(Recasts; updates share movement)
Dec 17 (Reuters) - Barclays initiated coverage of Leap Wireless LEAP.O and MetroPCS PCS.N with “underweight” ratings, saying the discount wireless carriers face intense price competition and economic pressure on their core customer base.
Shares of MetroPCS were trading down 5 percent at $7.31 Thursday on the New York Stock Exchange. They touched a low of $7.23, down 6 percent, earlier in the session.
Both Leap and Sprint Nextel (S.N) were down 3 percent each. In a separate report, Deutsche Bank analyst Brett Feldman started coverage of MetroPCS with a “sell” and Leap with a “hold” rating.
Average revenue per user pressures will remain intense in 2010 as voice revenue now appears to be declining, Feldman said. “In order to drive data revenue, the carriers will need to maintain high device subsidies. These trends likely delay an EBITDA recovery at Sprint and increase the pressure on prepaid carriers Leap and MetroPCS,” he added. [ID:nWNBB2231]
Both the brokerages started coverage of the telecom services sector, saying it faces pressures from intensifying competition and an uncertain regulatory framework, but will offer attractive valuations as the economy improves.
Deutsche took a cautious view on the telecom services sector, while Barclay’s initiated it with a “neutral” rating.
The current ramp in 3G/4G upgrades that is being driven by surging wireless broadband traffic could drive another 10-year cycle in network upgrades, lasting well into the next decade, Feldman said.
His top picks include Crown Castle, TW Telecom TWTC.O and Verizon Communications (VZ.N). [ID:nWNBB2245] (Reporting by Mansi Dutta in Bangalore; Editing by Anil D‘Silva)