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Technology Stocks : Leap Wireless International (LWIN) -- Ignore unavailable to you. Want to Upgrade?

To: pcstel who wrote (2109)	6/4/2002 5:05:19 PM
From: Art Bechhoefer	Read Replies (1) \| Respond to of 2737

Fraud or not, I couldn't resist buying more today. eom. Art

To: pcstel who wrote (2109)	6/13/2002 9:46:41 PM
From: pcstel	Respond to of 2737

Interesting additional data provided by the Press Release on types of fraud, and the effect they have on the bottom line. 1. "To contain credit card fraud, in which a person pays for service with the credit card of another, Leap has implemented improved credit card validation systems and processes at both the point of sale and at Cricket’s customer care centers. This has reduced the percentage of credit card transaction charge backs by nearly 80 percent since January, and Leap believes that the Company’s results are now consistent with industry standards. 2. "To prevent subscription fraud, in which a person who already owns a Cricket phone activates service with false information and thereby obtains an additional month of service free, the Company has implemented new customer validation systems and processes at the point of activation. Leap believes these actions have prevented the activation of or otherwise cleared from its system more than 20,000 customers in the second quarter who were potentially involved in fraud. In addition, the Company believes that virtually all of the customers involved in fraud at the end of the first quarter have been removed from its system or turned into paying customers, because nonpaying customers are automatically removed from its system after 30 days." It states both of the above types of fraud "Decreases reported service revenue and ARPU due to the free month of service provided to these customers, and because revenue associated with charge backs is reversed out in the month the charge back is received. " I believe that in order to mitigate both of these types of fraud would require questionable new subscriber data and credit card information to be verified in person at a Cricket Store. Which may require additional Cricket Stores in markets with large coverage areas. (For example, they just opened a new Cricket Store in Clarksville, TN which is 50 miles from the nearest Cricket Store.) I believe this is one of the reasons they chose to stop taking payments at the Cricket Stores. So it appears that by their statement " To prevent subscription fraud, in which a person who already owns a Cricket phone activates service with false information and thereby obtains an additional month of service free, the Company has implemented new customer validation systems and processes at the point of activation. That as was speculated earlier. Activating a phone already used by a previous subscriber probably requires a trip to you local Cricket Store for some ID validation. Or maybe even to a Payment Center which are more numerous. And on to #3. The most costly to the bottom line. To rein in distribution fraud, in which a third-party dealer or distributor reports a handset as sold and activates the service in a fictitious person’s name, Leap has reviewed dealer performance and eliminated approximately 15 percent of the indirect sales locations that were under-performing or suspected of potentially fraudulent activity. As a result, Leap currently markets its Cricket service through over 5,100 indirect points of sale in addition to its direct retail locations. The Company has also instituted more timely and targeted dealer performance and inventory monitoring systems that provide the Company with near-real time reporting. Leap will continue to utilize these systems to identify and mitigate potential fraudulent activity. This type of fraud increases the amount of equipment subsidy reported and cost per gross addition (CPGA) because, like all wireless carriers, the Company sells its handsets at a loss and gives market development funds and volume incentives to its indirect dealers. It seems difficult to stop someone from becoming an initial subscriber with false identification. After all, they pay their money and get their first month free. The key appears to be tracking distributors and POS outlets that have high occurances of reaching performance bonuses with subscribers that do not send in their payment after the first month of service. I still think they need to add an activation fee to the initIal price. So they reduced charge backs my 80% from the Q1 level, and the 20,000 figure sounds better than the 70,000 that everyone was expecting. Including Tim O'Neil PCSTEL