METRO ONE TELECOMMUNICATIONS INC - Quarter Report: 2001 June (Form 10-Q)

ITEM 2.            MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
                           CONDITION AND RESULTS OF OPERATIONS

             All statements and trend analyses contained in this item and elsewhere in this report on Form 10-Q relative to the future constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to the business and economic risks faced by us and our actual results of operations may differ materially from those contained in the forward looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

             Results of operations for the periods discussed below should not be considered indicative of the results to be expected in any future period and fluctuations in operating results may also result in fluctuations in the market price of our common stock. Our quarterly and annual operating results have in the past and may in the future vary significantly depending on factors such as changes in the telecommunications market, the addition or expiration of customer contracts, increased competition, changes in pricing policies by us or our competitors, lengthy sales cycles, lack of market acceptance or delays in the introduction of new versions of our products or features, the timing of the initiation of wireless services or their acceptance in new market areas by telecommunications customers or their subscribers, the timing and expense of the expansion of our national call center network, general employment environment, general economic conditions and other factors, including but not limited to, factors detailed in our annual report on Form 10-K filed with the Securities and Exchange Commission.

Overview

             We are the leading developer and provider of Enhanced Directory Assistance ("EDA") and other enhanced telecom services. We have contracts with wireless and landline carriers (“customers”) to provide EDA and other services in numerous U.S. markets. Our recent operations have been characterized by rapid call volume and revenue growth as well as growth in profits. Call volume and revenues increased 70% and 62%, respectively, in the second quarter of 2001 from the second quarter of 2000, and profits grew to $7,760,000 from $1,156,000.

             Our marketing strategy includes efforts to increase our share of the directory assistance and information services markets by expanding services to existing customers, adding new customers and subsequently expanding our call center network into new geographic markets. We have had ongoing business discussions about new contracts with other telecommunications companies. We opened one new call center in the first three months of 2001 and anticipate that we will open additional call centers or expand or relocate existing call centers, as needed, during 2001 and beyond to serve new or existing customers. With our increasing size, we expect that costs associated with opening each new call center should have a diminishing impact on results of operations.

             To stimulate an increase in call volume and to attract and expand customer commitments, our strategy has included price discounts based on call volumes. We expect that our average price per call will continue to decrease in the remainder of 2001 as increasing call volumes trigger volume-based pricing discounts. In addition, as we enter into additional or new contracts, the average price per call may decrease as we attempt to increase market share. We believe that our reduced pricing better positions us to retain and expand service with existing customers, to extend service to new customers and to achieve greater operating margins over time.

             In February 2001, we completed the sale and issuance to Sonera Media Holding B.V. (“Sonera”) of Finland, of six million shares of our common stock at a price of US$11.33 per share, for an aggregate price of $68 million (net proceeds of $64.7 million) and an approximate 25.5% ownership position. Under the terms of the agreement, Sonera has gained representation on our Board of Directors and can further acquire up to an aggregate 33% ownership position. We have utilized a portion of the cash received to retire approximately $35 million of debt. We intend to use the additional cash to further expand our infrastructure and capacity through expansion of existing call centers and new call centers in selected markets and for other corporate purposes.