selling, general and administrative expenses		36,537		2,479			—			39,016
Adjusted EBITDA (deficit) (3)		81,134		(5,659	)		—
Depreciation and amortization		21,093		474			344			21,911
Stock-based compensation expense		337		—			—			337
Income (loss) from operations		54,526		(6,383	)		(365	)		47,778
Interest expense		—		—			17,069			17,069
Accretion of put option in majority-owned subsidiary		—		—			62			62
Interest and other income		—		—			(3,105	)		(3,105	)
Income (loss) before provision for income taxes		54,526		(6,383	)		(14,391	)		33,752


			Expansion
Nine Months Ended September 30, 2006	Core Markets		Markets			Other			Total
	(in thousands)
Service revenues	$	831,053	$	85,126		$	—		$	916,179
Equipment revenues		149,200		28,392			—			177,592
Total revenues		980,253		113,518			—			1,093,771
Cost of service (1)		244,636		68,874			—			313,510
Cost of equipment		261,258		69,640			—			330,898
Selling, general and administrative expenses (2)		114,021		57,900			—			171,921
Adjusted EBITDA (deficit) (3)		364,585		(79,393	)		—
Depreciation and amortization		80,467		13,381			2,339			96,187
Stock-based compensation expense		4,246		3,504			—			7,750
Income (loss) from operations		269,735		(96,904	)		(2,339	)		170,492
Interest expense		—		—			67,408			67,408
Accretion of put option in majority-owned subsidiary		—		—			564			564
Interest and other income		—		—			(15,106	)		(15,106	)
Loss on extinguishment of debt		—		—			(244	)		(244	)
Income (loss) before provision for income taxes		269,735		(96,904	)		(54,961	)		117,870
Capital expenditures		187,922		256,531			9,411			453,864
Total assets		958,792		963,847			703,535			2,626,174

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


			Expansion
Nine Months Ended September 30, 2005	Core Markets		Markets			Other			Total
	(in thousands)
Service revenues	$	631,208	$	1		$	—		$	631,209
Equipment revenues		118,973		17			—			118,990
Total revenues		750,181		18			—			750,199
Cost of service		197,425		4,515			—			201,940
Cost of equipment		210,431		98			—			210,529
Selling, general and administrative expenses		112,137		4,069			—			116,206
Adjusted EBITDA (deficit) (3)		233,491		(8,665	)		—
Depreciation and amortization		60,158		721			1,016			61,895
Stock-based compensation expense		3,302		—			—			3,302
Income (loss) from operations		388,572		(9,635	)		(1,016	)		377,921
Interest expense		—		—			40,867			40,867
Accretion of put option in majority-owned subsidiary		—		—			187			187
Interest and other income		—		—			(4,876	)		(4,876	)
Loss on extinguishment of debt		—		—			46,448			46,448
Income (loss) before provision for income taxes		388,572		(9,635	)		(83,642	)		295,295
Capital expenditures		157,153		44,893			2,404			204,450
Total assets		698,623		646,107			602,055			1,946,785


(1)		Cost of service for the three and nine months ended September 30, 2006 includes $0.5 million and $1.0 million, respectively, of stock-based compensation disclosed separately.

(2)		Selling, general and administrative expenses include stock-based compensation disclosed separately. For the three and nine months ended September 30, 2006, selling, general and administrative expenses include $3.3 million and $6.8 million, respectively, of stock-based compensation.

(3)		Adjusted EBITDA is presented in accordance with SFAS No. 131 as it is the primary financial measure utilized by management to facilitate evaluation of each segments’ ability to meet future debt service, capital expenditures and working capital requirements and to fund future growth.

The following table reconciles segment Adjusted EBITDA (deficit) for the nine months ended September 30, 2006 and 2005 to consolidated income before provision for income taxes:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
	(in thousands)
Segment Adjusted EBITDA (Deficit):
Core Markets Adjusted EBITDA	$	128,283		$	81,134		$	364,585		$	233,491
Expansion Markets Adjusted EBITDA (Deficit)		(20,112	)		(5,659	)		(79,393	)		(8,665	)

Total		108,171			75,475			285,192			224,826
Depreciation and amortization		(36,611	)		(21,911	)		(96,187	)		(61,895	)
Loss (gain) on disposal of assets		1,615			(5,449	)		(10,763	)		218,292
Non-cash compensation expense		(3,781	)		(337	)		(7,750	)		(3,302	)
Interest expense		(24,811	)		(17,069	)		(67,408	)		(40,867	)
Accretion of put option in majority-owned subsidiary		(203	)		(62	)		(564	)		(187	)
Interest and other income		4,386			3,105			15,106			4,876
(Gain) loss on extinguishment of debt		—			—			244			(46,448	)

Consolidated income before provision for income taxes	$	48,766		$	33,752		$	117,870		$	295,295

15. Recent Accounting Pronouncements:

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140” (“SFAS No. 155”). SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends FASB Statement No. 140 to eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The adoption of this statement did not have any impact on the financial condition or results of operations of the Company.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140” (“SFAS No. 156”). SFAS No. 156 amends SFAS No. 140 to require that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. SFAS No. 156 permits, but does not require, the subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value. Under SFAS No. 156, an entity can elect subsequent fair value measurement to account for its separately recognized servicing assets and servicing liabilities. Adoption of SFAS No. 156 is required as of the beginning of the first fiscal year that begins after September 15, 2006. The adoption of this statement did not have any impact on the financial condition or results of operations of the Company.

In July 2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income Taxes,” (“FIN No. 48”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109. FIN No. 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. While the Company’s analysis of the impact of this Interpretation is not yet completed, the Company does not anticipate it will have a material effect on the financial condition or results of operations of the Company.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in the Current Year Financial Statements,” (“SAB 108”), which addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB 108 requires companies to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is material, companies may record the effect as a cumulative effect adjustment to beginning of year retained earnings. SAB 108 is effective for annual financial statements covering the first fiscal year ending after November 15, 2006. The Company is required to adopt this interpretation by December 31, 2006. The adoption of this statement did not have any impact on the financial condition or results of operations of the Company.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosure about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company will be required to adopt SFAS No. 157 in the first quarter of fiscal year 2008. The Company has not completed its evaluation of the effect of SFAS No. 157.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115,” (“SFAS No. 159”), which permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company will be required to adopt SFAS No. 159 on January 1, 2008. The Company has not completed its evaluation of the effect of SFAS No. 159.

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

16. Subsequent Events:

$1.25 Billion Exchangeable Senior Secured Credit Agreement

On October 3, 2006, the lenders funded an additional $80.0 million under the Secured Bridge Credit Facility. On October 18, 2006, the lenders funded the remaining $970.0 million available under the Secured Bridge Credit Facility.

On November 3, 2006, MetroPCS II repaid the aggregate outstanding principal balance under the Secured Bridge Credit Facility of $1.25 billion and accrued interest of $5.9 million. As a result, the Company recorded a loss on extinguishment of debt of approximately $7.0 million.

$250 Million Exchangeable Senior Unsecured Credit Agreement

In October 2006, MetroPCS IV, Inc. (“MetroPCS IV”) entered into an exchangeable senior unsecured credit agreement (“Unsecured Bridge Credit Facility”). The aggregate credit commitments available under the Unsecured Bridge Credit Facility totaled $250.0 million. On October 18, 2006, the lenders funded the $250.0 million available under the Unsecured Bridge Credit Facility.

On November 3, 2006, MetroPCS IV repaid the aggregate outstanding principal balance under the Unsecured Bridge Credit Facility of $250.0 million and accrued interest of $1.2 million. As a result, the Company recorded a loss on extinguishment of debt of approximately $2.4 million.

Auction 66

On October 18, 2006, the Company paid the FCC the remaining $1.2 billion for the purchase of the Auction 66 licenses on which the Company had been announced as the high bidder. On November 29, 2006, the FCC awarded the Auction 66 licenses to the Company.

Orlando Market Launch

The Company launched service in the Orlando metropolitan area and certain portions of Northern Florida on November 1, 2006.

$1.0 Billion 9¹/4% Senior Notes

On November 3, 2006, Wireless completed the sale of $1.0 billion of 9¹/4% Senior Notes due 2014, (“9¹/4% Senior Notes”). The 9¹/4% Senior Notes are unsecured obligations and are guaranteed by MetroPCS, MetroPCS, Inc., and all of Wireless’ direct and indirect wholly-owned subsidiaries, but are not guaranteed by Royal Street. Interest is payable on the 9¹/4% Senior Notes on May 1 and November 1 of each year, beginning with May 1, 2007. Wireless may, at its option, redeem some or all of the 9¹/4% Senior Notes at any time on or after November 1, 2010 for the redemption prices set forth in the indenture governing the 9¹/4% Senior Notes. In addition, Wireless may also redeem up to 35% of the aggregate principal amount of the 9¹/4% Senior Notes with the net cash proceeds of certain sales of equity securities. The net proceeds of the offering were approximately $978.0 million after underwriter fees and other debt issuance costs of $22.0 million. The net proceeds from the sale of the 9¹/4% Senior Notes, together with the borrowings under Wireless’ senior secured credit facility, pursuant to which Wireless may borrow up to $1.7 billion, as amended, (the “Senior Secured Credit Facility”), were used to repay amounts owed under the Credit Agreements, Secured Bridge Credit Facility and Unsecured Bridge Credit Facility, and to pay related premiums, fees and expenses, as well as for general corporate purposes.

Senior Secured Credit Facility

On November 3, 2006, Wireless entered into the Senior Secured Credit Facility, pursuant to which Wireless may borrow up to $1.7 billion. The Senior Secured Credit Facility consists of a $1.6 billion term loan facility and a $100.0 million revolving credit facility. The term loan facility will be repayable in quarterly installments in annual

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

aggregate amounts equal to 1% of the initial aggregate principal amount of $1.6 billion. The term loan facility will mature in seven years and the revolving credit facility will mature in five years. On November 3, 2006, Wireless borrowed $1.6 billion under the Senior Secured Credit Facility. The net proceeds from the borrowings under the Senior Secured Credit Facility, together with the sale of the 9¹/4% Senior Notes, were used to repay amounts owed under the Credit Agreements, Secured Bridge Credit Facility and Unsecured Bridge Credit Facility, and to pay related premiums, fees and expenses, as well as for general corporate purposes

The facilities under the Senior Secured Credit Facility are guaranteed by MetroPCS, MetroPCS, Inc. and each of Wireless’ direct and indirect present and future wholly-owned domestic subsidiaries. The facilities are not guaranteed by Royal Street, but Wireless pledged the promissory note that Royal Street Communications had given it in connection with amounts borrowed by Royal Street Communications from Wireless and the limited liability company member interest held in Royal Street Communications. The Senior Secured Credit Facility contains customary events of default, including cross defaults. The obligations are also secured by the capital stock of Wireless as well as substantially all of Wireless’ present and future assets and each of its direct and indirect present and future wholly-owned subsidiaries (except as prohibited by law and certain permitted exceptions) but excludes Royal Street.

First and Second Lien Credit Agreements

On November 3, 2006, Wireless paid the lenders under the Credit Agreements $931.5 million, which included a premium of approximately $31.5 million, plus accrued interest of $8.6 million to extinguish the aggregate outstanding principal balance under the Credit Agreements. As a result, Wireless recorded a loss on extinguishment of debt in the amount of approximately $42.7 million.

Restructuring

On November 3, 2006, in connection with the closing of the sale of the 9¹/4% Senior Notes, the entry into the Senior Secured Credit Facility and the repayment of all amounts outstanding under the Credit Agreements, the Secured Bridge Credit Facility and the Unsecured Bridge Credit Facility, the Company consummated a restructuring transaction. As a result of the restructuring transaction, Wireless became a wholly-owned direct subsidiary of MetroPCS, Inc. (formerly MetroPCS V, Inc.), which is a wholly-owned direct subsidiary of MetroPCS. MetroPCS and MetroPCS, Inc., along with each of Wireless’ wholly-owned subsidiaries (which excludes Royal Street), guarantee the 9 ¹/4% Senior Notes and the obligations under the Senior Secured Credit Facility. MetroPCS, Inc. pledged the capital stock of Wireless as security for the obligations under the Senior Secured Credit Facility. All of the Company’s PCS licenses and AWS licenses and the Company’s interest in Royal Street are held by Wireless and its wholly-owned subsidiaries.

Interest Rate Protection Agreement

On November 21, 2006, Wireless entered into a three-year interest rate protection agreement to manage the Company’s interest rate risk exposure and fulfill a requirement of its Senior Secured Credit Facility. The agreement is effective on February 1, 2007, covers a notional amount of $1.0 billion and effectively converts this portion of Wireless’ variable rate debt to fixed rate debt at an annual rate of 7.419%. The quarterly interest settlement periods begin on February 1, 2007. The interest rate protection agreement expires on February 1, 2010.

Termination of Interest Rate Cap Agreement

On November 21, 2006, Wireless terminated its interest rate cap agreement that was required by its Credit Agreements. Wireless received approximately $4.3 million upon termination of the agreement. The proceeds from the termination of the agreement approximated its carrying value.

Amendment to Senior Secured Credit Facility

On February 20, 2007, Wireless entered into an amendment to the Senior Secured Credit Facility. Under the amendment, the margin used to determine the Senior Secured Credit Facility interest rate was reduced to 2.25% from 2.50%.

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

Stock Split

On March 14, 2007, the Company’s Board of Directors approved a 3 for 1 stock split of the Company’s common stock effected by means of a stock dividend of two shares of common stock for each share of common stock issued and outstanding on that date. All share, per share and conversion amounts relating to common stock and stock options included in the accompanying consolidated financial statements have been retroactively adjusted to reflect the stock split.

Stockholder Rights Plan

In connection with the Company’s proposed initial public offering, on March 27, 2007, the Company adopted a Stockholder Rights Plan. Under the Stockholder Rights Plan, each share of the Company’s common stock includes one right to purchase one one-thousandth of a share of series A junior participating preferred stock. The rights will separate from the common stock and become exercisable (1) ten calendar days after public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to acquire, beneficial ownership of 15% of the Company’s outstanding common stock or (2) ten business days following the start of a tender offer or exchange offer that would result in a person’s acquiring beneficial ownership of 15% of the Company’s outstanding common stock. A 15% beneficial owner is referred to as an “acquiring person” under the Stockholder Rights Plan.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Any statements made in this report that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements within the meaning of the Private Securities Reform Act of 1995, as amended, and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including statements that may relate to our plans, objectives, strategies, goals, future events, future revenues or performance, capital expenditures, financing needs and other information that is not historical information. These forward-looking statements often include words such as “anticipate,” “expect,” “suggests,” “plan,” “believe,” “intend,” “estimates,” “targets,” “projects,” “should,” “may,” “will,” “forecast,” and other similar expressions. These forward-looking statements are contained throughout this report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We base these forward-looking statements or projections on our current expectations, plans and assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this report, you should understand that these forward-looking statements or projections are not guarantees of future performance or results. Although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual financial results, performance or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements and projections. Factors that may materially affect such forward-looking statements and projections include:

	•		the highly competitive nature of our industry;

	•		the rapid technological changes in our industry;

	•		our ability to maintain adequate customer care and manage our churn rate;

	•		our ability to sustain the growth rates we have experienced to date;

	•		our ability to access the funds necessary to build and operate our Auction 66 Markets;

	•		the costs associated with being a public company and our ability to comply with the internal financial and disclosure controls and reporting obligations of public companies;

	•		our ability to manage our rapid growth, train additional personnel and improve our financial and disclosure controls and procedures;

	•		our ability to secure the necessary spectrum and network infrastructure equipment;

	•		our ability to clear the Auction 66 Market spectrum of incumbent licensees;

	•		our ability to adequately enforce or protect our intellectual property rights;

	•		governmental regulation of our services and the costs of compliance and any failure to comply with such regulations;

	•		our capital structure, including our indebtedness amounts;

	•		changes in consumer preferences or demand for our products;

	•		our inability to attract and retain key members of management; and

	•		other factors described in this report under “Risk Factors.”

The forward-looking statements and projections are subject to and involve risks, uncertainties and assumptions and you should not place undue reliance on these forward-looking statements and projections. All future written and oral forward-looking statements and projections attributable to us or persons acting on our behalf are expressly qualified in their entirety by our cautionary statements. We do not intend to, and do not undertake a duty to, update any forward-looking statement or projection in the future to reflect the occurrence of events or circumstances, except as required by law.

Company Overview

Except as expressly stated, the financial condition and results of operations discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations are those of MetroPCS Communications, Inc. and its consolidated subsidiaries. References to “MetroPCS,” “MetroPCS Communications,” “our Company,” “the Company,” “we,” “our,” “ours” and “us” refer to MetroPCS Communications, Inc., a Delaware corporation, and its wholly-owned subsidiaries. Unless otherwise indicated, all share numbers and per share prices in this report give effect to a 3 for 1 stock split effected by means of a stock dividend of two shares of common stock for each share of common stock issued and outstanding at the close of business on March 14, 2007. On January 4, 2007, we filed a registration statement for an initial public offering of our common stock. We expect to consummate the offering during the second quarter of 2007. We have applied to have our common stock listed on the New York Stock Exchange under the symbol “PCS” effective upon the consummation of our currently pending initial public offering.

We are a wireless telecommunications carrier that currently offers wireless broadband personal communication services, or PCS, primarily in the greater Atlanta, Dallas/Ft. Worth, Detroit, Miami, San Francisco, Sacramento and Tampa/Sarasota/Orlando metropolitan areas. We launched service in the greater Atlanta, Miami and Sacramento metropolitan areas in the first quarter of 2002; in San Francisco in September 2002; in Tampa/Sarasota in October 2005; in Dallas/Ft. Worth in March 2006; in Detroit in April 2006; and Orlando in November 2006. In 2005, Royal Street Communications, LLC, or Royal Street Communications, and with its wholly-owned subsidiaries (“Royal Street”), a company in which we own 85% of the limited liability company member interests and with which we have a wholesale arrangement allowing us to sell MetroPCS-branded services to the public, was granted licenses by the Federal Communications Commission, or FCC, in Los Angeles and various metropolitan areas throughout northern Florida. Royal Street is in the process of constructing its network infrastructure in its licensed metropolitan areas. We commenced commercial services in Orlando and certain portions of northern Florida in November 2006 and we expect to begin offering services in Los Angeles in the second or third quarter of 2007 through our arrangements with Royal Street.

As a result of the significant growth we have experienced since we launched operations, our results of operations to date are not necessarily indicative of the results that can be expected in future periods. Moreover, we expect that our number of customers will continue to increase, which will continue to contribute to increases in our revenues and operating expenses. In November 2006, we were granted advanced wireless services, or AWS, licenses covering a total unique population of approximately 117 million for an aggregate purchase price of approximately $1.4 billion. Approximately 69 million of the total licensed population associated with our Auction 66 licenses represents expansion opportunities in geographic areas outside of our Core and Expansion Markets, which we refer to as our Auction 66 Markets. These new expansion opportunities in our Auction 66 Markets cover six of the 25 largest metropolitan areas in the United States. The balance of our Auction 66 Markets, which cover a population of approximately 48 million, supplements or expands the geographic boundaries of our existing operations in Dallas/Ft. Worth, Detroit, Los Angeles, San Francisco and Sacramento. We currently plan to focus on building out approximately 40 million of the total population in our Auction 66 Markets with a primary focus on the New York, Philadelphia, Boston and Las Vegas metropolitan areas. Of the approximate 40 million total population, we are targeting launch of operations with an initial covered population of approximately 30 to 32 million by late 2008 or early 2009. Total estimated capital expenditures to the launch of these operations are expected to be between $18 and $20 per covered population, which equates to a total capital investment of approximately $550 million to $650 million. Total estimated expenditures, including capital expenditures, to become free cash flow positive, defined as Adjusted EBITDA less capital expenditures, is expected to be approximately $29 to $30 per covered population, which equates to $875 million to $1.0 billion based on an estimated initial covered population of approximately 30 to 32 million. We believe that our existing cash, cash equivalents and short-term investments, proceeds from our currently pending initial public offering, and our anticipated cash flows from operations will be sufficient to fully fund this planned expansion.

We sell products and services to customers through our Company-owned retail stores as well as indirectly through relationships with independent retailers. We offer service which allows our customers to place unlimited local calls from within our local service area and to receive unlimited calls from any area while in our local service area, through flat rate monthly plans starting at $30 per month. For an additional $5 to $20 per month, our customers may select a service plan that offers additional services, such as unlimited nationwide long distance service, voicemail, caller ID, call waiting, text messaging, mobile Internet browsing, push e-mail and picture and multimedia messaging. We offer flat rate monthly plans at $30, $35, $40, $45 and $50. All of these plans require payment in advance for one month of service. If no payment is made in advance for the following month of service, service is discontinued at the end of the month that was paid for by the customer. For additional fees, we also provide international long distance and text messaging, ringtones, games and content applications, unlimited directory assistance, ring back tones, nationwide roaming and other value-added services. As of September 30, 2006, over 80% of our customers have selected either our $40 or $45 rate plans. Our flat rate plans differentiate our service from the more complex plans and long-term contract requirements of traditional wireless carriers. In addition the above products and services are offered by us in the Royal Street markets. Our arrangements with Royal Street are based on a wholesale model under which we purchase network capacity from Royal Street to allow us to offer our standard products and services in the Royal Street markets to MetroPCS customers under the MetroPCS brand name.

Critical Accounting Policies and Estimates

There have been no material changes in our critical accounting policies and estimates from those disclosed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” of our Form 10-K filed with the SEC on March 30, 2007.

Customer Recognition and Disconnect Policies

When a new customer subscribes to our service, the first month of service and activation fee is included with the handset purchase. Under GAAP, we are required to allocate the purchase price to the handset and to the wireless service revenue. Generally, the amount allocated to the handset will be less than our cost, and this difference is included in Cost Per Gross Addition, or CPGA. We recognize new customers as gross customer additions upon activation of service. Prior to January 23, 2006, we offered our customers the Metro Promise, which allowed a customer to return a newly purchased handset for a full refund prior to the earlier of 7 days or 60 minutes of use. Beginning on January 23, 2006, we expanded the terms of the Metro Promise to allow a customer to return a newly purchased handset for a full refund prior to the earlier of 30 days or 60 minutes of use. Customers who return their phones under the Metro Promise are reflected as a reduction to gross customer additions. Customers’ monthly service payments are due in advance every month. Our customers must pay their monthly service amount by the payment date or their service will be suspended, or hotlined, and the customer will not be able to make or receive calls on our network. However, a hotlined customer is still able to make E-911 calls in the event of an emergency. There is no service grace period. Any call attempted by a hotlined customer is routed directly to our interactive voice response system and customer service center in order to arrange payment. If the customer pays the amount due within 30 days of the original payment date then the customer’s service is restored. If a hotlined customer does not pay the amount due within 30 days of the payment date the account is disconnected and counted as churn. Once an account is disconnected we charge a $15 reconnect fee upon reactivation to reestablish service and the revenue associated with this fee is deferred and recognized over the estimated life of the customer.

Revenues

We derive our revenues from the following sources:

Service. We sell wireless broadband PCS services. The various types of service revenues associated with wireless broadband PCS for our customers include monthly recurring charges for airtime, monthly recurring charges for optional features (including nationwide long distance and text messaging, ringtones, games and content applications, unlimited directory assistance, ring back tones and nationwide roaming) and charges for long distance service. Service revenues also include intercarrier compensation and nonrecurring activation service charges to customers.

Equipment. We sell wireless broadband PCS handsets and accessories that are used by our customers in connection with our wireless services. This equipment is also sold to our independent retailers to facilitate distribution to our customers.

Costs and Expenses

Our costs and expenses include:

Cost of Service. The major components of our cost of service are:

	•		Cell Site Costs. We incur expenses for the rent of cell sites, network facilities, engineering operations, field technicians and related utility and maintenance charges.

	•		Intercarrier Compensation. We pay charges to other telecommunications companies for their transport and termination of calls originated by our customers and destined for customers of other networks. These variable charges are based on our customers’ usage and generally applied at pre-negotiated rates with other carriers, although some carriers have sought to impose such charges unilaterally.

	•		Variable Long Distance. We pay charges to other telecommunications companies for long distance service provided to our customers. These variable charges are based on our customers’ usage, applied at pre-negotiated rates with the long distance carriers.

Cost of Equipment. We purchase wireless broadband PCS handsets and accessories from third-party vendors to resell to our customers and independent retailers in connection with our services. We subsidize the sale of handsets to encourage the sale and use of our services. We do not manufacture any of this equipment.

Selling, General and Administrative Expenses. Our selling expense includes advertising and promotional costs associated with marketing and selling to new customers and fixed charges such as retail store rent and retail associates’ salaries. General and administrative expense includes support functions including, technical operations, finance, accounting, human resources, information technology and legal services. We record stock-based compensation expense in cost of service and selling, general and administrative expenses associated with employee stock options which is measured at the date of grant, based on the estimated fair value of the award. Prior to the adoption of SFAS No. 123(R), we recorded stock-based compensation expense at the end of each reporting period with respect to our variable stock options.

Depreciation and Amortization. Depreciation is applied using the straight-line method over the estimated useful lives of the assets once the assets are placed in service, which are ten years for network infrastructure assets and capitalized interest, three to seven years for office equipment, which includes computer equipment, three to seven years for furniture and fixtures and five years for vehicles. Leasehold improvements are amortized over the term of the respective leases, which includes renewal periods that are reasonably assured, or the estimated useful life of the improvement, whichever is shorter.

Interest Expense and Interest Income. Interest expense includes interest incurred on our borrowings, amortization of debt issuance costs and amortization of discounts and premiums on long-term debt. Interest income is earned primarily on our cash and cash equivalents.

Income Taxes. As a result of our operating losses and accelerated depreciation available under federal tax laws, we have paid no federal income taxes through September 30, 2006. In addition, we have paid an immaterial amount of state income tax through September 30, 2006.

Seasonality

Our customer activity is influenced by seasonal effects related to traditional retail selling periods and other factors that arise from our target customer base. Based on historical results, we generally expect net customer additions to be strongest in the first and fourth quarters. Softening of sales and increased customer turnover, or churn, in the

second and third quarters of the year usually combine to result in fewer net customer additions. However, sales activity and churn can be strongly affected by the launch of new markets and promotional activity, which have the ability to reduce or outweigh certain seasonal effects.

Operating Segments

Operating segments are defined by SFAS No. 131 “Disclosure About Segments of an Enterprise and Related Information,” (“SFAS No. 131”), as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is the Chairman of the Board and Chief Executive Officer.

As of September 30, 2006, we had eight operating segments based on geographic region within the United States: Atlanta, Dallas/Ft. Worth, Detroit, Miami, San Francisco, Sacramento, Tampa/Sarasota/Orlando and Los Angeles. Each of these operating segments provide wireless voice and data services and products to customers in its service areas or is currently constructing a network in order to provide these services. These services include unlimited local and long distance calling, voicemail, caller ID, call waiting, text messaging, picture and multimedia messaging, international long distance and text messaging, ringtones, games and content applications, unlimited directory assistance, ring back tones, nationwide roaming, mobile Internet browsing and other value-added services.

We aggregate our operating segments into two reportable segments: Core Markets and Expansion Markets.

	•		Core Markets, which include Atlanta, Miami, San Francisco, and Sacramento, are aggregated because they are reviewed on an aggregate basis by the chief operating decision maker, they are similar in respect to their products and services, production processes, class of customer, method of distribution, and regulatory environment and currently exhibit similar financial performance and economic characteristics.

	•		Expansion Markets, which include Dallas/Ft. Worth, Detroit, Tampa/Sarasota/Orlando and Los Angeles, are aggregated because they are reviewed on an aggregate basis by the chief operating decision maker, they are similar in respect to their products and services, production processes, class of customer, method of distribution, and regulatory environment and have similar expected long-term financial performance and economic characteristics.

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. General corporate overhead, which includes expenses such as corporate employee labor costs, rent and utilities, legal, accounting and auditing expenses, is allocated equally across all operating segments. Corporate marketing and advertising expenses are allocated equally to the operating segments, beginning in the period during which we launch service in that operating segment. Expenses associated with our national data center are allocated based on the average number of customers in each operating segment. There are no transactions between reportable segments.

Results of Operations

Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 2005

Set forth below is a summary of certain financial information by reportable operating segment for the periods indicated:


	Three Months
	Ended September 30,
Reportable Operating Segment Data	2006			2005			Change
	(in thousands)
REVENUES:
Service revenues:
Core Markets	$	285,313		$	221,614			29	%
Expansion Markets		47,607			1			*	*

Total	$	332,920		$	221,615			50	%

Equipment revenues:
Core Markets	$	50,594		$	41,923			21	%
Expansion Markets		12,602			17			*	*

Total	$	63,196		$	41,940			51	%

OPERATING EXPENSES:
Cost of service (excluding depreciation and amortization disclosed separately below) (1):
Core Markets	$	83,498		$	69,161			21	%
Expansion Markets		30,026			3,100			*	*

Total	$	113,524		$	72,261			57	%

Cost of equipment:
Core Markets	$	87,614		$	77,042			14	%
Expansion Markets		30,368			98			*	*

Total	$	117,982		$	77,140			53	%

Selling, general and administrative expenses (excluding depreciation and amortization disclosed separately below)(1):
Core Markets	$	38,541		$	36,537			5	%
Expansion Markets		21,679			2,479			*	*

Total	$	60,220		$	39,016			54	%

Adjusted EBITDA (Deficit)(2):
Core Markets	$	128,283		$	81,134			58	%
Expansion Markets		(20,112	)		(5,659	)		*	*
Depreciation and amortization:
Core Markets	$	28,796		$	21,093			37	%
Expansion Markets		6,890			474			*	*
Other		925			344			169	%

Total	$	36,611		$	21,911			67	%

Stock-based compensation expense:
Core Markets	$	2,030		$	337			502	%
Expansion Markets		1,751			—			*	*

Total	$	3,781		$	337			*	*

Income (loss) from operations:
Core Markets	$	98,864		$	54,526			81	%
Expansion Markets		(28,545	)		(6,383	)		347	%
Other		(925	)		(365	)		153	%

Total	$	69,394		$	47,778			45	%


**		Not meaningful. The Expansion Markets reportable segment had no significant operations during the quarter ended September 30, 2005.

(1)		Cost of service and selling, general and administrative expenses include stock-based compensation expense. For the three months ended September 30, 2006, cost of service includes $0.5 million and selling, general and administrative expenses includes $3.3 million of stock-based compensation expense.

(2)		Core and Expansion Markets Adjusted EBITDA is presented in accordance with SFAS No. 131 as it is the primary financial measure utilized by management to facilitate evaluation of our ability to meet future debt service, capital expenditures and working capital requirements and to fund future growth. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Operating Segments.”

Service Revenues. Service revenues increased $111.3 million, or 50%, to $332.9 million for the three months ended September 30, 2006 from $221.6 million for the three months ended September 30, 2005. The increase is due to increases in Core Markets and Expansion Markets service revenues as follows:

	•		Core Markets. Core Markets service revenues increased $63.7 million, or 29%, to $285.3 million for the three months ended September 30, 2006 from $221.6 million for the three months ended September 30, 2005. The increase in service revenues is primarily attributable to net additions of approximately 435,000 customers accounting for $55.4 million of the Core Markets increase, coupled with the migration of existing customers to higher priced rate plans accounting for $8.3 million of the Core Markets increase.

			The increase in customers migrating to higher priced rate plans is primarily the result of our emphasis on offering additional services under our $45 rate plan which includes unlimited nationwide long distance and various unlimited data features. In addition, this migration is expected to continue as our higher priced rate plans become more attractive to our existing customer base.

	•		Expansion Markets. Expansion Markets service revenues were $47.6 million for the three months ended September 30, 2006. These revenues were attributable to the launch of the Tampa/Sarasota metropolitan area in October 2005, the Dallas/Ft. Worth metropolitan area in March 2006 and the Detroit metropolitan area in April 2006. Net customer additions in the Expansion Markets totaled approximately 142,500 customers during the three months ended September 30, 2006. Since the launch of the Tampa/Sarasota metropolitan area in October 2005, we have added approximately 442,300 customers in our Expansion Markets.

Equipment Revenues. Equipment revenues increased $21.3 million, or 51%, to $63.2 million for the three months ended September 30, 2006 from $41.9 million for the three months ended September 30, 2005. The increase is due to increases in Core Markets and Expansion Markets equipment revenues as follows:

	•		Core Markets. Core Markets equipment revenues increased $8.7 million, or 21%, to $50.6 million for the three months ended September 30, 2006 from $41.9 million for the three months ended September 30, 2005. The increase in equipment revenues is primarily attributable to the sale of higher priced handset models accounting for $8.2 million of the increase, coupled with the increase in gross customer additions during the year of approximately 5,000 customers, which accounted for $0.5 million of the increase.

	•		Expansion Markets. Expansion Markets equipment revenues were $12.6 million for the three months ended September 30, 2006. These revenues were attributable to the launch of the Tampa/Sarasota metropolitan area in October 2005, the Dallas/Ft. Worth metropolitan area in March 2006 and the Detroit metropolitan area in April 2006. Gross additions in the Expansion Markets totaled approximately 195,000 customers for the three months ended September, 2006.

			The increase in handset model availability is primarily the result of our emphasis on enhancing our product offerings and appealing to our customer base in connection with our wireless services.

Cost of Service. Cost of service increased $41.2 million, or 57%, to $113.5 million for the three months ended September 30, 2006 from $72.3 million for the three months ended September 30, 2005. The increase is due to increases in Core Markets and Expansion Markets cost of service as follows:

•

Core Markets. Core Markets cost of service increased $14.3 million, or 21%, to $83.5 million for the three months ended September 30, 2006 from $69.2 million for the three months ended September 30, 2005. The increase was primarily attributable to a $3.3 million increase in long distance costs, a $2.5 million increase in FUSF fees, a $1.8 million increase in cell site and switch facility lease expense, a $1.3 million increase in customer service expense, a $1.1 million increase in employee costs, a $0.7 million increase in billing expenses, and a $0.6 million increase in intercarrier compensation, all of which are as a result of the 25% growth in our Core Markets customer base and the addition of approximately 335 cell sites to our existing network infrastructure.

•

Expansion Markets. Expansion Markets cost of service increased $26.9 million to $30.0 million for the three months ended September 30, 2006 from $3.1 million for the three months ended September 30, 2005. The increase was attributable to the launch of the Tampa/Sarasota metropolitan area in October 2005, the Dallas/Ft. Worth metropolitan area in March 2006 and the Detroit metropolitan area in April 2006, which contributed net additions of approximately 142,500 customers during the three months ended September 30, 2006. These activities resulted in a $6.0 million increase in cell site and switch facility lease expense, a $3.8 million increase in employee costs, $3.6 million increase in intercarrier compensation, $2.6 million in long distance costs, $2.5 million in customer service expense and $1.1 million in billing expenses.

Cost of Equipment. Cost of equipment increased $40.9 million, or 53%, to $118.0 million for the three months ended September 30, 2006 from $77.1 million for the three months ended September 30, 2005. The increase is due to increases in Core Markets and Expansion Markets cost of equipment as follows:

	•		Core Markets. Core Markets cost of equipment increased $10.6 million, or 14%, to $87.6 million for the three months ended September 30, 2006 from $77.0 million for the three months ended September 30, 2005. The increase in equipment costs is primarily attributable to the sale of higher cost handset models accounting for $9.7 million of the increase. The increase in gross customer additions during the year of approximately 5,000 customers as well as the sale of new handsets to existing customers accounted for $0.9 million of the increase.

	•		Expansion Markets. Expansion Markets cost of equipment was $30.4 million for the three months ended September 30, 2006. These costs were primarily attributable to the launch of the Tampa/Sarasota metropolitan area in October 2005, the Dallas/Ft. Worth metropolitan area in March 2006 and the Detroit metropolitan area in April 2006.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $21.2 million, or 54%, to $60.2 million for the three months ended September 30, 2006 from $39.0 million for the three months ended September 30, 2005. The increase is due to increases in Core Markets and Expansion Markets selling, general and administrative expenses as follows:

	•		Core Markets. Core Markets selling, general and administrative expenses increased $2.0 million, or 5%, to $38.5 million for the three months ended September 30, 2006 from $36.5 million for the three months ended September 30, 2005. Selling expenses increased by $2.9 million, or approximately 20% for the three months ended September 30, 2006 compared to the three months ended September 30, 2005. General and administrative expenses decreased $0.9 million, or approximately 4% for the three months ended September 30, 2006 compared to the same period in 2005. The increase in selling expenses is primarily due to an increase in advertising and market research expenses which were incurred to support the growth in the Core Markets. This increase in selling expenses was offset by a decrease in general and administrative expenses, which were higher during the quarter ended September 30, 2005 because they included legal and accounting expenses associated with an internal investigation related to material weaknesses in our internal control over financial reporting as well as financial statement audits related to our restatement efforts.

	•		Expansion Markets. Expansion Markets selling, general and administrative expenses increased $19.2 million to $21.7 million for the three months ended September 30, 2006 from $2.5 million for the three months ended September 30, 2005. Selling expenses increased by $7.9 million for the three months ended September 30, 2006 compared to the three months ended September 30, 2005. This increase is related to marketing and advertising expenses associated with the launch of the Dallas/Ft. Worth and Detroit metropolitan areas. General and administrative expenses increased by $11.3 million for the three months ended September 30, 2006 compared to the same period in 2005 due to labor, rent, legal and professional fees and various administrative expenses incurred in relation to the launch of the Dallas/Ft. Worth, Detroit and Tampa/Sarasota metropolitan areas and build-out expenses related to the Orlando and Los Angeles metropolitan areas.

Depreciation and Amortization. Depreciation and amortization expense increased $14.7 million, or 67%, to $36.6 million for the three months ended September 30, 2006 from $21.9 million for the three months ended September 30, 2005. The increase is primarily due to increases in Core Markets and Expansion Markets depreciation expense as follows:

	•		Core Markets. Core Markets depreciation and amortization expense increased $7.7 million, or 37%, to $28.8 million for the three months ended September 30, 2006 from $21.1 million for the three months ended September 30, 2005. The increase related primarily to an increase in network infrastructure assets placed into service between September 30, 2005 and September 30, 2006. We added approximately 335 cell sites in our Core Markets during this period to increase the capacity of our existing network and expand our footprint.

	•		Expansion Markets. Expansion Markets depreciation and amortization expense increased $6.4 million to $6.9 million for the three months ended September 30, 2006 from $0.5 million for the three months ended September 30, 2005. The increase is attributable to network infrastructure assets placed into service as a result of the launch of the Tampa/Sarasota, Dallas/Ft. Worth and Detroit metropolitan areas.


	Three Months
	Ended September 30,
Consolidated Data	2006		2005		Change
	(in thousands)
Interest expense		24,811		17,069		45	%
Provision for income taxes		19,500		13,196		48	%
Net income		29,266		20,556		42	%

Interest Expense. Interest expense increased $7.7 million, or 45%, to $24.8 million for the three months ended September 30, 2006 from $17.1 million for the three months ended September 30, 2005. The increase in interest expense was primarily due to increased average principal balance outstanding as a result of additional borrowings of $150.0 million in the fourth quarter of 2005 under our First Lien Credit Agreement, maturing May 31, 2011, and our Second Lien Credit Agreement, maturing May 31, 2012 (collectively the “Credit Agreements”), and $200.0 million under our secured bridge credit facility in the third quarter of 2006. Interest expense also increased due to the weighted average interest rate increasing to 10.99% for the three months ended September 30, 2006 compared to 9.07% for the three months ended September 30, 2005. The increase in interest expense was partially offset by the capitalization of $7.6 million of interest during the three months ended September 30, 2006, compared to $0.9 million of interest capitalized during the same period in 2005. We capitalize interest costs associated with our FCC licenses and property and equipment during the construction of a new market. The amount of such capitalized interest depends on the carrying values of the FCC licenses and construction in progress involved in those markets and the duration of the construction process. We expect capitalized interest to be significant during the construction of our additional Expansion Markets.

Provision for Income Taxes. Income tax expense for three months ended September 30, 2006 increased to $19.5 million, which is approximately 40% of our income before provision for income taxes. For the three months ended September 30, 2005 the provision for income taxes was $13.2 million, or approximately 39% of income before provision for income taxes.

Net Income. Net income increased $8.7 million, or 42%, for the three months ended June 30, 2006 compared to the three months ended June 30, 2005. The increase is primarily attributable to the approximately 42% growth in average customers compared to the three months ended September 30, 2005.

Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005

Set forth below is a summary of certain financial information by reportable operating segment for the periods indicated:


	Nine Months
	Ended September 30,
Reportable Operating Segment Data	2006			2005			Change
	(in thousands)
REVENUES:
Service revenues:
Core Markets	$	831,053		$	631,208			32	%
Expansion Markets		85,126			1			*	*

Total	$	916,179		$	631,209			45	%

Equipment revenues:
Core Markets	$	149,200		$	118,973			25	%
Expansion Markets		28,392			17			*	*

Total	$	177,592		$	118,990			49	%

OPERATING EXPENSES:
Cost of service (excluding depreciation and amortization disclosed separately below) (1):
Core Markets	$	244,636		$	197,425			24	%
Expansion Markets		68,874			4,515			*	*

Total	$	313,510		$	201,940			55	%

Cost of equipment:
Core Markets	$	261,258		$	210,431			24	%
Expansion Markets		69,640			98			*	*

Total	$	330,898		$	210,529			57	%

Selling, general and administrative expenses (excluding depreciation and amortization disclosed separately below) (1):
Core Markets	$	114,021		$	112,137			2	%
Expansion Markets		57,900			4,069			*	*

Total	$	171,921		$	116,206			48	%

Adjusted EBITDA (Deficit) (2):
Core Markets	$	364,585		$	233,491			56	%
Expansion Markets		(79,393	)		(8,665	)		*	*
Depreciation and amortization:
Core Markets	$	80,467		$	60,158			34	%
Expansion Markets		13,381			721			*	*
Other		2,339			1,016			130	%

Total	$	96,187		$	61,895			55	%

Stock-based compensation expense:
Core Markets	$	4,246		$	3,302			29	%
Expansion Markets		3,504			—			*	*

Total	$	7,750		$	3,302			135	%

Income (loss) from operations:
Core Markets	$	269,735		$	388,572			(31	)%
Expansion Markets		(96,904	)		(9,635	)		*	*
Other		(2,339	)		(1,016	)		130	%

Total	$	170,492		$	377,921			(55	)%


**		Not meaningful. The Expansion Markets reportable segment had no significant operations during 2005.

(1)		Cost of service and selling, general and administrative expenses include stock-based compensation expense. For the nine months ended September 30, 2006, cost of service includes $1.0 million and selling, general and administrative expenses includes $6.8 million of stock-based compensation expense.

(2)		Core and Expansion Markets Adjusted EBITDA (deficit) is presented in accordance with SFAS No. 131 as it is the primary financial measure utilized by management to facilitate evaluation of our ability to meet future debt service, capital expenditures and working capital requirements and to fund future growth. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Operating Segments.”

Service Revenues. Service revenues increased $285.0 million, or 45%, to $916.2 million for the nine months ended September 30, 2006 from $631.2 million for the nine months ended September 30, 2005. The increase is due to increases in Core Markets and Expansion Markets service revenues as follows:

	•		Core Markets. Core Markets service revenues increased $199.9 million, or 32%, to $831.1 million for the nine months ended September 30, 2006 from $631.2 million for the nine months ended September 30, 2005. The increase in service revenues is primarily attributable to net additions of approximately 435,000 customers accounting for $157.8 million of the Core Markets increase, coupled with the migration of existing customers to higher price rate plans accounting for $42.1 million of the Core Markets increase.

			The increase in customers migrating to higher priced rate plans is primarily the result of our emphasis on offering additional services under our $45 rate plan which includes unlimited nationwide long distance and various unlimited data features. In addition, this migration is expected to continue as our higher priced rate plans become more attractive to our existing customer base.

	•		Expansion Markets. Expansion Markets service revenues were $85.1 million for the nine months ended September 30, 2006. These revenues are attributable to the launch of the Tampa/Sarasota metropolitan area in October 2005, the Dallas/Ft. Worth metropolitan area in March 2006 and the Detroit metropolitan area in April 2006. Net additions in the Expansion Markets totaled approximately 442,000 customers.

Equipment Revenues. Equipment revenues increased $58.6 million, or 49%, to $177.6 million for the nine months ended September 30, 2006 from $119.0 million for the nine months ended September 30, 2005. The increase is due to increases in Core Markets and Expansion Markets equipment revenues as follows:

	•		Core Markets. Core Markets equipment revenues increased $30.2 million, or 25%, to $149.2 million for the nine months ended September 30, 2006 from $119.0 million for the nine months ended September 30, 2005. The increase is attributable to higher priced handset models accounting for $17.0 million of the increase, coupled with the increase in gross customer additions during the year of approximately 118,000 customers for $13.2 million of the increase.

	•		Expansion Markets. Expansion Markets equipment revenues were $28.4 million for the nine months ended September 30, 2006. These revenues are attributable to approximately 470,000 gross customer additions due to the launch of the Tampa/Sarasota, Dallas/Ft. Worth and Detroit metropolitan areas.

			The increase in handset model availability is primarily the result of our emphasis on enhancing our product offerings and appealing to our customer base in connection with our wireless services.

Cost of Service. Cost of service increased $111.6 million, or 55%, to $313.5 million for the nine months ended September 30, 2006 from $201.9 million for the nine months ended September 30, 2005. The increase is due to increases in Core Markets and Expansion Markets cost of service as follows:

	•		Core Markets. Core Markets cost of service increased $47.2 million, or 24%, to $244.6 million for the nine months ended September 30, 2006 from $197.4 million for the nine months ended September 30, 2005. The increase was primarily attributable to a $10.2 million increase in long distance costs, a $7.2 million increase in FUSF fees, a $5.4 million increase in cell site and switch facility lease expense, a $4.7 million increase in intercarrier compensation, a $4.8 million increase in customer service expense, and a $3.4 million increase in employee costs, all of which are a result of the 25% growth in our Core Markets customer base and the addition of approximately 335 cell sites to our existing network infrastructure.

	•		Expansion Markets. Expansion Markets cost of service increased $64.4 million to $68.9 million for the nine months ended September 30, 2006 from $4.5 million for the nine months ended September 30, 2005. The increase was attributable to the launch of the Tampa/Sarasota metropolitan area in October 2005, the Dallas/Ft. Worth metropolitan area in March 2006 and the Detroit metropolitan area in April 2006, which contributed net customer additions of approximately 389,300 customers during the nine months ended September 30, 2006. These activities resulted in a $15.4 million increase in cell site and switch facility lease expense, a $10.6 million increase in employee costs, a $8.7 million increase in intercarrier compensation, $5.0 million in customer service expense, $5.0 million in long distance costs and $2.1 million in billing expenses.

Cost of Equipment. Cost of equipment increased $120.4 million, or 57%, to $330.9 million for the nine months ended September 30, 2006 from $210.5 million for the nine months ended September 30, 2005. The increase is due to increases in Core Markets and Expansion Markets cost of equipment as follows:

	•		Core Markets. Core Markets cost of equipment increased $50.8 million, or 24%, to $261.3 million for the nine months ended September 30, 2006 from $210.5 million for the nine months ended September 30, 2005. The increase is due to increased gross customer additions in our Core Markets, a 39% increase in sales of new handsets to our existing customers as well as an increase in the average handset cost per unit which related to an increase in sales of higher priced handset models during the first nine months of 2006.

	•		Expansion Markets. Expansion Markets cost of equipment was $69.6 million for the nine months ended September 30, 2006. This cost is attributable to the sale of handsets to approximately 470,200 new customers as well as the sale of new handsets to existing customers in the Tampa/Sarasota, Dallas/Ft. Worth and Detroit metropolitan areas.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $55.7 million, or 48%, to $171.9 million for the nine months ended September 30, 2006 from $116.2 million for the nine months ended September 30, 2005. The increase is due to increases in Core Markets and Expansion Markets selling, general and administrative expenses as follows:

	•		Core Markets. Core Markets selling, general and administrative expenses increased $1.9 million, or 2%, to $114.0 million for the nine months ended September 30, 2006 from $112.1 million for the nine months ended September 30, 2005. Selling expenses increased by $7.0 million, or approximately 16% for the first nine months of 2006 compared to the nine months ended September 30, 2005. General and administrative expenses decreased $5.1 million, or approximately 7% for the nine months ended September 30, 2006 compared to the same period in 2005. The increase in selling expenses is primarily due to an increase in advertising and market research expenses which were incurred to support the growth in the Core Markets. This increase in selling expenses was offset by a decrease in general and administrative expenses, which were higher in 2005 because they included approximately $5.9 million in legal and accounting expenses associated with an internal investigation related to material weaknesses in our internal control over financial reporting as well as financial statement audits related to our restatement efforts.

	•		Expansion Markets. Expansion Markets selling, general and administrative expenses increased $53.8 million to $57.9 million for the nine months ended September 30, 2006 from $4.1 million for the nine months ended September 30, 2005. Selling expenses increased by $22.0 million for the first nine months of 2006 compared to the nine months ended September 30, 2005. This increase in selling expenses was related to marketing and advertising expenses associated with the launch of the Dallas/Ft. Worth and Detroit metropolitan areas. General and administrative expenses increased by $31.8 million for the nine months ended September 30, 2006 compared to the same period in 2005 due to labor, rent, legal and professional fees and various administrative expenses incurred in relation to the launch of the Dallas/Ft. Worth, Detroit and Tampa/Sarasota metropolitan areas and build-out expenses related to Orlando and Los Angeles.

Depreciation and Amortization. Depreciation and amortization expense increased $34.3 million, or 55%, to $96.2 million for the nine months ended September 30, 2006 from $61.9 million for the nine months ended September 30, 2005. The increase is primarily due to increases in Core Markets and Expansion Markets depreciation expense as follows:

•

Core Markets. Core Markets depreciation and amortization expense increased $20.3 million, or 34%, to $80.5 million for the nine months ended September 30, 2006 from $60.2 million for the nine months ended September 30, 2005. The increase related primarily to an increase in network infrastructure assets placed into service between September 30, 2005 and September 30, 2006. We added approximately 335 cell sites in our Core Markets during this period to increase the capacity of our existing network and expand our footprint.

•

Expansion Markets. Expansion Markets depreciation and amortization expense increased $12.7 million to $13.4 million for the nine months ended September 30, 2006 from $0.7 million for the nine months ended September 30, 2005. The increase is attributable to network infrastructure assets placed into service as a result of the launch of the Tampa/Sarasota, Dallas/Ft. Worth and Detroit metropolitan areas.


	Nine Months
	Ended September 30,
Consolidated Data	2006			2005			Change
	(in thousands)
Loss (gain) on disposal of assets	$	10,763		$	(218,292	)		(105	)%
(Gain) loss on extinguishment of debt		(244	)		46,448			(101	)%
Interest expense		67,408			40,867			65	%
Provision for income taxes		47,245			115,460			(59	)%
Net income		70,625			179,835			(61	)%

Loss (Gain) on Disposal of Assets. In May 2005, we completed the sale of a 10 MHz portion of our 30 MHz PCS license in the San Francisco-Oakland-San Jose basic trading area for cash consideration of $230.0 million. The sale of PCS spectrum resulted in a gain on disposal of asset in the amount of $228.2 million.

(Gain) Loss on Extinguishment of Debt. In May 2005, we repaid all of the outstanding debt under our FCC notes, 10³/4% Senior Notes and bridge credit agreement. As a result, we recorded a $1.9 million loss on the extinguishment of the FCC notes; a $34.0 million loss on extinguishment of the 10³/4% Senior Notes; and a $10.4 million loss on the extinguishment of the bridge credit agreement.

Interest Expense. Interest expense increased $26.5 million, or 65%, to $67.4 million for the nine months ended September 30, 2006 from $40.9 million for the nine months ended September 30, 2005. The increase in interest expense was primarily due to increased average principal balance outstanding as a result of additional borrowings of $150.0 million under our Credit Agreements in the fourth quarter of 2005 and an additional $200.0 million under the secured bridge credit facility in the third quarter of 2006. Interest expense also increased due to the weighted average interest rate increasing to 10.67% for the nine months ended September 30, 2006 compared to 8.85% for the nine months ended September 30, 2005. The increase in interest expense was partially offset by the capitalization of $11.6 million of interest during the nine months ended September 30, 2006, compared to $2.3 million of interest capitalized during the same period in 2005. We capitalize interest costs associated with our FCC licenses and property and equipment beginning with pre-construction period administrative and technical activities, which includes obtaining building permits. The amount of such capitalized interest depends on the carrying values of the FCC licenses and construction in progress involved in those markets and the duration of the construction process. With respect to our FCC licenses, capitalization of interest costs ceases at the point in time in which the asset is ready for its intended use, which generally coincides with the market launch date. In the case of our property and equipment, capitalization of interest costs ceases at the point in time in which the network assets are placed into service. We expect capitalized interest to be significant during the construction of our additional Expansion Markets and related network assets.

Provision for Income Taxes. Income tax expense for nine months ended September 30, 2006 decreased to $47.2 million, which is approximately 40% of our income before provision for income taxes. For the nine months ended September 30, 2005 the provision for income taxes was $115.5 million, or approximately 39% of income before provision for income taxes. The nine months ended September 30, 2005 included a gain on the sale of a 10 MHz portion of our 30 MHz PCS license in the San Francisco-Oakland-San Jose basic trading area in the amount of $228.2 million.

Net Income. Net income decreased $109.2 million, or 61%, for the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005. The significant decrease is primarily attributable to our nonrecurring sale of a 10 MHz portion of our 30 MHz PCS license in the San Francisco-Oakland-San Jose basic trading area in May 2005 for cash consideration of $230.0 million. The sale of PCS spectrum resulted in a gain on disposal of asset in the amount of $139.2 million, net of income taxes. Net income for the nine months ended September 30, 2006, excluding the tax effected impact of the gain on the sale the PCS license, increased approximately 74%, which was primarily due to the approximately 43% growth in average customers compared to the nine months ended September 30, 2005.

Performance Measures

In managing our business and assessing our financial performance, we supplement the information provided by financial statement measures with several customer-focused performance metrics that are widely used in the wireless industry. These metrics include average revenue per user per month, or ARPU, which measures service revenue per customer; cost per gross customer addition, or CPGA, which measures the average cost of acquiring a new customer; cost per user per month, or CPU, which measures the non-selling cash cost of operating our business on a per customer basis; and churn, which measures turnover in our customer base. For a reconciliation of Non-GAAP performance measures and a further discussion of the measures, please read “— Reconciliation of Non-GAAP Financial Measures” below.

The following table shows consolidated metric information for the three and nine months ended September 30, 2005 and 2006.


	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2005			2006			2005			2006
Customers:
End of period		1,739,787			2,616,532			1,739,787			2,616,532
Net additions		94,613			197,623			341,055			691,911
Churn:
Average monthly rate		5.6	%		5.0	%		5.0	%		4.7	%
ARPU	$	42.16		$	42.78		$	42.34		$	42.91
CPGA	$	102.56		$	120.29		$	101.46		$	116.56
CPU	$	19.61		$	19.15		$	19.15		$	19.65

Customers. Net customer additions were 197,623 for the three months ended September 30, 2006, compared to 94,613 for the three months ended September 30, 2005, an increase of 109%. Net customer additions were 691,911 for the nine months ended September 30, 2006, compared to 341,055 for the nine months ended September 30, 2005, an increase of 103%. Total customers were 2,616,532 as of September 30, 2006, an increase of 50% over the customer total as of September 30, 2005 and 36% over the customer total as of December 31, 2005. These increases are primarily attributable to the continued demand for our service offering.

Churn. As we do not require a long-term service contract, our churn percentage is expected to be higher than traditional wireless carriers that require customers to sign a one- to two-year contract with significant early termination fees. Average monthly churn represents (a) the number of customers who have been disconnected from our system during the measurement period less the number of customers who have reactivated service, divided by (b) the sum of the average monthly number of customers during such period. We classify delinquent customers as churn after they have been delinquent for 30 days. In addition, when an existing customer establishes a new account in connection with the purchase of an upgraded or replacement phone and does not identify themselves as an existing customer, we count that phone leaving service as a churn and the new phone entering service as a gross customer addition. Churn for the three months ended September 30, 2006 was 5.0% compared to 5.6% for the three months ended September 30, 2005. Churn for the nine months ended September 30, 2006 was 4.7% compared to 5.0% for the nine months ended September 30, 2005. Based upon a change in the allowable return period from 7 days to 30 days, we revised our definition of gross customer additions to exclude customers that discontinue service in the first 30 days of service. This revision reduces deactivations and gross customer additions commencing March 23, 2006, and reduces churn. We estimated that churn computed under the original 7 day allowable return period would have been 5.7% and 5.2% for the three and nine months ended September 30, 2006, respectively.

Average Revenue Per User. ARPU represents (a) service revenues less activation revenues, E-911, Federal Universal Service Fund, or FUSF, and vendor’s compensation charges for the measurement period, divided by (b) the sum of the average monthly number of customers during such period. ARPU was $42.78 and $42.16 for the three months ended September 30, 2006 and 2005, respectively, an increase of $0.62, or 1%. ARPU was $42.91 and $42.34 for the nine months ended September 30, 2006 and 2005, respectively, an increase of $0.57, or 1%. The

increase in ARPU was primarily the result of attracting customers to higher priced service plans, which include unlimited nationwide long distance for $40 per month as well as unlimited nationwide long distance and certain calling and data features on an unlimited basis for $45 per month.

Cost Per Gross Addition. CPGA is determined by dividing (a) selling expenses plus the total cost of equipment associated with transactions with new customers less activation revenues and equipment revenues associated with transactions with new customers during the measurement period by (b) gross customer additions during such period. Retail customer service expenses and equipment margin on handsets sold to existing customers when they are identified, including handset upgrade transactions, are excluded, as these costs are incurred specifically for existing customers. CPGA costs have increased to $120.29 for the three months ended September 30, 2006 from $102.56 for the three months ended September 30, 2005, which was primarily driven by the selling expenses associated with the launch of the Tampa/Sarasota, Dallas/Ft. Worth and Detroit metropolitan areas. CPGA costs have increased to $116.56 for the nine months ended September 30, 2006 from $101.46 for the nine months ended September 30, 2005, which was primarily driven by the selling expenses associated with the launch of the Dallas/Ft. Worth and Detroit metropolitan areas. In addition, on January 23, 2006, we revised the terms of our return policy from 7 days to 30 days, and as a result we revised our definition of gross customer additions to exclude customers that discontinue service in the first 30 days of service. This revision, commencing March 23, 2006, reduces deactivations and gross customer additions and increases CPGA. CPGA computed under the original 7 day allowable return period would have been $110.43 and $109.84 for the three and nine months ended September 30, 2006, respectively.

Cost Per User. CPU is cost of service and general and administrative costs (excluding applicable non-cash stock-based compensation expense included in cost of service and general and administrative expense) plus net loss on handset equipment transactions unrelated to initial customer acquisition (which includes the gain or loss on sale of handsets to existing customers and costs associated with handset replacements and repairs (other than warranty costs which are the responsibility of the handset manufacturers)), divided by the sum of the average monthly number of customers during such period. CPU for the three months ended September 30, 2006 and 2005 was $19.15 and $19.61, respectively. CPU for the nine months ended September 30, 2006 and 2005 was $19.65 and $19.15, respectively. We continue to achieve cost benefits due to the increasing scale of our business. However, these benefits have been offset by a combination of the construction and launch expenses associated with our Expansion Markets, which contributed approximately $3.38 and $3.48 of additional CPU for the three and nine months ended September 30, 2006, respectively. In addition, CPU has increased historically due to costs associated with higher ARPU service plans such as those related to unlimited nationwide long distance.

Core Markets Performance Measures

Set forth below is a summary of certain key performance measures for the periods indicated for our Core Markets:


	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2005			2006			2005			2006
	(dollars in thousands)
Core Markets Customers:
End of period		1,739,441			2,174,264			1,739,441			2,174,264
Net additions		94,267			55,096			340,709			302,599
Core Markets Adjusted EBITDA	$	81,134		$	128,283		$	233,491		$	364,585
Core Markets Adjusted EBITDA as a Percent of Service Revenues		36.6	%		45.0	%		37.0	%		43.9	%

We launched our service initially in 2002 in the greater Miami, Atlanta, Sacramento and San Francisco metropolitan areas. Our Core Markets have a licensed population of approximately 25 million, of which our networks currently cover approximately 22 million. In addition, we had positive adjusted earnings before interest, taxes, depreciation and amortization, gain/loss on disposal of assets, accretion of put option in majority-owned subsidiary, gain/loss on extinguishment of debt, cumulative effect of change in accounting principle and non-cash stock-based compensation, or Adjusted EBITDA, in our Core Markets after only four full quarters of operations.

Customers. Net customer additions in our Core Markets were 55,096 for the three months ended September 30, 2006, compared to 94,267 for the three months ended September 30, 2005. Net customer additions in our Core Markets were 302,599 for the nine months ended September 30, 2006, compared to 340,709 for the nine months ended September 30, 2005. Total customers were 2,174,264 as of September 30, 2006, an increase of 25% over the customer total as of September 30, 2005 and 16% over the customer total as of December 31, 2005. These increases are primarily attributable to the continued demand for our service offering.

Adjusted EBITDA. Adjusted EBITDA is presented in accordance with SFAS No. 131 as it is the primary performance metric for which our reportable segments are evaluated and it is utilized by management to facilitate evaluation of our ability to meet future debt service, capital expenditures and working capital requirements and to fund future growth. For the three months ended September 30, 2006, Core Markets Adjusted EBITDA was $128.3 million compared to $81.1 million for the same period in 2005. For the nine months ended September 30, 2006, Core Markets Adjusted EBITDA was $364.6 million compared to $233.5 million for the same period in 2005. We continue to experience increases in Core Markets Adjusted EBITDA as a result of continued customer growth and cost benefits due to the increasing scale of our business in the Core Markets.

Adjusted EBITDA as a Percent of Service Revenues. Adjusted EBITDA as a percent of service revenues is calculated by dividing Adjusted EBITDA by total service revenues. Core Markets Adjusted EBITDA as a percent of service revenues for the three months ended September 30, 2006 and 2005 were 45% and 37%, respectively. Core Markets Adjusted EBITDA as a percent of service revenues for the nine months ended September 30, 2006 and 2005 were 44% and 37%, respectively. Consistent with the increase in Core Markets Adjusted EBITDA, we continue to experience corresponding increases in Core Markets Adjusted EBITDA as a percent of service revenues due to the growth in service revenues as well as cost benefits due to the increasing scale of our business in the Core Markets.

Expansion Markets Performance Measures

Set forth below is a summary of certain key performance measures for the periods indicated for our Expansion Markets:


	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2005			2006			2005			2006
	(dollars in thousands)
Expansion Markets Customers:
End of period		346			442,268			346			442,268
Net additions		346			142,527			346			389,312
Expansion Markets Adjusted EBITDA (Deficit)	$	(5,659	)	$	(20,112	)	$	(8,665	)	$	(79,393	)

Customers. Net customer additions in our Expansion Markets were 142,527 for the three months ended September 30, 2006. Net customer additions in our Expansion Markets were 389,312 for the nine months ended September 30, 2006. Total customers were 442,268 as of September 30, 2006, an increase of 735% over the customer total as of December 31, 2005. The increase in 2006 is primarily attributable to the launch of the Tampa/Sarasota metropolitan area in October 2005, the launch of the Dallas/Ft. Worth metropolitan area in March 2006 and the Detroit metropolitan area in April 2006.

Adjusted EBITDA Deficit. Adjusted EBITDA is presented in accordance with SFAS No. 131 as it is the primary performance metric for which our reportable segments are evaluated and it is utilized by management to facilitate evaluation of our ability to meet future debt service, capital expenditures and working capital requirements and to fund future growth. For the three months ended September 30, 2006, Expansion Markets Adjusted EBITDA deficit was $20.1 million compared to $5.7 million for the same period in 2005. For the nine months ended September 30, 2006, Expansion Markets Adjusted EBITDA deficit was $79.4 million compared to $8.7 million for the same period in 2005. The increases in Adjusted EBITDA deficit, when compared to the same periods in the previous year, are attributable to the launch of the Tampa/Sarasota metropolitan area in October 2005, the launch of the Dallas/Ft. Worth metropolitan area in March 2006 and the Detroit metropolitan area in April 2006, as well as expenses associated with the construction of the Orlando metropolitan area, portions of northern Florida, and the Los Angeles metropolitan area.

Reconciliation of Non-GAAP Financial Measures

We utilize certain financial measures and key performance indicators that are not calculated in accordance with GAAP to assess our financial and operating performance. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the statement of income or statement of cash flows; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure so calculated and presented.

Average revenue per user, or ARPU, cost per gross addition, or CPGA, and cost per user, or CPU, are non-GAAP financial measures utilized by our management to judge our ability to meet our liquidity requirements and to evaluate our operating performance. We believe these measures are important in understanding the performance of our operations from period to period, and although every company in the wireless industry does not define each of these measures in precisely the same way, we believe that these measures (which are common in the wireless industry) facilitate key liquidity and operating performance comparisons with other companies in the wireless industry. The following tables reconcile our non-GAAP financial measures with our financial statements presented in accordance with GAAP.

ARPU — We utilize average revenue per user, or ARPU, to evaluate our per-customer service revenue realization and to assist in forecasting our future service revenues. ARPU is calculated exclusive of activation revenues, as these amounts are a component of our costs of acquiring new customers and are included in our calculation of CPGA. ARPU is also calculated exclusive of E-911, FUSF and vendor’s compensation charges, as these are generally pass through charges that we collect from our customers and remit to the appropriate government agencies.

Average number of customers for any measurement period is determined by dividing (a) the sum of the average monthly number of customers for the measurement period by (b) the number of months in such period. Average monthly number of customers for any month represents the sum of the number of customers on the first day of the month and the last day of the month divided by two. The following table shows the calculation of ARPU for the periods indicated.


	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2005			2006			2005			2006
	(in thousands,
	except average numbers of customers and ARPU)
Calculation of Average Revenue Per User (ARPU):
Service revenues	$	221,615		$	332,920		$	631,209		$	916,179
Less:
Activation revenues		(1,751	)		(2,123	)		(4,988	)		(6,026	)
E-911, FUSF and vendor’s compensation charges		(6,513	)		(9,512	)		(18,875	)		(29,222	)

Net service revenues	$	213,351		$	321,285		$	607,346		$	880,931
Divided by: Average number of customers		1,686,774			2,503,423			1,593,848			2,281,261

ARPU	$	42.16		$	42.78		$	42.34		$	42.91

CPGA — We utilize cost per gross customer addition, or CPGA, to assess the efficiency of our distribution strategy, validate the initial capital invested in our customers and determine the number of months to recover our customer acquisition costs. This measure also allows us to compare our average acquisition costs per new customer to those of other wireless broadband PCS providers. Activation revenues and equipment revenues related to new customers are deducted from selling expenses in this calculation as they represent amounts paid by customers at the time their service is activated that reduce our acquisition cost of those customers. Additionally, equipment costs associated with existing customers, net of related revenues, are excluded as this measure is intended to reflect only the acquisition costs related to new customers. The following table reconciles total costs used in the calculation of CPGA to selling expenses, which we consider to be the most directly comparable GAAP financial measure to CPGA.


	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2005			2006			2005			2006
	(in thousands,
	except gross customer additions and CPGA)
Calculation of Cost Per Gross Addition (CPGA):
Selling expenses	$	15,266		$	26,062		$	43,863		$	72,796
Less: Activation revenues		(1,751	)		(2,123	)		(4,988	)		(6,026	)
Less: Equipment revenues		(41,940	)		(63,196	)		(118,990	)		(177,592	)
Add: Equipment revenue not associated with new customers		20,891			28,802			55,324			80,571
Add: Cost of equipment		77,140			117,982			210,529			330,898
Less: Equipment costs not associated with new customers		(30,949	)		(38,259	)		(77,910	)		(108,292	)

Gross addition expenses	$	38,657		$	69,268		$	107,828		$	192,355
Divided by: Gross customer additions		376,916			575,820			1,062,772			1,650,282

CPGA	$	102.56		$	120.29		$	101.46		$	116.56

CPU — Cost per user, or CPU, is cost of service and general and administrative costs (excluding applicable non-cash stock-based compensation expense included in cost of service and general and administrative expense) plus net loss on equipment transactions unrelated to initial customer acquisition (which includes the gain or loss on sale of handsets to existing customers and costs associated with handset replacements and repairs (other than warranty costs which are the responsibility of the handset manufacturers)) exclusive of E-911, FUSF and vendor’s compensation charges, divided by the sum of the average monthly number of customers during such period. CPU does not include any depreciation and amortization expense. Management uses CPU as a tool to evaluate the non-selling cash expenses associated with ongoing business operations on a per customer basis, to track changes in these non-selling cash costs over time, and to help evaluate how changes in our business operations affect non-selling cash costs per customer. In addition, CPU provides management with a useful measure to compare our non-selling cash costs per customer with those of other wireless providers. We believe investors use CPU primarily as a tool to track changes in our non-selling cash costs over time and to compare our non-selling cash costs to those of other wireless providers. Other wireless carriers may calculate this measure differently. The following table reconciles total costs used in the calculation of CPU to cost of service, which we consider to be the most directly comparable GAAP financial measure to CPU.


	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2005			2006			2005			2006
	(in thousands,
	except average number of customers and CPU)
Calculation of Cost Per User (CPU):
Cost of service	$	72,261		$	113,524		$	201,940		$	313,510
Add: General and administrative expense		23,750			34,158			72,343			99,125
Add: Net loss on equipment transactions unrelated to initial customer acquisition		10,058			9,457			22,586			27,721
Less: Stock-based compensation expense included in cost of service and general and administrative expense		(337	)		(3,781	)		(3,302	)		(7,750	)
Less: E-911, FUSF and vendor’s compensation revenues		(6,513	)		(9,512	)		(18,875	)		(29,222	)

Total costs used in the calculation of CPU	$	99,219		$	143,846		$	274,692		$	403,384
Divided by: Average number of customers		1,686,774			2,503,423			1,593,848			2,281,261

CPU	$	19.61		$	19.15		$	19.15		$	19.65

Liquidity and Capital Resources

Our principal sources of liquidity are our existing cash, cash equivalents and short-term investments, cash generated from operations, proceeds from our recent sale of 9¹/4% senior notes and our senior secured credit facility. At September 30, 2006, we had a total of approximately $345.8 million in cash, cash equivalents and short-term investments.

Our strategy has been to offer our services in major metropolitan areas and their surrounding areas, which we refer to as clusters. We are seeking opportunities to enhance our current market clusters and to provide service in new geographic areas. From time to time, we may purchase spectrum and related assets from third parties or the FCC. We participated as a bidder in FCC Auction 66 and in November 2006 we were granted eight licenses for a total aggregate purchase price of approximately $1.4 billion.

As a result of the acquisition of the spectrum licenses from Auction 66 and the opportunities that these licenses provide for us to expand our operations into major metropolitan markets, we will require significant additional capital in the future to finance the construction and initial operating costs associated with such licenses, including clearing costs associated with non-governmental incumbent licenses which we currently estimate to be between approximately $40 million and $60 million. We generally do not intend to commence the construction of any individual license area until we have sufficient funds available to provide for the related construction and operating costs associated with such license area. We currently plan to focus on building out approximately 40 million of the total population in our Auction 66 Markets with a primary focus on the New York, Philadelphia, Boston and Las Vegas metropolitan areas. Of the approximate 40 million total population, we are targeting launch of operations with an initial covered population of approximately 30 to 32 million by late 2008 or early 2009. Total estimated capital expenditures to the launch of these operations are expected to be between $18 and $20 per covered population which equates to a total capital investment of approximately $550 million to $650 million. Total estimated expenditures, including capital expenditures, to become free cash flow positive, defined as Adjusted EBITDA less capital expenditures, are expected to be approximately $29 to $30 per covered population, which equates to $875 million to $1.0 billion based on an estimated initial covered population of approximately 30 to 32 million. We believe that our existing cash, cash equivalents and short-term investments, proceeds from our currently pending initial public offering, and our anticipated cash flows from operations will be sufficient to fully fund this planned expansion. Moreover, we have made no commitments for capital expenditures and we have the ability to reduce the rate of capital expenditure deployment.

The construction of our network and the marketing and distribution of our wireless communications products and services have required, and will continue to require, substantial capital investment. Capital outlays have included license acquisition costs, capital expenditures for construction of our network infrastructure, costs associated with clearing and relocating non-governmental incumbent licenses, funding of operating cash flow losses incurred as we launch services in new metropolitan areas and other working capital costs, debt service and financing fees and expenses. Our capital expenditures for the first nine months of 2006 were approximately $453.9 million and aggregate capital expenditures for 2005 were approximately $266.5 million. These expenditures were primarily associated with the construction of the network infrastructure in our Expansion Markets and our efforts to increase the service area and capacity of our existing Core Markets network through the addition of cell sites and switches. We believe the increased service area and capacity in existing markets will improve our service offering, helping us to attract additional customers and increase revenues. In addition, we believe our new Expansion Markets have attractive demographics which will result in increased revenues.

As of September 30, 2006, we owed an aggregate of $900 million under our Credit Agreements. In addition, in connection with our payment of the purchase price for the Auction 66 licenses in October 2006, certain of our subsidiaries borrowed $1.25 billion under a secured bridge credit facility and an additional $250 million under an unsecured bridge credit facility. See “— Bridge Credit Facilities” below. The funds borrowed under the bridge credit facilities were used primarily to pay the aggregate purchase price of approximately $1.4 billion for the licenses we purchased in Auction 66. In November 2006, we consummated the sale of $1.0 billion in aggregate principal amount of 9¹/4% senior notes and entered into a senior secured credit facility, pursuant to which we may borrow up to $1.7 billion. We borrowed $1.6 billion under our senior secured credit facility concurrently with the closing of the sale of the 9¹/4% senior notes and used the amount borrowed, together with the net proceeds from the sale of the 9¹/4% senior notes, to repay all amounts owed under the Credit Agreements and the bridge credit facilities and to pay the related premiums, fees and expenses and we intend to use the remaining amounts for general corporate purposes.

Our senior secured credit facility calculates consolidated Adjusted EBITDA as: consolidated net income plus depreciation and amortization; gain (loss) on disposal of assets; non-cash expenses; gain (loss) on extinguishment of debt; provision for income taxes; interest expense; and certain expenses of MetroPCS Communications minus interest and other income and non-cash items increasing consolidated net income.

We consider Adjusted EBITDA, as defined above, to be an important indicator to investors because it provides information related to our ability to provide cash flows to meet future debt service, capital expenditures and working capital requirements and fund future growth. We present this discussion of Adjusted EBITDA because covenants in our senior secured credit facility contain ratios based on this measure. If our Adjusted EBITDA were to decline below certain levels, covenants in our senior secured credit facility that are based on Adjusted EBITDA, including our maximum senior secured leverage ratio covenant, may be violated and could cause, among other things, an inability to incur further indebtedness and in certain circumstances a default or mandatory prepayment under our senior secured credit facility. Our maximum senior secured leverage ratio is required to be less than 4.5 to 1.0 based on Adjusted EBITDA plus the impact of certain new markets. The maximum senior secured leverage ratio is calculated as the ratio of senior secured indebtedness to Adjusted EBITDA, as defined by our senior secured credit facility. In addition, consolidated Adjusted EBITDA is also utilized, among other measures, to determine management’s compensation levels. Adjusted EBITDA is not a measure calculated in accordance with GAAP, and should not be considered a substitute for, operating income (loss), net income (loss), or any other measure of financial performance reported in accordance with GAAP. In addition, Adjusted EBITDA should not be construed as an alternative to, or more meaningful than cash flows from operating activities, as determined in accordance with GAAP.

The following table shows the calculation of our consolidated Adjusted EBITDA, as defined in our senior secured credit facility, for the three and nine months ended September 30, 2005 and 2006.


	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2005			2006			2005			2006
	(in thousands)
Calculation of Consolidated Adjusted EBITDA:
Net income	$	20,556		$	29,266		$	179,835		$	70,625
Adjustments:
Depreciation and amortization		21,911			36,611			61,895			96,187
Loss (gain) on disposal of assets		5,449			(1,615	)		(218,292	)		10,763
Stock-based compensation expense (1)		337			3,781			3,302			7,750
Interest expense		17,069			24,811			40,867			67,408
Accretion of put option in majority-owned subsidiary (1)		62			203			187			564
Interest and other income		(3,105	)		(4,386	)		(4,876	)		(15,106	)
Loss (gain) on extinguishment of debt		—			—			46,448			(244	)
Provision for income taxes		13,196			19,500			115,460			47,245

Consolidated Adjusted EBITDA	$	75,475		$	108,171		$	224,826		$	285,192


(1)		Represents a non-cash expense, as defined by our senior secured credit facility.

In addition, for further information, the following table reconciles consolidated Adjusted EBITDA, as defined in our senior secured credit facility, to cash flows from operating activities for the three and nine months ended September 30, 2005 and 2006.


	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2005			2006			2005			2006
	(in thousands)
Reconciliation of Net Cash Provided by Operating Activities to Consolidated Adjusted EBITDA:
Net cash provided by operating activities	$	94,996		$	85,620		$	247,015		$	284,688
Adjustments:
Interest expense		17,069			24,811			40,867			67,408
Non-cash interest expense		(139	)		(2,926	)		(3,766	)		(3,702	)
Interest and other income		(3,105	)		(4,386	)		(4,876	)		(15,106	)
Provision for uncollectible accounts receivable		(1	)		47			38			(64	)
Deferred rent expense		(1,264	)		(1,989	)		(3,091	)		(5,365	)
Cost of abandoned cell sites		(144	)		(1,431	)		(251	)		(2,069	)
Accretion of asset retirement obligation		(50	)		(171	)		(103	)		(469	)
Loss (gain) on sale of investments		—			607			(49	)		1,875
Provision for income taxes		13,196			19,500			115,460			47,245
Deferred income taxes		(12,569	)		(15,296	)		(113,580	)		(41,792	)
Changes in working capital		(32,514	)		3,785			(52,838	)		(47,457	)

Consolidated Adjusted EBITDA	$	75,475		$	108,171		$	224,826		$	285,192

In connection with the closing of the sale of the 9¹/4% senior notes, the entry into our senior secured credit facility and the repayment of all amounts outstanding under our Credit Agreements and bridge credit facilities, we consummated a concurrent restructuring transaction. As a result of the restructuring transaction, MetroPCS Wireless, Inc. became a wholly-owned direct subsidiary of MetroPCS, Inc. (formerly MetroPCS V, Inc.), which is a wholly-owned direct subsidiary of MetroPCS Communications, Inc. MetroPCS Communications, Inc. and MetroPCS, Inc. guaranteed the 9¹/4% senior notes and the obligations under the senior secured credit facility. MetroPCS, Inc. also pledged the capital stock of MetroPCS Wireless, Inc. as security for the obligations under the senior secured credit facility. All of our FCC licenses and our 85% limited liability company member interest in Royal Street Communications are now held by MetroPCS Wireless, Inc. and its wholly-owned subsidiaries.

Operating Activities

Cash provided by operating activities was $284.7 million during the nine months ended September 30, 2006 compared to $247.0 million during the nine months ended September 30, 2005. The increase was primarily attributable to a 74% increase in net income during the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005, excluding the impact of a $139.2 million gain, net of tax, on the nonrecurring sale of a 10 MHz portion of our 30 MHz PCS license for the San Francisco — Oakland — San Jose basic trading area. The timing of payments on accounts payable and accrued expenses in the nine months ended September 30, 2006, as well as an increase in deferred revenues as a result of the 50% increase in customers during the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005 also contributed to the increase in cash provided by operating activities.

Investing Activities

Cash used in investing activities was $489.3 million during the nine months ended September 30, 2006 compared to $789.1 million during the nine months ended September 30, 2005. The decrease was due primarily to a $419.1 million increase in net proceeds from investments and a $303.8 million decrease in purchases of FCC licenses, partially offset by a $249.4 million increase in purchases of property and equipment related to the construction of the Expansion Markets.

Financing Activities

Cash provided by financing activities was $208.1 million during the nine months ended September 30, 2006 compared to $564.8 million during the nine months ended September 30, 2005. This decrease was due primarily to the net proceeds from the Credit Agreements as well as net proceeds from the issuance of Series E Preferred Stock in the amount of $46.7 million during the first nine months of 2005.

First and Second Lien Credit Agreements

As of September 30, 2006, there was a total of $900.0 million outstanding under the Credit Agreements, which is reported as long-term debt on the consolidated balance sheets included elsewhere in this report.

The terms of the Credit Agreements required us to enter into an interest rate cap agreement in an amount equal to at least 50% of the aggregate debt outstanding thereunder. On June 27, 2005, we entered into a three-year interest rate cap agreement to mitigate the impact of interest rate changes. An interest rate cap represents a right to receive cash if interest rates rise above a contractual strike rate. At September 30, 2006, the interest rate cap agreement had a notional value of $450.0 million and we will receive payments on a semiannual basis if the six-month LIBOR interest rate exceeds 3.75% through January 1, 2007 and 6.00% through the agreement maturity date of July 1, 2008. We paid $1.9 million upon execution of the interest rate cap agreement. This financial instrument is reported in long-term investments at fair market value on the consolidated balance sheets included elsewhere in this report, which was $4.4 million as of September 30, 2006.

On November 3, 2006, we paid the lenders under the Credit Agreements $931.5 million plus accrued interest of $8.6 million to extinguish the aggregate outstanding principal balance under the Credit Agreements. As a result, we recorded a loss on extinguishment of debt in the amount of approximately $42.7 million.

On November 21, 2006, we terminated the interest rate cap agreement that was required by our Credit Agreements. We received approximately $4.3 million upon termination of the agreement. The proceeds from the termination of the agreement approximated carrying value and accordingly, no gain or loss was recognized upon disposition.

Bridge Credit Facilities

In July 2006, MetroPCS II, Inc., or MetroPCS II, an indirect wholly-owned subsidiary of MetroPCS Communications, Inc. (which has since merged into MetroPCS Wireless, Inc.), entered into an Exchangeable Senior Secured Credit Agreement and Guaranty Agreement, dated as of July 13, 2006, or the secured bridge credit facility. The aggregate credit commitments available under the secured bridge credit facility total $1.25 billion. On July 14, 2006, the lenders funded $200.0 million under the secured bridge credit facility. On October 3, 2006, the lenders funded an additional $80.0 million under the secured bridge credit facility. On October 18, 2006, the lenders funded the remaining $970.0 million under the secured bridge credit facility.

On November 3, 2006, MetroPCS II repaid the aggregate outstanding principal balance under the secured bridge credit facility of $1.25 billion and accrued interest of $5.9 million. As a result, MetroPCS II recorded a loss on extinguishment of debt of approximately $7.0 million.

In October 2006, MetroPCS IV, Inc., an indirect wholly-owned subsidiary of MetroPCS Communications, Inc. (which has since merged into MetroPCS Wireless, Inc.), entered into an additional Exchangeable Senior Unsecured Bridge Credit Facility, or the unsecured bridge credit facility. The aggregate credit commitments available under the unsecured bridge credit facility total $250 million. On October 18, 2006, the lenders funded the $250 million available under the unsecured bridge credit facility.

On November 3, 2006, MetroPCS IV, Inc. repaid the aggregate outstanding principal balance under the unsecured bridge credit facility of $250.0 million and accrued interest of $1.2 million. As a result, MetroPCS IV, Inc. recorded a loss on extinguishment of debt of approximately $2.4 million.

Senior Secured Credit Facility

MetroPCS Wireless, Inc., an indirect wholly-owned subsidiary of MetroPCS Communications, Inc., entered into the senior secured credit facility on November 3, 2006. The senior secured credit facility consists of a $1.6 billion term loan facility and a $100 million revolving credit facility. The term loan facility is repayable in quarterly installments in annual aggregate amounts equal to 1% of the initial aggregate principal amount of $1.6 billion. The term loan facility will mature seven years following the date of its execution in November 2006. The revolving credit facility will mature five years following the date of its execution in November 2006.

The facilities under the senior secured credit agreement are guaranteed by MetroPCS Communications, Inc., MetroPCS, Inc. and each of MetroPCS Wireless, Inc.’s direct and indirect present and future wholly-owned domestic subsidiaries. The facilities are not guaranteed by Royal Street, but MetroPCS Wireless, Inc. has pledged the promissory note given by Royal Street Communications in connection with amounts borrowed by Royal Street Communications from MetroPCS Wireless, Inc. and we pledged the limited liability company member interests we hold in Royal Street Communications. The senior secured credit facility contains customary events of default, including cross defaults. The obligations are also secured by the capital stock of MetroPCS Wireless, Inc. as well as substantially all of the present and future assets of MetroPCS Wireless, Inc. and each of its direct and indirect present and future wholly-owned subsidiaries (except as prohibited by law and certain permitted exceptions).

Under the senior secured credit agreement, MetroPCS Wireless, Inc. will be subject to certain limitations, including limitations on its ability to incur additional debt, make certain restricted payments, sell assets, make certain investments or acquisitions, grant liens and pay dividends. MetroPCS Wireless, Inc. is also subject to certain financial covenants, including maintaining a maximum senior secured consolidated leverage ratio and, under certain circumstances, maximum consolidated leverage and minimum fixed charge coverage ratios. There is no prohibition on our ability to make investments in or loan money to Royal Street.

Amounts outstanding under our senior secured credit facility bear interest at a LIBOR rate plus a margin as set forth in the facility and the terms of the senior secured credit facility require us to enter into interest rate hedging agreements that fix the interest rate in an amount equal to at least 50% of our outstanding indebtedness, including the notes.

On November 21, 2006, MetroPCS Wireless, Inc. entered into a three-year interest rate protection agreement to manage its interest rate risk exposure and fulfill a requirement of its senior secured credit facility. The agreement is effective on February 1, 2007, covers a notional amount of $1.0 billion and effectively converts this portion of MetroPCS Wireless, Inc.’s variable rate debt to fixed rate debt at an annual rate of 7.419%, leaving $600.0 million in variable rate debt. The interest rate protection agreement expires on February 1, 2010.

On February 20, 2007, MetroPCS Wireless, Inc. entered into an amendment to the senior secured credit facility. Under the amendment, the margin used to determine the senior secured credit facility interest rate was reduced to 2.25% from 2.50%.

9¹/4% Senior Notes Due 2014

On November 3, 2006, MetroPCS Wireless, Inc. also consummated the sale of $1.0 billion principal amount of its 9¹/4% senior notes due 2014. The 9¹/4% senior notes are unsecured obligations and are guaranteed by MetroPCS Communications, Inc., MetroPCS, Inc., and all of MetroPCS Wireless, Inc.’s direct and indirect wholly-owned subsidiaries, but are not guaranteed by Royal Street. Interest is payable on the 9¹/4% senior notes on May 1 and November 1 of each year, beginning with May 1, 2007. MetroPCS Wireless, Inc. may, at its option, redeem some or all of the 9¹/4% senior notes at any time on or after November 1, 2010 for the redemption prices set forth in the indenture governing the 9¹/4% senior notes. In addition, MetroPCS Wireless, Inc. may also redeem up to 35% of the aggregate principal amount of the 9¹/4% senior notes with the net cash proceeds of certain sales of equity securities, including the sale of common stock.

Capital Expenditures and Other Asset Acquisitions and Dispositions

Capital Expenditures. We and Royal Street incurred approximately $550.7 million in capital expenditures for the year ending December 31, 2006. We and Royal Street currently expect to incur approximately $650 million in capital expenditures for the year ending December 31, 2007 in our Core and Expansion Markets.

During the nine months ended September 30, 2006, we and Royal Street incurred $453.9 million in capital expenditures. These capital expenditures were primarily for the expansion and improvement of our existing network infrastructure and costs associated with the construction of the Expansion Markets.

During the year ended December 31, 2005, we had $266.5 million in capital expenditures. These capital expenditures were primarily for the expansion and improvement of our existing network infrastructure and costs associated with the construction of the Tampa/Sarasota, Dallas/Ft. Worth and Detroit Expansion Markets.

Other Acquisitions and Dispositions. On May 11, 2005, we completed the sale of a 10 MHz portion of our 30 MHz PCS license in the San Francisco — Oakland — San Jose basic trading area for cash consideration of $230.0 million. The sale was structured as a like-kind exchange under Section 1031 of the Internal Revenue Code of 1986, as amended, through which our right, title and interest in and to the divested PCS spectrum was exchanged for the PCS spectrum acquired in Dallas/Ft. Worth, Texas and Detroit, Michigan through a license purchase agreement for an aggregate purchase price of $230.0 million. The purchase of the PCS spectrum in Dallas/Ft. Worth and Detroit was accomplished in two steps with the first step of the exchange occurring on February 23, 2005 and the second step occurring on May 11, 2005 when we consummated the sale of 10 MHz of PCS spectrum for the San Francisco — Oakland — San Jose basic trading area. The sale of PCS spectrum resulted in a gain on disposal of asset in the amount of $228.2 million.

On July 7, 2005, we acquired a 10 MHz F-Block PCS license for Grayson and Fannin counties in the basic trading area of Sherman-Denison, Texas for an aggregate purchase price of $0.9 million.

On August 12, 2005, we closed on the purchase of a 10 MHz F-Block PCS license in the basic trading area of Bakersfield, California for an aggregate purchase price of $4.0 million.

On December 21, 2005, the FCC granted Royal Street Communications 10 MHz of PCS spectrum in the Los Angeles, California; Orlando, Lakeland-Winter Haven, Jacksonville, Melbourne-Titusville, and Gainesville, Florida basic trading areas. Royal Street Communications, as the high bidder in Auction 58, had paid approximately $294.0 million to the FCC for these PCS licenses.

On August 7, 2006, we acquired a 10 MHz PCS license in the basic trading area of Ocala, Florida in exchange for a 10 MHz portion of our 30 MHz PCS license in the basic trading area of Athens, Georgia. We paid $0.2 million at the closing of this agreement.

On November 29, 2006, we were granted AWS licenses as a result of FCC Auction 66, for a total aggregate purchase price of approximately $1.4 billion. These new licenses cover six of the 25 largest metropolitan areas in the United States. The east coast expansion opportunities include the entire east coast corridor from Philadelphia to Boston, including New York City, as well as the entire states of New York, Connecticut and Massachusetts. In the western United States, the new expansion opportunities include the San Diego, Portland, Seattle and Las Vegas metropolitan areas. The balance supplements or expands the geographic boundaries of our existing operations in Dallas/Ft. Worth, Detroit, Los Angeles, San Francisco and Sacramento.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Inflation

We believe that inflation has not materially affected our operations.

Effect of New Accounting Standards

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140” (“SFAS No. 155”). SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends FASB Statement No. 140 to eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial

instrument. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The adoption of this statement did not have any impact on our financial condition or results of operations.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140” (“SFAS No. 156”). SFAS No. 156 amends SFAS No. 140 to require that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. SFAS No. 156 permits, but does not require, the subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value. Under SFAS No. 156, an entity can elect subsequent fair value measurement to account for its separately recognized servicing assets and servicing liabilities. Adoption of SFAS No. 156 is required as of the beginning of the first fiscal year that begins after September 15, 2006. The adoption of this statement did not have any impact on our financial condition or results of operations.

In July 2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income Taxes,” (“FIN No. 48”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109. FIN No. 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. While our analysis of the impact of this Interpretation is not yet complete, we do not anticipate it will have a material effect on our financial condition or results of operations.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in the Current Year Financial Statements,” (“SAB 108”), which addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB 108 requires companies to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is material, companies may record the effect as a cumulative effect adjustment to beginning of year retained earnings. SAB 108 is effective for annual financial statements covering the first fiscal year ending after November 15, 2006. We are required to adopt this interpretation by December 31, 2006. The adoption of this statement did not have any impact on our financial condition or results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosure about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We will be required to adopt SFAS No. 157 in the first quarter of fiscal year 2008. We have not completed our evaluation of the effect of SFAS No. 157.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115,” (“SFAS No. 159”), which permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We will be required to adopt SFAS No. 159 on January 1, 2008. We have not completed our evaluation of the effect of SFAS No. 159.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential loss arising from adverse changes in market prices and rates, including interest rates. We do not routinely enter into derivatives or other financial instruments for trading, speculative or hedging purposes, unless it is required by our credit agreements. We do not currently conduct business internationally, so we are generally not subject to foreign currency exchange rate risk.

At September 30, 2006, we had $1.1 billion in outstanding indebtedness under our Credit Agreements and our secured bridge credit facility that bears interest at floating rates tied to a fixed spread to the London Inter Bank Offered Rate. The interest rates on the outstanding debt under our Credit Agreements as of September 30, 2006 were

10.19% for the First Lien Credit Agreement, 12.69% for the Second Lien Credit Agreement and 10.04% for the secured bridge credit facility. If market interest rates increase 100 basis points over the rates in effect at September 30, 2006, annual interest expense would increase $11.0 million.

The terms of our Credit Agreements required that we enter into an interest rate cap agreement in an amount equal to at least 50% of the aggregate debt outstanding thereunder. In June 2005, we entered into a three-year interest rate cap agreement to reduce the impact of interest rate changes on $450.0 million of the debt outstanding under the Credit Agreements. Under the terms of the interest rate cap agreement, we will receive payments on a semi-annual basis if the six-month LIBOR interest rate exceeds 3.75% through January 1, 2007 and 6.00% through the agreement maturity date of July 1, 2008. We paid $1.9 million upon execution of the three-year interest rate cap agreement.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported as required by the SEC and that such information is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow for appropriate and timely decisions regarding required disclosure. Our management, with participation by our CEO and CFO, has designed the Company’s disclosure controls and procedures to provide reasonable assurance of achieving these desired objectives. As required by SEC Rule 13a-15(e), we conducted an evaluation, with the participation of our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2006, the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is necessarily required to apply judgment in evaluating the cost-benefit relationship of possible controls and objectives. Based upon that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures are effective as of September 30, 2006, in timely making known to them material information relating to us and our consolidated subsidiaries required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II
OTHER INFORMATION

Item 1. Legal Proceedings

On June 14, 2006, Leap Wireless International, Inc. and Cricket Communications, Inc., or collectively Leap, filed suit against us in the United States District Court for the Eastern District of Texas, Marshall Division, Civil Action No. 2-06CV-240-TJW and amended on June 16, 2006, for infringement of U.S. Patent No. 6,813,497 “Method for Providing Wireless Communication Services and Network and System for Delivering of Same,” or the ’497 Patent, issued to Leap. The complaint seeks both injunctive relief and monetary damages for our alleged infringement of such patent. On August 3, 2006, we (i) answered the complaint, (ii) raised a number of affirmative defenses, and (iii) together with two related entities, counterclaimed against Leap and several related entities and certain current and former employees of Leap and certain of its related entities, including Leap’s CEO. We have also tendered Leap’s claims to the manufacturer of our network infrastructure equipment for indemnity and defense. In our counterclaims, we claim that we do not infringe any valid or enforceable claim of the ’497 Patent. Certain of the Leap defendants, including its CEO, answered our counterclaims on October 13, 2006. In its answer, Leap and its CEO denied our allegations and asserted affirmative defenses to our counterclaims. In connection with denying a motion to dismiss by certain individual defendants, the court concluded that our claims against those defendants were compulsory counterclaims. On April 3, 2007 the Court held a Scheduling Conference at which the Court set the date for the claim construction hearing for January 2008 and the trial date for August 2008. We plan to vigorously defend against Leap’s claims relating to the ’497 Patent.

If Leap were successful in its claim for injunctive relief, we could be enjoined from operating our business in the manner we currently operate, which could require us to expend additional capital to change certain of our technologies and operating practices, or could prevent us from offering some or all of our services using some or all of our existing systems. In addition, if Leap were successful in its claim for monetary damage, we could be forced to pay Leap substantial damages for past infringement and/or ongoing royalties on a portion of our revenues, which could materially adversely impact our financial performance.

On August 15, 2006, we filed a separate action in the California Superior Court, Stanislaus County, Case No. 382780, against Leap and others for unfair competition, misappropriation of trade secrets, interference with contracts, breach of contract, intentional interference with prospective business advantage, and trespass. In this suit we seek monetary and punitive damages and injunctive relief. Defendants responded to our complaint by filing demurrers on or about January 5, 2007 requesting that the Court dismiss the complaint. On February 1, 2007, the Court granted the demurrers in part and granted us leave to amend the complaint. We filed a First Amended Complaint on February 27, 2007. Defendant’s response to the First Amended Complaint was due March 28, 2007. Defendants responded by filing demurrers on March 28, 2007, requesting that the Court dismiss our First Amended Complaint. The demurrers are set for hearing on May 2, 2007.We intend to vigorously prosecute this complaint.

On September 22, 2006, Royal Street filed a separate action in the United States District Court for the Middle District of Florida, Tampa Division, Civil Action No. 8:06-CV-01754-T-23TBM, seeking a declaratory judgment that Leap’s ’497 Patent is invalid and not being infringed upon by Royal Street. Leap responded to Royal Street’s complaint by filing a motion to dismiss Royal Street’s complaint for lack of subject matter jurisdiction or, in the alternative, that the action be transferred to the United States District Court for the Eastern District of Texas, Marshall Division where Leap has brought suit against us under the same patent. Royal Street has responded to this motion. The Court has set a trial date in October 2008.

In addition, we are involved in litigation from time to time, including litigation regarding intellectual property claims, that we consider to be in the normal course of business. We are not currently party to any other pending legal proceedings that we believe would, individually or in the aggregate, have a material adverse effect on our financial condition or results of operations.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in “Item 1A. Risk Factors” of our Form 10-K filed with the SEC on March 30, 2007.

Item 5. Other Information

In July 2006, MetroPCS II, Inc., a wholly-owned subsidiary of the Company (which has since merged into MetroPCS Wireless, Inc.), entered into an Exchangeable Senior Secured Credit Agreement and Guaranty Agreement, dated as of July 13, 2006, or the secured bridge credit facility. The aggregate credit commitments available under the secured bridge credit facility total $1.25 billion. On July 14, 2006, the lenders funded $200.0 million under the secured bridge credit facility. On October 3, 2006, the lenders funded an additional $80.0 million under the secured bridge credit facility. On October 18, 2006, the lenders funded the remaining $970.0 million under the secured bridge credit facility. The funds borrowed under the bridge credit facilities were used primarily to pay the aggregate purchase price of approximately $1.4 billion for the licenses we acquired in FCC Auction 66.

Item 6. Exhibits


Exhibit
Number		Description

31.1		Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551, this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551, this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	METROPCS COMMUNICATIONS, INC.
Date: April 9, 2007	By:	/s/ Roger D. Linquist
		Roger D. Linquist
		President and Chief Executive Officer


Date: April 9, 2007	By:	/s/ J. Braxton Carter
		J. Braxton Carter
		Senior Vice President and Chief Financial Officer

INDEX TO EXHIBITS


Exhibit
Number		Description

31.1		Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551, this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551, this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”