Metro PCS 2007 Annual Report Download - page 70

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December 31, 2007 and higher FUSF rates.
• Expansion Markets. Expansion Markets cost of service increased $102.0 million, or 96%, to $208.4 million
for the year ended December 31, 2007 from $106.4 million for the year ended December 31, 2006. The
increase was attributable to the launch of service in the Los Angeles metropolitan area in September 2007 as
well as net additions in the Expansion Markets of approximately 664,000 customers during the year ended
December 31, 2007. The increase in cost of service is composed of a $26.8 million increase in cell site and
switch facility lease expense, a $19.1 million increase in customer service expense, a $15.8 million increase
in intercarrier compensation, a $13.5 million increase in long distance cost, a $10.2 million increase in
employee costs and a $6.4 million increase in billing expenses.
Cost of Equipment. Cost of equipment increased $120.3 million, or 25%, to $597.2 million for the year ended
December 31, 2007 from $476.9 million for the year ended December 31, 2006. 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 $20.8 million, or 6%, to $385.1 million for the year
ended December 31, 2007 from $364.3 million for the year ended December 31, 2006. The increase in Core
Markets equipment costs is attributable to the increase in gross customer additions during the year ended
December 31, 2007 of approximately 130,000 customers as compared to the same period in 2006, which
accounted for $14.4 million of the increase. In addition, cost of equipment sales to existing customers
increased $4.5 million and accessories cost increased $1.9 million for the year ended December 31, 2007.
• Expansion Markets. Expansion Markets cost of equipment increased $99.5 million, or 88%, to $212.1 million
for the year ended December 31, 2007 from $112.6 million for the year ended December 31, 2006. The
increase in Expansion Markets equipment costs is attributable to the increase in gross customer additions
during the year ended December 31, 2007 of approximately 529,000 customers as compared to the same
period in 2006, which accounted for $66.7 million of the increase. In addition, cost of equipment sales to
existing customers increased $31.7 million and accessories cost increased $1.1 million for the year ended
December 31, 2007.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $108.4
million, or 44%, to $352.0 million for the year ended December 31, 2007 from $243.6 million for the year ended
December 31, 2006. 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 $9.4 million, or 6%, to
$167.5 million for the year ended December 31, 2007 from $158.1 million for the year ended December 31,
2006. Selling expenses increased by $8.8 million, or approximately 13% for the year ended December 31,
2007 compared to the year ended December 31, 2006. The increase in selling expenses is primarily due to a
$4.0 million increase in marketing and advertising expenses as well as higher labor costs of $2.8 million
incurred to support the growth in the Core Markets. General and administrative expenses remained relatively
flat for the year ended December 31, 2007 compared to the same period in 2006.
• Expansion Markets. Expansion Markets selling, general and administrative expenses increased $99.0 million,
or 116%, to $184.5 million for the year ended December 31, 2007 from $85.5 million for the year ended
December 31, 2006. Selling expenses increased by $39.7 million, or approximately 113%, for the year ended
December 31, 2007 compared to the year ended December 31, 2006. This increase is primarily due to a $22.6
million increase in marketing and advertising expenses related to the growth in the Expansion Markets as
well as higher labor costs of $11.4 million. General and administrative expenses increased by $59.3 million,
or approximately 118% for the year ended December 31, 2007 compared to the same period in 2006
primarily due to a $10.5 million increase in labor costs, a $10.1 million increase in stock-based compensation
expense (see “ – Stock-Based Compensation Expense” below), a $3.5 million increase in property taxes, a
$3.6 million increase in credit card transaction fees, a $2.0 million increase in legal expense as well as an
increase in various administrative expenses incurred in relation to the growth in the Expansion Markets,
including the launch of service in the Los Angeles metropolitan area and build-out expenses related to the
New York, Philadelphia, Boston and Las Vegas metropolitan areas.