MetroPCS Communications Inc. ( ) reported fourth-quarter 2012 earnings per share of 9 cents, failing to meet the Zacks Consensus Estimate of 13 cents and decreasing 43.8% from 25 cents in the year-ago quarter. The results were hurt by a weak performance by the service unit along with high operating expenses.

Total revenue climbed 3.7% year over year to $1,284.3 million in the fourth quarter, beating our expectation of $1,274.0 million. The outperformance was supported by a solid contribution from the equipment segment.

For full-year 2012, MetroPCS posted earnings per share of $1.07 (lagging our projection of $1.12 but up 30.5% year over year), on revenues of $5,101.3 million (up 5.2% from the last year).

Adjusted EBITDA dropped 15.2% year over year to $307 million. The company generated EBITDA margin (adjusted EBITDA as a percentage of service revenues) of 27.9% that deteriorated 400 basis points (bps).

Operational Metrics

In the fourth quarter, average revenue per user (ARPU) was $40.86 compared with $40.55 in the year-ago quarter. Cost per user (CPU) increased 9.5% year over year to $21.91.

Cost per gross addition (CPGA) crept up 37.5% from the prior-year quarter to $228.04. Churn (customer switch) was 3.6%, down 10 bps from fourth quarter 2011.

Subscriber Statistics

As of Dec 31, 2012, total subscriber base was 8.88 million customers (down 4.9% year over year). During 2012, the company lost 459,936 subscribers against subscriber addition of 1,191,549 in the prior year. Consolidated penetration of the covered population was 8.6%, down from 9.3% in 2011.

Liquidity

MetroPCS ended 2012 with cash and cash equivalents (inclusive of short-term investment) of $2,613.3 million compared with $2,243.2 million a year ago. Long-term debt was $4,724.1 million compared with $4,711.0 million last year.

Guidance

For fiscal 2013, MetroPCS expects capital expenditures in the range of $800 million to $900 million.

Our Analysis

We believe that MetroPCS stands to benefit from the successful launch and execution of Wireless for All, growing demand for Google Inc.’s ( GOOG - Analyst Report ) Android-based smartphones and the recently introduced 4G Long Term Evolution for All program.

Additionally, if the company’s impending merger with T-Mobile USA eventually materializes, it would remain accretive to its financials as well as market expansion, in particular in the 4G space by boosting spectrum capacity and by the influx of significant infrastructural investments.

However, MetroPCS operates in an intensely competitive domestic low-cost prepaid wireless market. The company’s operations are increasingly challenged by the aggressive rollout of competitive price plans by some of its larger players such as AT&T Inc. ( T - Analyst Report ) and Verizon Communications ( VZ - Analyst Report ) .

MetroPCS has a Zacks Rank #3 (Hold).