Q3 2019 Earnings Call
Tweet two at T mobile IR or at John Ledger, using cash tax G.M.U.S. I would now like to turn the conference over to Mr. Nils Paellmann head of Investor Relations for T. Mobile U.S. Please go ahead Sir.
Yes. Thank you are welcome to a T Mobile's third quarter I was wondering launching on his call with me today, our Jon let Josh I want to see all mikes, even all kinds of been and she'll Braxton Carter I want to see up on one other members off the senior leadership team I.
Let me just read the disclaimer.
It's called we will make forward looking statements that include projections and statements about future financial burden <unk>. The benefits, we expect to receive from the proposed merger with sprint and other statements that I'm not historical facts such statements are based upon the calm beliefs and expectations Obama management subject to a significant restaurants are just outside of our control.
That's good color call actual results could differ materially.
The restaurants are set forth in all annual report on Form 10-K , and all quarterly report on Form 10-Q .
It's been dream job and the non-GAAP results, we just talked on this call. It can be solved the quarterly results such an MLP Investor Relations page on our website. In addition in connection with the proposed transaction on July .
So that's a trend in June we filed a registration statement form S. Four with you guys see related to the merger. The registration statement became effective on October 29 friend to achieving its available on the new T. Mobile website contains important information about T mobile and sprint the merchant related matters was not let me turn it over to John Ledger Huh Okay.
Keeping that rousing Ulta Nils good afternoon, everyone. Welcome to T. Mobile's third quarter 2019 earnings call and Twitter Conference will come into lives from Bellevue, Washington, We've got a lot to cover today you can see from the results that we just put out that we have not skipped a beat we delivered a not a blockbuster quarter in Q3, we maintain.
And our incredible momentum and posted record service revenues. In addition, we delivered a number of Q3 records, including record low branded postpaid phone churn total revenues adjusted EBITDA net income and free cash flow will talk about these incredible Q3 results in a minute, but first let me give you a quick.
Gate on our merger with sprint.
I'm very pleased that after an exhaustive review of the facts the Federal Communications Commission voted to approve the merger on October 16th now both expert agencies, the FCC and the D.O.J. have validated the merits of a T mobile and sprint combination as we work through the final steps of closing our merger.
We remain convinced that the merits of the deal or even more true today, it's important to point out that the target synergies profitability and long term cash generation have not changed for new T. Mobile we continue to expect that the merger will deliver more than $43 billion in synergy well almost tripling our.
Total spectrum holdings in low in mid bad.
Dispositions, new T mobile to become the nation wide leader in Fiveg leapfrogging the competition in network capability and customer experience. This network capability will enable us to supercharge, the uncarrier strategy and aggressively take share from the predatory incumbents, new T mobile will support the creation of thousands of new job.
It's across America net positive from day, one and deliver lower prices and unrivaled value on the nation's best network transforming our customers' lives in ways, we can even imagine.
Now while the deal closing closing the deal has taken longer than planned the silver lining is that we have had more time to prepare for the coming integration. We have detailed integration plans and we are preparing to start deploying sprint to not five gigahertz spectrum soon after closing.
We're working hard to complete the final steps for the merger and we remain confident and optimistic in addition to the majority vote from the FCC. We've received clearance for the merger from the DLJ in late July upon entering into a consent decree that included the divestiture of all of Sprint's prepaid businesses.
Sprint 800, 800 megahertz spectrum assets to dish as well as supporting dishes rapid entry into the wireless market.
The DLJ consent decree is still subject to the final Tiny Act review as most of you know.
Earlier this month the state of Florida joined the DLJ settlement and Mississippi in Colorado came off the state AG complaint in total 19 state governments state Agee's governments and door Pcs have now expressed their support for the merger highlighting benefits such as increased competition roll cover.
Jobs affordability and new wireless competition for fixed broadband access on that note 18 of 19 Pcs have given this deal the greenlight, we've a lot of leaders that recognize benefits of this transaction will deliver for consumers and their state and beyond.
Now as you know the state Agee trial is set to begin on December nine in the meantime, we continue to be open to and are having many discussions with the state agencies. We now expect the merger will be permitted to close in early 2020.
Now let me dive into these blockbuster Q3 results first let's talk customers 1.7 million total net customers join the Uncarrier movement in Q3 up 117000 year over year that makes 26 quarters in a row that we have had more than 1 million total net customer adds.
Per quarter.
We added 754000 branded postpaid phone customers and continued to lead the industry in postpaid phone growth by a wide margin.
We delivered these great results. Despite this being another competitive quarter in the marketplace.
Wireless customers want to do business for the company that treats them right in changes the rules of the industry in their favor and this shows up clearly in our churn numbers as customers are coming in staying longer than ever before we had a record low Q3 branded postpaid phone churn.
Eight 9% down 13 basis points year over year not only is this a record loan for Q3, we also beat ATM Ti for fourth quarter in a row.
Our overall postpaid churn was 1.4%, which was also a record low for Q3 and was the best in the industry. In fact, we beat Verizon for a third quarter in a row and ATM team for a fifth quarter in a row.
We had strong branded postpaid net customer additions of 1.1 million supported by continued strong growth in postpaid other customers branded prepaid net customer additions were 62000 up from 35000 in Q3 2018.
Next I got the highlight our record financial results service revenues hit all time record highs, reaching $8.6 billion growing 6% year over year and branded postpaid revenues grew 10% year over year.
Total revenues grew 2% year over year $11.1 billion a record high for Q3, despite lower equipment sales, we hit Q3 record high adjusted EBITDAR $3.4 billion up 5% year over year net income was $870 million Q3 record high up nine.
10% year over year and fully diluted EPS came in at a dollar one also up 9% year over year and net cash provided by operating activities was $1.7 billion and free cash flow was $1.1 billion, both Q3 record highs up 91% and.
27% year over year.
Okay, Let's talk network for a moment you may have heard the news that Neville announced last week that he and his and engineering team have been running at an incredible pace building out our initial layer for Fiveg. In fact, we announced that we are accelerating the buildout and planned to launch our foundational layer of Fiveg nationwide.
This year, our 600 megahertz spectrum will be the foundation for Fiveg network and it's live in nearly 8300 cities and towns and 48 states in Puerto Rico. This deployment covers 1.4 million square miles and 200 million Pops today, we now have thousands of Fiveg ready towers in cell site.
It's capable of lighting up fiveg on our 600 megahertz spectrum and no other fiveg signal will be a strong whereas reliable.
More than 26 million devices that are 600 megahertz compatible are already on our network today, we plan to launch Fiveg on 600 megahertz on a nationwide footprint of more than 200 million Pops with compatible smartphones, including the recently announced exclusive one plus 70 pro.
Fiveg Mclaren later this year.
This network will be the foundational fiveg coverage layer for new T mobile part of the overall layer cake of available low mid and high band spectrum Fiveg that will be a game changer for consumers.
New T mobile's nationwide Fiveg will be able to cover more people in more places and work indoors and out. Unlike Verizon 18, Tees current fiveg networks, which can be blocked by things like walls glass and leads and this is all while we continue to expand our Fourg LTE.
Network coverage and deliver industry, leading performance, we've caught up to 18, TM Verizon and now have 326 million Americans covered with Fourg LTE nearly 99% of the U.S. population and we now have 311 million Americans covered by low band spectrum, both 600 megahertz and 700.
Megahertz combined.
So needless to say, we continue to make great progress on our network and can't wait to get fiveg into the hands of consumers.
We spent the better part of the last seven years changing wireless for good and with the network capabilities of New T. Mobile, we're going to take on carrier to an entirely new level. So.
I think it's time, we start sharing some of what we mean by next level I won't say anymore today, but please mark November seven on your calendars, because we're going to announce our first uncarrier move for the new T mobile sharing some of our plans and commitments for the future.
That's right New T mobile Uncarrier, one Dato November seven stay too.
Okay to wrap up I couldn't be more excited about our performance. This quarter, we continue to work toward closing our merger with sprint and do so without skipping a beat in our business performance Q3, 2019 was another blockbuster quarter for T. Mobile and are unprecedented momentum continues as we gain postpaid phone share.
And deliver record financial results are increased guidance shows that we remain confident in our outlook for 2019 Circle November seven on your calendar you won't want to Miss it Okay time to ask CFO Braxton Carter to take us through the financials and our guidance for the remainder of the year Braxton. Thanks John .
I continue to be so excited about prospects for new to mobile as well as our continued operational excellence, let me get into some of the financial details for the quarter.
Net income amounted to a Q3 record of 870 million and diluted earnings per share was a dollar won both up 9% year over year net income benefited from higher operating income and lower interest expense you effective tax rate amounted to 20.
7% for Q3.
For 2019 as a whole we continue to expect some effective tax rate in the range of 20, 526%.
No net income and EPS for fully burdened in the third quarter by the sprint merger related costs of 128 million.
Two cents per share after taxes, respectively.
These costs 159 million before taxes are excluded from adjusted EBITDA.
Adjusted EBITDA amounted to over Q3 record of 3.4 billion up 5% included loosing revenues of 142 million versus $176 million per year.
Recall that adjusted EBITDA in Q3, 2018 benefited from a 138 million of hurricane related reimbursements net of costs.
The adjusted EBITDA performance as a reflection of strong cost management, especially for SGN there.
Cost of services as a percentage of service revenues increased by just 50 basis points year over year. Despite the continued rapid rollout 600 megahertz spectrum.
As expected there was a significant sequential ramp in cost of services due to this rollout.
Best DNA as a percentage of service revenues decreased by 30 basis points year over year. Despite the increase merger related costs, excluding the sprint merger related costs I assume they decreased by 150 basis points year over year, despite the headwind of 83 million.
From the amortization of commissions from the new revenue recognition standard relative to last year.
Free cash flow increased by 27% year over year to 1.1 billion due to a 91% increase in net cash provided by operating activities, partially offset by an 11% increase in cash Capex totaled 1.5 billion.
Free cash flow in Q3 included 124 million or merger related payments. Excluding these merger related payments free cash flow would have been 1.3 billion.
Branded postpaid phone ARPU amounted to 40 622 in Q3, essentially flat both sequentially and year over year.
Spect branded postpaid phone ARPU in full year 2019 to be down approximately <unk> 0.7, 0.9% compared to full year 2018 within our generally stable oil.
This implies sequential and year over year decline for Q4 2019.
This decrease was driven impart by a reduction in the noncash or nonrecurring benefit related to data stash as the majority of impacted customers have transition Q unlimited plans.
In terms of customer quality, our results from the third quarter continue to be outstanding.
Total bad.
Expense and losses from sales of receivables were 102 million or 9.92% of total revenues compared to 128 million or 1.18% of total revenues in the third quarter of 2018 bad debt in the third quarter included certain.
Onetime benefits and we expect a seasonal uptick in the fourth quarter.
Now, let me get to our 2019 guidance.
We expect branded postpaid net customer additions to be between 4.1 4.3 million.
Up significantly from the prior guidance of 3.5 to 4.0 million on.
This guidance takes into account or long term strategy, the balanced growth and profitability.
A continuation of the lower switch or volume, we've seen in recent quarters and our pursuit of growth adjacent suits.
We expect adjusted EBITDA ought to be in the range of 13.1 to 13.3 billion yen.
Increasing the midpoint from our prior guidance range from 12.9 to 3.3 billion.
Guidance takes into account leasing revenues of 550 to 600 million and 29 team.
Change from prior guidance. It also takes into account our network expansion in particular, the 600 megahertz in Fiveg Rollouts.
Pre close Brent merger related costs before taxes are expected to be between 125 to 150 million in the fourth quarter. These costs will again be excluded from adjusted EBITDA, but will impact net income and cash flows.
We now target cash Capex of 5.9 to 6 billion up two to 300 million from a high and the over our prior guidance range.
This includes capitalized interest, which is now expected to amount to approximately 450 million in 2019, the higher Capex guidance reflects our rapid rollout of 600 megahertz spectrum setting the foundation for our accelerated plans to launch the first nationwide Fiveg network.
Work with more than 200 million Pops later this year.
We continue to expect free cash flow to increase the other three year Cagar, a 46% to 48% from full year 2016 to full year 2019 unchanged from the prior range, even with a step up in cash capex.
The CAGR for the underlying net cash provided by operating activities is now expected to be 36% to 37%.
Up from 33% to 35%.
Our free cash flow Cagar guidance does not assume any material cash inflows from securitization going forward and as excludes payments for merger related costs.
Now, let's get your questions. Please note that we cannot answer any questions related to the upcoming millimeter wave auction that's auction 103.
Through the quiet period around this auction you can ask questions via phone or via Twitter and we'll start with a question on the phone operator.
First question please.
Thank you Sir again to ask a question via the phone. Please press star one.
We'll take the first question from Michael Rollins of Citi.
Thanks.
Two questions first can you talk a little bit more about the sales productivity in the quarter and if you're seeing anything different in terms of where the customers are coming from or what types of plans that they are taking.
And then secondly, with regard to the process with the state E. cheese.
Are there a couple of common.
Stacks or concerns that you're learning about across the state that are involved.
The litigation and is there an opportunity for the UN carrier, one, though for the new T mobile to potentially address some of those questions or concerns. Thanks.
Sure I wanted to take the productivity question first and then they absolutely ill jump in with just a quick overview Mike.
No Big change this year, what's going on is you're seeing our continued progress into the suburbs into prime suburban families into greenfield towns and into segments like older Americans like military and that has been a trend for the last two or three quarters and you saw that continue you also saw record low Q3.
Sure and as John said in his comments this quarter, we were not only at the best levels, we've ever seen for a Q3, our overall postpaid churn when you look at the whole postpaid business, which is not something we normally disclose we focus more on funds was the lowest in the industry again lower than Verizon lower.
80, and so that takes some pressure off the activation engine and you can see that start to translate into efficiencies in our business, which is terrific. The seat. This morning, we doubled down on that same strategy. This time with a breakthrough new offer for first responders and it follows our very successful moldable of really focusing on military.
Three which we've been that for quite a few quarters, now and really winning hearts and minds and I think doing great work for military families and saving them an incredible amount of money today, we turn our attention with that same kind of value proposition that can really make a difference for families for first responders and we're really excited about that it's a continuation of our strategy of.
Doing well by doing good so that's the person.
On the second question I could tell you it's been a fascinating year and a half whether it's been in Congress of the Senator FCC and the DLJ.
And now the state Attorney generals, we we violently agreed on all the things that are important all the things are important to the dates and violently agree of what the new T. Mobile can do so if you think about the federal agencies that have now approved the expert agencies.
If approved this deal it's been about.
Ensuring fiveg investment in Fiveg build and rural coverage and broadband competition.
Concerns about pricing concerns about the low end to the market and what we've been able to do as you've seen recently with both Colorado, Mississippi is once you speak to these individual.
Attorneys general about their state and the things that are important to them. They see what they're concerned about is committed to nationally and can be tailored for them. So been very good discussions.
And we continue to have those they continue to center around Fiveg, and the build and pricing and around dish as a competitive player, which certainly we have been very aggressive with the consent decree on positioning for that so we feel very good about the conversations and where they're headed.
We feel very good and confident either in the process of a settlement or isn't going to trial in having having the case seen well and to your point.
Certainly the kinds of things that the new T mobile will signal.
We will do whether it be an uncarrier move or the plans that will start to unveil.
They are very powerful items of discussion with the states as well because they answer the main question. So it's all coming together in that fashion stay tuned good discussions continue and as I said, we may we remain very optimistic and confident about the creation of the new T mobile and yeah I think.
November 7th Mike.
I would add a little bit to the conversation.
Thank you.
Thank you we'll take our next question from Simon Flannery of Morgan Stanley .
Great. Thanks very much.
Good question on the 600 build out I'm not sure if levels on better just you've done 200 million I think proximity to refer to Capex been front end loaded so what's the pacing from here to get to 250 on more over the next.
A few quarters is this something where it's going to be slower to go and how should we think about the expectation there and then Mike coming back to your comments on the first responder could you just size that opportunity for us what you have today and what you think the opportunity there's thank you.
Isn't that level at least get on how to play for the 200 million.
Okay that's already.
The next goal.
Goals.
No. Thanks, Congratulations obviously, we're very pleased with.
The progress we've made on on 600 megahertz, some it's really adding to this phenomenal low band footprint that we've assembled over the last three to four years I mean, John referenced at 311 million people now public with with low band that we continue to grow that number as we'd like to up more and more of the 600 megahertz.
26 million customers now with a 600 megahertz phone in the hands starting to really reap the benefits of.
Lot of new spectrum that we can bring to the U.S. consumer both and LTV on Fiveg.
As we said many times this is the foundational layer, where the layer cake with the new T mobile as we combined with sprint it's critical to what we plan to do.
With.
Fabulous combination Super excited about what we can bring on so to your question, yes, no slowdown on 600 megahertz as we move into 2020, we obviously look to continue to build out that footprint across the nation on remember we have nationwide I mean fully coast to coast spectrum here that we can live.
Average and it's a key part of the commitments that we've made.
The FCC and many others in terms of all build out of a pharmacy services on the LTV.
Big Big push on on role for us within the footprint. We've been building. This thing almost from the outside in because we have to clear broadcasters in the major metro's that was sitting on that spectrum. Much about work done now we're ahead of the schedule materially compared to the original schedule that was put in place in partnership with the FCC.
Three years ago.
So real great benefit coming through not just in metro's, but you know across the country and specifically in rural so.
We're on it we're building we're building now we're building through the quarter, we'll be back on it again in 2020.
And so thats done if this year, our chief marketing Officer, maybe Matt you can talk a little bit more about the first responders okay great.
Simon So the way like talking about the first responders offer as that we're approaching thats. The same way that we approached 55, plus how we get military they're both segments in the marketplace that we don't have large share coming and in fact, we havent had as robust robust and offering for first responders as we do now like we did with military we came in with a very aggressive.
Offer to serve those consumers in the marketplace wait wait stronger and more compelling than what competition has so we expect to see similar results on it all but I will say there are less first responders.
America, and military and better and so we won't see quite the same.
Degree of business result on the whole, but to the segment, we expect to see similar outcomes.
Great. Thank you.
Thank you want to take our next question from Phil Cusick of JP Morgan.
Hey, guys. Thanks.
Maybe we can talk about the the network the little further novel the the some of the tower companies and saying that you guys have been pulling back which doesn't seem to fit with the speed of your deployment and the higher Capex can you try and square that for me first of all and then can you give us any update on discussions with dish around leasing that 600.
Megahertz, how should we think about that going forward. Thank you.
[noise] somebody want to take additional lease into through the first part yes. So so for a long 600 I mean, we're ahead of plan.
We're very clearly ahead of the goals that we had this point in time for the year and any activity this modifying or modulating in the field is just us working towards capital envelope you heard from Braxton, I mean, where we were above plan on cash capex for the year. So we've done a lot more than we planned to do in.
2019, and it just makes sense for us not to keep running a thousand miles an hour. When we have these other considerations take into account I said was still building.
Delighted to be ahead of plan I'm delighted that we can light up what will be the first nationwide Fiveg network here in the US before the end of the year Thats, a key opportunity for us as part of what we're going to do with the new to mobile here.
Let me add Phil you know our long term.
Philosophy is that we deliver on the commitments that we make to all of our stakeholders.
And Joe threading, the needle on a year after your basis.
Well also trying to bring that goodness. So the rollout of 600 megahertz as quickly as possible. This resulted in more of a front end loading a capex.
You will see similar trends next year.
We are super excited and will rollout or full guidance for.
2020 on our yearend earnings call, but you know I would expect similar types of patterns.
Just as we're deploying fiveg and getting all the goodness the $8 billion, we have invested in the 600 megahertz.
The second part.
As the.
As the consent decree in the item it's been disclosed cover.
We are having discussions with dish about potential leasing of some of their 600 megahertz spectrum and frankly, it's a real opportunity for a win win.
I would almost call it found money.
And so it's a chance potentially for a.
Revenue stream for dish before their spectrum is is used and for us.
Can have significant positive impacts to us.
If the prices right, especially from the standpoint of migration. So I never say never one thing that we become experts at in the last year is negotiating with dish.
And it's you know it's difficult process, but I think in this case.
As a real win win possibility for both sides and with that said.
We're not done yet so we'll keep you posted but it's a it's a good opportunity that would both interested it.
Thanks, guys.
Thank you we'll take our next question from Jonathan Chaplin, New Street research.
Thanks for taking the question.
John I think if you put your learnings on negotiating from dish into a bulk it will become a best seller I think I'd be that'd be lots of other greeted with that.
A question for Braxton actually.
The would cost us that's without the network investment Youre, making it then let lovely flat and what's driving the increase in cost of services that you increasing your site count is it small cells.
Or is that amendments you're making on a on existing sites as you put 600 megahertz up and then finally.
What's the trajectory of that.
Over the course of the next cut the next sort of two to three.
Is there another increase similar to what we've seen bags, Jerry if you do Fiveg and then it flattens out or is that on a on a growing trajectory like this for a few yes.
Yes, great Great question.
And the answer questions a little bit of all of that what we've done.
Over the last couple of years. Some this sort of a new phenomenon about the absolute dollar increases on the cost of services.
We rolled out to full geography of the U.S.
And got to equivalency with a TMT and variety.
On geographical footprint.
And now we're rapidly rolling out to 600 remember.
No. It was visionaries your once again and push the OEM.
In the ecosystem to develop a dual band ended radio that could Bose address the 600 and address five Judy with a software download.
He was deploying the 600, we certainly have more work to do you know you've heard the 200 million Pops.
Which gives base for nationwide coverage, but.
Obviously, we have the spectrum, we have the wherewithal.
This rollout will continue in the upcoming year and we'll give really detailed guidance just as we have on the cost of service on.
Both of the last year around calls.
But it's not a herman.
You know step function change that's going to happen here when you're looking at year over year, we're in a period of unique investment.
It's like we're doing it extremely efficiently and well thought out and I want to affect level for that too because doing the 600 going back and.
Overlaying fiveg inclined when those terrorists again would have been very very expensive proposition.
Just Paul Paul on Jonathan Everything Braxton said, I mean, the key areas Emilio visionary sorry Division, we thought that he mentions may yet so.
[laughter] so the overlays obviously.
Hanging new radio and so that's a major driver of lease amendments and so on we continue to do small cell work.
And material pace than the other pieces we're upgrading.
Backhaul we are building.
Activity here for a fiveg world. So we've done a lot of work to get ourselves ready multi gig circuits I mean, making sure that back coal is that as the radio comes on board and as we combined with sprint and create this this enormous traffic and supply capability and so the market we need to make sure. It's not just a radio story.
It's it's also that we have the end to end capability and so backhauls another piece of of the play and making sure we're fully ready for the opportunity that we can bring now in in 2020.
Thank you explained all that Braxton never because I thought I heard somewhere in the original question two words I've never heard used together Neville and slowdown.
And I don't think we'll ever hear us right.
Thanks, guys.
Thanks.
Well take our next question from Brett Feldman of Goldman Sachs.
Thanks for taking the question meter obviously racing ahead of your competitors in terms of.
Point Fiveg coverage I'm curious, how do you plan to message the benefits of Fiveg to consumers how is that a change as you start to incorporate springs deep spectrum portfolio and then ultimately are you willing to offer consumers incentives to try fiveg on T mobile. Thank you.
Just wanted to clarify you said, where racing ahead of our competitors and deploying fiveg coverage was that we just correct and I hear that.
Yeah.
We'd come up with a few ideas first of all we've decided to label it Fiveg E.
And we've decided that no matter, where we deployed our fiveg, where refusing to show it in Matt.
So outside of those two innovative ways.
But yes, Mike I'd never do on a couple of things. One is I think you saw the power of when you can get your partners with the mainstream devices to adopt your technology. As we were just talking about responsibly to the last question how quickly that can benefit consumers and you're seeing that right now with the 600 megahertz.
We're delighted that our major partners with the big flagship devices were able to get our 600 megahertz LTP technology on the devices last year and as a result, we now have 26 million people with that technology in their hands and I think that bodes very well for us as we think about a future in fiveg, which again, we have a big opportunity to get the ecosystem aligned and.
I don't think it's going to take incentives to get people try T mobile fiveg, they're going to move to it very enthusiastically our strategy is going to look so as John was just saying our strategy is going to look so different from our competitors they're doing.
In particular, Verizon is making a bad that people want versions of Fiveg that work in some places very limited places and don't work in most places versus a fiveg that works nationwide and that we're willing to back with maps and that's the beginning of a journey to the premise of your question when you combine it with where we're going in the new.
The journey towards the only Fiveg network that is both abroad as we're talking about thats nationwide and everywhere and deep with transformational capacity and speeds that really can change the use cases for our consumers and very profound ways. That's a little early to predict all the applications and innovations, but I can tell you one thing as somebody that's been close.
As to software innovators are going to choose the network, that's both broad and deep that that relies on having fiveg everywhere youre going to see use cases that are designed to more to our way of thinking then to Verizon is way of thinking which is that some people want fiveg in a few places to be very high capacity.
And everywhere else, you'll be relegated to LTV I don't think that will inspire the same kind of mobile innovation that we're going to see the T mobile the new T mobile network inspire.
I'm sort of I'm going to take one of the one or two of the questions that are coming in and because it's still one of them staring the right in the face and Walt I check I have to say I don't know why but I'm looking at your new Twitter handle at Walt light shed light just keep thinking of at Buzz light year.
Something I don't know why I.
I think thats I think thats kind of cool.
Kind of touch on one of your questions is a question came in no comment about extension of sprint merger agreement and TM US press release, it expires on Friday, and I would give you. This.
Feedback Walt that sprint and we are currently focused on working very diligently to complete the last remaining steps to be able to close the merger in early 2020, and I think that debt that says.
Everything that we need to say about the about that about that date.
Let's see.
You want to take Bill Whos quite Bill has been a diligent sender in of questions and this time, we take one is interesting question about prepaid.
Yes, so one of the questions that bill centeredness for many quarters prepaid seems to have lost its competitive edge and big growth talk about the landscape in any changes in prepaid strategy I'll, just say something brief and if Matt if you want to pile on.
It's not so much that prepaid has lost something it's I think that postpaid.
Has been growing at the expense of prepaid that's probably great for the industry. Overall. So these things aren't really two different things theyre just two parts of one industry.
That has very positive trends that are fueled as much as anything else by the strong economic conditions that were seeing more people are qualifying for postpaid and therefore, you are seeing postpaid grow at the expense of prepaid the other dynamic as we've seen over the last year and a half cable entrants have come in and they have also chipped away at the prepaid market and.
Added to the postpaid side two years ago. There were no cable net ads now when you take cable and you add up to three major players. They had more net adds reliably then Verizon the second most of anybody except.
Except T mobile so that's another dynamic that has caused postpaid to grow at the expense of pre that met anything to add to it.
Yes, the only thing I'll add on that.
One is we've been pretty consistently growing our prepaid bit business in the face of these things Mike talked about.
Our strategy is one of competing in every market segment and consistently taking share there. The other thing that will expand on is that.
I think thats been occurring as this long.
Credit expansion credit scores are at record highs.
Customers are continuing to see things like that ties financing et cetera. So I believe we're well positioned.
We continue to compete in this environment as falls at the environment changes in the prepaid space that postpaid.
Okay operator.
Thank you we'll take our next question from Craig Moffett Moffett Nathanson.
Yes, hi.
The sprint was.
Was bound by the FCC to be to have a large number of.
Great. We lost yet I don't know if you are still there so there.
Mr., Mike I still with us.
Okay.
Let's go to the next one we can come back to Craig and I was really hoping to complement Craig that before I, even got my second Cup of coffee out. This morning, He had already come up at the tag line for ATM fees earnings, which is hope is not a strategy that I found that can be amazing and I am hoping if there's a similarly.
Hi positively cynical thing they get in store for us.
And I would bet 50 Bucks he was on an ATM T phone that weakness.
Okay, well come back to an operator I fear the next participant but let's take the next question.
Yes, Sir we'll take our next question from Walter I checked a flood of light <expletive> .
Thanks, John .
I'm going to start with novel the deal obviously has taken a bit longer than we all had hoped I guess so around this time I think we're all expecting you beat investing in that huge swap at two dot five spectrum. So if this thing continues to drag on into early 2020 or or perhaps you have to look at a plan b if the deal isn't.
Approve where does that money go which spectrum bands.
It would be first up.
Versus the two dollarsfive obvious youre going to continue invest in the 600, but which other spectrum answer what should be looking at in terms of your mid band investments.
I'm not sure my head even float Sarah will so it's all about there's only one plan thats combining with you know with sprint and as you said I mean time.
In some ways has been a friend here because my team is more prepared than ever so rapidly rollout in the two and a half gigahertz, you know us radio and spectrum the springhouse.
Loan polling that was going to be jurisdictional processes. So.
We're in a position with deal closure, where we can start to rapidly deploy that spectrum.
600, as we've said is the other us the foundational layer. We've continued and we'll continue to work on our millimeter wave story, but you know our spectrum mix and.
As I said, it's all about combining with sprint sold it sits in my head.
Got it and then and then Mike.
If you 2014 was obviously a huge year then if you go back to kind of the gross adds the ebb and flow.
In terms of some years are growing other years, its churn and obviously in the last year. There has been vis great churn improvement getting a churn billotti, obviously, you're probably be under horizon soon but theres, obviously, some diminishing marginal returns and getting that churn lower.
Thank you only get so so low so should we look at 2020 I mean, you talked about this new new T. Mobile Uncarrier thing to 2020 be a bigger gross add year or should we think about lower postpaid phone net adds.
As a trajectory going forward, just given that you've kind of pull the lever on churn as far as you can.
Well, what we'll guide on on 2020 at the appropriate time, but but just a couple of the broad trends right.
You're right we've had some phenomenal tailwinds on churn I mean, we now have churn that's better than 18 cheese, our churns in line with Horizons. If you look at total postpaid it's actually below horizons.
So were arriving at that industry best and that's not to suggest that the tailwinds are necessarily epic, but we have to be aware at where arriving at industry best levels at 200 million on 600 that leaves 107 million to go and a lot of customers 26 million have the handsets a lot of customers don't so there's lots of benefit on the network side.
Lots of benefit on the customer experience side that we can can continue to bring to the for the other pieces that were experiencing structural low industry churn, which is both good and bad we see the goods side of it in that we don't have to spend so heavily on activations as many activations, but on the other handed decreases are up.
It's unity and the good news is that we have the chance to win one way or the other take us a potential 2020 without fiveg super cycle of phones and elevated switching an elevated upgrades versus today, if that were to happen there'd be more gross adds in the market and as you know we are the net share winner in this market and so if there are struck.
Actual reductions in churn next year, we can look to other parts of the growth equation like activations because the two happened to go hand in hand. So the real question is how do we compete in the competitive mill you and as you saw we took 48% of postpaid phone net adds this quarter as long as we can continue to manage both.
As of the equation churn and Activations and we'll be able to thrive, whether it's a low structural churn quarter or a higher structural turned the corner.
Just want to point out that while he's asking multiple questions on the call waltz typing in more questions offline.
[laughter] John .
Then on the line Jack I want to sneak one last one on CP you see if if let's say you get New York in California on Board are you going to wait for the CP, you see or just close before before waiting for them.
Go ahead, David Miller.
[laughter].
Hi, Mike on here.
Thanks for the question no. We're confident that the CPC approvals will be will be obtained in a timely fashion.
Such a great.
I'm not sure.
Okay.
Right. Thank all right.
Well timelines do look like they sort of like Okay, I hear that Craig Moffett is back.
Yes.
Next question from Craig Moffett.
Verizon wireless call dropped sadly.
I wanted to ask about.
About sprint.
Sprint was found by the FCC to have a large number of fraudulent lifeline accounts and.
That could be as much as at 5000 dollar per per account or per line penalty. If its found to be fraudulent, which it could be up to about four and a half billion dollars have you learned anything new about the disposition of that inquiry at the FCC and how might in any how might that in any way effect.
The merger if it if there is in fact a significant liability.
Yeah, I think Craig.
Well I'm going to have to say is that I'm not going to comment on another companies ongoing investigation thats not close yet.
Can you just say, India as the hypothetical in the event that there is a liability would it affect the merger in anyway.
Yeah, I think I think I'm not going to comment on this topic I apologize for that.
Okay fair enough.
Thanks, Operator next question from canon than catch wall of Barclays.
Thank you I guess a couple first when we look at the Fiveg go to market strategy I mean, there's been a lot of action recently it out and.
Bundling video.
But I haven't discourse announced to deal with Disney plus I think you they'd have a btwob QB and Netflix.
And you've signed deals with Viacom So when you think about.
Video as a part of your overall strategy can you just expand on how you're thinking about or.
You know the plans with layer three going forward.
And how that fits and broadly.
And to your Fiveg strategy, and secondly from a B perspective is there something.
That would cause you to renegotiate the price outside of the question that pick just ask them in other variables when thinking about.
From a price perspective, and it comes to the sprint deal. Thank you.
Oh, let's do a couple of things.
I'll start that first comment and then Mike can give a more substantive discussion about video.
Glad you brought that up front, because I would just I would start by saying there is absolutely no comparison.
For a offer of one year of Disney.
Versus a lifetime.
Net flicks at length isn't the same value isn't the same and certainly does substance of the offers and same so.
I think it's not exactly a something other than the vice president of copy and paste at Verizon.
Looked over at our Netflix on us success and did a terrific job of creating it and adding a last time I checked nine out of 10 people a.
Nine to 10 people that watch.
Our next Disney cartoons don't make don't make wireless decisions, but the little mermaid. It will be will be a good flattering. Nonetheless, we've seen this all throughout the Uncarrier journey, where we do something authentic something bold something permanent.
Makes a big difference to People's lives and then you see our competitors scramble to copy and that's certainly what you saw last week with Verizon by the way, we think Disney plus looks like it's going to be a great service. This isn't a statement about Disney is this a statement about how Verizon took something we're doing and did such a poor job copying it by me.
And that you know so so we'll look to see what happens there, but but for us it does indicate.
As people start to copy our moves that it shows that they understand that our moves are working on since we made Netflix on us one of our most famous uncarrier moves a year and a half ago, it's been terrifically successful and it's something that our customers love and that they.
They believe we have a role in their video life and in their mobile video subscriptions and in their consumption to you at the premise of your question that hasn't bold and thus as we think about the next steps in the strategy, we announced a strategic partnership with liquidity the initiative.
Formed by Jeffrey Katzenberg, and led by Meg Whitman were very excited to be partnered with that you mentioned, our Viacom partnership and their plenty more opportunities because this world as its changing consumers are faced with a exciting world about TT video about a confusing one and we have shown through Netflix on us that Theres a.
Role that they trust us to play in helping them choose helping them authenticate helping them pay for their video choices and we think we've got a great strategy here.
It's going to be mobile focused it's it's based on taking our T. vision brand and really helping customers make great choices in this area and bringing them great value and you see that right from the beginning of the strategy with Netflix on us itself and the second part not not being a base of about having I'm sure you, probably didnt expect us to really and.
Sure. So some of these questions.
Couple of things are important with sprint.
We've been partners in this transaction for a long time working side by side and a very cooperative way and we really are working diligently to close these final issues and get across the finish line and create the new T. Mobile I would say that at any of these items that pop up.
Any of these deadlines any of these issues that come up as a partner.
We have and will have discussions on a fairness associated with handling those but that's certainly not anything that will kind of report on.
Publicly but they've been a great partner.
And if there are issues that we need to work together will work together with them to solve those and if we do have any items to announce you'll be the first to here.
Thank you.
Thank you we'll take our next question from Colby Sinuses of Cowen.
Great. Thank you I am just one.
Some of your competitors of late have.
Ben focusing on ARPU lift whether thats come through other fees or it's come through the variety of different unlimited plans to which they offer and when I look at your ARPU really last few years. It continues to come down how important are a big of a focus is driving ARPU growth over the next year so for.
And how might you be able to go about getting that thank you.
You know called it's the right way to look of us and we've talked about this numerous times move passes were pursuing a strategy of generally stable ARPU.
And that's defined is plus or minus 1% for the last two years. So it's been minus 1%.
We just gave guidance today that we're going to be.
Less than minus 1% for this full year, but it's a deliberate strategy when we're doing things like segment penetration.
Might be dilutive to ARPU, but are creating a higher CEO of the NPV until the business, that's a trade off well worth making and I think we've demonstrated over the years.
Our consistent balanced between growth and profit profitability in the generation of true significant ramping cash is really what what drives the value here.
We were a scale predatory do awfully yeah.
Probably what we'd be doing that's not what we're doing.
We have amazing unlock from a margin potential coming with continuing to scale the business organically or inorganically and we're not going to stop I moved so long term state and philosophy and I'm very pleased and proud of the team how they executed this year I think by aggressively we we've made a.
A brand on providing more for less and very we are in the wireless industry. I believe we are the reason why.
The duopoly are not consistently raising price and ARPU at their leisure as they as they always did some of the things that you referred to we will not do we will not go add aimless taxes and fees simply too to raise revenues ARPU is no trick or.
Like like the Big guys are doing and I think if you look at that cable industry is an example of what happens when an industry is unchecked with the UN carrier.
Of the industry like we are pretty clearly if you look at the results are those players what they're doing is they're losing video customers buying wireless customers and gouging broadband customers because in the broadband they have no competition. That's what it looks like when you play that game, we look forward to going into that industry.
Well.
But I role in this industry here is to make sure that 18 team pricing just can't indiscriminately decide to raise ARPU.
And that's a role will play much more focused on that.
Okay, operator, I think we probably have one more.
Thank you we'll take our next question from Mike Mccormack of Guggenheim Partners.
Hi, guys. Thanks, John maybe just a quick comment you mentioned the cable operators.
Pretty good results. This quarter also very low price, how do you sort of view them as a competitor and then I guess also on the competitive rising seems to have turned up the engine a bit in Threeq you and.
Best we can tell for Q seems like it's off to a pretty good start telemetry seeking a change there is their pricing going to create an impact on any of the player in the marketplace to react to that thanks.
Yeah, I mean, there's a lot in what you said.
Right and then certainly the the market responded well to some of what they saw up from the cable players, but just to just to point out a number two right. So charter had 276000.
Net additions.
They gained 192 million of revenue, but their EBITDA loss on that was 145 million in the free cash flow loss was 256 million.
So that's what had.
Their wireless.
Of course, they were able to raise price on the broadband because of the lack of competition all pieces to too early to note right. There on their plans are targeted towards optimum and suddenlink customers.
All hundreds of them and it's so there's a price associated with.
That customer base slightly higher.
So we haven't seen that yet certainly we have a partnership in the new T mobile with with all piece that sprint does has as well, but I think it's too early this too early to call. One thing it's not too early to call is that both Comcast and charter and I assume Maltese have become significant.
Factors in the wireless industry.
And probably more so.
The height of horizon, thus far and you could see if you really dug deep into Verizon.
Earnings most of their increase in revenue came from a wholesale which was probably driven by the success of their NVNO partners. The cable companies. So it's a it's an interesting item.
We were in right through this quarter, we take them very seriously. We think we've got some competitive advantages and on all piece too too early to tell but we'll certainly keep an eye on.
Anyway, that's great okay.
Okay, well thanks, everyone for tuning in we very much look forward to speaking with you at the end of next quarter in our full year earnings.
And we'll talk to you have done thank you operator.
Ladies and gentlemen, this concludes the T mobile USA third quarter 2019 earnings call. If you have any further questions you may contact the investor relations or media departments. Thank you for your participation you may now disconnect and have a pleasant day.