Metro PCS 2008 Annual Report Download - page 72

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63
charges increased $37.1 million during the year ended December 31, 2008 compared to the same period in
2007. This increase is primarily attributable to a 35% increase in our consolidated customer base since
December 31, 2007 and higher FUSF rates. On January 1, 2008, we began allocating a portion of these
expenses to the Expansion Markets. The portion of the pass through charges that were allocated to the
Expansion Markets during the year ended December 31, 2008 was $52.1 million, resulting in a net decrease
of $15.0 million in the Core Markets for the year ended December 31, 2008 when compared to the same
period in 2007.
•Expansion Markets. Expansion Markets cost of service increased $211.2 million, or 101%, to $419.5 million
for the year ended December 31, 2008 from $208.3 million for the year ended December 31, 2007.
Expansion Markets cost of service (excluding pass through charges) increased $159.1 million, or
approximately 77%, to $364.8 million for the year ended December 31, 2008 from $205.7 million for the
year ended December 31, 2007. This increase was primarily attributable to the approximately 83% growth in
our Expansion Markets customer base, coupled with expenses associated with the launch of service in new
markets well as the build-out expenses related to the New York and Boston metropolitan areas. In addition,
pass through charges increased approximately $52.1 million during the year ended December 31, 2008
compared to the same period in 2007 due to the allocation of a portion of these expenses to the Expansion
Markets beginning on January 1, 2008.
Cost of Equipment. Cost of equipment increased $107.4 million, or 18%, to $704.6 million for the year ended
December 31, 2008 from $597.2 million for the year ended December 31, 2007. The increase is due primarily to an
increase in Expansion Markets cost of equipment, partially offset by a decrease in Core Markets cost of equipment
as follows:
•Core Markets. Core Markets cost of equipment decreased $10.3 million, or approximately 3%, to $374.8
million for the year ended December 31, 2008 from $385.1 million for the year ended December 31, 2007.
The decrease in Core Markets cost of equipment is primarily attributable to a lower average cost of handsets
activated reducing cost of equipment by $15.3 million, partially offset by an increase in upgrade handset
sales to existing customer accounting for a $2.1 million increase.
•Expansion Markets. Expansion Markets cost of equipment increased $117.7 million, or approximately 56%,
to $329.8 million for the year ended December 31, 2008 from $212.1 million for the year ended December
31, 2007. The increase in Expansion Markets cost of equipment is primarily attributable to an increase in
gross customer additions which accounted for $87.4 million, coupled with an increase in upgrade handset
sales to existing customers accounting for $37.0 million. These increases were partially offset by a lower
average cost of handsets sales reducing cost of equipment by $12.5 million.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $95.6
million, or 27%, to $447.6 million for the year ended December 31, 2008 from $352.0 million for the year ended
December 31, 2007. 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 $4.3 million, or
approximately 3%, to $171.8 million for the year ended December 31, 2008 from $167.5 million for the year
ended December 31, 2007. Selling expenses increased by $5.2 million, or approximately 7%, for the year
ended December 31, 2008 compared to the year ended December 31, 2007. The increase in selling expenses
is primarily attributable to a $2.9 million increase in marketing and advertising expenses as well as higher
employee related costs of $3.3 million incurred to support the growth in the Core Markets. General and
administrative expenses decreased by $3.4 million, or 4% for the year ended December 31, 2008 as
compared to the year ended December 31, 2007. This was due primarily to a decrease in various
administrative expenses incurred as a result of cost benefits achieved due to the increasing scale of our
business in the Core Markets. In addition, stock-based compensation expense increased $2.9 million for the
year ended December 31, 2008 as compared to the same period in 2007. See – “Stock-Based Compensation
Expense.”