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 March 31, 2008

OR

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

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.)
2250 Lakeside Boulevard
Richardson, Texas		75082-4304
(Address of principal executive offices)		(Zip Code)

(214) 570-5800
(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 þ No o

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     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

     On April 30, 2008, there were 348,496,235 shares of the registrant’s common stock, $0.0001 par value, outstanding.

 

 

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

Table of Contents

PART I. FINANCIAL INFORMATION

		Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007		1
Condensed Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2008 and 2007		2
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007		3
Notes to Condensed Consolidated Interim Financial Statements		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosures about Market Risk		43
Item 4. Controls and Procedures		43

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		45
Item 1A. Risk Factors		46
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		*
Item 6. Exhibits		49
SIGNATURES		50
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

PART I.
FINANCIAL INFORMATION

Item 1. Financial Statements.

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

		March 31,				December 31,
		2008				2007
CURRENT ASSETS:
Cash and cash equivalents		$	1,310,729			$	1,470,208
Inventories, net			65,475				109,139
Accounts receivable (net of allowance for uncollectible accounts of $3,173 and $2,908 at March 31, 2008 and December 31, 2007, respectively)			32,827				31,809
Prepaid charges			51,336				60,469
Deferred charges			37,331				34,635
Deferred tax asset			4,920				4,920
Other current assets			21,657				21,704
Total current assets			1,524,275				1,732,884
Property and equipment, net			2,038,194				1,891,411
Long-term investments			28,049				36,050
FCC licenses			2,072,895				2,072,895
Microwave relocation costs			10,517				10,105
Other assets			226,661				62,785
Total assets		$	5,900,591			$	5,806,130
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	438,353			$	439,449
Current maturities of long-term debt			16,000				16,000
Deferred revenue			132,829				120,481
Other current liabilities			4,860				4,560
Total current liabilities			592,042				580,490
Long-term debt, net			2,981,572				2,986,177
Deferred tax liabilities			306,949				290,128
Deferred rents			41,776				35,779
Redeemable minority interest			5,335				5,032
Other long-term liabilities			89,399				59,778
Total liabilities			4,017,073				3,957,384
COMMITMENTS AND CONTINGENCIES (See Note 13)
STOCKHOLDERS’ EQUITY:
Preferred stock, par value $0.0001 per share, 100,000,000 shares authorized; no shares of preferred stock issued and outstanding at March 31, 2008 and December 31, 2007			—				—
Common Stock, par value $0.0001 per share, 1,000,000,000 shares authorized, 348,248,876 and 348,108,027 shares issued and outstanding at March 31, 2008 and December 31, 2007, respectively			35				35
Additional paid-in capital			1,533,931				1,524,769
Retained earnings			377,930				338,411
Accumulated other comprehensive loss			(28,378	)			(14,469	)
Total stockholders’ equity			1,883,518				1,848,746
Total liabilities and stockholders’ equity		$	5,900,591			$	5,806,130

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

Condensed Consolidated Statements of Income and Comprehensive Income
(in thousands, except share and per share information)
(Unaudited)

		For the three months ended
		March 31,
		2008				2007
REVENUES:
Service revenues		$	561,970			$	439,516
Equipment revenues			100,384				97,170
Total revenues			662,354				536,686
OPERATING EXPENSES:
Cost of service (excluding depreciation and amortization expense of $48,656 and $35,174, shown separately below)			188,473				145,335
Cost of equipment			200,158				173,308
Selling, general and administrative expenses (excluding depreciation and amortization expense of $8,644 and $4,206, shown separately below)			104,374				72,937
Depreciation and amortization			57,300				39,380
Loss on disposal of assets			21				3,050
Total operating expenses			550,326				434,010
Income from operations			112,028				102,676
OTHER EXPENSE (INCOME):
Interest expense			47,425				48,976
Accretion of put option in majority-owned subsidiary			303				238
Interest and other income			(9,888	)			(7,157	)
Impairment loss on investment securities			8,001				—
Total other expense			45,841				42,057
Income before provision for income taxes			66,187				60,619
Provision for income taxes			(26,668	)			(24,267	)
Net income			39,519				36,352
Accrued dividends on Series D Preferred Stock			—				(5,180	)
Accrued dividends on Series E Preferred Stock			—				(740	)
Accretion on Series D Preferred Stock			—				(118	)
Accretion on Series E Preferred Stock			—				(85	)
Net income applicable to Common Stock		$	39,519			$	30,229
Net income		$	39,519			$	36,352
Other comprehensive income:
Unrealized gain on available-for-sale securities, net of tax			—				595
Unrealized loss on cash flow hedging derivative, net of tax			(15,626	)			(1,769	)
Reclassification adjustment for losses (gains) included in net income, net of tax			1,717				(1,042	)
Comprehensive income		$	25,610			$	34,136
Net income per common share:
Basic		$	0.11			$	0.11
Diluted		$	0.11			$	0.11
Weighted average shares:
Basic			348,164,091				157,035,119
Diluted			354,568,227				163,447,880

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

Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)

		For the three months ended
		March 31,
		2008				2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	39,519			$	36,352
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			57,300				39,380
Provision for uncollectible accounts receivable			44				127
Deferred rent expense			5,997				2,039
Cost of abandoned cell sites			1,668				1,796
Stock-based compensation expense			8,465				4,211
Non-cash interest expense			600				1,096
Loss on disposal of assets			21				3,050
Gain on sale of investments			—				(959	)
Accretion of asset retirement obligation			515				282
Accretion of put option in majority-owned subsidiary			303				238
Impairment loss on investments securities			8,001				—
Deferred income taxes			25,548				23,611
Changes in assets and liabilities:
Inventories			43,663				(13,976	)
Accounts receivable			(1,062	)			2,482
Prepaid charges			(18,038	)			(5,431	)
Deferred charges			(2,696	)			(1,445	)
Other assets			2,206				(5,417	)
Accounts payable and accrued expenses			(77,694	)			8,119
Deferred revenue			12,344				15,141
Other liabilities			745				876
Net cash provided by operating activities			107,449				111,572
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment			(183,614	)			(156,235	)
Change in prepaid purchases of property and equipment			27,172				(1,654	)
Cash used in acquisitions			(18,600	)			—
Purchase of investments			—				(321,322	)
Proceeds from sale of investments			—				404,551
Change in restricted cash and investments			—				556
Deposit to FCC for licenses			(153,682	)			—
Microwave relocation costs			(635	)			—
Net cash used in investing activities			(329,359	)			(74,104	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in book overdraft			65,734				38,281
Debt issuance costs			—				(740	)
Cost of raising capital			—				(1,288	)
Repayment of debt			(4,000	)			(4,000	)
Proceeds from exercise of stock options			697				99
Net cash provided by financing activities			62,431				32,352
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS			(159,479	)			69,820
CASH AND CASH EQUIVALENTS, beginning of period			1,470,208				161,498
CASH AND CASH EQUIVALENTS, end of period		$	1,310,729			$	231,318

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

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 (collectively, 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 balance sheets as of March 31, 2008 and December 31, 2007, the condensed consolidated statements of income and comprehensive income and cash flows for the periods ended March 31, 2008 and 2007, and the related footnotes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

     The unaudited condensed consolidated 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.

     Federal Universal Service Fund (“FUSF”) and E-911 fees are assessed by various governmental authorities in connection with the services that the Company provides to its customers. The Company reports these fees on a gross basis in service revenues and cost of service on the accompanying statements of income and comprehensive income. For the three months ended March 31, 2008 and 2007, the Company recorded approximately $25.9 million and $19.9 million, respectively, of FUSF and E-911 fees. Sales, use and excise taxes are reported on a net basis in selling, general and administrative expenses on the accompanying statements of income and comprehensive income.

     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.

     On April 24, 2007, MetroPCS consummated its initial public offering (the “Offering”) of 57,500,000 shares of common stock priced at $23.00 per share (less underwriting discounts and commissions). MetroPCS offered 37,500,000 shares of common stock and certain of MetroPCS’ existing stockholders offered 20,000,000 shares of common stock in the Offering, which included 7,500,000 shares sold by MetroPCS’ existing stockholders pursuant to the underwriters’ exercise of their over-allotment option. Concurrent with the Offering, all outstanding shares of preferred stock, including accrued but unpaid dividends, were converted into 150,962,644 shares of common stock. The shares began trading on April 19, 2007 on the New York Stock Exchange under the symbol “PCS”.

2.

Acquisitions:

     On December 21, 2007, the Company executed an agreement with PTA Communications, Inc. (“PTA”) to purchase 10 MHz of PCS spectrum from PTA for the basic trading area of Jacksonville, Florida. The Company also entered into agreements with NTCH, Inc. (dba Cleartalk PCS) and PTA-FLA, Inc. for the purchase of certain of their assets used in providing PCS wireless telecommunications services in the Jacksonville market. Consummation

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

of both acquisitions is conditioned on customary closing conditions and the license purchase agreement also requires approval by the Federal Communications Commission (“FCC”). On January 17, 2008, the Company closed on the acquisition of certain assets used in providing PCS wireless services. The Company paid a total of $18.6 million in cash for these assets, exclusive of transaction costs. On February 27, 2008, the FCC issued a public notice announcing the approval of the acquisition of the 10 MHz of spectrum. The Company plans to consummate the acquisition of the 10 MHz license in the second quarter of 2008.

3. Share-Based Payments:

     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. The Company records stock-based compensation expense in cost of service and selling, general and administrative expenses. Stock-based compensation expense recognized under SFAS No. 123(R) was $8.5 million and $4.2 million for the three months ended March 31, 2008 and 2007, respectively. Cost of service for the three months ended March 31, 2008 and 2007 includes $0.5 million and $0.2 million, respectively, of stock-based compensation. For the three months ended March 31, 2008 and 2007, selling, general and administrative expenses include $8.0 million and $4.0 million, respectively, of stock-based compensation.

     On March 7, 2008, the Company granted stock options to purchase an aggregate of 5,393,065 shares of the Company’s common stock to certain employees and non-employee directors. The exercise price for the stock option grants is $16.20, which was equal to the Company’s common stock closing price on the New York Stock Exchange on the grant date. The stock options granted 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 grant date fair value of these stock options approximated $36.9 million.

4. Investments:

     The Company has historically invested its substantial cash balances in, among other things, securities issued and fully guaranteed by the United States or the states, highly rated commercial paper and auction rate securities, money market funds meeting certain criteria, and demand deposits. These investments are subject to credit, liquidity, market and interest rate risk. At March 31, 2008, the Company had invested substantially all of its cash and cash equivalents in money market funds consisting of treasury securities.

     The Company holds investments of $133.9 million in certain auction rate securities some of which are secured by collateralized debt obligations with a portion of the underlying collateral being mortgage securities or related to mortgage securities. Consistent with the Company’s investment policy guidelines, the auction rate securities investments held by the Company all had AAA/Aaa credit ratings at the time of purchase. With the liquidity issues experienced in global credit and capital markets, the auction rate securities held by the Company at March 31, 2008 have experienced continued failed auctions as the amount of securities submitted for sale in the auctions has exceeded the amount of purchase orders. In addition, three auction rate securities held by the Company have been placed on credit watch and three auction rate securities have been downgraded from AAA/Aaa. As of May 9, 2008, the remaining auction rate securities held by the Company still retain a AAA/Aaa rating as reported by Standard and Poors and Moody’s Investors Service.

     The estimated market value of the Company’s auction rate security holdings at March 31, 2008 was approximately $28.0 million, which reflects a $105.9 million adjustment to the principal value of $133.9 million. The estimated market value at December 31, 2007 was approximately $36.1 million, which reflected a $97.8 million adjustment to the principal value at that date. Although the auction rate securities continue to pay interest according to their stated terms, based on statements received from the Company’s broker and an analysis of other-than- temporary impairment factors, the Company recorded an impairment charge of $8.0 million during the three months ended March 31, 2008, reflecting an additional portion of auction rate security holdings that the Company has concluded have an other-than-temporary decline in value.

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

     Historically, given the liquidity created by auctions, the Company’s auction rate securities were presented as current assets under short-term investments on the Company’s balance sheet. Given the failed auctions, the Company’s auction rate securities are illiquid until there is a successful auction for them. Accordingly, the entire amount of such remaining auction rate securities has been reclassified from current to non-current assets and is presented in long-term investments on the accompanying balance sheets as of March 31, 2008 and December 31, 2007. If uncertainties in the credit and capital markets continue or these markets deteriorate further, the Company may incur additional impairments to its auction rate securities.

5. Property and Equipment:

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

		March 31,				December 31,
		2008				2007
Construction-in-progress		$	447,369			$	393,282
Network infrastructure			2,036,941				1,901,119
Office equipment			47,599				44,059
Leasehold improvements			37,292				33,410
Furniture and fixtures			9,386				7,833
Vehicles			229				207
			2,578,816				2,379,910
Accumulated depreciation			(540,622	)			(488,499	)
Property and equipment, net		$	2,038,194			$	1,891,411

6. FCC Licenses and Microwave Relocation Costs:

     The Company operates broadband PCS networks under licenses granted by the FCC for a particular geographic area on spectrum allocated by the FCC for broadband PCS services. In addition, in November 2006, the Company acquired a number of advanced wireless services (“AWS”) licenses which can be used to provide services comparable to the PCS services provided by the Company, and other advanced wireless services. The PCS and AWS licenses include the obligation to relocate existing fixed microwave users of the Company’s licensed spectrum if the use of the Company’s spectrum would interfere with their systems and/or reimburse other carriers (according to FCC rules) that relocated prior users if the relocation benefits the Company’s system. Accordingly, the Company incurred costs related to microwave relocation in constructing its PCS and AWS networks. The PCS and AWS licenses and microwave relocation costs are recorded at cost. Although PCS and AWS licenses are issued with a stated term, ten years in the case of the PCS licenses and fifteen years in the case of the AWS licenses, the renewal of PCS and AWS licenses is generally a routine matter without substantial cost and the Company has determined that no legal, regulatory, contractual, competitive, economic, or other factors currently exist that limit the useful life of its PCS and AWS licenses. The carrying value of FCC licenses and microwave relocation costs was approximately $2.1 billion as of March 31, 2008.

     The Company’s primary indefinite-lived intangible assets are its FCC licenses. Based on the requirements of SFAS No. 142, “Goodwill and Other Intangible Assets,” (“SFAS No. 142”) the Company tests investments in its FCC licenses for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value of its FCC licenses might be impaired. The Company performs its annual FCC license impairment test as of each September 30th. The impairment test consists of a comparison of the estimated fair value with the carrying value. The Company estimates the fair value of its FCC licenses using a discounted cash flow model. Cash flow projections and assumptions, although subject to a degree of uncertainty, are based on a combination of the Company’s historical performance and trends, its business plans and management’s estimate of future performance, giving consideration to existing and anticipated competitive economic conditions. Other assumptions include the Company’s weighted average cost of capital and long-term rate of growth for its business. The Company believes that its estimates are consistent with assumptions that marketplace participants would use to estimate fair value. The Company corroborates its determination of fair value of the FCC licenses, using the discounted cash flow approach described above, with other market-based valuation metrics. Furthermore, the Company segregates its FCC licenses by regional clusters for the purpose of performing the impairment test because each geographical region is unique. An impairment loss would be recorded as a reduction in the carrying value of the related indefinite-lived intangible asset and charged to results of operations.

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

     The Company completed its impairment tests during the third quarter of 2007 and no impairment has been recognized through March 31, 2008.

   Auction 73

     MetroPCS 700 MHz, LLC, a wholly-owned subsidiary of the Company, submitted an upfront payment on January 15, 2008 to the FCC in the amount of $153.7 million to qualify to participate in the auction of 700MHz spectrum in Auction 73. Auction 73 concluded on March 18, 2008 and the FCC announced that the Company was the high bidder, with a winning bid of approximately $313.3 million, on a 10 MHz license covering a total population of approximately 8.3 million for the Boston economic area, which is encompassed within the geographic boundaries of the Company’s existing AWS license for the Boston metropolitan area. On April 2, 2008, the Company filed its post-auction application with the FCC to secure a final grant of the 700 MHz license, and on April 16, 2008, the Company paid the FCC the remaining $159.6 million for the 700 MHz license. On April 22, 2008, the FCC released a public notice accepting the Company’s application for filing.

7. Accounts Payable and Accrued Expenses:

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

		March 31,				December 31,
		2008				2007
Accounts payable		$	63,993			$	131,177
Book overdraft			91,133				25,399
Accrued accounts payable			138,108				155,733
Accrued liabilities			9,675				16,285
Payroll and employee benefits			13,438				29,380
Accrued interest			66,006				33,892
Taxes, other than income			49,127				41,044
Income taxes			6,873				6,539
Accounts payable and accrued expenses		$	438,353			$	439,449

8. Long-Term Debt:

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

		March 31,				December 31,
		2008				2007
91/4% Senior Notes		$	1,400,000			$	1,400,000
Senior Secured Credit Facility			1,576,000				1,580,000
Total long-term debt			2,976,000				2,980,000
Add: unamortized premium on debt			21,572				22,177
Total debt			2,997,572				3,002,177
Less: current maturities			(16,000	)			(16,000	)
Total long-term debt		$	2,981,572			$	2,986,177

   9¹/4% Senior Notes

     On November 3, 2006, MetroPCS Wireless, Inc, a wholly-owned indirect subsidiary of MetroPCS (“Wireless”), completed the sale of $1.0 billion of principal amount of 9¹/4% Senior Notes due 2014, (the “Initial Notes”). The net proceeds of the sale of the Initial Notes were approximately $978.0 million after underwriter fees and other debt issuance costs of $22.0 million. On June 6, 2007, Wireless completed the sale of an additional $400.0 million of 9¹/4% Senior Notes (the “Additional Notes” and together with the Initial Notes, the “9¹/4% Senior Notes”) under the existing indenture at a price equal to 105.875% of the principal amount of such Additional 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

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

on the 9¹/4% Senior Notes on May 1 and November 1 of each year. 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.

Senior Secured Credit Facility

     On November 3, 2006, Wireless entered into a secured credit facility, pursuant to which Wireless may borrow up to $1.7 billion, as amended, (the “Senior Secured Credit Facility”). The Senior Secured Credit Facility consists of a $1.6 billion term loan facility and a $100.0 million revolving credit facility. On November 3, 2006, Wireless borrowed $1.6 billion under the Senior Secured 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 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 has given it in connection with amounts borrowed by Royal Street 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 the capital stock and substantially all of the assets of 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.

     The interest rate on the outstanding debt under the Senior Secured Credit Facility is variable. The rate as of March 31, 2008 was 6.468%. 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 the Senior Secured Credit Facility. The agreement covers a notional amount of $1.0 billion and effectively converts this portion of Wireless’ variable rate debt to fixed-rate debt. On February 20, 2007, Wireless entered into an amendment to the Senior Secured Credit Facility. Under the amendment, the margin on the base rate used to determine the Senior Secured Credit Facility interest rate was reduced to 2.25% from 2.50%.

9. Fair Value Measurements:

     In the first quarter of 2008, the Company adopted the provisions of SFAS No. 157, “Fair Value Measurements,” (“SFAS No. 157”) for financial assets and liabilities. SFAS No. 157 became effective for financial assets and liabilities on January 1, 2008. SFAS No. 157 defines fair value, thereby eliminating inconsistencies in guidance found in various prior accounting pronouncements, and increases disclosures surrounding fair value calculations.

     SFAS No. 157 establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. The three levels of inputs are defined as follows:

	•		Level 1 - Unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.
	•		Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.
	•		Level 3 - Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use.

     SFAS No. 157 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument

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

will be categorized based upon the lowest level of input that is significant to the fair value calculation. The Company’s financial assets and liabilities measured at fair value on a recurring basis include short-term investments securities and derivative financial instruments.

     Included in the Company’s long-term investments securities are certain auction rate securities some of which are secured by collateralized debt obligations with a portion of the underlying collateral being mortgage securities or related to mortgage securities. Due to the lack of availability of observable market quotes on the Company’s investment portfolio of auction rate securities, the fair value was estimated based on the Company’s broker-dealer valuation models and an internal analysis by management of other-than-temporary impairment factors. The broker-dealer models considered credit default risks, the liquidity of the underlying security and overall capital market liquidity. Management also looked to other marketplace transactions, and information received from other third party brokers in order to assess whether the fair value based on the broker-dealer valuation models was reasonable. The valuation of the Company’s investment portfolio is subject to uncertainties that are difficult to predict. Factors that may impact the Company’s valuation include changes to credit ratings of the securities as well as the underlying assets supporting those securities, rates of default of the underlying assets, underlying collateral values, discount rates, counterparty risk and ongoing strength and quality of market credit and liquidity. Significant inputs to the investments valuation are unobservable in the active markets and are classified as Level 3 in the hierarchy.

     Included in the Company’s derivative financial instruments are interest rate swaps. Derivative financial instruments are valued in the market using discounted cash flow techniques. These techniques incorporate Level 1 and Level 2 inputs such as interest rates. These market inputs are utilized in the discounted cash flow calculation considering the instrument’s term, notional amount, discount rate and credit risk. Significant inputs to the derivative valuation for interest rate swaps are observable in the active markets and are classified as Level 2 in the hierarchy.

     The following table summarizes assets and liabilities measured at fair value on a recurring basis at March 31, 2008, as required by SFAS No. 157 (in thousands):

						Fair Value Measurements
		Level 1				Level 2				Level 3				Total
Assets
Long-term investments		$	—			$	—			$	28,049			$	28,049
Total assets at fair value		$	—			$	—			$	28,049			$	28,049
Liabilities
Derivative liabilities		$	—			$	46,138			$	—			$	46,138
Total liabilities at fair value		$	—			$	46,138			$	—			$	46,138

     The following table summarizes the changes in fair value of our Level 3 assets, as required by SFAS No. 157 (in thousands):

Fair Value Measurements of Assets Using Level 3 Inputs		Long-Term Investments
Beginning balance at December 31, 2007		$	36,050
Total losses (realized or unrealized):
Included in earnings			8,001
Included in other comprehensive income			—
Transfers in and/or out of Level 3			—
Purchases, sales, issuances and settlements			—
Ending balance at March 31, 2008		$	28,049
Losses for the three months ended March 31, 2008 included in earnings that are attributable to the change in unrealized losses relating to those assets still held at the reporting date as reported in impairment loss on investment securities in the condensed consolidated statements of income and comprehensive income		$	8,001

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

10. 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. As part of the Company’s financial process, it must assess the likelihood that its deferred tax assets can be recovered. If recovery is not likely, the provision for taxes must be increased by recording a reserve in the form of a valuation allowance for the deferred tax assets that are estimated not to be ultimately recoverable. In this process, certain relevant criteria are evaluated including the existence of deferred tax liabilities that can be used to absorb deferred tax assets, the taxable income in prior carryback years that can be used to absorb net operating losses and credit carrybacks and taxable income in future years. The Company’s judgment regarding future taxable income may change due to future market conditions, changes in U.S. tax laws and other factors. These changes, if any, may require material adjustments to these deferred tax assets and an accompanying reduction or increase in net income in the period when such determinations are made.

     FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes,” (“FIN 48”), clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109. FIN 48 provides guidance on the financial statement recognition and measurement of uncertain tax positions. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition issues. Since the prior year-end, there have been no changes in the amount of our unrecognized tax benefits. The Company did accrue interest expense during the three months ended March 31, 2008 on the unrecognized tax benefit. Additionally, there have been no changes in the Company’s determination of the amounts that could significantly change within the next twelve months.

     The Internal Revenue Service (“IRS”) has notified Royal Street Communications of its intent to examine the 2005 tax year of Royal Street Communications. Management does not believe the examination will have a significant effect on the Company’s tax position.

     In addition, there are several state income and franchise tax examinations that are currently in progress for the Company and/or certain of its subsidiaries for various tax years. Management does not believe these examinations will have a significant effect on the Company’s tax position.

11. 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 “Remuneration Plan”). In 2008, the Compensation Committee of the Board of Directors modified the Remuneration Plan to be more competitive with the market and to be more reflective of the Company’s status as a public company. The previous plan provided that each non-employee director’s annual retainer may be paid, at the election of each non-employee director, in cash, common stock, or a combination of cash and common stock. The modified Remuneration Plan provides that each non-employee director’s annual retainer will be paid in cash and each director will receive options to purchase common stock. In accordance with the modified Remuneration Plan, no shares of common stock were issued to non-employee members of the Board of Directors during the three months ended March 31, 2008. During the three months ended March 31, 2007, non-employee members of the Board of Directors were issued 31,230 shares of common stock as payment of their annual retainer.

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

12. 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 March 31,
		2008				2007
Basic EPS—Two Class Method:
Net income		$	39,519			$	36,352
Accrued dividends and accretion:
Series D Preferred Stock			—				(5,298	)
Series E Preferred Stock			—				(825	)
Net income applicable to common stock		$	39,519			$	30,229
Amount allocable to common shareholders			100.0	%			57.2	%
Rights to undistributed earnings		$	39,519			$	17,304
Weighted average shares outstanding—basic			348,164,091				157,035,119
Net income per common share—basic		$	0.11			$	0.11
Diluted EPS:
Rights to undistributed earnings		$	39,519			$	17,304
Weighted average shares outstanding—basic			348,164,091				157,035,119
Effect of dilutive securities:
Stock options			6,404,136				6,412,761
Weighted average shares outstanding—diluted			354,568,227				163,447,880
Net income per common share—diluted		$	0.11			$	0.11

     Net income per common share is computed in accordance with EITF 03-6 “Participating Securities and the Two-Class Method under FASB Statement No. 128,” (“EITF 03-06”). 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 per common share using the two-class method, except during periods of net losses. Preferred stock was included in the computation of income per common share through April 24, 2007, the date of conversion to common stock as a result of the Offering. 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 March 31, 2008, 8.7 million of stock options were excluded from the calculation of diluted net income per common share since the effect was anti-dilutive.

     For the three months ended March 31, 2007, 142.8 million 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 March 31, 2007, 6.0 million 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.

13. Commitments and Contingencies:

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 incumbent 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 incumbent governmental users from the AWS band. However, not all incumbent governmental users are obligated to relocate and some such users

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

may delay relocation for some time. For the three months ended March 31, 2008 and 2007, the Company incurred approximately $0.4 million and $0.2 million, respectively, in microwave relocation costs relating to its AWS licenses.

FCC Katrina Order

     In October 2007, the FCC released an Order on Reconsideration (“Reconsideration Order”) which requires the Company to maintain emergency backup power for a minimum of twenty-four hours for assets that are normally powered from local commercial power and located inside mobile switching offices, and eight hours for assets that are normally powered from local commercial power at other locations, including cell sites and DAS nodes. The Company will not be required to comply immediately with these minimum backup power requirements where the Company can demonstrate that such compliance is precluded by: (i) federal, state, tribal or local law; (ii) risk to safety of life or health; or (iii) private legal obligation or agreement. In addition, within six months of the effective date of the Reconsideration Order, which is the date of the federal register publication announcing Office of Management and Budget, (“OMB”), approval of the information collection requirements, the Company will be required to file a report with the FCC providing certain information with respect to compliance with the backup power requirements. The District of Columbia Court of Appeals has stayed the effective date of the Reconsideration Order pending the appeal of the Reconsideration Order by multiple parties. In cases where the Company identifies assets that were designed with less than the required emergency backup power capacity and that is not precluded from compliance, the Company must comply with the backup power requirement or, within 12 months from the effective date of the rule, file with the FCC a certified emergency backup power compliance plan. That plan must certify that and describe how the Company will provide emergency backup power to 100 percent of the area covered by any non-compliant asset in the event of a commercial power failure. If the Company is required to comply with the Reconsideration Order the Company may be required to purchase additional equipment, spend additional capital, seek and receive additional state and local permits, authorizations and approvals, and incur additional operating expenses to comply with the Reconsideration Order and such costs could be material. The Company could be forced to also discontinue service from some sites or in some areas due to the new rules.

Patent Litigation

     On June 14, 2006, Leap Wireless International, Inc. and Cricket Communications, Inc., or collectively Leap, filed suit against the Company 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, held by Leap. The complaint seeks both injunctive relief and monetary damages, including treble damages and attorney’s fees, for the Company’s alleged willful infringement by the Company’s wireless communication systems and associated services of the ‘497 patent. The Company answered the complaint, raised a number of affirmative defenses and together with two related entities, counterclaimed against Leap and several related entities and certain current and former employees of Leap, including Leap’s CEO. In its counterclaims, the Company claims that it does not infringe any valid or enforceable claim of the ‘497 Patent and the Company asserts claims for breach of contractual obligations, constructive trust, misappropriation, conversion and misappropriation of trade secrets, misappropriation of confidential information, and breach of a confidential relationship. The Company’s counterclaims seek monetary and exemplary damages, and injunctive relief. Certain of the Leap defendants, including its CEO, have answered the Company’s counterclaims, denied the Company’s allegations and asserted affirmative defenses to its counterclaims. In connection with denying a motion to dismiss by certain individual defendants, the court concluded that the Company’s claims against those defendants were compulsory counterclaims.

     On October 31, 2007, pursuant to a joint motion by the parties, the Court entered an order administratively closing the action. On February 14, 2008, the Court entered an order reopening the action, and the court has scheduled the claims construction hearing for late June 2008 and trial for early December 2008. The Company plans to vigorously defend against Leap’s claims relating to the ‘497 Patent.

     The Company has also tendered Leap’s claims to the manufacturer of its network infrastructure equipment, Alcatel Lucent, for indemnity and defense. Alcatel Lucent declined to indemnify and defend the Company. The Company filed a petition in state district court in Harrison County, Texas, Cause No. 07-0710, for a declaratory

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

ruling that Alcatel Lucent is obligated to cooperate, indemnify, defend and hold the Company harmless from the Leap patent infringement action and for specific performance, for injunctive relief and for breach of contract. Alcatel Lucent has responded to the Company’s petition and requested that the Court dismiss, abate, stay, and deny every claim in the Company petition asserted against Alcatel Lucent and order the Company to amend its petition. The Company has responded to Alcatel Lucent’s request. The parties have agreed to postpone the hearing on Alcatel Lucent’s request. No hearing is currently scheduled for Alcatel Lucent’s request. The Company intends to vigorously prosecute this action.

     On September 22, 2006, Royal Street Communications 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 Communications. Leap responded to Royal Street Communications’ complaint by filing a motion to dismiss Royal Street Communications’ complaint for lack of 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 the Company under the same patent. Royal Street Communications responded to this motion, but the Court entered an Order transferring the action to the United States District Court for the Eastern District of Texas, Marshall Division, Civil Action No. 2:07-CV-00285-TJW, where it remains pending. In February 2008, Leap answered the complaint and counterclaimed against Royal Street Communications, alleging that Royal Street Communications willfully infringes the ‘497 Patent and seeking both injunctive relief and monetary damages, including treble damages and attorneys’ fees, for Royal Street Communications’ alleged willful infringement by its wireless communication systems and associated services of the ‘497 Patent. Leap has also filed a motion to consolidate this action with the Leap action against the Company. Royal Street Communications has opposed such motion to consolidate. Royal Street Communications plans to vigorously defend against Leap’s claims relating to the ‘497 Patent.

     If Leap were successful in its claim for injunctive relief in either action, the Company and Royal Street Communications could each be enjoined from operating its business in the manner in which it and Royal Street Communications currently operates, which could require the Company and Royal Street Communications to expend additional capital to change certain technologies and operating practices, or could prevent both the Company and Royal Street Communications from offering some or all of the services the Company and Royal Street Communications each provides using some or all of the Company’s or Royal Street Communications’ existing systems. In addition, if Leap were successful in its claim for monetary damages, the Company and Royal Street could be forced to pay Leap substantial damages, including treble damages if found to have willfully infringed the ‘497 Patent, for past infringement and/or ongoing royalties on a portion of its revenues, which could materially adversely impact the Company and Royal Street Communications’ financial performance. Further, if Leap were successful, the Company and/or Royal Street could be required to pay Leap’s attorneys’ fees.

     On January 7, 2008, Freedom Wireless, Inc., or Freedom Wireless, filed suit against Verisign, Inc., the Company’s billing vendor, and several telecommunications providers who use Verisign’s billing system, including the Company, in the United States District Court for the Northern District of California, San Francisco Division, Civil Action Number CV-08-112-JL, for infringement of U.S. Patent No. 5,722,067 entitled “Security Cellular Telecommunications System,” U.S. Patent No. 6,157,823 entitled “Security Cellular Telecommunications System,” and U.S. Patent No. 6,236,851 entitled “Prepaid Security Cellular Telecommunications System”, or collectively the Freedom Wireless Patents, held by Freedom Wireless. The complaint seeks both injunctive relief and monetary damages, including treble damages and attorneys’ fees, for the Company’s alleged willful infringement of the Freedom Wireless Patents. The Company has tendered this action to Verisign and Verisign has indicated that it is reviewing the Company’s indemnification request. Verisign also has indicated that it plans to leave the telecommunications service business and cease providing the Company with billing services through the end of its current contract with the Company. The Company can give no assurance that Verisign will defend the Company against this action or that Verisign may not cease providing the Company with billing services altogether. The Company plans to vigorously defend against Freedom Wireless’ claims related to the Freedom Wireless Patents.

     If Freedom Wireless is successful in its claim for injunctive relief, the Company could be enjoined from operating its business in the manner it operates currently, which could require the Company to redesign its current billing or other systems, to expend additional capital to change certain of its technologies and operating practices, or could

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

prevent the Company from offering certain of its services. In addition, if Freedom Wireless is successful in its claim for monetary damage, and Verisign does not, or is unable to, pay such damages, the Company could be forced to pay substantial damages, including treble damages and attorneys’ fees, for past infringement and/or ongoing royalties on a portion of its revenues, which could materially adversely impact the Company’s financial performance. If Freedom Wireless prevails in its action, it could have a material adverse effect on the Company’s business, financial condition and results of operations. Moreover, the actions may consume valuable management time, may be very costly to defend and may distract management attention away from the Company’s business.

     Litigation

     In addition, the Company is involved in other litigation from time to time, including litigation regarding intellectual property claims that the Company considers to be in the normal course of business. The company is not currently party to any other pending legal proceedings that it believes would, individually or in the aggregate, have a material adverse effect on the Company’s financial condition or results of operations or liquidity.

14. Supplemental Cash Flow Information:

		Three Months Ended
		March 31,
		2008				2007
		(in thousands)
Cash paid for interest		$	17,662			$	22,069
Cash paid for income taxes			455				710

     Non-cash investing activities:

     Net changes in the Company’s accrued purchases of property, plant and equipment were $11.3 million and $7.0 million for the three months ended March 31, 2008 and 2007, respectively.

     Non-cash financing activities:

     The Company accrued dividends of $5.2 million related to the Series D Preferred Stock for the three months ended March 31, 2007.

     The Company accrued dividends of $0.7 million related to the Series E Preferred Stock for the three months ended March 31, 2007.

15. Related-Party Transactions:

     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 20% 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. Accruals for the fees that the Company collected from its customers are included in accounts payable and accrued expenses on the accompanying consolidated balance sheets. The Company had the following transactions with this related party (in millions):

		Three Months Ended
		March 31,
		2008				2007
Fees received by the Company as compensation for providing billing and collection services		$	1.8			$	1.1
Handsets sold to the related party			3.0				3.2

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

		March 31,				December 31,
		2008				2007
Accruals for fees collected from customers		$	3.8			$	3.3
Receivables from the related party included in accounts receivable:			1.3				0.7

     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 an interest in a company that provides cell site leases to the Company. During the three months ended March 31, 2008 and 2007, the Company recorded rent expense of approximately $0.1 million, and $0.1 million, respectively, for cell site leases. As of March 31, 2008 and December 31, 2007, the Company owed approximately $0.1 million and $0.1 million, respectively, to this related party for deferred rent liability related to these cell site leases that is included in deferred rents on the accompanying consolidated balance sheets.

16. 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, President and Chief Executive Officer.

     As of March 31, 2008, the Company had thirteen operating segments based on geographic region within the United States: Atlanta, Boston, Dallas/Ft. Worth, Detroit, Las Vegas, Los Angeles, Miami, New York, Orlando/Jacksonville, Philadelphia, Sacramento, San Francisco and Tampa/Sarasota. 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, enhanced directory assistance, text messaging, picture and multimedia messaging, domestic and international long distance, international text messaging, ringtones, games and content applications, unlimited directory assistance, ring back tones, nationwide roaming, mobile Internet browsing, mobile instant messaging, push e-mail 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, Sacramento and San Francisco, 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 Boston, Dallas/Ft. Worth, Detroit, Las Vegas, Los Angeles, New York, Orlando/Jacksonville, Philadelphia and Tampa/Sarasota, 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.

     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 and national operations center are allocated based on the average number of customers in each operating segment. There are no transactions between reportable segments.

     Interest and certain other expenses, interest income and income taxes are not allocated to the segments in the computation of segment operating results for internal evaluation purposes.

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

						Expansion
Three Months Ended March 31, 2008		Core Markets				Markets				Other				Total
		(in thousands)
Service revenues		$	369,270			$	192,700			$	—			$	561,970
Equipment revenues			59,604				40,780				—				100,384
Total revenues			428,874				233,480				—				662,354
Cost of service (1)			107,284				81,189				—				188,473
Cost of equipment			110,433				89,725				—				200,158
Selling, general and administrative expenses (2)			43,567				60,807				—				104,374
Adjusted EBITDA (3)			170,526				7,288				—
Depreciation and amortization			31,527				20,360				5,413				57,300
Loss (gain) on disposal of assets			191				(172	)			2				21
Stock-based compensation expense			2,937				5,528				—				8,465
Income (loss) from operations			135,872				(18,429	)			(5,415	)			112,028
Interest expense			—				—				47,425				47,425
Accretion of put option in majority-owned subsidiary			—				—				303				303
Interest and other income			—				—				(9,888	)			(9,888	)
Impairment loss on investment securities			—				—				8,001				8,001
Income (loss) before provision for income taxes			135,872				(18,429	)			(51,256	)			66,187

						Expansion
Three Months Ended March 31, 2007		Core Markets				Markets				Other				Total
		(in thousands)
Service revenues		$	336,934			$	102,582			$	—			$	439,516
Equipment revenues			68,268				28,902				—				97,170
Total revenues			405,202				131,484				—				536,686
Cost of service (1)			100,440				44,895				—				145,335
Cost of equipment			113,240				60,068				—				173,308
Selling, general and administrative expenses (2)			43,296				29,641				—				72,937
Adjusted EBITDA (deficit) (3)			150,322				(1,005	)			—
Depreciation and amortization			28,105				10,063				1,212				39,380
Loss (gain) on disposal of assets			2,895				(6	)			161				3,050
Stock-based compensation expense			2,095				2,116				—				4,211
Income (loss) from operations			117,225				(13,176	)			(1,373	)			102,676
Interest expense			—				—				48,976				48,976
Accretion of put option in majority-owned subsidiary			—				—				238				238
Interest and other income			—				—				(7,157	)			(7,157	)
Income (loss) before provision for income taxes			117,225				(13,176	)			(43,430	)			60,619

     The following table reconciles segment Adjusted EBITDA (deficit) for the three months ended March 31, 2008 and 2007 to consolidated income before provision for income taxes:

		Three Months
		Ended March 31,
		2008				2007
		(in thousands)
Segment Adjusted EBITDA (Deficit):
Core Markets Adjusted EBITDA		$	170,526			$	150,322
Expansion Markets Adjusted EBITDA (Deficit)			7,288				(1,005	)
Total			177,814				149,317
Depreciation and amortization			(57,300	)			(39,380	)
Loss on disposal of assets			(21	)			(3,050	)
Stock-based compensation expense			(8,465	)			(4,211	)
Interest expense			(47,425	)			(48,976	)
Accretion of put option in majority-owned subsidiary			(303	)			(238	)
Interest and other income			9,888				7,157
Impairment loss on investment securities			(8,001	)			—
Consolidated income before provision for income taxes		$	66,187			$	60,619

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

17. Guarantor Subsidiaries:

     In connection with Wireless’ sale of the 9¹/4% Senior Notes due 2014 and the entry into the Senior Secured Credit Facility, MetroPCS and all of MetroPCS’ subsidiaries, other than Wireless and Royal Street (the “guarantor subsidiaries”), provided guarantees on the 9¹/4% Senior Notes and Senior Secured Credit Facility. These guarantees are full and unconditional as well as joint and several. Certain provisions of the Senior Secured Credit Facility and the indenture relating to the 9¹/4% Senior Notes restrict the ability of Wireless to loan funds to MetroPCS. However, Wireless is allowed to make certain permitted payments to MetroPCS under the terms of the Senior Secured Credit Facility and the indenture relating to the 9¹/4% Senior Notes. Royal Street (the “non-guarantor subsidiaries”) is not a guarantor of the 9¹/4% Senior Notes or the Senior Secured Credit Facility.

     The following information presents condensed consolidating balance sheets as of March 31, 2008 and December 31, 2007, condensed consolidating statements of income for the three months ended March 31, 2008 and 2007, and condensed consolidating statements of cash flows for the three months ended March 31, 2008 and 2007 of the parent company (MetroPCS), the issuer (Wireless), the guarantor subsidiaries and the non-guarantor subsidiaries (Royal Street). Investments in subsidiaries held by the parent company and the issuer have been presented using the equity method of accounting.

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

Consolidated Balance Sheet
As of March 31, 2008

														Non-
										Guarantor				Guarantor
		Parent				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
		(in thousands)
CURRENT ASSETS:
Cash and cash equivalents		$	810,779			$	471,313			$	476			$	28,161			$	—			$	1,310,729
Inventories, net			—				57,157				8,318				—				—				65,475
Accounts receivable, net			—				32,788				—				39				—				32,827
Prepaid charges			—				5,466				41,146				4,724				—				51,336
Deferred charges			—				37,331				—				—				—				37,331
Deferred tax asset			—				4,920				—				—				—				4,920
Current receivable from subsidiaries			—				182,702				—				4,805				(187,507	)			—
Other current assets			1,124				2,443				17,921				169				—				21,657
Total current assets			811,903				794,120				67,861				37,898				(187,507	)			1,524,275
Property and equipment, net			—				41,935				1,661,836				334,423				—				2,038,194
Long-term investments			28,049				—				—				—				—				28,049
Investment in subsidiaries			498,228				1,465,895				—				—				(1,964,123	)			—
FCC licenses			—				—				1,779,296				293,599				—				2,072,895
Microwave relocation costs			—				—				10,517				—				—				10,517
Long-term receivable from subsidiaries			—				665,524				—				—				(665,524	)			—
Other assets			—				41,290				171,641				13,730				—				226,661
Total assets		$	1,338,180			$	3,008,764			$	3,691,151			$	679,650			$	(2,817,154	)		$	5,900,591
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	84			$	194,732			$	207,738			$	35,799			$	—			$	438,353
Current maturities of long-term debt			—				16,000				—				—				—				16,000
Current debt to parent			—				—				4,805				182,702				(187,507	)			—
Deferred revenue			—				25,877				106,952				—				—				132,829
Advances to subsidiaries			(545,422	)			(1,087,685	)			1,633,088				19				—				—
Other current liabilities			—				55				4,527				278				—				4,860
Total current liabilities			(545,338	)			(851,021	)			1,957,110				218,798				(187,507	)			592,042
Long-term debt			—				2,981,572				—				—				—				2,981,572
Long-term debt to parent			—				—				—				665,524				(665,524	)			—
Deferred tax liabilities			—				306,949				—				—				—				306,949
Deferred rents			—				—				38,038				3,738				—				41,776
Redeemable minority interest			—				5,335				—				—				—				5,335
Other long-term liabilities			—				67,701				17,242				4,456				—				89,399
Total liabilities			(545,338	)			2,510,536				2,012,390				892,516				(853,031	)			4,017,073
COMMITMENTS AND CONTINGENCIES (See Note 13)
STOCKHOLDERS’ EQUITY:
Preferred stock			—				—				—				—				—				—
Common stock			35				—				—				—				—				35
Additional paid-in capital			1,533,931				—				—				20,000				(20,000	)			1,533,931
Retained earnings (deficit)			377,930				526,616				1,678,761				(232,866	)			(1,972,511	)			377,930
Accumulated other comprehensive (loss) income			(28,378	)			(28,388	)			—				—				28,388				(28,378	)
Total stockholders’ equity			1,883,518				498,228				1,678,761				(212,866	)			(1,964,123	)			1,883,518
Total liabilities and stockholders’ equity		$	1,338,180			$	3,008,764			$	3,691,151			$	679,650			$	(2,817,154	)		$	5,900,591

														Non-
										Guarantor				Guarantor
		Parent				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
		(In thousands)
CURRENT ASSETS:
Cash and cash equivalents		$	801,472			$	633,277			$	444			$	35,015			$	—			$	1,470,208
Inventories, net			—				101,904				7,235				—				—				109,139
Accounts receivable, net			—				31,790				—				19				—				31,809
Prepaid charges			—				10,485				46,105				3,879				—				60,469
Deferred charges			—				34,635				—				—				—				34,635
Deferred tax asset			—				4,920				—				—				—				4,920
Current receivable from subsidiaries			—				154,758				—				—				(154,758	)			—
Other current assets			2,369				3,024				16,129				182				—				21,704
Total current assets			803,841				974,793				69,913				39,095				(154,758	)			1,732,884
Property and equipment, net			—				44,636				1,546,647				300,128				—				1,891,411
Long-term investments			36,050				—				—				—				—				36,050
Investment in subsidiaries			471,392				1,362,710				—				—				(1,834,102	)			—
FCC licenses			—				—				1,779,296				293,599				—				2,072,895
Microwave relocation costs			—				—				10,105				—				—				10,105
Long-term receivable from subsidiaries			—				618,191				—				—				(618,191	)			—
Other assets			—				42,524				6,442				13,819				—				62,785
Total assets		$	1,311,283			$	3,042,854			$	3,412,403			$	646,641			$	(2,607,051	)		$	5,806,130
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	77			$	154,205			$	244,913			$	40,254			$	—			$	439,449
Current maturities of long-term debt			—				16,000				—				154,758				(154,758	)			16,000
Deferred revenue			—				24,369				96,112				—				—				120,481
Advances to subsidiaries			(537,540	)			(949,296	)			1,486,836				—				—				—
Other current liabilities			—				124				4,211				225				—				4,560
Total current liabilities			(537,463	)			(754,598	)			1,832,072				195,237				(154,758	)			580,490
Long-term debt			—				2,986,177				—				—				—				2,986,177
Long-term note to parent			—				—				—				618,191				(618,191	)			—
Deferred tax liabilities			—				290,128				—				—				—				290,128
Deferred rents			—				—				32,939				2,840				—				35,779
Redeemable minority interest			—				5,032				—				—				—				5,032
Other long-term liabilities			—				44,723				11,637				3,418				—				59,778
Total liabilities			(537,463	)			2,571,462				1,876,648				819,686				(772,949	)			3,957,384
COMMITMENTS AND CONTINGENCIES (See Note 13)
STOCKHOLDERS’ EQUITY:
Preferred stock			—				—				—				—				—				—
Common stock			35				—				—				—				—				35
Additional paid-in capital			1,524,769				—				—				20,000				(20,000	)			1,524,769
Retained earnings (deficit)			338,411				485,871				1,535,755				(193,045	)			(1,828,581	)			338,411
Accumulated other comprehensive loss			(14,469	)			(14,479	)			—				—				14,479				(14,469	)
Total stockholders’ equity			1,848,746				471,392				1,535,755				(173,045	)			(1,834,102	)			1,848,746
Total liabilities and stockholders’ equity		$	1,311,283			$	3,042,854			$	3,412,403			$	646,641			$	2,607,051			$	5,806,130

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

Consolidated Statement of Income

										Guarantor				Non-Guarantor
		Parent				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
		(in thousands)
REVENUES:
Service revenues		$	—			$	—			$	563,196			$	12,849			$	(14,075	)		$	561,970
Equipment revenues			—				3,007				97,377				—				—				100,384
Total revenues			—				3,007				660,573				12,849				(14,075	)			662,354
OPERATING EXPENSES:
Cost of service (excluding depreciation and amortization expense shown separately below)			—				—				182,854				19,694				(14,075	)			188,473
Cost of equipment			—				2,861				197,297				—				—				200,158
Selling, general and administrative expenses (excluding depreciation and amortization expense shown separately below)			—				147				99,265				4,962				—				104,374
Depreciation and amortization			—				54				49,575				7,671				—				57,300
Loss on disposal of assets			—				—				18				3				—				21
Total operating expenses			—				3,062				529,009				32,330				(14,075	)			550,326
Income (loss) from operations			—				(55	)			131,564				(19,481	)			—				112,028
OTHER EXPENSE (INCOME):
Interest expense			—				61,011				(11,408	)			20,642				(22,820	)			47,425
Earnings from consolidated subsidiaries			(40,744	)			(103,185	)			—				—				143,929				—
Accretion of put option in majority-owned subsidiary			—				303				—				—				—				303
Interest and other income			(6,776	)			(25,596	)			(34	)			(302	)			22,820				(9,888	)
Impairment loss on investment securities			8,001				—				—				—				—				8,001
Total other (income) expense			(39,519	)			(67,467	)			(11,442	)			20,340				143,929				45,841
Income (loss) before provision for income taxes			39,519				67,412				143,006				(39,821	)			(143,929	)			66,187
Provision for income taxes			—				(26,668	)			—				—				—				(26,668	)
Net income (loss)		$	39,519			$	40,744			$	143,006			$	(39,821	)		$	(143,929	)		$	39,519