Operator:

Good morning. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] You may also submit a question via X by sending a post to @TMobileIR or @MikeSievert using the $TMUS. I would now like to turn the conference over to Kathy Au, Senior Vice President for Investor Relations for T-Mobile US. Please go ahead.

Mike Sievert:

Thanks, Kathy. Hi, everybody. Welcome to the call. We're coming to you from New York today. If you're watching online, you can see I'm with several members of the senior team ready to discuss these strong quarterly results and our recent news, and of course to take your questions. This T-Mobile team just continues to demonstrate strong execution across the board. We're taking up our customer growth and cash flow guidance for the full year once again. I'm going to begin with a comment on customer growth because this quarter not only represented our highest ever Q2 postpaid phone net ads in company history, but we also pushed past a major milestone, 100 million customer connections. This growth was once again balanced geographically across both smaller markets in rural areas and top 100 markets. We also grew our postpaid phone gross ads at the highest rate in nearly three years. At the same time, we delivered yet another, record low upgrade rate this quarter, speaking to the strength of our customers' experience on our differentiated 5G network. Speaking of experience, let me now turn to that network leadership. We swept every category for overall network performance in the latest Opensignal and Ookla tests. According to Opensignal, T-Mobile's download speeds are up to three times as fast as peers, alongside having nearly six times the 5G availability as our next closest competitor. Our network was also awarded the most consistent by both independent third parties, a key indicator of an overall superior network experience. We continue to invest thoughtfully and in a highly capital-efficient model to extend our network leadership, and it shows. It is really a privilege to see our team's hard work show up in recognition like this and to share it with you. Okay, turning to broadband. Our fixed wireless offering continues to resonate with customers, leading us to capture a record share of industry broadband net ads this quarter. And now we have an incredible 5.6 million fixed wireless broadband customers. I hope you all saw our news from last week, as I'm excited to talk to you about our partnership with KKR to acquire Metronet. The Metronet team is the nation's fastest growing pure play fiber provider. This is a unique company and asset. They already reach over 2 million homes today, and with this partnership are expected to grow to 6.5 million homes passed by 2030, bringing consumers greater choice where they need it most, and we are equally excited to work alongside KKR's expert infrastructure team on this project. As with our Lumos JV, T-Mobile will leverage our scale, brand, distribution, and existing customer relationships to grow faster and to do it smarter. I can't highlight enough how both the Metronet and Lumos JVs represent best in class partnerships in the fiber space. Because of the partners that we've chosen and T-Mobile's unique assets and capabilities, I believe this is going to be a very successful initiative for our shareholders. Now going back to the current business and our financials. In Q2, we once again demonstrated our ability to deliver profitable growth in customers and translating that to industry-leading service revenue growth and industry-leading core adjusted EBITDA growth. That, combined with our capital efficiency, has led to a record adjusted free cash flow quarter that grew 54% year-over-year and once again led the major wireless companies in free cash flow margins. I could not be more proud of this team's results this quarter. Okay, to sum it all up, we are staying true to our Un-carrier DNA while focusing on smart and profitable growth, delivering record financial results. Our durable and differentiated model continues to outperform and I look forward to sharing more about the Un-carrier's next chapter on value creation at our Capital Markets Day, which will be in the second half of September. We're going to get that on your calendars very soon. So Peter, let's hand it to you to talk about our key financial highlights and an update on our guidance.

A - Kathy Au:

All right, let's get to your questions. [Operator Instructions] We'll start with a question on the phone. Operator, first question, please.

John Hodulik:

Great. Good morning, guys. Can we talk a little bit about the fiber strategy? I mean, obviously, you guys have two big deals you announced and a number of other partnerships. Should we expect more deals sort of similar to what we saw with Lumos and Metronet? Then can you give us any color on what you've seen in some of your pilot markets in terms of penetration rates and maybe the benefits of convergence, both in terms of matching broadband and wireless and what that does to maybe your wireless penetration in those markets? Thanks.

John Hodulik :

Got it. Thanks Mike.

Kathy Au:

Operator, next question please.

Simon Flannery :

Great. Thank you very much. Thanks for the disclosure on ACP. Perhaps you could just give us a little bit more color on how that flows through. How much of that $350 million to $450 million was in Q2 and that impacts into Q3 and beyond? Then have you seen any benefit in terms of winning customers, say, in the Metro brand or anything like that? Then, Peter, you talked about the expectations for churn, and so for the second half of the year, what are you assuming in terms of an iPhone cycle? There's obviously a lot of excitement about an AI iPhone, given where your customers are, another load up, a great quarter. Do you think we're waiting for a bigger surge or do you think this will be looking fairly similar to last year, which is, I think, what you said? Thanks.

Peter Osvaldik:

Okay. Yeah, and thanks, Simon. As you know, and just as a little bit of a history lesson for us, is we didn't participate in ACP through our postpaid brand. So there were no subscribers added there, and through Metro, we had a very small amount of customers. We primarily serve these customers through our Assurance brand, which didn't include subscriber counts and through supporting our wholesale partners. If I think about the arc of the $350 million to $450 million impact, given, of course ACP was still in play in Q1 and partially in Q2, I’d see the majority of that impact happening in the second half and even more of it in Q4 than Q3, because still a little bit of a tail coming in Q3. So, that's the best view. Primarily the majority of that, again, is going to be in wholesale and other service revenues. I'd expect Q4 to be probably the biggest impact there.

Simon Flannery :

Thanks Mike.

Operator:

The next question comes from Michael Rollins with Citi. Please go ahead.

Mike Sievert:

Sounds great, Mike. So I'm going to start with Jon Freier to talk about what we're seeing in the consumer space and where are those customers coming from?

Mike Sievert:

The other thing that we said in our prepared remarks, Mike, is that we took the highest percentage of broadband nets ever in our history this quarter. 75% or so and that's huge. That adds to all this. So we're obviously now resonating with customers on multiple topics. That plays on itself in some ways. So that's terrific to see. So you're looking across geographies, across customer segments, and even across product lines and seeing strength and those things start to play on each other. Okay. And your second question was about capital allocation strategy. Maybe we can start with the highest level, Peter, on how we think about this.

Mike Sievert:

Well said, Peter. So, I mean, for us we're really pleased to be able to try to have it both ways here. So many incredible opportunities have presented themselves, and we have seized on those things. That's certainly what you want us to be doing, and yet at the same time, we have these ambitions for shareholder returns that are principally unchanged, and to be able to have it both ways is amazing, because you would expect the trade-offs, but that shows you the strength of our business. And we've been talking for some time, that it would take us probably into 2026 to realize the business support for that up to $60 billion in shareholder returns, and that's certainly the case as we look at all these transactions that are adding long-term value to the company. But stay tuned, and we'll do the best we can to keep that cash flow rolling in for years to come.

Michael Rollins:

Thank you.

Operator:

The next question comes from Jim Schneider with Goldman Sachs. Please go ahead.

Mike Sievert:

Okay, great. You can do the math on the first one. We've now reached $5.6 million homes with our broadband product. It's just an amazing result. The strength continues with this quarter's performance being perhaps our best ever in the competitive context. And what's interesting is, our customers love this product. So we're also winning so much great feedback from third parties and from customers as to how this product performs. It gives us lots of confidence for the long-term legs of the initiative. And you can do the numerator and denominator math. We have said the majority of that $5.6 million is from existing T-Mobile customers. That means they also have mobile, and so they'd be part of our mobile accounts, but we haven't broken it out in exact numbers for you. And the rest represent kind of a land and expand strategy that we've been talking about, which is people coming in from the top 100 markets, also from smaller markets in rural areas, and choosing T-Mobile through the broadband front door, and then giving us an opportunity to sell wireless, which is a cool dynamic to see. But Mike Katz, maybe you can talk about how this product is resonating in the marketplace, because I think it's one of the things that might surprise some people.

Mike Sievert:

James, onto your second question about pricing, I can tell you that our strategy, which has been in place for so many years, is not a strategy that we have any interest in changing. We are the service revenue growth leader in this industry. We are the post-paid service revenue growth leader by a wide margin, and we do that because we have a value proposition that customers trust us around. And that's not to say that we're not going to make changes. We made changes this year to keep up with the times, first in a decade. But we like being the value leader, and that translates through our unique strategy into industry-leading revenue growth performance. Now, what you also see is the growth of per-customer revenues rising. We talked about our average revenue per account growing at well over 2%. And those kinds of things are great to see, but I want to make sure that people don't misinterpret our actions as anything other than keeping up with the times and reinforcing our strategy, which is a deeply trusted covenant with the world's consumers, American consumers, that we are and will be the best value in the marketplace. And that sometimes includes changes that we'll make along the way. And you saw us do that, and I think you saw us perform through it, because of that trusted relationship that we have with our consumers.

Kathy Au:

Thanks, Jim. Operator, next question please.

David Barden:

Hey guys, thanks so much for taking the questions. Just a couple of follow-ups, if I could. I want to kind of come back to Simon's question. Mike, obviously with the Wall Street Journal article out there, suggesting that the reason you are being coy about the fiber strategy is because that's the straight, you know that's the game theory. You don't want people to believe that you have a bigger fiber strategy. In the Metronet press release, you called out, it was unique, it was capital light, but you kind of said the same thing about Lumos. So you had a $1 billion capital light transaction, then you had a $5 billion capital light transaction. Is there a reason to believe that you either need to do a $10 billion capital light transaction or a $20 billion capital light transaction? Or is there a reason that you definitely will not do those things? If you could kind of put a stake in the ground on that, I think a lot of people would be listening to that. I think the second follow-up would be just, I think in answer to, I think it was Mike's question on sources of postpaid phone growth. I know that you guys had some real success in enterprise. Hopefully, if you could elaborate a little bit on how that contributed to the quarter, it would be great. Thank you.

David Barden:

Thank you.

Callie Field:

Thanks Mike. I appreciate the question, Dave. I'll start with, once again, we outpaced our benchmark competitor in overall phone nets and phone churn. And we saw, once again, positive port trends across all segments against all of our competitors. Our CLVs are healthy. We're very pleased with the contribution of the business to overall growth. And what I'll also mention is that in S&B in particular, we had our best quarter ever in postpaid phone nets, up almost 20% year-over-year. In enterprise, our win share continues to be our overall share. And I'll also mention, our prices are competitive. We continue to be a value leader, but customers are choosing us because we're the best. We have the best, the fastest, the largest, the most reliable, most consistent network. And what we've seen is that CIOs and CTOs at large enterprises and even in the federal government space are really seeing what a 5G standalone core, what a commercially available network slicing and advanced network solutions can do for them. And we're starting to see some growth in our funnels and customers really coming to us to evaluate our entire solution portfolio. And so we see both growth, but also opportunities to expand our existing relationship with customers in growing ARPA. And some examples of that that I'll just share really quickly is, the largest oil and gas company in the United States chose us to provide advanced network solutions in their innovation lab, but they also for all of their mobile workforce selected T-Mobile to provide phones and tablets and then added onto that, our SASE T-SIM secure products. So that's an example of how we're expanding our relationship with our customers in a way that's profitable and we're very pleased with the business overall.

David Barden:

Thank you both.

Operator:

The next question comes from Craig Moffett with MoffettNathanson. Please go ahead.

Mike Sievert:

Hey Craig, great question. Like I said, over the long haul, we're open-minded. We're very proud of these transactions. We want to execute them extremely well. We want to get them closed and we'll take a wider lens and see where we are and what we've learned. One thing we feel very strongly about, and I'm not sure I like the phrasing ‘not believers in convergence.’ I'll parse it differently for you. One thing we feel very strongly about is that these transactions are not defensive of our mobile business. We believe our mobile business stands strongly alone. Consumer choice has been made very clear that wireless is a deeply considered sale. It's the primary purchase decision in a connected life and that people will choose the wireless company that is right for them. And we believe we will compete effectively as a pure play wireless company, regardless of our simultaneous participation in broadband. That being said, convergence is real and that the customers that buy both, buy them together, and we have bundles today. Many of our 5.6 million broadband customers today purchased that in a bundle and realized discounts by doing so and there's nothing wrong with that. We think that's a dynamic that makes sense. Customers love discounts. Discounts make sense to customers, but they can come in many forms. And so I want to – convergence is happening and that some people are buying these things together and they kind of like that. It's not happening in the sense that if you don't have this product, you can't compete in mobile. We have zero evidence to support that thesis, and so I want to make sure that we parse it that way. And then secondly, of course, over the long haul we're open-minded about this. I just want to make sure that we're really smart about how we do it. And for us, joining with some of these very, very high quality teams who are doing this the best in the country and are doing it in an elegant and pure way, and at a pace that's really impressive, is a fantastic way for us to step into this. We're not going to make further decisions about where to go from here until we're able to get more experience in the ground.

Operator:

The next question comes from Jonathan Chaplin with New Street Research. Please go ahead.

Mike Sievert:

Okay. Well Peter, why don't you just shift the spreadsheet over there to go? Honestly Jon, let me answer the first one. First of all, it's very hard for us to tell, and I think even for others who are saying those things to tell what's causal. And so it does appear that the statement is true that that competitor's share is higher where they also have broadband, but they have broadband in places of their historic strength, and including back when their broadband product wasn't that interesting and so it's hard to tell what's causal there. The one thing that does appear to be linked in a way that's somewhat causal is that churn looks to be lower. And when people buy these bundled offers, there does appear to be a marginal impacted churn, which is attractive. And again, that's one of the thesis for why we like this. We think we can outperform a purely disinterested financial investor because of the embedded customer base. But remember, churn and wireless is already historically low. So there's only so much benefit you can count on from that on the wireless side. And it's one of the reasons why, again, we don't think it's necessary as a defense of our mobile business far from it.

Jonathan Chaplin :

Got it. One last sort of follow-up question, just on – okay, great. Thanks K.

Jonathan Chaplin :

You'll take it? Just on the business consumer mix question, on fixed wireless broadband, can you give us a sense of how much of the ads coming in are from business and how that's evolved?

Jonathan Chaplin :

Got it. Thanks guys.

Operator:

The next question comes from Kannan Venkateshwar with Barclays. Please go ahead.

Mike Sievert:

Okay Kannan, those are great questions. First of all, on the fiber and the interplay with our fixed wireless business, actually a fantastic question. I'll turn to Mike Katz.

Mike Sievert:

And to illustrate that, we have a long, long list of people who have expressed interest in our fixed wireless product that we're not able to serve, because we only put it in places where there's open capacity.

Mike Sievert:

So, great question, and on to the second piece Peter.

Kannan Venkateshwar:

Good. Thank you.

Callie Field:

Yeah, we continue to see strong growth. Obviously our legacy business began in S&B. It's where we have the most share. It's where our channels and assets really shine in our core wireless business. And something I'm really pleased that our team has been able to do is to, as I was mentioning in enterprise, build a broader solutions portfolio that really addresses the needs of small businesses. So in both small and medium sized business, we continue to grow share. We continue to see very attractive CLVs and I'm pleased with the pace of the business. It's also a place where we see continued quarter-over-quarter growth in our fixed wireless business and still have opportunities to go back to our base and open up more opportunities in fixed wireless. So a lot of really good things going on for our small businesses there.

Peter Osvaldik:

Yeah, of course, I won't update long-term guidance here, but much like what you saw in 2024 and what our guide is, our strategy has been to continue to increase ARPA. And it's because this network, consumers businesses are hungry for more of the experience that this network creates and provides, whether that's in the postpaid phone category itself, whether that's in other connected devices such as fixed wireless, watches, tablets, new connectivity solutions out there. That is what's driving ARPA expansion. And that's the strategy, share-taking combined with ARPA expansion, earned ARPA expansion with the network experience that they have and the value leadership that we provide, to continue to drive for the long haul ARPA growth. That's the strategy here. And of course, we'll have more on longer-term trends at another time.

Mike Sievert:

Cathy, back to the chorus.

Operator:

The next question comes from Brian Kraft with Deutsche Bank. Please go ahead.

Mike Sievert:

Okay Brian, I'll take the first one and ask Peter to comment on the second. You'll find it a little unsatisfying as an answer though, which is we find the industry level kind of hard to predict. The Q2 came in higher than we had expected in some cases and our business landed right about where we were planning. But if you look at the wider lens, the industry context was a little hard to predict and you kind of see that in our guide. We were able to flow through our Q2 beat versus consensus in our guide. It was a very strong quarter for us. You see that in the second half where we're sort of side eyeing that industry question because we just don't know. We're very confident in our plans for the second half.

Peter Osvaldik:

Generally speaking, yeah. I mean look, [Multiple Speakers] I'll just send out all of my spreadsheets and we'll be in a good place, but that's exactly right. It's hard to predict. Again, if it's a higher upgrade rate, higher moment of switching, that creates higher ultimate customer value and enterprise value for us as well being the share taker. So that's part of the reason why we're always in a range scenario with EBITDA. Yes, we have the ACP element of it, but we also have the element of what is the opportunity going to be. If you see an opportunity where industry share taking can flow to our benefit more than we think, of course, we'll take it. You saw that happen in Q2 as we saw opportunities, we made investments and we took more shares. So that's part of the range. We are excited, of course, much like we all are at every holiday season and every new iPhone introduction as a moment of potential share taking. Can't predict exactly what's going to happen. But the EBITDA range gives us flexibility to achieve exactly what we want to with the plan.

Brian Kraft :

Thanks to you both.

Operator:

The next question comes from Peter Supino with Wolfe Research. Please go ahead.

Mike Sievert:

Great. Well, let me start with the second one, which is the way our fallow-capacity model works is pretty sophisticated. We look at every sector and, in fact, smaller geographic elements than a sector and look at the predicted, not current, capacity usage of that sector, assuming ongoing share taking in line with historical norms of share taking in mobile phones, and assuming dramatic growth of usage of mobile phones on a per mobile phone basis, and ongoing growth in line with historical norms of usage for the actual broadband customers that we bring on. We take all that forward and drag it right, years, and then approve applicants for broadband only when that capacity will still be there. So that's one of the reasons why we have hundreds of thousands of people waiting for this product on waiting lists, because right down to your particular address, unless we're convinced that product will serve you for years to come in a way that drives your happiness and does it without interrupting anybody's mobile service, we don't accept your application. It's a very sophisticated model. One of the online questioners said that Verizon commented that they are balancing and capping at 400,000 a quarter in order to avoid disrupting mobile subs. Are you doing the same thing? And the answer is, no, because our broadband subscribers don't do that by virtue of how we do this. So it's a really sophisticated model that we're quite proud of. Now I forget the second half.

Peter Supino:

Thank you both.

Operator:

The last question today comes from Sebastiano Petti with J.P. Morgan. Please go ahead.

Peter Osvaldik:

I’ll start with the second one. Yeah, on the churn, I really meant kind of sequential trends. So what we saw last year was Q2 to Q3 sequentially was up 10 bps and Q3 to Q4 sequentially was up 9 bps, and so those are generally the sort of trends we'd expect. So as you think about what we just delivered in Q2, I'd anticipate a similar sequential increase in terms of number of bps, and similarly then from Q3 to Q4 of this year. So that's kind of the housekeeping around that.

Peter Osvaldik:

Yeah, it's not that precise. That's the general expectation for sure.

Kathy Au:

Thanks Mike. That's all the time we have for questions, and we appreciate everyone joining us today. We look forward to speaking to you again soon. If you have any further questions, you may contact the Investor Relations or Media Department.

Operator:

Good afternoon. [Operator Instructions] I would now like to turn the conference over to Mr. Jud Henry, Senior Vice President, Strategic Adviser, Investor Relations for T-Mobile US. Please go ahead, sir.

G. Sievert:

Okay. Thanks, Jud. Good afternoon, everybody. Welcome. If you're watching online, you can see that I've got a good part of the senior team here. We're coming to you from Bellevue, Washington today, and we're looking forward to a great discussion.

Peter Osvaldik:

Well, thank you, Mike. All right. As you can see, we kicked off 2024 with great momentum. Mike already highlighted our best-in-class growth in both the top and bottom line and how our industry-leading conversion of service revenue to adjusted free cash flow continues to differentiate T-Mobile. So let me jump into our updated expectations for how that growth will continue in 2024.

Jud Henry:

Thanks, Peter. All right. Let's get to your questions. [Operator Instructions] We'll start with a question on the phone. Operator, first question, please.

Michael Rollins:

Congrats, Jud, on the new role. Just a couple of questions, if I could. So first, you mentioned that you may be taking some pricing actions and that could affect some of the subscriber performance in 2Q, 3Q. Can you unpack the plan on how you're approaching those actions and how to think about the net benefit? And then just secondly, taking a step back, if you can give us an update on how you're seeing the competitive landscape, how you're seeing the switcher pool and how T-Mobile is navigating some of these changes with the industry seemingly having lower upgrades, lower churn.

G. Sievert:

Okay. Competitive context on up -- what are we seeing on upgrades? What's driving that? What's happening with the competition, Jon?

G. Sievert:

I'll just add one last thing. As I said in my prepared remarks, 75% of our customers have 5G devices, and those customers are having a very differentiated experience with T-Mobile's lead in 5G. And we can talk more about that, I hope, during the call. I'm so pleased with what's happened. We continue to extend our lead. And so that -- the impetus when you're having a fantastic experience on your phone, to prematurely swap it out, just isn't there. And they'll do it in a stepwise way. They continue to do it. And you can tell we're upgrading people fast enough by the fact that all those people have 5G phones, which is right at or even above competitive benchmark. So our customers continue to upgrade at just the pace that we think is appropriate.

John Hodulik:

Maybe first on the Lumos transaction. Firstly, should we expect similar deals in other parts of the country? And you talked about 3.5 million homes passed. Is that about -- I mean that's just in one small part of the country. Should we expect something similar as we look at the rest of the U.S.? And then in the release today, you guys had a line about not being able to meet all the demand for broadband with your fixed wireless network. Can you talk a little bit about how much growth there is left there and if you're seeing capacity constraints in any particular areas?

G. Sievert:

Let's go straight to Callie.

Jud Henry:

Okay. All right. Let's try this again. Operator, can we get a question?

John Hodulik:

Okay. Great. So I have a couple of questions on the Lumos transaction. So first of all, should we just think of this transaction as sort of a one-off? Or should we expect other deals similar to this in other regions? And then of the 3.5 million homes that you guys are talking about passing, how big could that get over the next 5 years? So that's first. And then second of all, in the release, you guys talked about not being able to fulfill the demand that you're seeing in broadband on the fixed wireless side. How much growth is still left in fixed wireless? And are you seeing areas today where you're running out of capacity?

Operator:

The next question is from Craig Moffett with MoffettNathanson.

G. Sievert:

Well, let's start out with Mike Katz so we can disentangle some of these offers for you because there could be some misunderstanding out there. And then we'll go to Peter and talk about the financial, what we see in the financial picture as it relates to the expected turndown of ACP.

G. Sievert:

And that's not new. We've had that program in place for many years.

Craig Moffett:

Is there any risk, though, that ACP customers who've been essentially getting their bills paid by the government and therefore have good credit histories might be higher credit risk as ACP ends?

G. Sievert:

And the amount in the postpaid base...

G. Sievert:

Yes. As Mike pointed out, it's not just our customers that are facing this, right? Everybody else is. But we've got this incredible portfolio of brands that are famous for value. And we're going to make sure that those brands are in front of people because we're going to stand up and serve them at a time when they might find that they need a new offer, and we will be there with incredible offers for them.

Jonathan Chaplin:

Congratulations to Jud and Cathy. That's fantastic news. Since it's Jud's last call, I've got 9 questions to ask. I'll try and consolidate them. So Mike, I'm wondering if you can give us just an update on the sort of the fiber strategies that you're collecting together in aggregate. So you've announced so far pilot, the Lumos deal. I think there are deals out there with Tillman, Intrepid and SiFi. How many -- when you put all of those together, how many homes passed does it amount to?

G. Sievert:

You bet. We won't be able to give you too much on sort of broad strategy here other than the fact that we're opportunistic. The strategies we've employed so far, both across wholesale, which we got started on in a very small way already, as well as this new partnership, are about putting the T-Mobile brand and team to work, selling a fiber product that complements our wildly successful 5G product. And to us, that's a great strategy because we believe we have an opportunity to generate superior returns than a purely disinterested investor could do by virtue of our assets and our know-how. And we've proven that know-how to ourselves through our success with 5G Home Internet.

Peter Osvaldik:

Yes. And again, Jon, I can't give you all the details because we have counterparties involved in this. First, it is a 50-50 joint venture. It will be unconsolidated for us. So it's an equity method investment for us. So everybody kind of captures that fine point. And then as Mike said, there -- just given that it's a 50-50, there will be, obviously, cash infusion from EQT as a partner in this as well.

Jonathan Chaplin:

One quick follow-up, Peter, if I can. You mentioned at the beginning that you sort of set capital aside for things like this in 2024. You haven't used up that whole sort of reservoir of capital yet. If you look at what's left there, is it more directed towards fiber transactions like this or spectrum? Like how do you sort of balance between those 2 assets?

G. Sievert:

And nor should we, right? So I mean one of the reasons why we were this transparent, maybe unusually transparent with you, is that we wanted you to know that we could, in the normal course, pursue opportunities and yet still honor our stockholder return ambitions. And we wanted to make it clear that, that -- nothing has changed in that.

Operator:

And the next question is from Simon Flannery with Morgan Stanley.

G. Sievert:

You take the first one, and I'll take the second.

David Barden:

Perfect. Congrats to Jud and Cathy. So I guess my first question would be related to the comments in the results about how kind of going after the business market has kind of impacted the ARPU calculation, and that's been trending down for a couple of quarters. And so I was wondering if you could kind of maybe unpack the kind of subscriber number that we're watching evolve here and how it balances between consumer versus business. Obviously, I'm obligated to ask you how free lines and other things contribute to the reported postpaid number.

G. Sievert:

Yes. Thanks, David. Well, let me start with the second one, and then I'll hand it to Peter on the first one. Look, I'm really excited about this because I think we're getting a lot and enabling this company to accelerate growth. And if you think about close to $1.5 billion spread over in time, 3.5 million passings being the goal for that funding, from what we -- the capital we put out, that's less than $500 per passing. And to the premise of the question, that's not for sort of like half of it because the other way it works is that T-Mobile is the branded entity for all of those passings. And it's up to us to make sure that it stays that way and we perform and so on.

Peter Osvaldik:

Yes, absolutely. And Dave, as we've been long saying, our focus is primarily on ARPA, drive accounts, land them, expand them. And we just gave an updated guide with respect to ARPA, both from that as well as those continued rate plan optimization. And we'll probably see that more unfold in the second half of the year. But that trickles down into ARPU as well. So I'd say probably this year, we're expecting ARPU to be up, say, maybe 0.5%, again, more weighted to the second half of the year. But it is very much, as you say, a mix-driven metric.

Operator:

And the next question comes from Eric Luebchow with Wells Fargo.

Ulf Ewaldsson:

Well, very much so because out of that, we also have -- and this is an even more remarkable stat. We have 93% of the traffic on mid-band, which means that there is no toggling. It just creates a much more consistent experience. There is no toggling between when you're an LTE. In fact, you're staying in 5G the entire -- no targeting between low band and mid-band. So another factor of no toggling.

G. Sievert:

That's why we are differentiated with somebody experiencing a cell edge condition of 5G, right, because our grid is tighter and our spectrum reaches further. And the net effect of those 2 things is you're on 5G and a high-quality 5G link more of the time. And 85% of the time, you're seeing all 3 bands where a lot of the time, we use advanced carrier aggregation techniques so that you get the benefit of all those bands in terms of your signal strength like the uplink might be in the low band, the downlink might be in the mid-band, et cetera, et cetera. And these are all advanced techniques that the rollout with our competitors is quite variable. But we're really focused on giving everybody a consistent experience.

Jud Henry:

That was great. I'm sorry, I didn't bring my popcorn for that one.

Samuel McHugh:

Just on fiber to begin with, on the existing wholesale agreement you have, can you give us any color on what kind of penetration levels you're seeing kind of year 1, year 2, so we can think about the potential in the new JV? And then secondly, I think on FWA, I've seen some reports suggesting you might start selling notifications to people who move the products from the home address. Do you think that will have any impact on the kind of net adds going forward? And I guess more broadly, how should we think about that cadence of FWA through the rest of this year?

Michael Katz:

Yes. So first, on the fiber question. Remember, a lot of these wholesale markets that we've launched are brand new and haven't even been existing for a year. But when you heard Mike talking about the assets that T-Mobile has and how we think that those give us advantage relative to other investors, that is exactly what we're starting to see play out in these wholesale markets. Remember, at small scale, we're in parts of about 16 markets spread around the country. But what we're seeing is a pace that would get us over 20% in the first year inside those markets. So we're really pleased with the penetration that we're seeing there.

G. Sievert:

By the way, you asked one last question, which is about what we're seeing with the wholesale fiber penetration rates. It's all very early because remember, these are greenfield projects. And so these were -- our partners were starting out after the wholesale partnerships were struck. But so far, so good. At a small scale, we're seeing year 1 penetration rates trending to 20%. That's above industry benchmarks. That's a good sign on your way to terminal penetration rates that are much higher than that. So everything we're seeing from these small scale so far anyway, it's going to grow. But so far, small-scale pilots in the wholesale range was very positive. And that's adding, of course, to our confidence to do news like today. So hopefully, that covers your question, Sam.

G. Sievert:

Cadence, tell me one more time what that part's about.

G. Sievert:

We don't guide on it. But one thing we did do when we made the changes around sunsetting our [ launch era ] promotions is we indicated that this quarter would be more like 400,000 instead of the 500,000 we've seen in the past. And that's what happened. We delivered 405,000. We haven't guided on the rest of the year, but we've said we're well on track to the goal that we have always anticipated being by the end of 2025 in that 7 million to 8 million customers range.

Jud Henry:

Operator, let's squeeze in one question, please.

Kannan Venkateshwar:

Congratulations, Jud and Cathy, once more. Mike, I'm trying to maybe nudge you along a little bit more on your prior response on broadband. You now have scale in broadband, and you're already one of the biggest operators in this market through fixed wireless. But you seem to be hedging your comments a little bit on fiber in terms of the scale or the kind of ambitions that you might have here long term. So could you maybe talk about what the ultimate scale ambitions here are? Are you viewing this as a cheap option at this point and you want to test out the market a little bit to see where it goes? Or is there a longer-term vision behind this in terms of how you see the company as a whole evolving in terms of its business mix?

G. Sievert:

Thanks, everybody.

Operator:

Good afternoon. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] You may also submit a question via X by sending a tweet to @TMobileIR or @MikeSievert using the $TMUS. Please note this event is being recorded. I would now like to turn the conference over to Jud Henry, Senior Vice President and Head of Investor Relations for T-Mobile US. Please go ahead, sir.

Mike Sievert:

Thanks, Jud. Welcome, everybody. As you can see, if you're viewing online, I'm here with a good cross-section of our senior team once again. We're coming to you today from Bellevue, Washington and looking forward to a great discussion. But first, I'd like to take a moment to reflect on a historic year for T-Mobile and the exciting momentum that we bring into 2024. '23 was another year for T-Mobile of industry-leading growth in both customers and key financials, including all-time record results across many metrics. It was also a year where T-Mobile became established as the overall network leader. Built on our extensive advantages in 5G. And it was the year that we effectively completed the biggest arguably the most successful telecommunications merger integration in the world, delivering synergies bigger and faster than even our own ambitious goals and doing it while also accelerating 5G investment in this country to the benefit of consumers and businesses. Our remarkably consistent, best value best network strategy, delivered industry-leading postpaid phone net additions of 3.1 million in 2023. This was driven by our highest postpaid phone gross adds in company history, up 2% for the year and up 6% in Q4. And by our lowest postpaid phone churn in company history for the year. Our net adds essentially matched our great results from '22 despite industry postpaid phone net adds decreasing year-over-year. You know what that means? It means that our unique formula enabled us to take a higher share of postpaid phone net adds than a year ago. In fact, '23 was our highest share of postpaid phone net adds since the merger, showing the ongoing durability of our differentiated strategy. And we finished the year on a high note, with Q4 postpaid phone net adds of 934,000 highest in the industry by a wide margin, and we did it with rising ARPA, up almost 2% delivering industry-leading growth in postpaid service revenue and core EBITDA in Q4 while also nearly doubling our adjusted free cash flow. Let's talk about Broadband. We added over 2.1 million customers in '23, our biggest growth year yet with more net new customers than the other largest providers combined, as our product just continues to resonate in the market. And we finished strong with 541,000 nets in Q4, making us one of the largest ISPs in the nation with 4.8 million customers and counting at year-end. At T-Mobile, our network is the key enabler of our growth, not only for the success that we've had to date, but also for years to come. I predicted years ago that our well-established 5G leadership would eventually translate into overall network leadership, and that was proven loud and clear in 2023. By leading third parties like Ookla and OpenSignal, time and again, with T-Mobile sweeping every category of their test for overall network performance. Listen, it boils down to this. T-Mobile has the broadest and the deepest and the most advanced 5G network in the US today. And we have the assets and capabilities to further extend our network leadership in '24 and beyond. Okay. One final network point, we recently celebrated a pivotal moment in our ground-breaking alliance with SpaceX. By kicking off testing of direct satellite to cellular communications, our teams are really excited about what's coming. Let me just remind you of one thing. Our network leadership still isn't yet fully recognized by millions of network seekers who are still potential future customers for T-Mobile. And yet that same network leadership is already driving our strong win share, particularly in underpenetrated areas like enterprise and government and also in smaller markets and rural areas in our consumer business. Let me just double-click on that growth momentum. T-Mobile for Business, delivered the highest postpaid phone net adds in company history in 2023. And we exited the year with great momentum, with Q4 being our highest quarterly net adds ever. Meanwhile, in our Consumer Group, we continued to grow our share of households, both in smaller markets and rural areas where we are well on our way to our 2025 targets and even in the top 100 markets, where we grew our share year-over-year on the strength of our network and our compelling value proposition. We're executing our balanced growth playbook with great and consistent success. And the best part is we still have a lot of room to run. All of this added up to delivering the highest consolidated service revenue growth in the industry in '23. And it was an industry that continues to grow service revenues and cash flows while simultaneously seeing customers win from healthy competition that delivers more value and better networks. On that all-important postpaid service revenue metric, we delivered 6% growth in 2023, way above our next closest competitor. That growth led to core adjusted EBITDA growth of over 10% and free cash flow growth of nearly 80%. All of this enables our substantial stockholder return model, which has returned $17 billion to stockholders so far through the end of '23, including our first-ever quarterly dividend in Q4. Now Peter will share our guidance with you in a moment. But the short version is this. We see continued strong customer and revenue growth, translating into rapid growth in cash flows in 2024 and beyond, and supporting our ambitious plans for shareholder returns that we've already shared with you. Before I wrap up, because this is a year-end report, I want to touch on some of the ways we're building a connected world where everyone can thrive. We believe reliable and affordable wireless and internet service is a necessity for all in today's highly connected and digital world. And that's why we are so proud to have connected nearly 6 million students. And provided $6.4 billion in products and services so far under our flagship initiative Project 10Million and our other education initiatives. We've also partnered with Welcome.US to provide service through Metro by T-Mobile to refugees entering the US as part of a multiyear commitment of 200,000 lines. It is difficult to imagine restarting a new life in a new country, without the connectivity that most of us take for granted. We are also working hard to create a more sustainable future, and we are proud to be the first US wireless provider to commit to achieving net zero emissions across our entire carbon footprint by 2040 using SBTi's net-zero standard. All right. Let me just wrap up with why I am so excited about what's ahead. We are now entering a period of tremendous value creation at T-Mobile, driven by ongoing growth leadership and having -- and by having completed both a historic merger and a massive 5G network build that are foundational to unlocking the cash flow potential of this business. Our network is now a differentiated competitive advantage that complements our well-established value leadership. This unique and powerful formula means that our significant growth and value creation opportunities only continue to scale, and they have lots of room to run. As we enter 2024 with momentum, I could not be more proud of this team and of our employees who remind us every day that it's better over here at T-Mobile. All right, Peter, over to you to talk about our key financial highlights as well as our 2024 guidance.

Jud Henry:

All right. Let's get to your questions. You can ask a question via phone by pressing star then one and via X by sending a tweet to @TMobileIR or @MikeSievert using $TMUS. We'll start with a question on the phone. Operator first question please.

Simon Flannery:

Great. Thank you very much. I was wondering if you could give us a little bit more update on where you are on some of the smaller markets in terms of your market share gain and how that's factoring into your guide for this year and the same sort of thing for enterprise and government? And where are we in that status? And perhaps on fixed wireless, it was a strong result despite some seasonality. Where are you in terms of exploring additional capacity options on a cost-effective manner? Thanks.

Jon Freier:

Yes, you bet. Hi, Simon. I'm just delighted with what's happening here in smaller markets and rural areas. I've been talking to all of you about this since our Analyst Day event back in March of 2021. And back in that time, we were at a 13% share of household position. And we set this incredibly ambitious goal to get to 20% by the end of the year 2025 across the entire segment, which, by the way, is 140 million people, 40% of the US, about 50 million households. And I updated you last time when we, during our Q3 earnings report about our share-taking progress in those markets and some of the really good results that we're seeing. And I'm pleased to tell you that, we've now arrived at a share of household position in smaller markets of rural areas of about 17.5%. And so I'm really, really pleased by that. And the last time I talked to you about this was about nine months ago, and we were at 16.5%, so a full percentage point since that time. And when you look at what we're doing with the 5G network build that Ulf and his team have been doing the distribution expansion and bringing this incredible marketing infrastructure out to smaller markets and rural areas. People are just loving what we're doing. We're having a lot of fun doing it. And I got to tell you that it looks like we're really in a place where we can achieve that 20% goal by 2025 based on where we are, but I'm really more excited and I think the more compelling opportunity is what we can do beyond the 20%. I don't have anything to tell you about right here right now about that. But I tell you, I'm getting really excited about what we can be doing beyond this 20% goal as you think about our continued velocity in these particular markets.

Michael Katz:

Yes. I mean one thing that is kind of just amazing when you look back at it, we've essentially been in the market with our Fixed Wireless product for two years. And in two years, we've gone from a launch product to what you saw at the end of Q4, which is nearly 5 million customers on Fixed Wireless, making us one of the largest ISPs in America with a product that still leads versus every other industry in customer satisfaction. So we're really proud of what's been built here and continued momentum. We saw gross adds this year, the highest they've ever been. So we have a lot of demand for this product. And so one of the decisions you saw us recently take was reverting back to our standard pricing in our Fixed Wireless product. We've been so moving away from our promotional pricing that we've been on for the last two years to our standard pricing which we put into market earlier this month. And we think that still offers the best value inside the broadband business and the best experience as demonstrated by the NPS scores that I just talked about. So we think there's still room to grow in HSI. We still, with a 5 million customer base still runway in front of us to grow both in new customers but also in services. We think having a 5 million customer broadband base gives us the opportunity to bring more services into the home, which the team is actively exploring.

Simon Flannery:

All right. Thank you.

Jud Henry:

Operator, next question please.

Mike Sievert:

Hi, Craig.

Mike Sievert:

Thanks, Craig. A couple of things. First of all, you heard Peter guide a confident guide on 2% growth in ARPA on the year. And that's terrific to see. And obviously, there's this ongoing trend that customers who buy T-Mobile can't get enough of it, and they're moving up our rate card. And that's great to see. So we're in a great spot. And before I say more about what opportunities we might see, I'll remind everybody listening that we're in an era of unprecedented value that consumers and businesses are realizing from this category generally. I've mentioned previously that typically today across the category, not just at T-Mobile, customers are getting three times more data than just five years ago. And at four times greater speeds industry-wide than five years ago. So there's tremendous value being given to customers in this category and if there are ways for us to find optimizations in terms of how we deliver that enormous value so that we can be more competitive and more efficient at how we operate including looking in our rate card and looking at our rate plans and looking at our policies and procedures, we'll find those opportunities. Q4, we took some of those opportunities. We found a more efficient way to handle auto pay discounts with our customers and fully put that through the base throughout Q4, and that's an important optimization. Right now, taking a lead from Netflix as they've changed their portfolio, we've made changes to the Netflix benefits that we give, which have been well accepted by customers. So there's a theme here. We may find optimizations, but we will be guided by a couple of things. One, what customers accept and appreciate because that's really important. And number two, we have no intentions of sacrificing our brand position as the value leader in terms of what you get for what you pay in this marketplace. That's always been a differentiator for us, and we will defend that jealously. But I'd tell you, there's opportunities that could be there in an era of unprecedented value being seen by consumers and businesses. And if we can take those and meet those guidelines that I've laid out, we'll do so.

Craig Moffett:

Thank you.

Operator:

The next question is from Jonathan Chaplin from New Street. Please go ahead.

Mike Sievert:

I'll start on ACP, and I hand it to Peter to finish on ACP and take the bonus depreciation question. When it comes to the number of subscribers in our reported base, it's substantially none. There's a very, very small amount of Metro customers, and that's it. So it's constrained to our Assurance Wireless business, which is not reported as subscribers and to our wholesale business. And as it relates to ACP and what's happening to it, obviously, that's in motion. You may have noticed that our EBITDA guide was a tiny bit wider this year. I would tell you that all the outcomes that we see for ACP are fully embedded in the guide that we gave you on EBITDA. And look, our risk profile around ACP is a little different than, say, a broadband company. They went very big into it, committed lots of customers and numbers to it. And also, I think one subscribers that may or may not stick around. Mobile is different. Mobile is a product that customers will keep. And if they lose that discount our job, and I think our team is up to the task is to go win them over with our high-value offers. And we have some of the best brands in the space with incredible value propositions. And as other wireless providers see the same thing happen, we will get after it and position our brands as the place that those people land. So there's a risk profile around it for T-Mobile, but I think much smaller than with other players, and it's fully embedded in the guidance. That's that, I'll let Peter pick up there as well as talk about the bonus depreciation.

Jonathan Chaplin:

Awesome. Thanks, guys.

Mike Sievert:

Hi, John.

Mike Sievert:

I'll start on churn and maybe hand it to Mike on competition. Churn was up 9 basis points sequentially. And if you look at the last several years since we completed the merger from Q3 to Q4, the average is 10 basis points sequentially. So it's right in line, maybe even a little better than past sequential moves. Our business tends to be seasonal, with Q4 being a higher time period of churn. And that being said I was really pleased with getting the 9 basis points given some of the optimizations that were fully implemented in Q4 that I mentioned in response to an earlier question. Look, there's no question in my mind that we are on a journey towards the best churn in this industry. And that's because we have the best value and the best network and a history of being able to treat customers with respect. And so we'll find that journey making its way. '24 is going to be an interesting year because as I mentioned earlier, there are optimizations across the board that we may find are in our best interest to take. As long as they don't put at risk, our superior value proposition as long as there are things that will be well accepted or even appreciated by customers. And so I can't give you specifics on the guide. I can tell you that with this churn, 9 basis points higher sequentially, we delivered a big beat in postpaid net additions on phones of 934,000, bigger than we guided even during the middle of the quarter. And so we're very comfortable with the formula. And we're comfortable with the formula in part because competition has been remarkably consistent. I'll let Mike talk about what we're seeing.

John Hodulik:

Okay. Thanks, guys.

Jud Henry:

Thanks, John. Next question please.

Michael Rollins:

Thanks. Good afternoon. Just two questions, if I could. First, when you look at the core EBITDA margin profile, are you still targeting to get to a margin at or above 50%? And how do you see the pacing to get there? And then second, was there anything specific that influence the pace of share buyback dollars, I think it was down a little bit year-over-year, down sequentially and maybe put that into the context of your current capital return goals that you highlighted a few months back. Thanks.

Peter Osvaldik:

All right. Well, Mike, certainly, our long-run aspiration is to continue to see margin expansion in core EBITDA. But much like you see us focus really, the primary focus here is to continue to be the leader and continue expanding in our ability to deliver free cash flow margin relative to service revenue because that takes out all the noise of relative differentials and how P&Ls are recognized, backhaul, et cetera, and really provides a true color for value creation. And that's where we're already in a leadership position and continue to see more expansion opportunity there.

Peter Osvaldik:

Naturally, Mike, I think what you saw was a little bit of a tapering. We're not going to talk about day-to-day dynamics, but a little bit of a tapering of the share buyback program. As we were nearing that issuance and that trigger point of the SoftBank share. So we're past that now. I think we're confident in our ability to deliver what we've signed up for here, which is another incremental up to $16 billion currently authorized in share buybacks and dividends for 2024 and pacing towards that.

Peter Osvaldik:

You bet. Thanks, Mike.

Eric Luebchow:

Appreciate it. Thanks for taking the question. Maybe I just wanted to touch on the cost side of the business. I know you mentioned you're at your target merger synergy run rate and you had the head count reduction earlier this year. What other initiatives are on the table to kind of help you keep moving leverage up in the business, either on the technology side in distribution of small markets or anything else that you could comment on? Thank you.

Peter Osvaldik:

Yes. And on to that, as we said, a big part of this is also the service revenue growth leadership that we anticipate, that we expect to increase in 2024 on a growth basis relative to '23. And then there's, it's across the business. I mean we've made tremendous investments as we are expanding the network as we are expanding distribution. We're reaping some of that. But make no mistake, this is a very scrappy team that's looking at not only just currently where can you continue to drive efficiencies. But how do you take advantage the network modernization of technology modernization of all the buzzwords that you hear these days around AI and other things, but how do you do it in an uncarrier fashion with the customer at the center of it while driving efficiencies out of the business. So we see a lot of room to run here over a multiyear arc on this front.

Operator:

The next question is from Bryan Kraft with Deutsche Bank. Please go ahead.

Mike Sievert:

Terrific. Great. Well, let's start with upgrade rates. We don't see big catalysts for change here. Around the edges, there may be some, and we can talk about those. For example, we have a brand-new rate plan called Go5G Next, which offers upgrade benefits, could change it on the margin and other things. But generally speaking, people are keeping their phones longer. And they're doing that because the phones are very expensive, and they're very capable. For our customers, 75% of them have 5G phones that are able to take advantage of the vast majority of our advanced network capabilities that we already have implemented. And so those kinds of things are a great position to be in, and I don't think there's a big catalyst for change in 2024. As it relates to SpaceX, yes, we're really excited about it. And way back when we announced it, we talked about the capabilities, starting with text messaging, peer-to-peer text messaging, the ability to reach people if you can see the sky. We expected to cover the Continental US big parts of Alaska, big parts of the world's oceans and be able to allow you to stay in connection with your loved ones. That will progress into picture messaging and eventually talk and other capabilities. And the beta we expect if things go well, we should have these capabilities in customer hands this year. As it relates to who it appeals to, look, anybody that finds themselves on occasion in one of the 500,000 square miles in this country, not covered by any of the networks. And that's most of us. And so there's something about the peace of mind of knowing that if you can see the sky, generally speaking, you're connected. And that's our dream. That's the aspiration that we set out when we announced this partnership, and it's great to have the first satellites in the sky.

Mike Sievert:

You bet.

Kannan Venkateshwar:

Thank you. Two, if I could. First is on Fixed Wireless. Earlier in the year, I guess, in '23, I think we all thought that the second derivative might slow down a little bit and in terms of growth rates, it might be closer to 500,000. But when we look at the second half of the year, it feels like there is still some second derivative growth left. And so it would be great to understand if this is demand driven or to some extent, as you open up spectrum and as your distribution channels become more efficient, this is more supply driven. So it would be good to understand the mix of what's driving that growth? And then secondly, on the ACP side, sorry, one more housekeeping question. I mean as you explained, I mean, it's not a big impact, and it's mostly on the wholesale side. But the general article today mentioned some of the wholesale providers and their exposures, which seemed pretty big, and I think some of them use your network. This is a high-margin revenue stream. So is there any way for us to understand if there is any time line around when we might see this. As you mentioned, it's not material. So maybe it doesn't matter in the full year scheme of things, but I don't know if it changes the cadence of EBITDA in any way?

Michael Katz:

Yes. I think on the Fixed Wireless side, like I mentioned earlier, we've seen steady demand for this product since it's launched. And a lot of the things that you mentioned are absolutely true. Like our execution has gotten better. We have built more stores. So like we've got distribution closer to customers in areas like rural areas. There's more awareness of the product, both generally and the overall market but also within our base. All of those things certainly have been factors. I think the other big thing that's been a factor is churn. Because remember, the net additions are the difference between gross adds and the number of customers that churn. And we've seen a steady improvement with churn with HSI year-over-year, really across every single 10-year cohort. We knew that churn would come down as our base aged and got into later cohorts, which we see the later cohorts of customers in this churn at a rate that's pretty comparable with cable. We knew that churn would come down as our base age. But what's really exciting is as the product has improved itself and as the experience has improved and frankly, as our execution has improved, even the early 10-year cohort churn has started to reduce, and we've seen that consistently throughout the year.

Kannan Venkateshwar:

Thank you.

Operator:

The next question is from Ric Prentiss with Raymond James & Associates. Please go ahead.

Peter Osvaldik:

Yes. We haven't specifically guided to that. And remember, we have a little bit of visibility given some of the MPGs, which do trail off with respect to DISH. But I'd expect a continued year-over-year sequential decline, but not a specific guide on wholesale.

Peter Osvaldik:

Absolutely.

Peter Osvaldik:

Yes. So Mint, we anticipate Mint to close in Q1 and that is included in the guide itself. And of course, that will result once it does close and a little bit of service revenue and cost geography changes with minimal net impact to core EBITDA, as we talked about earlier. But all of that including ACP contemplation is considered in the guide that we gave. But it wouldn't be appropriate for me to speak specifically about Mint as we haven't closed yet.

Peter Osvaldik:

Yes. I think that they will come. Obviously, we're still in this period in 2023, we had significant merger-related costs. We're going to have a little bit of merger-related costs in 2024, probably 150 in Q1 and 50 in Q2. But you are going to see us have more and more focus on EPS. And obviously, there was a couple, as I mentioned, a couple of catalysts, including the 48.8 million shares for Q4, but you'll see us more and more focused on EPS. Look, the margin expansion is going to flow into the bottom line. And you'll see us there. We're not quite there yet. Little bit more work to do with the merger-related costs and other things, but it's definitely something we keep an eye on, and it's important.

Ric Prentiss:

Okay. Thanks.

Janice Kapner:

Yes. I think there's one we're seeing this theme in a few places. So I'll take this question. So first of all, congratulations on a great year. But could you provide more color on your enterprise business, especially beyond connectivity and revenue and traction? And I know we haven't really covered that yet.

Callie Field:

Okay. Well, thanks, Janice. And let me just tell you we're in a different phase in our business? Last year, my leaders transformed the talent and activity of our sales team. And we've upgraded our product portfolio with solutions like T-SIM Secure and our connected workplace managed services with Cisco Meraki that we just announced yesterday. We've moved from transacting with lower-level procurement employees to sitting at the table with CIOs as their trusted partners for connectivity solutions. And also, business customers, as we talked about before, they test our network before purchasing. And what they find is the most modern, the most distributed nationwide tri-band 5G stand-alone commercially available for slicing network and they've determined its superiority. And all of this translates right back into our core business. So we delivered on our highest quarter and year ever in business postpaid phone net additions and gross adds. And our results outperformed our benchmark competitor once again. In enterprise, we delivered our highest win share rate with postpaid phone net additions. And our results allowed us to bring on new customers like SalesForce and REI and deepen our relationships with Delta, DoorDash Meta, UPS, just to name a few. And in the public sector, we drove double-digit growth in our new public safety accounts, especially with first responders who recognize that we at T-Mobile provide a more secure, prioritized connection over a faster and larger network. We continue to grow and compete successfully in small businesses, best quarter and year yet and saw positive porting trends versus both of our principal competitors in the third consecutive quarter in a row. So we're bringing in, as Peter mentioned earlier, both highly profitable customers with attractive CLVs, and as it relates to revenue outside of phones, we also saw some key wins in our Advanced Network solutions this past quarter with Formula 1 in Las Vegas, where we successfully demonstrated our commercial application of network slicing with 230 points of sale that was incredible, Ulf, and also signed a deal with PJM Americas, where we're the official 5G innovation partner enhancing how players and fans both experience the game. So hopefully, that gives you a little bit of insight on what we're seeing.

Jud Henry:

All right. Let's go back to the phones.

Peter Supino:

Hi. Thank you. Wondering two things. What about Fixed Wireless. You talked a bit about a slowing net add growth rate still obviously at a really attractive level, with better price and value for you. I wondered as you get closer to your target thinking out a couple of years, do you manage this business at a high rate of speed right up to the target and then slam on the brakes? Or is there some organizational benefit to a more gradual deceleration? And then a second question related to postpaid phone ARPU, I know that you're not guiding to it. And just wondered if you could discuss the drivers in '24 and how they might differ from '23? Thank you.

Peter Osvaldik:

Yes. '24, we'd expect to be generally stable to 2023. And in terms of dynamics, it's going to be the same set of dynamics. You have growth in high-value creating enterprise and government customers. You have growth in tremendously great CLV segment customers like 55+ and Military on the consumer side, which Jon has just seen tremendous success with. You're going to see uptake of our highest tier, highest value rate plans continue at a great clip. And then it just becomes a mix-driven metric. And again, we tend to solve for ARPA and ARPA growth and overall service revenue growth as the focus point. So that's, it's going to be more of the same with regards to ARPU.

Mike Sievert:

You bet. Hopefully, you can tell we're trying to get to absolutely as many questions as we can as time so let's keep moving.

Operator:

And the next question comes from Timothy Horan with Oppenheimer. Please go ahead.

Mike Sievert:

Well, first, on overall capacity, it's a good opportunity to turn it to Ulf and maybe you can say what we're seeing now that we're substantially complete with the initial build.

Mike Sievert:

As it relates to your specific question on the 15 times, I actually don't have the answer at my fingertips. So I'm going to look into that. I can tell you that when we made that estimate, what we had in mind were the commercial results that we have delivered in space, being able to see phone usage grow the way it has grown at T-Mobile, it's now more than triple what it was five years ago. Four times the speed and then some and being able to handle this massive home broadband business on top as well as all the growth that we see in enterprise. So as we laid out this network, that way back in 2018 and planned it, we have met every single expectation that we laid out there, including some stringent commitments that we made to the FCC as part of the merger process and just completed a massive nationwide drive in order to be able to make those goals. So I would be surprised if it's anything other than the 15x has been achieved, but I'll have to double check on that. As it relates to the F1, it's fascinating, you hear Ulf talking about Network Slicing and what it's doing for people. And there have been lots of applications. We talk about F1 because it's very public and it's going to be great case study for all of our executive briefing center visits, et cetera. But there have been lots of these now. And look, your previous options were either string wires everywhere, which was not ideal or rely on Wi-Fi. Where you have no control over the radio spectrum and it's a best efforts service with a shared spectrum. And so this is a breakthrough for organizations that they need mission-critical distributed connectivity. Network slicing on 5G is a breakthrough solution for that. We're going to see lots of applications like powering the commercial operations at F1, where it's the perfect solution.

Mike Sievert:

I mean this industry gives remarkable value, and we've been talking about that a little bit during the call. As it relates to T-Mobile, we're always looking for ways that we can serve customers better and make sure that we build a profitable business around that. And we have to do that smartly so that we defend and extend our fame as the value provider because that's so important, and we have lower costs. So that should be defensible over the long haul as evidenced by things like a lower debt structure and lower cost to service that debt than anybody else in the industry. So it's a defensible place, but we have to defend it by making smart decisions. And we have the best network, and that should allow us to find the right optimization to be able to serve customers better. We can't give you predictions over the long haul other than to say that in 2024, we see opportunities, and that's why we've got a confident guide in 2% year-over-year gain in ARPA. And over the long haul, we'll see what happens. But I will tell you that I'm pleased that customers are getting such incredible value from this category, and that certainly does open up opportunities for us to make sure for T-Mobile that if there are opportunities for us to monetize that in smart ways that it will be appreciated by customers, we'll find ways to do that.

Jud Henry:

All right. I think we've got time for one final question, operator?

Gregory Williams:

Great. Thanks for squeezing me in. First question is just on the industry as a whole. It's the third carrier to report this week and showing some strength here. In your postpaid add guidance, I'm just curious to what degree do you expect the industry to soften up in 2024? Is it sort of the same level of softening you saw in 2023? Second question is just on capital allocation. Just curious how sacrosanct is your buyback if I think about, say, fiber M&A materializing and your thinking rates could potentially come down over time, would you consider cutting the buyback for M&A? Or again, is it sacrosanct and you consider levering up and keeping the buyback? Just curious to hear your thoughts. Thank you.

Mike Sievert:

And if it's further comfort, I will tell you, obviously, we're going to be guided by what creates value, and there are no absolutes there. So, but I will tell you, we're not pursuing to the premise of the example in your question, we're not pursuing a big like on-balance sheet transaction in this space. There's no big deal on the horizon that we see that would knock us off our pace. And I think that's important calculus. If something presented itself, it made a lot of sense for shareholders, our jobs to bring it to you. But right now, we don't see it.

Mike Sievert:

You bet.

Operator:

Ladies and gentlemen, this concludes the T-Mobile Fourth Quarter Earnings Call. Thank you for your participation. You may now disconnect and have a pleasant day.

Operator:

Good morning. [Operator Instructions] I would now like to turn the conference over to Mr. Jud Henry, Senior Vice President and Head of Investor Relations for T-Mobile US. Please go ahead.

Mike Sievert:

Okay. Thanks, Jud. Good morning, everybody. If you're watching on our webcast, you can see we're coming to you from New York City and, here with several members of my senior leadership team, and we're looking forward to discussing another quarter of great results. Our strategy to deliver the best network coupled with the best value and the best customer experience has remained remarkably consistent. And our Q3 results again show how well that strategy is working with another quarter of industry leading customer and financial growth. I want to thank our amazing team nationwide. We have tackled a lot of change together recently to position our company for success in the future, and it hasn't all been easy. But this team showed once again what loving customers looks like and how that simple philosophy translates into success. I'm sure you've seen the numbers already. So I'm going to spare you the greatest hits album of all the quarterly results and just a couple of things with a few comments so that we can get [Technical Difficulty] First, as we announced yesterday, I am so proud of our network team for reaching our audacious goal of 300 million people covered with dedicated mid-band 5G over two months ahead of our year-end target. We announced this goal nearly three years ago. And then we got to work and got it done. And to this day, no one else in our industry has stated any plans to match it at any time in the future. I know it may get confusing with others celebrating their C-band deployments, which might have a casual observer. Believe, our network lead could be narrowing, but the opposite is true. In fact, even after their C-band deployments, according to Ookla, T-Mobile's nationwide median speeds were double the next competitor's speeds in September -- double in September. And our mid-band 5G square mile coverage is also double the next closest competitor, meaning, others still have a lot of wood to chop beyond just population dense pockets to ever reach the expansive geography where T-Mobile is today. And we have more spectrum dedicated to 5G than anyone else. Before we've even begun to deploy our C-band, our 3.45 GHz spectrum, or Auction 108 2.5 GHz licenses, let alone re-farming our AWS. Listen, we started the 5G era two years ahead of the competition and today we remain two or more years ahead. And I predict that two years from now, we still will be. What all this translates to is a superior customer experience. We're rapidly putting our spectrum resources to work for the benefit of consumers and businesses. And we're doing it with the best capital efficiency in the industry. Most exciting part, many prospective customers are only just beginning to take notice that T-Mobile is the overall network lever, leaving lots of growth runway ahead. And we're also expanding on our long-held fame for delivering the best value. Our latest Un-Carrier move is freeing customers locked into three-year contracts, and our new Go 5G rate plans are delivering the most feature-rich options in wireless. Phone freedom has turned out to be one of our most exciting Un-Carrier moves ever, and it continues to bring high-quality switchers to T-Mobile, as you could see in our industry-leading postpaid account growth. We're also executing on our ARPA revenue growth strategy, posting another strong quarter well over plus 1% versus a year ago and revenue per account on the strength of Go 5G plus and multiple products. Some have asked, if our new higher value rate plans are most popular with consumers, then why isn't ARPU growing faster too? And I'll point out that consumer ARPU does continue to grow even after offsets from growing segments like 55+ and military. And consumer overall is being partially offset by profitable growth in the enterprise space at somewhat lower ARPUs, but attractive CLVs, a development that's contributing well to our financial growth. And we're doing all of this within a backdrop of a wireless industry that continues to grow service revenues and cash flows, while simultaneously seeing customers win from healthy competition that delivers more value and better networks. In fact, this industry produces cash flow and EBITDA much higher than five years ago, while at the same time, customers are enjoying 3 times more data at 4 times higher speeds, while paying just a fraction of the price per unit consumed versus before. And that's before factoring in the expanded device promotions now routinely offered. A vibrant profitable business delivering rapidly improving network service and value. That's the win-win 5G dividend nobody's talking about, and it helps to showcase why T-Mobile's 5G leadership is so important. This is certainly true in T-Mobile for Business, where we have the highest ever account net ads overall and our highest ever postpaid nets in enterprise based on the strength of our 5G enabled solutions. Consumers are also choosing T-Mobile above all others. Prime network seekers in the top 100 markets increasingly recognize that T-Mobile offers the best combination of network coverage and capacity to meet their needs. And for the first time ever, T-Mobile also won the highest share of switchers in smaller markets and rural areas in Q3. Broadband also had another strong quarter. We now serve over 4.2 million customers who are enjoying a great experience with net promoter scores that remain more than 30 points higher than cable, with churn improving year-over-year as well. We remain very much on pace for our longer term goals with 5G broadband. Overall, our customer growth strategy remains differentiated and durable, resulting in industry leading service revenue growth both at the total company level and at the postpaid service revenue level where most of the value is created, which grew more than 6% or more than 1.5 times the growth rate of peers. That top-line leadership coupled with our synergy realization and focus on cost efficiencies drove double-digit growth and core adjusted EBITDA with the highest free cash flow conversion in the industry. This allows us to not only raise our guidance for this year again, it also gives us excitement and confidence in the future. With our significant growth opportunities continuing to scale, with lots of room to run, it sets us up for sustained leadership in both customer and service revenue growth as we look ahead. And we see opportunities amid the rapidly changing technology landscape as well, all across our business, to drive further revenue growth, margin expansion, and free cash flow growth that will allow us to fund our growth investments in our customers and network, as well as provide the potential for substantial ongoing shareholder returns. This amazing customer-loving team continues to perform beautifully with so much exciting potential ahead, showing why it's not just a tagline when we say that for customers, employees, and investors alike, it's better over here at T-Mobile. Okay, Peter, over to you to talk about our key financial highlights and an update on our guidance.

Jud Henry:

All right, let's get to your questions. You can ask a question via phone by pressing one followed by four or via XTwitter by sending a tweet to @T-MobileIR or at Mike Sievert using #TMUS. We'll start with a question on the phone. Operator, first question please.

John Hodulik:

Great. Thanks. Two question if I can. First of all, the comments on the rapid share gains in the rural markets were sort of new this quarter. Mike, anything you could tell us about sort of where you are and sort of how much room you have to go to penetrate these markets. And then secondly, maybe for Peter, there was a comment in the 10-Q about the workforce reduction and the fact that it would drive OpEx down on a year-over-year basis in 2024. I guess two parts there. One, are there any way you could quantify the OpEx reduction and are there other factors involved that are potentially allowing you to see that OpEx reduction on a year-over-year basis? Thanks.

Jon Freier:

Yes, you bet, Mike. So yes, just to pick it up on that, 40% of the country, everything outside of the top 100 markets is how we define smaller markets and rural areas. It's about 140 million people, 50 million households, and again, 40% of the market. And we just could not be more delighted. I've been talking to you about this for a couple of years now relative to our ambitions in smaller markets and rural areas and bringing real 5G. When you think about a lot of the places that we're playing, we're bringing the only 5G network into town. And given the announcement that we just made a couple of days ago around 5G Ultra Capacity now bringing that to 300 million people across the entire country. So it's a huge opportunity when we bring the network, we're bringing the distribution, we're bringing our marketing and our special sauce relative to our value proposition and more choice to smaller markets and rural areas. It's been fantastic. It's a huge milestone for us to be across all these markets now the leader of share of port ends. We're not playing in all the markets, just as a reminder. It's about 70% of the markets that we're playing in. We're not even playing across all the markets. And even with that, now we're the share leader in terms of share taker, I should say, not necessarily share leader, but share taker. And I mentioned this a few times. We've had a dedicated team as a big part of our success in smaller markets, rural areas, really getting at to this with our dedicated team that's focused on driving the kind of commercial success that we're looking for. And our overall ambition is unchanged. And we're right on track to hit 20% share of household by the end of 2025.

Peter Osvaldik:

Yes, exactly. [Multiple Speakers] Yes, so I got up too early to roll out 2024 guidance, that's for sure. But in your question of workforce transformation. Look, I think Mike touched upon it at the beginning, and you saw us comment around this before. This is really about a tough set of actions, but as we got through the balance of the integration, we had to make some changes. That's what this team does. It looks around corners and it says, we need to make sure we create clarity in the operating of this organization, bring that entrepreneurial spirit back and make sure that we're looking at what are the headwinds and what are the tailwinds. As we think about what we laid out at Analyst Day, which seems like so long ago with respect to 2024 and what we were going to do there. A lot in the world has changed, but it's a set of all of these tailwinds and actions that we've created that still gives us confidence that we think, certainly from a core EBITDA perspective, again, I'm not going to roll out all the 2024 guidance, but we're going to come right in there in the middle of the range. And these are the kind of actions that are necessary to create that opportunity and keep bringing the ability to invest in customers and the network and the business as we are.

Operator:

Our next question is from the line of Simon Flannery with Morgan Stanley. Please go ahead.

Mike Sievert:

Yes. Thanks, Simon. Well, nothing's changed in terms of our philosophy and approach as it relates to broadband. And just to take you back, what we had said still holds, which is, we are conducting all kinds of experiments in the space, including observing our national performance in 5G home broadband, which, if anything, that performance and the resonance of our brand and our team's ability to execute in the space, along with the trials that we're doing in fiber, only bolster our confidence that our brand and our team belong in this market. But nothing has changed in terms of our philosophy. We like this business model, and to the extent we make investments or partnerships in the area, our view is, it should be capital light, generally off balance sheet, et cetera. Speculation, I know is out there. I can't clarify we're not the partner to [JANA] (ph) in the transaction that was rumored a couple weeks ago. Although we remain interested in partnerships like the kinds we have rolled out pilots around and other constructs that are generally capital light, generally off balance sheet. And that's for a reason. We're performing really well and demonstrating through our tests as well as our broad scale performance in 5G home broadband that our brand and our team belong in this space and we can create value. As it relates to new ways to do wireless broadband, you said it at the very end there, and I mentioned in my remarks, Ulf and team, now that they've reached 300 million people with mid-band Ultra Capacity 5G are now setting about the task of deploying all of our spectrum resources to that base. And we're only just beginning. We have the bulk of our 2.5 GHz now rolling out. But our target is to be at 200 megahertz around the end of this year deployed against the 300 million people. And then more room to run next year, because as I said, we have Auction 108 proceeds still pending, we have C-band that we haven't deployed, 3.45, as well as refarming potential from spectrum being used for LTE right now, like AWS. And so lots of room to run as it relates to pouring new capacity into this network. And that means, we right now at a broad scale are not looking at alternatives to that from a wireless standpoint. We use millimeter wave pretty strategically in very dense places and so far that's a great use for it. I will say, as we said last time, so no change, that we remain open minded to whether there are techniques that would allow us to deploy capital specifically for 5G broadband and make a great return for you. But so far, we haven't drawn any conclusions that that's a scalable opportunity for us.

Mike Sievert:

You bet.

Operator:

Our next question is from the line of -- pardon me, Phil Cusick with JP Morgan. Please go ahead.

Mike Sievert:

Okay, let's start with Callie on business. And then we'll come back to another crack at OpEx. So what's going on in business, Cellie?

Mike Sievert:

Yeah, and specifically on ARPU, we said in our prepared remarks, it's somewhat lower than consumer, but highly accretive from a CLV and value creation standpoint. So these are great customers. We are finding, as Callie said, that enterprises are not picking us because we're the lowest price, although we compete ambitiously on price. They're picking us because of the solutions that Callie's team has brought to the market. And that's very helpful from a value creation standpoint for us. So we continually look at the customer lifetime value, net of all the costs to serve these customers, and find that enterprise customers are highly attractive, and therefore contributing to our financial results. And that's why Peter always warns you, ARPU is a mix-driven metric. And we're not solving for it, we're solving for value creation and return on our effort and investment and enterprise is a great place to put our effort and investment.

Phil Cusick:

Thanks, guys.

Jud Henry:

All right. Next question.

Craig Moffett:

Hi, thank you. You guys recently took a price increase for legacy plans and we've heard a bit about -- it certainly drew some unwelcome press, and we've heard a little bit about pulling back from that a little bit. Can you just talk about the kind of response you've had and how you think about industry pricing going forward and the ability to walk some of your ARPUs higher?

Michael Katz:

Yes. Maybe I can start with that. Go 5G Plus and Next have been, like we've talked about the last couple cycles, incredible successes for us. And it really starts with the fact that these are hands down the best value in this industry. If you look at all the features that come with those plans, there's hundreds of dollars of value for customers on a monthly basis with the streaming benefits and the in-flight Wi-Fi and roaming benefits are on those plans. But in a time when the market and customers are so focused on device value, there is not a plan in the industry that gives customers more flexibility and more value on device than the Go 5G plans do. And you really saw that in this last iPhone cycle where we really differentiated with the flexibility on upgrade. When the rest of the market is at three years, we had offers for customers that allowed them to upgrade as frequently as one year. Those plans really create the platform for our core pricing strategy, which is, how can we give customers more and more value and allow them to move up our price card because they feel like they're getting something additional from us. So that is the foundation of our core pricing value. As Mike said, we conduct tests and pilots all the time, all the time, and we will continue to do so because we still think there's opportunities both to deliver more value for customers in a bunch of different ways, but also look for opportunities to simplify our overall portfolio. So I would expect to see more of those kinds of tests from us, because it's been a consistent practice throughout the entire un-carrier journey so that we get it right for the experience for our customers.

Craig Moffett:

Can you just comment on just the industry pricing environment overall and what your sense is about the competitive intensity on the rate plan side?

Craig Moffett:

Thank you.

Jud Henry:

All right. Next question.

Brett Feldman:

Thanks for taking the question. During your prepared remarks, I think you'd mentioned that your fixed wireless churn has come down. I was hoping you can maybe give us a little bit of insight into what's driving that? Maybe broadly speaking, what you've learned about what creates churn and what causes greater levels of retention across that base? And do you think you're getting to a point where churn is getting into a mature run rate or is there still opportunity to keep driving that lower? Thank you.

Michael Katz:

Yeah, in fact, leading industry of all kinds of -- different kinds of broadband products. Yes, I think there's two things. One is the one that Mike just said. And we've talked about this previously, that when you have a new broadband business, one that literally has doubled in size year-over-year, that we have many more customers that are brand new customers that churn at a higher rate. That's just the way that the churn curve works on products like these, including wireless. Early 10-year customers churn at a higher rate. And as customers mature and our base matures, we expected to see a decrease in churn, which we, in fact, have seen. Additionally, across all of our 10-year cohorts, we've also seen churn come down. And a lot of that is because as we get more mature in our execution and as we get more feedback in data from customers about their performance, we've been able to tune our execution. We've been able to do things and address things like common things that cause confusion for customers either with install or with peripheral devices being attached to their CPEs. We've created better tools to be able to troubleshoot for customers. And those things have had an impact on churn. And I do expect as we learn more, we'll get better there as well. So, our goal with all of our businesses is always to be the best in churn, and that's no different for us than in the HSI business.

Jud Henry:

Okay. All right. Next question, please.

Jonathan Chaplin:

Thanks. So Mike, when you talk about why your business is so great, it always starts with the discussion of the fact that you have the best network and it's built on this incredible spectrum portfolio that's unmatched across the industry. Is there something about the broadband business that means you don't have to own and control the underlying asset in order to have the same kind of defensible position in broadband, and I'm thinking specifically of fiber here as opposed to fixed wireless access?

Jonathan Chaplin:

A quick follow-up, Mike. Can you just update us on how many homes you're addressing with fixed wireless access and how that's changed over the course of the quarter?

Ulf Ewaldsson:

That's right. And we continue -- I mean, we have now 70% of the payload is 5G on the network. As we continue to see more and more 5G traffic, that means we can move over frequencies that are used for LTE into 5G. And as you said earlier, we have this enormous spectrum asset in mid-band, which is where the home Internet products are residing that we can continue to leverage. We have more spectrum than anyone else has on mid-band as a potential. By the end of the year, we are approaching 200 megahertz that we will have dedicated for 5G products.

Jonathan Chaplin:

So Mike, that 50 million is about the same as it was last quarter. So the acceleration in net adds must have come either from gaining share of decisions within the 50 million or from the reduction of churn that you mentioned earlier.

Jonathan Chaplin:

Awesome. Thank you.

Jud Henry:

All right. Let's go to social. We've got a question from [Bill Ho] (ph). Given the 3Q iPhone launch and 3Q take rate, how does Q4 look for existing subscriber upgrades on devices and plans?

Jon Freier:

Yes, you bet. So like we said in Q3, we had a great overall quarter when you look at what's happening with the iPhone. First of all, this iPhone 15 is a fantastic device. And it drove a lot of switching in the marketplace as you saw relative to our results. And not just iPhone 15 on a differentiated 5G network that I talked about just a few moments ago, but a different iPhone 15 because of some capabilities that really work on our network versus others. When you think about 4-carrier aggregation, when you think about voice over new radio, 20% download speeds that are faster versus an iPhone that doesn't have that. That's all great. Customers love it, et cetera. And it drove a lot of switching activity. Now relative to our existing customer base, what you're finding is you're finding us landing upgrade offers with people who need it, and not necessarily with people who don't need it. Because remember, our overall base is about 70% with the 5G handset that's out there today. And when you think about customers that are having a great lived experience today on an incredible 5G network, they look at upgrades as an opportunity to, am I really going to improve my experience. For a lot of customers, that's not really happening relative to the network that they have out there and relative to our overall positioning with our 5G devices. Remember, we had a lot of upgrades back in 2021 and 2022 in the Sprint base. We got a lot of that upgrade base happening at that time. So like we said, when you look at the overall iPhone 15 launch, I feel fantastic about that. When you look at upgrades, it's a little lower. You've seen the upgrade rate at 2.7%. It's a little lower. But also with against the backdrop of the lowest Q2 churn we've ever had followed up with the lowest Q3 postpaid phone churn that we've ever had and I like how those dynamics are playing out.

Mike Sievert:

It's been a nice tailwind for us to see these upgrade rates so low and yet our churn so low at the same time. And it really speaks to the everyday experience that T-Mobile customers are having on the most advanced 5G network. And they just don't feel as compelled to take action because they have a 5G device, and it's working remarkably well. And that trend could continue because, as Jon said it kind of fast, but the newest iPhones take advantage of four-way carrier aggregation on T-Mobile because our network is so far ahead with standalone 5G and core 5G capabilities that are much more advanced. Now the devices are starting to take advantage of those things, which means they're very future-proofed. And so, it's great to be at T-Mobile because these advanced phone features take advantage of advanced network features and may mean that you don't need a new one again as quickly as you might otherwise. For some people, that's what they want. They just want a new one every year. I'm one of those people and T-Mobile reaches that audience as well with our breakthrough plans like Go 5G, Next. So we feel like we're speaking to the right audiences with the right offers here.

Operator:

Certainly. Our next question is from the line of David Barden with Bank of America. Please go ahead.

Mike Sievert:

Yes. Thanks, David. Well, let me comment first on the competitive dynamic. You're right. I mean, we love a dynamic where there are more jump balls, more people who are category and tenders. And let me clarify, though, that devices and upgrade rates are only one input to that. So devices can be a great catalyst for switching carriers, but they're by far not the only one. And so, our job through our offers is to create those moments where people stop and say, hey, maybe I'd be better off. Maybe it's better over there at T-Mobile. And that's something we've consistently done in our Un-carrier moves have always been a technique we've used. This latest one this year, Phone Freedom and all the related offers around it is really resonating with people. We looked into it and found that AT&T, for example, was experiencing really low churn and yet high intentions to switch by their base, and that told us that people felt trapped. And so, we released an offer that was about untrapping them. And that's been the kind of thing the Un-carrier has always done. So we're out there competing ambitiously and it's working as you can see in our industry-leading postpaid phone net additions and other metrics. We are also seeing, mostly due to the aging of the base, as you said, that switching relative to cable has been improving quarter-over-quarter for several quarters in a row. That's good to see. There's no real new dynamic there with cable. They've been pretty consistent since about a year ago, and we expect that to continue. And you can see how well we're competing in a dynamic where cable is out there doing what they do relatively consistently. And then finally, you were asking about transformation and what's going on there and what we see. Do we have room to run? In many ways, we're really just getting started.

Mike Sievert:

Yes. And I'll just add one thing. I mean, obviously, we're not the only company that has noticed this, but the technology landscape around us is rapidly changing. And so, that means there's an opportunity for us in our post integration era as we plot the next chapter to think about recrafting our company, taking advantage of the technologies that are now available to us to become much more deeply data informed, much more AI-enabled, much more digital first, those kinds of things. And so we're -- that's taking up a lot of our team's time and attention now to reimagine how can we create a business model that really creates a fantastic experience for each customer individually, but at the same time is more efficient to operate and that's where we have ambitions.

Mike Sievert:

Okay. Jud, where do we go now?

Operator:

Certainly. Our next question is from the line of Kannan Venkateshwar with Barclays. Please go ahead.

Mike Sievert:

Yes. Thank you. And I'm really sorry, your line is really garbled. And so I'm going to paraphrase what I think you're asking, but we really couldn't hear the words. I apologize. I think you're asking about longer term, how do we think about playing in the broadband space. I made comments about wireless over the next year and kind of how we think in the immediate term about fiber, but what do we see as the bigger picture, especially given the finite nature of capacity in the wireless space. And I'd say we haven't taken decisions about that. We are interested in whether or not there are techniques that are capital efficient that could extend the capacity and competitiveness of wireless into the future. And we've not yet cracked the code on that. But our team is working hard on that to see whether there are techniques that would work to do that, and that would be -- that would support a business model where we could make a fair return. So we're hard at work on that. We're hard at work executing our current strategy centered around mid-band spectrum and competing ambitiously towards that high single-digit target that we had talked about. And that seems to be very much on track. And then as we said, we're interested in fiber. And to the premise of your question, fiber is a technology for the decades. And that's not lost on us. We know that fiber will serve households and businesses a long time from now. And we also are rapidly, I think, gaining confidence that our brand and our team belong in the broadband space. That being said, we don't have an interest right now in changing the basic capital structure of this company nor the philosophy of it nor the centricity we have around wireless. And so we're looking for ways that we can, over the next couple of years, continue to learn, continue to expand, bring our brand to fiber through partnerships, through capital-light methods, investments, collaborations, those kinds of things. And they won't all be as small probably as the small pilots we're doing now. We may get after it little more significantly because our confidence is building in the space. And then -- and I know you want a longer-term vision for it, but I think we go do that for a couple of years and get good at it and execute and prove we can give returns and also get through some of that initial capital intensity period and then kind of see where we are. What this team is very focused on is making sure that the efforts that we embark on, on your behalf, deliver a great return back to you. And we're in this phase now in wireless where we're starting to realize the benefits of a disciplined strategy that has balanced growth and profitability so well over the last few years that we are now into a major shareholder return phase. And we think that's a great place to be.

Mike Sievert:

You bet. And I'm sorry, we couldn't hear your question as well. I hope I got close.

Operator:

Our next question is from the line of Michael Rollins with Citigroup. Please go ahead.

Mike Sievert:

Okay. Let's start with the easy one at the end because I think you gave some specific numbers there, Peter. But then if you don't mind, why don't you talk about our capital philosophy for next year, and then I'll hand it to Ulf to talk about how he's going to spend all that money.

Mike Sievert:

Yes. And I want to hand it to Ulf and team and Neville before him. We have really built thanks Ulf to your leadership, a really different approach on how to deploy capital. And it is lean, it's efficient, it's planful. And we're realizing real benefits from that right now. And we can see it in all of our diagnostics, how we're getting more for less. And so, I'm just really, really proud of that. And maybe we can talk about what the priorities are for 2024. And as a part of that, we can also hit tech life channel at Tech Life 32, congrats on the 300 million. What's the progress on the new site builds 10-K we had talked about in the merger plan. Will that complete this year? Or will that run into 2024? And tell us about the capital priorities for the network next year.

Mike Sievert:

That's fantastic. And I know every company is being asked, how are you taking advantage of emerging AI technologies and it's really exciting that this is one of the areas where our business can benefit because the team has already begun making capital deployment decisions, as Ulf just said, based on an AI analysis of network usage and how it correlates to individual churn and satisfaction patterns at a person-by-person level. It's very exciting stuff. And that, and many other things, including the breadth of our portfolio, lead to a capital efficiency profile. So we'll see. I know Peter teased you, we don't know. It's not time to guide on next year yet. But our hope is that because of that capital efficiency and what we're now seeing, we may be able to accomplish everything we set out to accomplish next year at the lower end of that capital range. So we'll see and we'll give you an updated view as we get into next year.

Mike Sievert:

You bet.

Operator:

Our next question is from the line of Greg Williams with TD Cowen. Please go ahead.

Mike Sievert:

I mean, well, first of all, let's start there. I mean, for some competitors with standalone 5G capabilities, private network are here now. We're just aren't managing it through press release and vaporware. We're just quietly serving customers. Maybe, I don't know if you want to talk about any of those, Callie, that we're doing. There's a lot of exciting examples nationwide. Customers who are benefiting from this today at T-Mobile, and then we'll get to your second question.

Mike Sievert:

I mean, it's well timed because CIOs are interested in secure connections more than ever before, and they're interested in saving money, not necessarily on a per smartphone subscription, but broadly in their system of connectivity and our solutions do that. And so it's great to see and obviously an all-time record quarter for enterprise for us. And then you asked about the overall postpaid phone growth rate. And yes, it's turned out to be more resilient than a lot of people predicted. We didn't predict. We told you when you asked us last year that we weren't going to predict the whole category. But overall, postpaid phone growth continues to roll on, although at slightly more modest rates. And there's lots of things driving that. You see enterprises carrying two lines, sometimes on the same phone, sometimes on separate phones. You see postpaid growing at the expense of prepaid. That trend continues, although T-Mobile continues to grow our prepaid base across all types of connections. So we continue to lead in that space. All the donations are coming from someplace else. And then what I called in the past kind of low-calorie net adds that you see principally at some of our competitors, including newer competitors. And thank you for giving me the opportunity to go ahead and pre-announce cable's results for them as I usually do. No, I'm kidding. We do have telemetry that tries to show us all quarter long what's happening with our competitors and I think it's a remarkably consistent trend. So you see intense competition out there, probably not a lot of big surprises. And you saw us perform yet again with a market-leading, very high-quality, mostly prime 850,000 postpaid phone net additions in a quarter where we experienced an all-time record Q3 churn. So just really proud of how we're competing in an ongoing competitive dynamic.

Operator:

This concludes the T-Mobile Third Quarter Earnings Call. Thank you for your participation. You may now disconnect, and have a pleasant day.

Operator:

[Starts Abruptly] [Operator Instructions] I would now like to turn the conference over to Mr. Jud Henry, Senior Vice President and Head of Investor Relations for T-Mobile US. Please go ahead, sir.

Mike Sievert:

Okay. Thanks, Jud. Hi, everybody. Welcome to the call. As you can see, we're here with several members of our senior management team. We're coming to you live from Bellevue, Washington and we're ready to take your questions. But first, let me share just a few comments. If you'll recall at our Analyst Day in early 2021, we shared our strategy to build the best network, couple it with a leading un-carrier value proposition and customer experience and grow our share in areas where T-Mobile was massively underpenetrated relative to our peers. That strategy and our approach has remained remarkably consistent and our Q2 results continue to show that it's working better than ever. In fact, T-Mobile delivered our highest Q2 postpaid phone net adds in eight years, fueled by both industry leading gross adds and the lowest postpaid phone churn in company history. And importantly, we did this while industry growth normalized, proving that the growth opportunities and durable advantages we've been sharing with you really are unique to T-Mobile. We also told you that if we delivered the best product and the best value and the best experiences, there was no reason we couldn't get to the lowest churn in the industry, remember that. And in Q2, we did it. For the first time in our history, T-Mobile reported the lowest postpaid phone churn in the industry. That is a remarkable statement and it's a testament to the work our team has done to build the best network. And to further our value proposition to deliver even better experiences to customers. Now I'm sure there's still going to be some back and forth between us and the other guys before we consistently put them in the rearview mirror for good on churn, but all the same, it is great to get this first win. We also continue to run the business in a smart and sustainable manner, translating our industry leading customer growth in Q2 into industry leading service revenue growth and core adjusted EBITDA growth, while growing free cash flow by more than 60% year-over-year. This industry leading customer and financial growth led us to raise guidance for the year again. And we're fortunate to deliver these industry leading results within the context of a vibrant wireless industry, with growing industry service revenues and industry cash flows and healthy competition that continues to deliver more value and better networks to customers. In fact, on network, we not only defended, but extended our leadership in both overall and 5G performance. With the latest third-party reports showing that T-Mobile's lead is widening. Looking at Ookla data. T-Mobile once again swept every category for overall network performance with median download speeds, more than double our closest competitor. We've long talked about how our dedicated 5G spectrum assets with superior propagation would result in a demonstrable advantage in customers' everyday lived experiences even as the competitors try to catch us. T-Mobile's head start, our dedicated 5G spectrum assets and our technology leadership are the things that allow us to stay meaningfully ahead as in like two years or more ahead in 5G reach and overall network performance and to stay ahead for years to come. And the most exciting part is that many prospective customers are only just beginning to notice, which means lots of the benefit from this is in front of us. And importantly, these things also allow it to do it all with the best capital efficiency in the industry. Now we also continue to build on our fame for providing the best value. Our latest un-carrier move Phone Freedom, freeze customers locked up into those 3-year contracts at the carriers. And our new go 5G plus rate plan delivers the best value in wireless. The response from customers has been really amazing. In fact, Go5G Plus instantly became our most popular plan, and we're seeing improved porting ratios against every competitor including yet another quarter of year-over-year improvement against cable. In fact, total postpaid porting ratios for us have improved every month since we launched Phone Freedom including in July. As more and more customers learn that they can break free from those three-year contracts come to a better network and get a better value at T-Mobile. All of these catalysts, coupled with our unique growth opportunities in underpenetrated markets are what enable a differentiated and profitable growth strategy that separates us from the competition and you're seeing it again in these Q2 results. We added 299,000 postpaid account net adds, the highest reported in the industry showing that we continue to win the switching decisions in the market. And we had postpaid net additions of 1.6 million again leading the industry by a wide margin. This included postpaid phone net adds of 760,000, our highest Q2 in eight years, even as the industry sees more normalized levels of growth. Our increased share was driven by our industry best phone gross adds, which grew over last year's Q2 as well as the lowest postpaid phone churn in our history. And as I mentioned, the lowest in the industry for the first time ever at just 0.77%. In T-Mobile for Business, we had a record quarter with best ever phone net adds and our lowest ever phone churn. Enterprise and government customers buy based on their own rigorous testing of the networks, not just price, and our network leadership, innovative solutions and customer experiences are driving major wins and fueling our momentum in these segments. We're attracting profitable customers with CLVs in the hundreds of dollars each and still growing. As I mentioned, consumers are beginning to take notice of our network strides as well, as we're winning prime network seekers in the top 100 markets who increasingly recognize that T-Mobile offers the best combination of network coverage and capacity to meet their needs. We saw our share of switchers in the top 100 markets increase both sequentially and year-over-year. In smaller markets and rural areas, where we continue to bring the first and in many places, only 5G network, we're seeing an incredible response. We're capturing a win share of switchers in these areas in the upper 30s, which shows we're not only on track to meet our goal of 20% share in 2025, but it gives us confidence we have room to run in the years beyond. In addition to mobile wireless, we added 509,000 high speed Internet customers. Notably, we've continued to grow our gross adds every quarter since we launched over two years ago as demand for the product just continues to grow. And we saw a sequential improvement in churn again this quarter and Net Promoter Scores that remain multiples higher than cable, demonstrating how our high speed Internet resonates with and satisfies an important target audience within this larger broadband market. We also celebrated another major milestone in our Sprint merger integration as we are now substantially complete with both the billing migration and retail rationalization, well ahead of our year-end target. At every step of our integration journey, the customer has been our primary focus. As you know, this has allowed us to not only unlock synergies bigger and faster than expected, but also to deliver industry leading growth and record low churn at the same time. I could not be more proud of what our team has accomplished in this area. Okay. I'm going to wrap it up. We are pulling into the station halfway 2023 with great momentum. Our postpaid phone net adds year-to-date are right on track with last year, which was a growth record year for us. We continue to extend our durable network and value leadership over the competition, which fuels our growth opportunities. And our profitable growth strategy continues to translate into the highest core adjusted EBITDA growth and year-to-date cash flow conversion in the industry. Listen, in our industry, change is a constant, but our team navigates it definitely with the customer as our North Star. And because of that, there has never been a more exciting time to be at T-Mobile. Okay. Peter, over to you to talk about our key financial highlights and an update on our guidance for 2023.

A - Jud Henry:

All right. Let's get to your questions. [Operator Instructions] We’ll start with a question on the phone. Operator, first question, please.

Jud Henry:

Hi, Brett.

Mike Sievert:

That sounds great. Thanks, Brett. I'll start and then maybe hand it to Peter for some comments. The way I think about it is, we're buying at a pace through -- mostly through predesigned 10b5-1 programs in order to be able to meet the authorization during the time frame of the authorization. So if you recall, the initial authorization of this program is a $14 billion program that takes us through September. And if you look at some of our activity early in the year where we were able to grab some additional run rate. Now the remaining funds relative to the remaining time suggests a run rate where we have it. So it's not really a downtick so much as just kind of a programmatic view. And then -- and maybe Peter can pile in on the second part. The way we think about it broadly is that there's essentially been no underlying change to the thesis we've been communicating all along. Now our Board hasn't made a determination yet about the second step, but the inputs to those steps have to do with the free cash flow development of this company, which, as you mentioned in the premise of your question is right on track. We're guiding to 75% year-over-year cash flow growth this year. And the underpinnings of the growth in the business, as you saw from our fantastic Q2 momentum suggests another good year in '24. And so -- as the cash flow develops, that's what gives us the confidence that, that original thesis of around $60 billion through 2025 is intact. But maybe you can also comment, Peter, on kind of how we think about this from a dedication of resources to this versus spectrum and other things as Brett asked.

Brett Feldman:

That's great color. If I can ask a quick follow-up question as we're talking about overall liquidity. Any update on the spectrum option that DISH hold and if that were to get exercised, how do you think about putting that proceeds to work? Thanks.

Brett Feldman:

Thank you. Appreciate it.

Operator:

Thank you. That will come from the line of Craig Moffett with MoffettNathanson. Your line is open.

Mike Sievert:

Sounds great. Well, I'll tackle the first one and then maybe hand to Mike Katz for the second one. And I don't mean to be flip, Craig, but I think you've been following us for so long. You know we've never met spectrum, we didn't like. And so of course. And -- but one thing that distinguishes us from other providers is that when we get our hands on spectrum, we put it to work right away for the benefit of the American consumer. And so -- that's not only in the public interest, but that's in the interest of T-Mobile and our customers. And so you see that in how we're deploying so ambitiously the 2.5 gigahertz that are the proceeds of the merger, having built the best 5G network in history on that spectrum acquisition that came through the merger. So look, I mean, we're always on the hunt for other ways to add capacity to our network because it allows us to do amazing things like not only continue to take share and grow and meet ever rising needs of customers on their smartphones, but also to get after the subject of your second question, which is fixed wireless access. And -- to the first part of your second question, nothing has changed in our aspiration. We're still on the hunt for that single-digit penetration. And maybe Mike could comment about what we're seeing in the marketplace and the rate and pace of our growth versus our expectations.

Mike Sievert:

Back to my comments, upfront, I said things have been remarkably consistent with what we rolled out to you at our Analyst Day in '21. This is one of those things. We said we saw a potential here of 7 million to 8 million subscribers based on the excess capacity profile of our built mobile network. That means it’s not capital burdened. And because of that, we can make profit there. And so it plays a role. It’s a single-digit penetration role, and we’re on our way to going and seizing it for the benefit of our shareholders and our customers and it’s right on track.

Jud Henry:

Thanks, Craig. Operator, next question please.

Jonathan Chaplin:

Thanks very much. Wonder if you can give us context on a couple of things? So firstly, how are you thinking about the evolution of upgrades in the second half of the year as we go through a new iPhone cycle? And kind of what have you factored into your guidance on EBITDA for that. It looks like upgrades to the industry have been coming in sort of lower than expected, much lower than historical trends. I'm wondering how that shifts in the second half of the year. And then, wondering if you can give us a little bit more context on fixed virus broadband churn. You mentioned that it's come down sequentially, which isn't surprising in that it's always lower in the broadband market in the second quarter. But what does it look like on a year-over-year basis? Maybe you can give us some context around the kind of levels that it's at for the mature portion of the base that's been with you maybe for a year or more.

Peter Osvaldik:

Yeah. Well, let me start with why do we think we're seeing that. And fundamentally, we believe we're meeting customers' needs and desires. And if you look at what we've talked about from a network perspective and a value perspective, it makes a lot of sense. You come onto this network and you have a 5G device. Remember about two-thirds of our postpaid base already has a 5G device. And they get experience on this network that is just phenomenal in the broadest sense of the word, much more than the competitive sense can bring. And we think we're just meeting their natural demand. Customers are happy with their devices. They're happy with their devices from a longer perspective, Remember, we continue to have two-year financing constructs, so they have the ability to upgrade earlier than the competition, one of the unlocks of Phone Freedom that we put out there that led to the port ratio changes. So fundamentally, we think we're exactly meeting what customers need. In regards to the second half, the second half always tends to have slightly higher upgrade rates. And you mentioned that you have new product introduction from Apple. You tend to have promotional constructs and a little bit higher switching in the second half, and we're typically the beneficiary of that. We also obviously make very, very solid offers to our base from an upgrade perspective. So we do have higher upgrade rates contemplated than what we saw in Q2, but we don't specifically guide to those other than directionally.

Michael Katz:

Yeah. I mean I think building on what you're saying, Mike, what -- we have the youngest base of broadband customers in America. And like I think we said in a couple of calls, the churn curves that we see for customers like in our mobile business tends to be higher in the earlier tenure months and then reduces as customers achieve greater tenure lengths with us. And we're seeing the exact same thing in our broadband business. And customers that have been with us for some months, their churn has decreased to the point that was right where we expected it. So it's looking right on where our plan was, and the behavior has been just right in line with what we expected.

Operator:

That will come from the line of John Hodulik with UBS. Your line is open.

Mike Sievert:

Okay. I'll take that one, but Peter, we'll start with you.

Mike Sievert:

It's interesting that when you listen to Peter that and you hear that even with our superior growth and our lower prices, both of which hit margins, we have the superior cash production per service revenue dollar in the industry year-to-date and that's rapidly expanding. 75% year-over-year guide, this year, you're on our way to higher cash flows next year. And so it really shows you the power of this model based on this team's ability to execute, but also based on the balance sheet, the incredible assets that we control, the track record of execution, the head start and many other benefits. Okay. Great. The second one was -- second one was cable. So John, let me come back to that. Yeah. We did make a very light comment on it, but it was light that we had been seeing improvements in our port ratios with cable last quarter because we wanted to provide some commentary because cable and Q4 started to see some pretty big net add trajectory changes. And so we kind of double clicked into that. Because you kind of have to do that as a competitor to figure out, is this going to come from us or what's going on. And it's kind of interesting, you fast forward to this quarter. And I'll remind you that even in a world where cable is now a pretty big share taker in overall postpaid, T-Mobile produced the highest postpaid phone net additions for Q2 in eight years and not only the lowest churn ever in our history, but the lowest in the industry. And that kind of answers a question as to whether or not this dynamic from cable is coming from our side, right? I mean we're performing better than before they were in the industry. But obviously, there's a dynamic that affects others, both of our two look-a-like competitors, plus prepaid. There's a lot of brands that have been affected by this, and they're viable competitors to be taken seriously. But it's just, as you can see in our performance, not affecting our results. Okay. John, do we -- what do we have coming in online?

Mike Sievert:

Okay. Great. So Roger Entner asked how strong was business growth this quarter. Can you talk about the VA? And any additional color on overall business growth. We also have Chetan Sharma (ph) coming in. Congrats on another great quarter. Thank you. I was wondering if you could provide some color on traction you're seeing in the enterprise sector beyond connectivity. What about vertical industries, people using 5G, 5G advanced services, et cetera. So maybe, Callie, why don't you start on both of those and anybody else can jump in.

Mike Sievert:

Well, hopefully, that answers it and more. I mean if you listen to Callie, it just reinforces what I said in my upfront remarks, which is some of the biggest and most sophisticated and profitable customers are choosing T-Mobile because of the sophistication of our advanced network capabilities and our ability to translate that into solutions for their business. And that's just so different from where we were a few years ago. It's a complete 180 in and it's fueling momentum. In fact, all-time record results in our business group. So hopefully, that answers the question, guys. Terrific. Should we go back to the phones?

Operator:

Thank you. That will come from the line of Phil Cusick with JPMorgan. Your line is open.

Mike Sievert:

Okay. Great. I'm going to let Peter answer the second CapEx question. The first one is really interesting. The answer to the question is yes and yes. Both are true. So yes, our port ratios are improving each and every month since we launched Phone Freedom against each and every competitor, including cable overall and cable individually. And that's a really interesting fact that it shows that not only are people starting to discover our network advantages, which has sort of been a slow improvement over the last 1.5 years. But we have really sparked intrigue with consumers around this idea that we can free them from being trapped with the other guys. And cable in some ways, actually is helpful in that in a dynamic competitive industry, more people are jump balls. And more people are saying, should I be with one of those two look like kind of old line providers? Or should I be with somebody new? And when they get asked that question, they are picking cable by and large. They're picking T-Mobile, as you saw we had the industry-leading postpaid phone net additions. Now what is happening is cable is growing very rapidly and faster than I think a lot of people expected. But specifically to your premise of your question, our port ratios with cable have been improving for year-over-year for nine quarters in a row. And what you see is that the big step forward they started to take in Q4, according to our analysis, about 80% of the year-over-year increment in their performance from the same period a year ago, Q4, Q1 and Q2 is from non-ports. So they're actually not growing the porting side of their business at the same rate as the non-porting side of their business, instead kind of printing postpaid ads. They might be coming over from prepaid. They might be just simply net new. They might be kind of dropped in the bag. I don't really know. There's probably several different factors to it. And we just -- we don't know quite how to unpack it because we don't have all the information. I mean, we double-click into things like Verizon's wholesale revenue and note that it's not growing. That's sort of an interesting diagnostic for us that helps us understand what might be happening. So anyway, hopefully, that helps it. Our industry-leading account growth of 299,000 shows that T-Mobile is winning the switching decisions in high-quality prime paying families, the kind everybody is going for.

Mike Sievert:

On speaking of a lean network performance machine, I think it would be a good time to just stop and take note of what's been delivered with this incredibly capital-efficient profile that you're asking about. Ulf and team, you guys deserve incredible credit. We've now reached 285 million people with ultra-capacity 5G. This is something that neither of our competitors -- principal competitors have promised to ever do, certainly not in the next two years. And so we've been talking about this idea of being two or more years ahead in the 5G race. But if anything, it's expanding. Maybe you could share a few of the statistics of kind of where we are and also a little shadowing of where we're going.

Mike Sievert:

Well, it's a good thing you are because we're filling it up. So what's interesting is that with 3.7 million high-speed Internet customers and rapidly growing, the average speeds on our network are not just twice as fast as our competitors, but growing. We're speeding up, not slowing down on this network in terms of the average person's lived experience. And that's just phenomenal. And it's -- and we've got tons of capacity that we have not yet rolled out, which opens up more and more opportunity on our way to not only the 7 million to 8 million high-speed Internet customers, but our ability to, with the best network, continue to take share from our competitors. We said at the beginning, we had a two plus year advantage, and we would have it for the duration of the 5G era, and you’re proving us right with that work. So thank you. Operator?

Simon Flannery:

Great. thanks a lot. Good evening. Just following up, if I could, on that spectrum deployment. I think in the past, you've talked about rolling out fixed wireless to a majority of the U.S. Perhaps you could just help us understand where you are on coverage today with the base offer and how that should evolve over time now that you're at 285 going to 300. And I guess a related question is for Ulf. You didn't mention the millimeter wave. I know you've been looking at potentially a macro overlay product. How are you thinking about that at the moment or attacking MDUs with millimeter wave. Thanks.

Ulf Ewaldsson:

Right. So we are actually using millimeter wave today. We have deployments that we early on started off in Manhattan, for example, in Los Angeles in some areas where we really have that extraordinary capacity need we can use the tool of millimeter wave. Our general strategy is not based on millimeter wave. It's based on a macro strategy, which is our layered approach, we're our low band in our mid-band and now also being our PCS spectrum for 5G. But millimeter wave could also be potentially an interesting play for us when it comes to enhancing capacities that could be used, for example, for HSI. And we are working with our vendors, and we are working through our OEMs to figure out if we can make a viable economic and technical performance case out of that with them.

Peter Osvaldik:

And of course, any of the things we do there that we just talked about, a capital burden model or something with fiber or all things that would have to be accretive to our Analyst Day guidance that we put out there.

Operator:

That will come from the line of Tim Horan with Oppenheimer. Your line is open.

Mike Sievert:

Okay. Let's start with the second one on Go5G and where is ARPU going and ARPA and all that stuff. Peter, we can start with you.

Jon Freier:

Yeah. And then I think, Peter, just to remind everybody, the Go5GPlus is really kind of a front book initiative. We're not going into the base and asking people to migrate to Go5GPlus and doing all of that within the base. It's really kind of a front book initiative. But this is going fantastic. And we had an opportunity to mention this on our Q1 earnings call back on April 27, when we launched phone freedom, Go5G, Go5GPlus in mid-April. And like Mike said a few moments ago, when you look at the overall porting ratios and the attractiveness of this offer, and what's happening that we've increased our porting ratios every month against every competitor and have followed that through so far in July. And over 60% of the accounts that are joining T-Mobile are now subscribing to Go5GPlus. And there's a utility that's different than Magenta MAX in terms of hotspot data that we've increased in terms of high speed, roaming in Mexico and Canada, across North America that we've increased. But the big pain point that I think Go5GPlus is solving is that new and to promise. First of all, paired with the easy unlock in helping people get out of AT&T and Verizon, mostly AT&T given the unlocked devices, helping people get out of that switch in to T-Mobile, but this three-year contract cycle that AT&T and Verizon has. We knew this was a big insight and a big opportunity that even I underestimated how big of a pain point that is, the fact that you can basically go to law school and complete law school faster than you can complete a phone contract at AT&T and Verizon. And so that's a huge pain point in the promise of Go5GPlus of being able to get in a new device same device software as a new customer every two years. It’s a differentiated and unique proposition in the marketplace that’s really different and is really resonating with customers.

Timothy Horan:

Okay. Good.

Operator:

That will come from the line of Michael Rollins with Citi. Your line is open.

Mike Sievert:

Okay. Great, Michael. Well, let's talk about where we are on synergies this year and what's left to be done. I mean on the what's left to be done front, not much the major milestones are behind us, but that doesn't mean the synergy run rates are quite there yet. So maybe you can comment on that dynamic, Peter.

Mike Sievert:

Okay. Great.

Mike Sievert:

Yeah, absolutely. And it kind of goes to the premise of your follow-on question, your initial follow-on question, Michael. I mean, obviously, across consumer markets generally, customers want a transaction that's fast, transparent, simple and mostly digital. And our industry has been very stubborn on that front, mostly due to the complexity of the offers across all the providers. And so that's something that we're very focused on. And I know everybody in the industry is. Our digital capabilities are rapidly improving, especially as it relates to self-service for our customers. It's incredible what's going on left to right in our company as to how we're already applying AI technologies and machine learning to speed things up, serve customers in a better way. And we can get into some examples around that. But because of emerging technologies, there's a lot of potential over the coming years to not only meet customers where they are finally in this industry because we've been kind of slow in this industry due to the complexity of our offers, but also to potentially realize some efficiencies over time. And that's a good thing because the cost of competition is high. And as you've seen over the last few years, it's gone up. And so it's all about us seizing opportunities to be able to continue this formula that works so well. And for us to continue to do what we do with this flywheel of success, we can't sit on our hands. We have to be able to seize new opportunities, not necessarily to outperform the promises we made you. Those promises were really high, fall some promises, but in some cases, to achieve them in light of what we have seen in the past, which is some increased cost of competition. So at the end of the day, it’s great for consumers.

Operator:

That will come from the line of Rick Prentiss with Raymond James. Your line is open.

Mike Sievert:

On the consumer piece, I kind of agree and what people want is a really strong, powerful signal everywhere they go. That's what they want. And 5G is a means for us to get that better than anyone else. Whether or not they give us credit that the thing that got them that was 5G, I really don't care. But we have the highest performing network with incredible reach of the high-performing parts of our network, 5G than anybody else. Like by far, like twice the land mass covered of ultra-capacity 5G than our next closest competitor and rapidly expanding, as Ulf explained. And you're right, they don't really give 5G credit for that. But what they want, make no mistake, is a very powerful signal everywhere they go because they're watching video more than ever, they're glued to their TikTok and their Instagram stories and their sports and their YouTube and their videos and their zooms and they don't want buffering. They want that signal with no latency and no buffering and no jitter and that's the power of 5G, whether they give it credit or not. On the Business side, I'll say the short version, which is we don't really know. I mean whether -- to your question, literally material means something in our company, and that's big. We're a big company. We don't know when it will be bigger than a bread basket, but we do know that we're best positioned to capture it. And as Peter pointed out, back at our Analyst Day, 2-plus years ago, we actually did not, for that reason, factor a lot of revenues in or really any at all from some of these advanced 5G network services. Our strategy was, let's make sure we are best positioned to capture them. And Kelly, I think, very deftly explain some of the things that we're doing in this area with early adopting customers. But when it becomes something that's bigger than a bread basket and really contributes, we don't really know. And because we didn't know, we made you no promises in our long-range plan on it. But I can tell you this promise, as that market develops, we are beautifully positioned to capture it.

Jud Henry:

It looks like we're right at time. So I appreciate everybody joining us today. If you have any further questions, please reach out to either Investor Relations or the media relations department. Again, we look forward to talking to you again soon. Thank you.

Operator:

Ladies and gentlemen, this concludes the T-Mobile second (ph) quarter earnings call. Thank you for your participation. You may now disconnect and have a pleasant day.

Operator:

Good afternoon. [Operator Instructions] I would now like to turn the conference over to Mr. Jud Henry, Senior Vice President, Head of Investor Relations for T-Mobile US. Please go ahead, sir.

Mike Sievert:

Okay. Thanks, Jud. Hi, everybody. Well, welcome to the call, and as you can see, we are coming to you live from Bellevue, Washington at our headquarters and I am here gathered with a great group of our senior leadership team as we share with you some terrific results that we are posting today to kick off 2023. And I will start by saying our results for Q1 continue to demonstrate that no matter the competitive environment, our unique formula of offering the best network and the best value continues to produce best-in-class outcomes. We again led the industry in postpaid and broadband customer net adds, while continuing to deliver the best profitability growth. And our consistent focus on reliably translating customer growth into industry-leading postpaid service revenue growth and unlocking substantial cash flow gives us the confidence to raise our full year guidance just one quarter into the new year. Now I will also say Q1 was a quarter of celebration at T-Mobile. I am so proud of how our now 10-year history of more than 20 Un-carrier moves have transformed to this wireless industry and more recently, broadband for the benefit of customers, and as you often hear us say, we won’t stop. So we announced last week our latest Un-carrier move with Phone Freedom, a move aimed to free customers and other wireless providers locked into those three-year contracts, while they are subjected to relentless pricing changes and gadgets. We continue to make it easier for customers to come to T-Mobile and switch to T-Mobile for peace of mind, knowing that with price lock, we won’t raise their price for top text and data. And now with new one too are part of Phone Freedom, they will be upgrade-ready in two years, because three years is too long to force customers to wait. Here’s kind of a crazy sort of fact to get your head around, AT&T reported the lowest postpaid phone churn in the industry this quarter and yet quantitative research states that their customers have the highest self-reported likelihood of switching away. Their customers report being almost 50% more likely to switch than Verizon’s or T-Mobile’s customers. The lowest churn, but the highest apparent dissatisfaction. And to me, that means one thing. Their customers are trapped and we are here to solve it and that’s what our latest Un-carrier move is all about. That’s what Phone Freedom is all about. And it’s the way we have been designing our groundbreaking Un-carrier moves for a full decade now. And as you know, we hit another milestone this month, the three-year anniversary of our merger. We are wrapping up an integration that many have deemed, and I think, we will conclude that it is, the most successful merger in telecom history. And most of all, we are celebrating what it was always about, the dream we had of leapfrogging from last place in the 4G era to leadership in the 5G era, smashing the biggest pain point of all by finally giving customers in this industry both, the best network and the best value from the same provider. And you know what? We did it and we did it ahead of schedule, meeting our commitments and unlocking massive value in the process. And yeah, we brought about a new level of competition to this market and a 5G network to America that would not have been possible without this merger and that makes customers and businesses everywhere, the real winners. Speaking of network, another round of results are in and our team is again celebrating wins as the largest, fastest and most awarded 5G network as well as the best overall network for the second quarter in a row according to Ookla. And this is not just a snapshot in time. It is a durable network lead. And I am confident that Ulf and team in his new role as President of Technology, congratulations and thank you for stepping in to lead us…

Peter Osvaldik:

Absolutely. Thank you, Mike. 2023 is positioned to be another year of best-in-class profitable growth based on our Q1 results and the updated guidance I will share with you in a moment. Our continued increases in postpaid accounts and postpaid ARPA resulted in the best postpaid service revenue growth in the industry, up 6% year-over-year. Our disciplined focus on profitability resulted in a 9% year-over-year increase in core adjusted EBITDA and we grew our core adjusted EBITDA margin by 270 basis points year-over-year, while AT&T and Verizon were flat to down. In addition, as Mike mentioned, free cash flow was up over 45% and unlock the highest free cash flow margin relative to our peers. We expect our industry-leading free cash flow margin to be a durable and differentiated unlock of shareholder value going forward. This strong financial performance also supported our share buybacks as we repurchased 33 million shares for $4.8 billion in Q1, with a cumulative total of 59.4 million shares repurchased for $8.5 billion as of April 21. It was also great to see our continued execution on profitable growth reflected in the recent rating upgrades from both Moody’s to Baa2 and Fitch who recently upgraded us two notches to BBB+. These rating increases further strengthen our access to lower cost capital in the deep investment grade market. All right. Let’s jump into the details of our increased guidance for 2023. We now expect total postpaid phone net customer additions -- total postpaid net customer additions to be between 5.3 million and 5.7 million, up 250,000 at the midpoint, reflecting growth across all of our market opportunities and we continue to expect nearly half of postpaid net adds coming from phones for the full year. Our focus on profitable growth allows us to fund those higher customer net adds and still increase our core adjusted EBITDA expectations, which are now expected to be between $28.8 million and $29.2 billion, this is up 10% year-over-year at the midpoint based on higher service revenues and merger synergies, of course, excludes leasing revenues of approximately $300 million, as we transition substantially all remaining customers off device leasing by year end. Our merger synergies are expected to be between $7.3 billion to $7.5 billion in 2023, approaching the full run rate synergy target from our Analyst Day a year ahead of schedule as we build towards the recently raised run rate synergy target of $8 billion in 2024. We continue to expect merger-related costs, which are not included in adjusted or core adjusted EBITDA to be approximately $1 billion before taxes and we also continue to expect cash merger-related costs of $1.5 billion to $2 billion for 2023 as they have underrun the P&L recognition to-date. Net cash provided by operating activities, which includes payments for merger-related costs is now expected to be in the range of $17.9 billion to $18.3 billion. We continue to expect cash CapEx to be between $9.4 billion and $9.7 billion, driven by a capital efficiency unmatched in our industry on the back of our network integration and 5G leadership. We expect Q2 to remain elevated, just slightly lower than Q1 and then moderating in the back half of the year. Together, this results in higher free cash flow, including payments for merger-related costs, which is now expected to be in the range of $13.2 billion to $13.6 billion. This is up approximately 75% over last year. Thanks to our margin expansion and capital efficiency and does not assume any material net cash inflows from securitization. And as I mentioned, this also represents a free cash flow to service revenue margin, which is multiple percentage points higher than peers and based on the cadence of CapEx, I would expect free cash flow in Q2 to be slightly higher than Q1 and then ramp in the back half of the year. We continue to expect our full year effective tax rate to be between 24% and 26%. And finally, as we execute our strategy of winning and expanding account relationships, we continue to expect full year postpaid ARPA to be up approximately 1% in 2023. All right. Before I wrap up, I want to give a quick update on the sale of our wireline assets to Cogent. The process is progressing very smoothly led by Dave and the team at Cogent, and we now expect the transaction to close in early May. On a quarterly basis, this will lead to approximately $125 million lower wholesale and other service revenue and approximately $175 million lower cost of service expenses with a nominal impact to SG&A. With the mid-quarter closing, we expect a partial impact in Q2 with the full quarter impact beginning in Q3. So, in closing, we expect 2023 to be another year of profitable growth and even greater free cash flow expansion as we continue to extend our network leadership and further scale our differentiated profitable growth opportunities. And with that, I will now turn the call back over to Jud to begin the Q&A. Jud?

Operator:

Our first question comes from Phil Cusick with J.P. Morgan. Please proceed.

Mike Sievert:

Hey, Phil. I will start and maybe turn to Mike and Peter. First of all, we are really excited about this new lineup. But I want to point out a couple of things. One, Magenta MAX continues to be in the lineup and so this is being added to Magenta MAX. And as we think about the price point represented by these kind of mainstream popular plans, we are going to be kind of thinking of it as Magenta MAX and higher. So that would include Magenta MAX, it would include the new Go5G Plus Plan kind of as a category. And what you see is, our expectation is that, that run rate we have been seeing in that 60s will carry forward and we have certainly seen that since the launch and it was true for Magenta MAX all through Q1. So really great to see that our popular plans are also our highest value plans packed with the things T-Mobile customers are looking for. And maybe, Mike, you can talk about -- unpack that a little bit.

Mike Sievert:

Peter?

Phil Cusick:

That’s helpful. Thanks, guys.

Operator:

Our next question comes from Simon Flannery with Morgan Stanley. Please proceed.

Landon Park:

Hi. This is Landon on for Simon. Thanks for taking the question.

Landon Park:

I am wondering if we could start on the home broadband side. Maybe can you talk about how you are seeing churn in the different cohorts there and what your latest thoughts are on some of the fiber trials you have been running, as well as the latest thoughts on a potential millimeter wave overlay on that front?

Mike Katz:

I would just say to Mike’s point, as the customer base is growing as we are seeing more cohorts in the longer tenures, we are seeing sequential decreases in churn. And it really does start with what Mike said, this is a great product. It’s a product that really that doesn’t require any trade-offs from customers. It’s got a great NPS and you are seeing it pull heavily from cable. Cable is the biggest contributor to our customer base in this business. And we have built a model and a go-to-market process that now is reliably delivering plus or minus 500,000 customers a quarter, which gives us a lot of confidence in this number that we talked about a couple of years ago of us getting to several millions at the end of this planning period.

Neville Ray:

Well, thanks, Mike, and great question, Simon. And I would say that our 2.5 spectrum that we are using today is serving us so well, because we have so much excess capacity. We are moving now from 200 -- this quarter we are reporting 275 million POPs covered by with this mid-band spectrum and we are moving towards 300 coverage by the end of the year, giving us new opportunities also to serve other HSI opportunities. Then I would say that we are always looking at millimeter wave when we are doing trials and testing, but it’s limited in reach and we have to remember that it’s limited in reach and we will put it into an economic formula over time to see if it makes sense to pursue it.

Landon Park:

Thank you very much.

Operator:

Our next question comes from John Hodulik with UBS. Please proceed.

John Hodulik:

Great. Hey, Mike. Maybe a couple of questions. First just on the competitive environment. You mentioned Verizon has been a little bit sort of ladder from an advertising statement. I think from a promotion standpoint, too, and Comcast we had some success with their sort of free line offer similar what Charter has been doing. Just how would you characterize the competitive environment in wireless as it stands today and sort of what gives you the confidence to sort of raise the postpaid numbers as we look into the rest of the year? And then on the buyback, a bit higher than we thought and you are sort of pretty far along on the authorization, should we expect the buyback to slow through the year as you bump up against that existing authorization? Thanks.

Jon Freier:

Yeah. You bet. So, yeah, like Mike said, it is a competitive environment, but that’s nothing really new for us and we are seeing -- continuing to see real solid demand out there. When you look at our overall traffic, when you look at the interest, we are seeing incredible demand that you can see, obviously manifested in our Q1 numbers. And even so far in Q2, we are seeing really strong demand and like we said earlier in our prepared comments, not only strong demand as a whole, but strong demand around prime customers and the fact that we had our highest mix of prime customers. We are continuing to see a very healthy activating revenue number in terms of new accounts switching to Magenta MAX and now Go5G Plus, and since we even launched that on Sunday, we are seeing really good numbers kind of an early peek into what’s happening there. And then I would just tell you, too, from what’s happening in the marketplace is, again, our differentiated position in what we are doing in smaller markets and rural areas. And one of the things that we talked to you about in 2021 at Analyst Days, we had this ambition to move from 13% share of households to 20% by the end of 2025. And what we are really excited about is that we are already halfway there. We are now at 16.5% in terms of our share in household position. So more than halfway there or halfway there, but in less than half the time over that planning horizon. And when you look at what we are doing relative to others, it’s really coming down to four things in smaller markets, rural areas. One, is we are building out this -- the markets out there with network and distribution. We are now playing in two-thirds of smaller markets in real areas, 140 million people, 50 million households, 40% of the U.S. Two, we are really unlocking switching and getting switching moving. Last quarter, I told you that switching was up 350 basis points on a year-over-year basis, we are sustaining that with now postpaids win share in the upper 30s. Three, is when you look at what’s happening with high speed Internet, we talked about that just a few moments ago, but that’s a new front door for us that gets, even before people are thinking about switching mobile, we can get into the household as a catalyst for customers to be thinking about moving their mobile services into T-Mobile from AT&T, Verizon, et cetera. And then lastly, what we have that’s different in those particular markets is we have a dedicated and focused team where we are building out hundreds of stores about a little bit more than 400 stores since we have started this venture out in the smaller markets and rural areas. So when you look at what’s happened under the ground, strong demand really getting after it in 40% of the U.S. from smaller markets and real areas and then when you look at the overall health and the quality of the customer that we are talking to, it’s never been better.

Jon Freier:

Right.

John Hodulik:

Right.

Peter Osvaldik:

Yeah. The only thing I’d add, Mike, is, of course, we -- I am personally very excited about how it’s gone and while we can’t speak about anything more than the $14 billion target, that’s been approved by the Board, remember, what allows all of that is the cash flow generation of this business, as you have mentioned. And frankly, both with regards to the longer term and the underpinning of that opportunity for up to $60 billion in share buybacks through just the end of 2025 and here we are in 2023 already. Remember, this machine and this free cash flow production continues into 2026 and beyond. But the one thing I look at is that is the underpinnings that allows the shareholder return machine to go and you just saw us once again raise what was already ambitious guidance for the year based on our confidence just a quarter in. So in that regard and how the share buybacks are progressing, I am very pleased.

John Hodulik:

Okay. Thanks.

Operator:

Our next question comes from Jonathan Chaplin with New Street Research. Please proceed.

Jonathan Chaplin:

Hey, guys. I am going to ask two questions as well, if that’s okay. The color you just gave us on small markets, some of the progress you are making on market share is super helpful. I am wondering if you can give us exactly the same context for business in terms of where you are in share and any color you can give us around sort of the number of business accounts or business lines you have would be super helpful? And then on the Phone Freedom Plan which looks like it really has the potential to unlock trapped customers, as you suggest. Can you help us understand what the impact of that is on EBITDA expectations for the rest of the year? You have got, on the positive side, obviously, you are pushing people into higher ARPU plans. But then presumably to trigger a higher upgrade rate and so that’s a cost against it and how do those two things net together in the guidance?

Callie Field:

Yeah. Thanks, Mike, and thanks, John, for the question. You know we have a longstanding goal to be the growth leader in business and I am really pleased to see that we are making very nice progress towards doubling our market share. We are growing in customers and in revenue. And we are taking share from AT&T and Verizon. In fact, in Q1, as Mike mentioned in his opening remarks, our business account growth, our phone net adds and our phone churn were all better than Verizon. And while AT&T reported declines in FirstNet quarter-over-quarter, we saw a 2.5 times growth in Connecting Heroes. So we are winning and we are winning across every segment. In Enterprise, we were selected to be the exclusive partner nationwide for AAA to develop roadside connectivity using partners like Dialpad with a collaboration tool and in our phone solutions. Siemens Energy selected T-Mobile their exclusive partner, UPS, Oracle, Dell Resorts. These are all companies that are choosing T-Mobile, because of the quality, the value and the performance of our network. In the government space, I will add, I am actually really proud of the team for the work that we have been doing with Veteran Affairs. The VA just selected T-Mobile as a primary partner for nine years with over 50,000 phone lines, as well as to create health care 5G solutions in the vertical. So we are very excited about that. In SMB, what I can say in SMB is that, we have seen net positive port trends versus Verizon for four quarters straight in a row. So it’s great profitable rates, great CLVs, competing not only like I said, on the best value, but also a superior product and experience. You know businesses buy because they have tested the product and we surpassed the competition.

Callie Field:

Yeah.

Mike Katz:

Yeah. Like I mentioned before, Phone Freedom kind of had two big components to it. One was the rate plan Go5G, Go5G Plus, which, Jonathan, as you indicated, has this benefit of upgrade built into it. And then the second thing, which I think is also an important input to the second part of the question you asked is, we launched a promotional program called the Easy Unlock. And what the Easy Unlock, the insight it’s really going off of is both what Mike talked about in terms of the dissatisfaction that AT&T customers have, 50% more reports that they want to leave their current carrier than in Verizon and T-Mobile. And when they want to leave, it’s incredibly difficult, both because of long-term contracts, but also because they have the most customer unfriendly unlock process in the entire industry. And what we wanted to do is make switching incredibly easy and that’s what we did with that program. And I think that’s one of the things that will really help us unlock the switcher pool a little bit, which when we know happens, T-Mobile is the disproportionate winner.

Mike Sievert:

Good stuff. Okay.

Mike Sievert:

How do we go over to the ones coming in on Twitter. So all get ready, there’s -- you are always popular and your topic is always popular online. Let’s see. I will go to Bill Ho [ph], I want to talk about the network. And this is really about -- he’s giving some stats here, but I think the question is really about, can you tell us about depth and breadth. So we have 275 million people covered by ultra-capacity 5G mid-band and we are going to 300 million. How easy or hard is it in these last 25 million or how easy or hard is it in the last 100 million and that’s kind of interesting if you compare to where the competitors are right now and what’s still ahead of them. But then in that, can you also talk about the depth, how much spectrum is where we are going?

Mike Sievert:

Which means with each passing day, the overall capacity of this network is rapidly expanding. It’s a fascinating thing when you listen to what Ulf says too, about how the easy part is that first 100-and-something million POPs, right, which generally corresponds to where our competitors are. And so we get questions a lot about, hey, you guys jumped out with a couple of year lead in 5G, aren’t they catching you. And hopefully, you can understand when you see where we already are and where we are at the end of the year. Now there’s still years behind us because that last part is really difficult and it’s really important for the overall perception that a customer has about the brand. You have to be great outside the core urbans with a high capacity offering for somebody to believe you have a high capacity offering. And that matters to them even if they don’t leave that space all the time. So it’s really important, and it’s one of the many reasons why we have a durable leap. Okay. Should we go back to the calls? Let’s do it. Operator, next question, please?

Brett Feldman:

Yeah. Thanks for taking my question.

Brett Feldman:

Hi, Mike. So you made an interesting observation when you were talking about churn. You pointed out that you had the best year-on-year improvement in churn, but you also noted that you don’t yet have the lowest churn in this category. And that’s interesting because you also noted that you have very large cohorts in your customer base and as a group exhibit a lower churn profile than comparable cohorts at your peers. So it certainly seems like there’s an opportunity to keep driving churn down across the base. So when you look at the pockets of your customers where the churn profile is still elevated, why is that -- how do you think about how much of an opportunity that is and is it actually part of your underlying business plan to continue driving churn lower or do you think you have hit some sort of plateau? Thanks.

Brett Feldman:

Okay. Thank you.

Operator:

Our next question comes from Michael Rollins with Citigroup. Please proceed.

Michael Rollins:

Thanks and good afternoon. Hi. Two questions. First, going back to the customer unlock opportunities, where is the industry and T-Mobile on eSIM capabilities and is this a topic that’s important to helping you propel unlocks and switching opportunities? And then just secondly, do you have visibility on whether or not DISH will exercise its option to buy your 800 megahertz spectrum, and if they don’t, what is the next steps for T-Mobile with respect to that spectrum band?

Mike Katz:

Yeah. I was going to say something really similar. We are big fans of eSIM, really for two big reasons. One, we think it’s a much better customer experience. You don’t have to deal with plastic and switching in and out of your phones every couple of years when people are upgrading. And for a company that wins when switching happens, eSIM does make switching easier and we have tried to take advantage of that with the technology that Mike mentioned earlier, where we launched an app where you can easily test the T-Mobile network side-by-side with your incumbent network on the same phone and when you are ready to switch, you can just do it in a couple of clicks. So we are fans of eSIM. We are really supportive of it, and we are optimistic that it will help accelerate even programs that we talked about today with that Phone Freedom.

Michael Rollins:

Just real quick…

Jud Henry:

Let’s do it.

Operator:

Our next question comes from Craig Moffett with MoffettNathanson. Please proceed.

Mike Sievert:

Yeah. Look, on the first one and I will turn to Mike for the second one. On the first one, Craig, I am not going to answer it, because my friend, John think he kind of did answer it and I think he was very unfairly misquoted. He gave an innocent answer to a hypothetical kind of along the lines of any time there’s spectrum, of course, we are interested and there are all kinds of headlines whether he wants to buy a DISH of the spectrum. Listen, first of all, I will say, I think, it’s a little premature question too. I don’t count DISH or Charlie out very easily. I have known him for a long time. So I think it’s a premature question. But then finally, it raises a larger issue. And if you reframe it this way, which is, does this wireless industry have enough spectrum over the long haul for American competitiveness. I’d say never, always there’s an opportunity for more and that speaks to public policy. The FCC lost its auction authority this year and T-Mobile and others have been urging Congress to restore that, because we need our strong regulatory body to be able to work with other agencies, create an ongoing long-term pipeline of spectrum for all the players in this industry so that we can continue to have connectivity in this country that’s the best in the world. And I know the FCC feels that way. I presume my competitors feel that way. But I think it’s very important that we get back on track with this and that actions that are completed get put to use for the American consumer, because there’s work that’s pending there and that the FCC regains its authority quickly to be able to lead in this space going forward, the way they have done so well in the past. And I think that’s very important for our company, for our competitors, but also for American competitiveness. Your second question is about apps in 5G. 5G -- it was sort of -- it kind of came out and I will say our competitor’s kind of led the way on this with a lot of hype and euphoria around 20 gigabit connectivity in millimeter wave and it’s going to change the world and we are all going to be kind of human cyborgs and stuff like that. And we kind of never felt that way. I mean early on, we went right to 5G is a much better, like 10 times better at least 4G and that the killer apps are going to be smartphones at first and they are going to be our ability to get after home broadband. And we focused on the mid-band asset and eventually the rest of the industry followed. We were right. And the average T-Mobile customer is getting 10 times the connectivity that they got in 2018, 10 times faster. That’s amazing. And so what they are doing with it is amazing and so that obviously is unfolding. But there’s still the kind of side eye questions people get, which is where is all this augmented reality you said would come? And I’d say, well, first of all, our job is to create a great network and we have the best in the country. And as hardware and software developers look to a network to create innovations around, I think, they will choose T-Mobile. Whether they are moving faster or slower than predicted, doesn’t directly affect our business that much. We need to be the network that they choose as they get inspired with massive connectivity, not just in fits and starts and parts of the country, but all across this country the way T-Mobile can uniquely provide and that’s why we work with developers the way we do. But the rate and pace they go, that’s up to them. Anything to add?

Mike Sievert:

Terrific. That’s right.

Jud Henry:

All right. Operator, we have got time for one more question.

Operator:

All right. Great. Our next question comes from David Barden with Bank of America. Please proceed.

Mike Sievert:

Yeah. Sure. We maintain and have for the entire decade long journey of the Un-carrier an envelope of superior pricing versus our benchmark competitors and we intend for that to continue. Now as things shift and move, we maintain that envelope and it’s not a matter of sort of a static price or being dogmatic about price has always got to be static, but we always want to be a relative value. And we can do that sustainably because we have a great balance sheet, we have the right capital structure, we have the right spectrum structure and other advantages that allow us to continue to profitably have a pricing envelope superiority versus our benchmark competitors. But as things move in the market with inflation or otherwise, of course, there’s an opportunity for us to move along with those things. But we have the customers are North Star and our brand value proposition to take care of. That’s why you have seen us so focused on offering higher value offers that customers self-select up to and it really shows their love for our brand that when we put something out there like Magenta MAX or now Go5G Plus, they flock to it. They -- our customers are buying up our rate card voluntarily in an era of inflation, because they appreciate the value of what we are putting in front of them. That speaks a lot about the brand and about the covenant between us and our customers on this brand. Okay, your first question was about the SoftBank true-up shares. And just to kind of remind everybody, there is this 48 million some shares that would trigger upon $150 stock price being at an average 45-day VWAP. And the short answer to your question is, of course, I mean, of course, we talk to them. They are a close partner of ours. We talk to DT all the time. We are aware of this question and this issue. But we have nothing to report. And so -- but I mean it’s of interest, and it’s not lost on us why you are asking the question. If there ever was to be a transaction, it has to be something that would work for everyone. I will say this, and the earlier question about our buyback pace, we have already bought back more shares than this potential dilution event and we intend to buy back a lot more shares going forward, should our capital program continue to support that as we have outlook it would. And so this is actually a fairly small potential event in the grand scheme of the shareholder remuneration that our cash flow production supports. And so anyway, with that, anything to add to that?

Mike Sievert:

Perfectly said. Anything to add to the whole show?

Mike Sievert:

All right. Well, we appreciate you guys. Thanks for tuning in and for asking all these questions. I am so proud of our team. It’s a fascinating year. It was fascinating for us to watch how it all started and the different perceptions people have. But one thing I hope that you take away from us is that, we are a team maniacally focused on delivering for you what we promised you we would do and that’s what we show up and try to do every single time and I am so proud that this was one more quarter where we were able to put down great results and outlook for you in 2023 that we are going to be proud of. So thanks for tuning everybody. See you later.

Operator:

Good morning [Operator Instructions]. I would now like to turn the conference over to Mr. Jud Henry, Senior Vice President and Head of Investor Relations for T-Mobile US. Please go ahead, sir.

Mike Sievert:

Okay. Thanks, Jud. Hi, everybody. As you can see, we're here in New York City with the whole senior team. And I am very much looking forward to talking about 2022 and a look ahead to what I think is going to be an even more exciting future. 2022 was a record year for our company. It was our best year ever. We welcomed more customers to the un-carrier than ever before in our history, and we translated this customer growth to industry-leading financial growth, finishing with a strong Q4. Our T-Mobile team delivered at or above the high end of our guidance across the board. 2022 was also the biggest investment year in our history. By accelerating these investments, we rewrote the competitive dynamic on network competition for good, and laid the foundation for a highly capital-efficient run rate business beginning this year. When I took responsibility as CEO almost three years ago, I spoke to you about an opportunity we saw that if we could execute well, we can position T-Mobile to be the first company in our space to simultaneously offer the best network and the best value, breaking a decade forced choice on consumers and businesses. While the results are in, with the latest network awards and we've done it. T-Mobile is not only the 5G leader, but now the overall network leader. And this opens big growth pathways for our future. Along the way, we successfully completed the customer migration and network shutdown faster than planned, while also delivering industry-leading growth in both customers and cash flows through our differentiated and profitable growth strategy. And we launched our most ambitious ESG initiatives ever. Our financial outcomes allowed us to accelerate our network deployments and begin share repurchases earlier than planned. And looking ahead to 2023, we're very confident in our differentiated strategy. In fact, we're on track to meet or exceed all of the aspirations for this year that we shared with you way back at our Analyst Day in early 2021. I'm excited to talk more about all of this today, and let's start with our merger integration. Back when we closed the merger, a few people would have thought that we could shut down the Sprint network faster than planned and deliver the lowest churn in our history at the same time, that's exactly what our team did. We moved all Sprint customers off the network and completed the DCOM of Sprint sites, all within 2.5 years. And not only that, we had our best postpaid phone churn year in the Company's history at just 0.88, and we were the only one in the industry to deliver year-over-year improvement for full year 2022. Diving into network, while T-Mobile has been the clear 5G leader for years, we can now say that T-Mobile has the best overall network in the United States. That is a big statement. For the first time ever, T-Mobile won a clean suite across every single overall network category in Ookla's recent report. And recent data from Opensignal and umlaut also show T-Mobile as the clear leader with over 12 billion data points across these network coverage and performance tests, the facts show T-Mobile is the new network leader. And this brings with it an exciting new opportunity, convincing people that this 30-year force choice between network and value is gone when you choose T-Mobile. This is no small task. But other results show that more and more people are beginning to notice and they're choosing T-Mobile. In fact, our results in '22 demonstrated how differentiated and effective our growth strategy really is. Kind of feels like deja vu. When I think back to this time last year, and everyone was worried about what would happen when industry growth began to normalize. And I sense that's top of mind for everyone again as we enter 2023. Well, let's show up immediately last year. The industry did see lower year growth in the second half. And guess what? Our unique ability to offer customers both the best network and the best value across multiple new and underpenetrated segments of the market led to T-Mobile's SaaS growth year ever, with two of our best core system merger coming in the second half, even as market growth began to normalize. We posted a record 1.4 million postpaid account net adds, the highest in company history and the highest reported in the industry once again. We're winning the highest share of switching decisions in the industry through our clear growth strategies. And we delivered our highest-ever postpaid net adds of over $6.4 million, above the high end of our recently raised guidance. This included our highest postpaid fund net adds since the merger with an industry-leading 3.1 million. We explained it before. Our strategy is differentiated and durable because it's driven by taking share in places where we're massively underpenetrated relative to the competition and where we now have the winning hand. Including T-Mobile for Business, where we just delivered one of our highest ever phone net adds quarters in Q4. And we're clearly having an impact on the incumbents. As you can see in Verizon's highest-ever business churn in 2022. In the top 100 markets for consumer, we're winning with prime network seekers who increasingly recognize that T-Mobile offers the best combination of network coverage and capacity for their needs and at a lower cost. We're only beginning to tap into this new opportunity. And in smaller markets in rural areas, where we're bringing a better value proposition and a better network to new geographies, we really didn't play in before. We're capturing a win share of switchers in the high 30s, which says a lot because in many of these places, we're only just getting started. In addition, we added 2 million high-speed Internet customers in our first full year since our commercial launch. In fact, T-Mobile had more broadband net adds in '22 that AT&T, Verizon, Comcast and Charter combined. This is a powerful new phenomenon for our brand in addition to being a good business. And not only did we deliver industry-leading customer growth, but our focus on profitable growth translated into industry best financial performance with core adjusted EBITDA up 12% year-over-year and free cash flow up 36%. The investments we've made in 2022, including in our cybersecurity capabilities showed up in a critical way a few weeks ago. I want to take a moment to address the recent cyber incident. After address identifying a criminal attempt to access our data through an API, we shut it down within 24 hours. And more importantly, our systems and policies protected the most sensitive kinds of customer data from being accessed. We take this issue very seriously. Find disappointed that the crime actor will be able to obtain any customer information, we are confident that our aggressive cybersecurity plan working with the support of some of the world's experts will allow us to achieve our goal of becoming second-to-none in this area. Before I wrap up, I want to touch on some of the ways we're building a more connected and sustainable future. Nearly three years ago, we launched our digital divide initiative called Project 10Million to bring connectivity to underserved students nationwide with free or highly subsidized service. And I am proud to say we're now more than halfway to achieving our goal. To date, we've provided $4.8 billion in services and connected more than 5.3 million students, and we're not slowing down. We're also working hard to create a more sustainable future, recently committing to our most ambitious sustainability goal yet to achieve net-zero emissions across our entire carbon footprint by 2040. This makes T-Mobile one of the only four Fortune 100 companies to do so. Our work in this space is being recognized, including being named in the top 20 of JUST Capital's 2023 rankings, which measures companies against metrics that matter to our communities, including environmental impact, where we ranked number one in our industry. Okay. Let me wrap up with some comments on 2023 and what's ahead. With these record results, we've clearly shown that our differentiated strategy has lots of room to run. And I strongly believe that this will prove to be the case even as industry as a whole is seeing moderating growth and potentially a challenging macroeconomic environment. In fact, it may be especially true in that case as our unique high-quality positioning is proving remarkably well suited to the times. We believe 2023 will also be a year in which we begin to see the payoff. In terms of EBITDA and massive cash flow expansion of years of work on merger integration, synergy attainment and the most ambitious network build in U.S. history, all of which are mostly behind us now. And an ongoing differentiated profitable growth, which is the durable result in front of us. I could not be more proud of this team and our employees, and I am so excited for all that's ahead in 2023 and beyond. Okay, Peter, over to you to talk about our key financial highlights and our guidance for 2023.

Jud Henry:

All right. Let's get to your questions. [Operator Instructions] Operator?

Craig Moffett:

Two questions, if I could. One is, you've now had a number of announcements about dabbling in the wireline market. I wonder if you could just talk about your wireline ambitions. And maybe bridge from that into the role that you think WA plays in making bundled offers. Is that something that you need to have nationally? And if so, how do you think you get there on the wireline side? And then second, just a financial question for Peter. I wonder if you could talk about the pacing of share repurchases. I understand that there's some debt paydown that we always expected the first, now that we're sort of well into the repurchase segment. What does the pace of that looks like over the next couple of years?

Peter Osvaldik:

Yes. And then on share buybacks, Craig, I think the important thing is that the strategy hasn't changed, other than, of course, the ability with the financial performance of the Company to initiate those earlier. And so, we couldn't have been more excited to get that first $14 billion through Q3 approved, and you saw we delivered $3 billion of that in 2022. We continue to have line of sight to the up to $60 billion. And so, nothing's changed with regards to the strategy. We're very excited about the cash flow generation of the business, and the flexibility that, that provides. If you think about shaping, of course, I'm not going to talk about day-to-day or week-to-week shaping for natural reasons. But of course, you've got the growth of core EBITDA coming throughout the years, which gives you financial flexibility. As you know, we're very prudent in just the leverage target that we've set overall. But again, nothing has changed with respect to the strategy, very excited about the free cash flow generation and the shareholder remuneration affords.

Philip Cusick:

I wonder if you could dig into the business growth a little bit. What type of contracts are you signing? Are we -- what's sort of enterprise versus SMB mix? And where do these customers tend to come in on ARPU? We've heard about some free heavy discounting that you've done to win some big contracts. And as it goes to that, as we think about our POP up 1% this year, should we think of ARPU more like flat? Or does that start to drift a little bit lower year-over-year?

Callie Field:

Okay. Thanks Mike. So in T-Mobile for Business, as Mike mentioned earlier, we continue to build very strong momentum, which is driven by our 5G network leadership combined with toward winning customer service model. In Q4, we continued to grow our service revenue. We delivered one of our highest ever postpaid so net add performance. We recorded our lowest postpaid phone churn since the merger with Sprint, and we grew our voice ARPU. In fact, we grew strong net adds every quarter in '22 and it's having an impact, as you can see in Verizon's business trend, which was its highest ever levels in '22. And their business to net adds declined sequentially for the last three quarters. We've also achieved five consecutive quarters of business Internet growth. Some of our key wins in strategic verticals, we found in the airline industry, where we've won nine out of 10 major airlines growing our base with these customers by 15% in Q4 alone. In the healthcare industry, we welcome to Ensign here as a using company who's deploying our mobility of a service solution to their 25,000 employees. In banking, large financial institutions are fast adopting on multiline solutions. We won three new logos in Q4 for a total of 24 accounts. In the public sector, we welcome to Chicago PD, Head County, Dallas IST. And even in our Advanced Network Solutions category, we signed on Formula 1, where we're on the last Vegas, be providing powering our operations and ensuring top performance fees. And we also welcomed Bell Resorts, the largest mountain resort operator where we're working together to provide innovative guest experiences, helping meet their sustainability goals and enhance restore operations. And we know why we're laying, it's not a race to the bottom, it's not a bit of the lowest rate of pricing down. We always treat our customers first. And in the modern workplace where CIS, we are focused on productivity digital transformation, even more considered sales. And therefore, it matters that we have a two-year head start in IT network leadership. It matters that we deploy customers drove coverage, and we're differentiated as a superior network an unparalleled service model. I'm going to it over to you, Peter.

Mike Sievert:

Yes. Absolutely, Mike. And your question, we're definitely not anticipating ARPU to be down on a year-over-year basis. And probably our guide right now would be generally stable. And that's primarily the mix-driven metric as we just had the continued success in T-Mobile for Business, for example, being a mix-driven metric responders or segmentation approach. But there's been just a this amount of tailwind. We continue to see strength in Magenta MAX take rates in Q4. So as you get further into the year, there's potentially opportunity that we could even see some increases over that. But I'd say right now, generally stable with potential upside later in the year, and we'll see how that develops.

John Hodulik:

Great. Two quick ones, if I could. First, I guess, following up on the business market question. Could you give some details on the rural market strategy? In the past, you've talked about where you are from a sort of spectrum deployment and distribution standpoint and sort of how well you're doing in terms of penetrating that market? And then on the CapEx guide, about $9.5 billion, is this sustainable level? And for Neville, maybe could you give us a sense for sort of what you have in store for the network in '23? Maybe update us on sort of the spectrum deployment at 2.5 where you're thinking for C-band and the other spectrum deployments as we look out to 2030 and beyond would be great.

Jon Freier:

Yes. Like Mike said, from 30% one year ago to 60% where we'll keep hitting it just reminded about the size of this market. This is 140 million people across the entire country. It's 50 million households. It's 40% in the U.S. in terms of how we define small markets in rural areas, which is everything outside of the top 100 markets. But this overall business, it's been so fun. My heritage is I started out 25 years ago selling into a market are bringing cell phone service into rural markets, and it's in such times to actually bring usable Internet service, whether it be in your home or the mobile service in dual markets. So it's a very, very fun issue so far. And I got to tell you, our switching is up 350 basis points on a year-over-year basis. And when you look at where we're competing, again, 60% of the markets across all small markets areas, we're on in key areas of Verizon peaking over the leadership position in share of portends across the entire market, so a lot a lot of fun. When you look at what's happening to with high-speed Internet, that's a new for opportunity for us in smaller markets and we are in. About 1/3 of our total HSI, high-speed Internet net adds went out of smaller markets or areas, and that's a big catalyst for us in these particular geographies to be that front door in that consideration. But when you look at -- as been talking about this for a while in terms of not having to make a choice between the great value and a great network, that's never been more important, particularly in these areas that have been underserved for the last 25 years and certainly in the last 10 years from mobile perspective. So, we have a lot of fun doing it.

Peter Osvaldik:

The second part of his question was CapEx.

Mike Sievert:

Yes, the CapEx fees where the answer is yes, $9 billion to $10 billion run rate. So that's also we're getting done with that line '23 and beyond.

Mike Sievert:

One of the things you can take away, John, from what Neville just said is that this network leadership story that has emerged has lots of room to run. We said three years ago, that we had jumped out in front on 5G, and we were at least two years ahead of our competitors. And I quoted in two years from now, we'll still be two years ahead of our competitors, and that's exactly what has unfolded if you listen to Neville's statistics, he told you that we're already, as you know, at 265 million people covered by ultra capacity. Neither of our competitors has stated the goal to be there any time in the next two years. In fact, they've stated to go for the end of next year, two years from now, it's less than that. And yet, we're not stopping there. We're on our way to 300 million people this year. But to me, is actually the more exciting part about the future testing you heard from Neville is going from 130 megahertz deployed of mid-band, 150 overall, 130 in mid-band to 200. That's a massive capacity expansion that's happening. Because that's not just factors on the experience you get every day. So far, our medium speeds are 5x faster than just three years ago. Our Magenta MAX customers and you know how Magenta MAX is. They're using 30 gigs a month. These are big advantages versus our competition. In broadband, where we're generating more net adds than the rest of the industry combined, has lots of room to run. And so that's all on the heels of this massive capacity that's not just in the network, that's still coming and within the run rate of the $9 billion to $10 billion in capital per year.

Simon Flannery:

Mike, you teed up my question. You said you've got lots of room to run on fixed wireless. Some of the competitors critique the product around limitations on capacity, on speed. So perhaps now you've got a base of customers. You've seen behavior over a couple of years now. We are the learnings? How much market share do you think this product can take? And what's your ability to continue to expand the footprint to continue to expand the capacity of the network? And then maybe just a quick word on macro. You talked about some concerns you've seen, anything on payment patterns or any other cautious behavior yet?

Peter Osvaldik:

I can speak to the question on the macro environment. From a consumer perspective, No, we're not seeing it. Of course, this is an area where we're very cautious. But when we think about just Q3 to Q4, we actually saw a little bit of improvement in voluntary churn. And bad debt was exactly what we laid out in Q2 stable on a percentage of revenue and in fact, actually lower than AT&T or Verizon on those metrics. So, it's something we're looking at and making sure we would closely monitor. As we said, this could also be a moment of opportunity for us because as a consumer set to the extent that you're pressured from a recessionary perspective, from an inflationary perspective, it might make you consider a lot of categories of spend and wireless is being one of those. And at the time you create the consideration moment, you go look around. And again this is the time where not only 5G leadership, but has translated into overall network leadership, coupled with that value proposition just being a fabulous time and it could be a tailwind for us. Again, looking at and making sure we're cautious, but nothing we're seeing right now gives us costs for concern.

Simon Flannery:

Thanks for the color.

Jud Henry:

Not yet. Let's go back to the line and we'll keep watching. Great.

Operator:

Our next question comes from Jonathan Chaplin with New Street Research. You may proceed with your question.

Mike Sievert:

I mean, one of the things you heard from Callie before is that Q4 was one of the best net add quarters ever in our history. So, we're really comfortable with where this is -- how this is shaping up. And one of the reasons for that is there are long sales cycles in this market. And we've been at this 5G story longer than anybody else. CIOs are very interested in more strategic engagements than they were interested in a couple of years ago. And now, we're in those conversations, but we're way down the pike in them. So, we're very comfortable with where we are. We're competing extraordinarily well. And to your market share question, we're very much on track for the Analyst Day aspirations that we shared with you.

Mike Sievert:

You mean should I disclose that right now as a new fact. I don't think we did we haven't. I think what we've said is, it continues to be the majority from consumer, but you're seeing continued uptick in the business side as just Callie mentioned in growth there. So we see a lot of room to run on the business side as well. And obviously, continued room in the consumer space.

Operator:

Our next question comes from Brett Feldman with Goldman Sachs. You may proceed with your question.

Mike Sievert:

Yes. First of all, yes, on integration, there's more room to run. But principally, I think most of the room to run comes from value network, service brand. And look, we've been through this journey. We drove the Magenta brand to the best churning brand in this industry. And I certainly won't be satisfied until T-Mobile blended postpaid is the best churning brand in this industry. And that shows you we've got some room to run because while we're the most improved, which is a great price, we're not the best yet. And so that's where we're going. That's the goal. And it is, of course, there's some room to run on integration. But we're not separating it for you anymore because it's very hard to chop up at this point. All the customers are on the destination network. Some of them are on the destination biller. It's not that determinative anymore as to which biller you have because we try to make that biller sort of very opaque to you and not transparent. You're called T-Mobile in many cases. So it's -- it's just hard to chop it up now. But yes, there's still room to run to get people settled into fantastic rate plans, both on their device as well as on their service and to feel very careful with clear transparent services. But I'd say the bigger opportunity is our worst to first game plan that we know how to execute, which is give people a great gives them un-carrier moves that allow them to voice that deal and express in vote for T-Mobile. Give them the best network bar not, give them a fantastic path to great devices. Give them a brand that's famous for caring for them and the best customer service in the industry. That's why our net promoter scores are the highest in the industry, and I expect that to translate to the lowest churn by the time we're done.

Mike Sievert:

We're really happy with it. What we do with any business is we age it into cohorts and look at it sort of based on people that have been with us 1.5 years, people that have just been with us a few weeks. And what you see is what you -- exactly what you would expect, which is the more aged cohorts are settling into a beautiful pattern. We have the youngest broadband base in the industry because we went from nothing to 2.5 million subscribers all in the last few months. And so, we have to really break it down to understand it. And when we do, we're very pleased. And one of the things that happens as a dynamic on this business is that the barriers to trial, therefore, the cost to us of encouraging that trial are totally different than wireline. We're not sending some drug -- some truck to your house to dig ditches or drill holes in the side of your house and all kinds of cost. We're letting you take home a modem and router and give it a shot. And if you love it, you wind up sticking with it. And if not, there's sort of a no harm, no file relationship. This is, let's try it again in a year that wasn't perfect for you right now because we're pouring capacity into this network. And as long as we treat customers really well and they gave this a shot, and we were transparent with them that as to whether or not it would work. The vast majority will keep it, but the small portion of people that don't, doesn't really wind up costing us anything. So, the dynamics of early churn in a business like this are totally different than traditional broadband is one of the things that makes it a better business model.

David Barden:

So, I guess the first question would be for Peter. If you could kind of kind of step us through the guidance and the changes from the Analyst Day outlook from $28 billion to $29 billion, what's changed to move your midpoint expectations up? And then from the free cash flow or original guidance of $13 billion to $14 billion, what's moved your midpoint down? And what are moving parts in between those two things? And the second question would be, Mike, what would be your appetite to proactively reach out to SoftBank within the confines of the stock buyback program and clean up this $48.8 million share issue that seems to be keeping for whatever reason, and I understand the lockup and it seems to be keeping T-Mobile stock from going north of $150 million. Is there an appetite to just get rid of that and just make sure that, that's not a headwind for the stock on a go-forward basis?

Peter Osvaldik:

Yes.

Peter Osvaldik:

Absolutely, when I just think, Dave, back to Analyst Day and what's happened since then, you've certainly seen a tremendous amount of incremental profitable growth than what we see. And you saw the ARPA trajectory grow you've seen high-speed Internet and the tremendous growth that we've had there and the ability to accelerate synergies. On the flip side, of course, the world has changed a lot since then, and inflation is one of the elements, that's impacted a lot of companies. For us, we've been a lot more insulated than others, and we've talked before around why that is with our ability early on after the merger to walk down major categories of costs during a time when the negotiation looks a lot different in low interest rate environments and low inflation rate environment. So, there's a lot of the kind of puts and takes and why you see us now being able and confident to express a guy that's actually above Analyst Day. When I think about just the shaping of the core EBITDA throughout the course of the year, what you're going to have, of course, is continued profitable growth and continued synergy unlock. And one of the things that's assumed in the core EBITDA guide is the wireline sale close somewhere around midyear and that's a little bit of a drag on core EBITDA. So as I think about like Q1 probably in the approximately 6.9 range and then continued unlock throughout the course of the year on core EBITDA. And then how I think about from there to free cash flow, really free cash flow in 2023 as a few onetime items that you need to consider. And first and foremost is we're actually now in '23 achieving what we've been talking about for a long time now, which is the highest conversion of service revenue to free cash flow in the industry, despite these kind of few onetime things that I'll highlight. One is merger-related expenses, and I spoke in the prepared remarks around $1.5 billion to $2 billion. And that's a little bit higher than we assumed at Analyst Day in terms of total merger-related expenses by about $400 million, and that gives you now an incremental unlock up to $8 billion of total run rate synergies. So, that's one -- the other is a 21 cyber event. And remember, you saw us take a lot of the expense-related charges in 2022, but we anticipate the cash flow associated with the class action settlement to outflow in '23. And then the last again is related to wireline, where as you recall, we have an IT related take-or-pay agreement. The first year after close is $350 million and then tapers down significantly from there. And so, we're assuming about half of that flowing into '23. So that's how you kind of take core EBITDA down to free cash flow guide. And hopefully, that answered almost all the puts and takes.

Mike Sievert:

Yes. Like Mike said, we're really excited about what happened in prepaid. We were the only one with positive gains. And I think most importantly, we have and continue to have the number one brand in prepay with Metro. And we see the Metro growth being a big tailwind for us. We also have a really healthy and robust MVNO set of partnerships, including big exclusive partners that also had significant growth over the course of '22 and in Q4. And we've got a diverse set of partners that both focus in unique distribution that we don't always fully reach with the T-Mobile brand and unique segments that also sometimes are underrepresented with the T-Mobile brand. So, we feel really good about the portfolio of products and brands that are reaching the prepaid market. I find it particularly gratifying that in an environment where there's lots of transference from prepaid to postpaid going on and which has lasted longer than most people predicted it would last. Our prepaid brand continues to be the strongest in the market and the only one that grew this quarter. That's fantastic because you have seen lots of momentum across the industry from prepaid to postpaid because of the economic times. People are qualifying for postpaid and continue to do so to the premise of the earlier question about what we're seeing in the macroeconomic environment. And yet our prepaid brand remains this strong. The lowest churn ever in our history on prepaid and the lowest in the industry was in 2022. And so this is a business where -- that has a great bond with its customers. They stick with it for a long time. They love Metro by T-Mobile, and it's a real source of strength. Jud, is that -- does that take us to the end of the program?

Operator:

So our next question comes from Peter Supino with Wolfe Research. You may proceed with your question.

Mike Sievert:

A part of it is because it's early in the year, and it's not that clear where the dynamics of competition will be. If you look back to our multiyear Analyst Day targets, we actually thought back then, back to all the puts and takes, and Peter just kind of talked about this, that there would be much more going on, on sort of the service revenue ARPU side, And we didn't anticipate as much as what wound up happening on the device side. And so we guided accordingly on service revenues and ARPU where we achieved the '23 service revenues last year and ARPU growth was a big reason for that. But we had unexpected costs on the device side because the factors of competition sort of shifted. So it's a little early to comment on ARPU. We do know that if there's an opportunity for growth versus just generally stable, it would be more in the second half than the first half, and there's reasons for that. But we really like where this is. The underlying dynamics on Magenta MAX are stronger not moderating. They are stronger than they've ever been. But on the other hand, we're finding success with military, with seniors, with business and other things that could be dilutive to ARPU, but are fantastic on a CLV basis. And that's why we have to be careful about not getting people to hooked into ARPU. ARPA, we're guiding for growth because we see lots of opportunity for customers to continue to double down on their relationships with us across the board, including new device types and including home and business broadband. So hopefully, that gives you a little bit of puts and takes on kind of why it unfolded the way it unfolded.

Mike Sievert:

Thanks, everybody.

Operator:

Good afternoon. [Operator instructions] I would now like to turn the conference over to Mr. Jud Henry, Senior Vice President and Head of Investor Relations for T-Mobile US. Please go ahead, sir.

Mike Sievert:

Okay. Thanks, Jud. Thanks everybody. Very welcome to our third quarter call and thanks for tuning in. It is so great to be back to talk about another quarter of outstanding results by this team. Our differentiated strategy is working. Our ongoing focus on delivering the best value while simultaneously capitalizing on our network leadership position has delivered another quarter of industry leading growth in customers, EBITDA and cash flow, and we are raising our 2022 guidance for the third consecutive quarter this year. All of this while completing our biggest integration milestone, I am incredibly proud of this team. As we told you when our merger closed, our plan was to expand on our fame as the industry's best value while building and becoming known for having the best network in the country, finally giving customers the ability to have both from one provider for the first time ever. Now just 2.5 years later, we're doing exactly what we planned. Our brand strength for value leadership has never been better. And it's been further aided by our competitors' price increases. And our long-established 5G lead is translating to overall network leadership for the first time and giving customers the beginnings of really a powerful network that they're really noticing. Our results this quarter are a clear demonstration of how differentiated and sustainable our growth strategy really is. Only T-Mobile has both this unique combination of network and value leadership and multiple large scale new and underpenetrated segments to tap into. To grow our business, we are also driving innovation where it matters most for customers. Through Magenta MAX, our most popular plan and the best expression of T-Mobile's 5G network, we're providing features that are meaningful to customers in their daily lives like with the recent addition of Apple TV+ and our Un-carrier move, Coverage Beyond. Well, we're not just keeping people connected on the ground, but also in the air and when they go abroad. With the launch of Easy Switch and Network Pass, we're making it simple and risk-free to experience our network and make the switch to T-Mobile. It has long been established that T-Mobile is the 5G leader. But with the rapidly growing adoption of 5G by consumers and businesses, we're now seeing that 5G lead translate into overall network leadership. And to back it up, we're beginning to win more third-party recognition for our network leadership from multiple third parties like Ookla, umlaut and PC Magazine. This is precisely the network evolution that we planned. We knew that 5G leadership would eventually translate into overall network leadership, and that's exactly what is now unfolding. And speaking of network, we just hit our biggest merger integration milestone. By the end of Q3, we had successfully decommissioned substantially all targeted Sprint macro sites, more than a year earlier than our original merger plan. And our Ultra Capacity 5G now reaches 250 million Americans. Think about that. Today, we're already where Verizon hopes to be more than two years from now. And we're not stopping. We recognize the importance of coverage to customers, and we will continue to pursue more opportunities to ensure our network is there for them whenever and wherever they need us. This lean and data informed customer driven coverage approach will guide us as we enhance and expand our network to even higher levels and in a capital efficient way using our spectrum resources. We also recognize that there are some places where it's just not practical for any wireless operator to build a terrestrial network. But because we want T-Mobile customers to have peace of mind that we have them covered no matter where they go, in Q3, we announced our joint effort with SpaceX to do just that, combining a slice of our mid-band spectrum that's already compatible with existing customer devices with next-gen satellite technology from SpaceX. Our goal is for T-Mobile customers to be connected anywhere in the U.S. where they can see the sky. Overall, this differentiated growth strategy and emerging network leadership produced another quarter of truly differentiated results. So let's get right into them. In Q3, we posted a record 394,000 postpaid account net adds, the highest in company history and the highest reported in the industry again. Winning the switching decisions in this industry and growing share through our core growth strategies I've outlined for you many times is the central growth ambition of our company. In this quarter, we did that better than ever before. In addition, our network and value proposition are consistently attracting the industry's best customers, which is contributing to an all-time high in our customer prime mix. And we delivered an industry-best 1.6 million postpaid net additions, more than AT&T and Verizon combined. We had our highest postpaid phone net adds since the merger with an industry-leading 854,000. Our postpaid phone churn of just 0.88% improved 8 basis points from last year. Once again, we were the only wireless service provider to improve year-over-year. And our postpaid phone churn, including Sprint, was lower than Verizon's for the second consecutive quarter. And as I said, our multiple growth opportunities are all contributing to this success. Consider smaller markets and rural areas, which include 40% of the U.S. population, at the end of last year, we only had a competitive network and distribution to effectively compete in 30% of those households. Today, thanks to our accelerated network build. We have already surpassed our year-end target to compete in 50% of these households and we now expect to reach roughly 60% by the end of this year. We also continue to grow in the top 100 markets as we win the prime network seekers who are increasingly recognizing that T-Mobile has the best network for them, an audience we never effectively competed for in the past. We achieved share leadership in many of these markets in the past without winning on network. All of that is changing. So the same advantages in network and value proposition that are driving growth in smaller markets and rural areas where we're underpenetrated and are driving it in the top 100 where we've always been strong. In fact, our net account growth in the quarter was split roughly equally between these two geographic segments. Okay. Let's talk business. We continue to win business customers from incumbents as T-Mobile for Business continues to build momentum, delivering one of our highest ever postpaid phone net addition quarters in Q3. The impact we're having can be clearly seen in Verizon's business churn, which was up again at the highest levels they've ever reported. Meanwhile, we added more business accounts and had lower business phone churn than Verizon in the quarter, delivering one of our lowest ever postpaid phone churn quarters for business. Our 5G network leadership, particularly as it relates to our lead in advanced 5G services, is increasingly enabling us to become a strategic partner for enterprises and for government agencies. Okay. Let me briefly touch on high-speed Internet where additions of 578,000 hit another record high. And once again, we expect to lead the industry in net adds. In fact, I anticipate that T-Mobile had more broadband net additions than AT&T, Verizon, Comcast and Charter combined for the second quarter in a row. In addition, our high-speed Internet attracted consumers and businesses who are new to T-Mobile at an increasing pace, establishing new relationships that we can grow with additional products and services over time. In just 1.5 years since our commercial launch, we now serve more than 2 million customers with Net Promoter Scores more than 30 points higher than cable and even higher than the average fiber provider. These results demonstrate that our differentiated growth strategy and our Un-carrier playbook to provide customers with the best value and the best network continues to win, and our differentiation is a particular source of strength in this ever-changing competitive and macroeconomic environment. And importantly, we translated our leading customer growth into industry-leading financial growth in postpaid service revenues, core adjusted EBITDA and cash flows. This momentum has enabled us to raise our guidance every quarter this year, including today. Finally, as you know, thanks to our strong execution and confidence in the future, our Board authorized a substantial share repurchase program and did so earlier than our initial Analyst Day plans to begin in 2023. I could not be prouder of this team and of these results. Okay, Peter, over to you to talk about our key financial highlights and some more information on our guidance.

Jud Henry:

Thanks, Peter. All right, let's get to your questions. You can ask questions via phone by pressing star one and via Twitter by sending a tweet to @TMobileIR or @MikeSievert using $TMUS. Let's start with a question on the phone. Operator first question, please.

Jonathan Chaplin:

Thanks guys. Congratulations on a great set of results. I just had a quick question on fixed wireless broadband actually. It looks like net adds are leveling off pretty much as you described, they would last quarter Mike. I'm just wondering, you are still expanding your addressable market as you deploy 2.5 gigahertz spectrum. Are you starting to run out of capacity in some of the early markets that you deployed such that the sort of markets open for sale isn't growing anymore? Is that what's causing the leveling off in net adds?

Neville Ray:

Yes, I’ll just build on your comments, Mike. I would say, Jonathan, the reverse is happening. We are just coming off the back of a tremendous quarter, actually our busiest quarter since close of the merger with Sprint. In terms of how many sites we modernized and upgraded with mid-band 5G. And so the footprint is expanding which is tremendous. We're also adding more spectrum across the footprint, both the existing and the new footprint. And that's not just in 2.5 gigahertz now, we're also adding PCS in the 1900 megahertz band to those sites. So we have more sites and more spectrum coming online as we move through the future months and years for the company. And it's not just that, right. The other great piece is that 5G is becoming more efficient. We are rapidly moving to all SA, all standalone. And what does that mean? It means we can leverage and transport all of that home internet traffic on a pure 5G lane. So that's more efficient, it's more spectrally efficient. And from a performance perspective, of course, we get better latency. So we are still in the early innings of rolling out this mid-band network. Obviously we have a tremendous leadership position, but in terms of our ability to support the numbers we've talked about by 2025, we're in a good place. And as Mike said, we will continue to work to see if we can beat those opportunities.

Mike Sievert:

One thing I love about this – just to wrap it is that I mentioned this in my remarks, but the net promoter scores that we're seeing on this product are just fantastic. And people love this product because it's lower price and because it does exactly what it promises. And for us it's really, really important that we keep all of that in balance on our journey to millions and millions of home served. So great. Thanks, Jonathan.

Mike Sievert:

All right, next question.

Craig Moffett:

Thank you. Hi there, two questions. First, as 5G chipsets become increasingly commonplace and sort of more the norm than the exception, how do you think about telling the story of 5G network advantage in a way that, particularly the consumer market sort of internalizes it? What kind of metrics should we be looking at for a sense that your network advantage is really something that is becoming known and resonating with customers? And then second on just a purely more financial note, for example, as you've bought in some previously leased spectrum and that sort of thing, how should we be thinking about the margin trajectory for the business going forward? And where you think service margins can get to longer term?

Peter Osvaldik:

Yes. Well there hasn't been a lot of that yet Craig. I mean, we announced our transaction with Columbia Capital that again, is subject to regulatory approval and would close six months thereafter. But again, as I think about the long-term trajectory of this business, we laid out obviously our set of mid- and long-term aspirations in Analyst Day, and there are some service revenue margins that are inferred from there. But this has been a question that's come up multiple times in terms of the competitive set and where do we land relative to the competitive set. And the most important thing to look at, because it is what powers the growth of the ability to both return shareholder to capital, to invest further in the business and to continue this flywheel success is how are you able to translate that service revenue into free cash flow? And that's where we're tremendously proud and excited about the opportunity ahead of us. And you see, even with our Analyst Day projections for 2023, even before we get the full run rate cash potential of this business in the later periods, we're projected to convert service revenue into free cash flow as a leader in this industry. And so that's really what we're laser-focused on. It gets rid of the question of leased fiber versus owned fiber, takes all that noise out of it and really shows you the value creation capability of this business.