Q4 2020 T-Mobile US Inc Earnings Call
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Good afternoon.
Following opening remarks of the earnings call will be open for questions.
The conference line by pressing the star followed by one and as you get Twitter by sending a tweak to T mobile IR.
Or at Mike Sievert, using cash Tag T M U S.
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.
Welcome to T Mobile's fourth quarter and full year 2020 earnings call on the call today are Mike Sievert, our president and CEO.
Peter Oswald our CFO.
Neville Ray our president of technology.
Dan of our Chief marketing officer other.
Other members of the senior leadership team.
During this call we will make forward looking statements, which involve a number of risks and uncertainties.
Cause actual results to differ materially from our from our forward looking statements.
Provider of comprehensive list of risk factors in our SEC filings, which I encourage you to review.
Our earnings release, Investor Factbook, and other documents related to our Q4 and full year 2003 results as well as reconciliations between our GAAP and non-GAAP.
As we discussed on this call.
Down on the quarterly results section of the Investor Relations website.
Please note that we expect to file our annual report on form 10-K later this month volume depletion of our first year end audit following our merger with sprint.
Results prior to the second quarter.
The earnings materials represent the historical results of Standalone T mobile.
Prior to our merger with sprint I would also note that we will not comment directly or indirectly on the FCC's ongoing C band auction C band spectrum or the post auction market structure. Likewise, we look forward to having a great discussion with you around our merger synergies and future business trends at our upcoming analyst day, we will focus today's QE.
On our 2002 of results and guidance for 2021.
Let me turn it over to Mike.
Hi, everybody, we're kind of do you line from our Bellevue, Washington offices today, we have some amazing results to cover and we're going to jump right. In I did play on this call to be a little bit short of unusual to respect your time mindful that we're going to be seeing you for a much more in depth discussion at our analyst day coming up just next month on whole team is really looking forward to being with you.
But today, we are so excited to share our Q4 and full year 2020 results on with results like these I never get tired of hosting these calls on talking about our business because as it turns out 2020 was T mobile's best year ever across our major customer and financial metrics not just because we're bigger now after.
On merger, but because of how our team delivered and we kept us this year with a very strong Q4, beating expectations and showing that we have momentum on our side. So our business is well positioned for success in 2021 and more importantly beyond from.
Network synergies to operations and new investment areas T. Mobile showed again this quarter that we're positioned to win.
Those of you that follow us know that we're focused on three core ambitions first continuing to profitably outgrow the competition second delivering bigger than expected merger synergies faster than anticipated to drive scale and enterprise value and third making the decisions and investments to drive long term growth.
And the exciting cash generation potential of this company.
As you look at our full year and Q4 results, it's clear that we're doing exactly that.
And the thesis for our company has never been more clear we're very rapidly leaping ahead of the pack on network with the best assets the best team and the most loved brands in our space. If we play our cards right T. Mobile is positioned to stay ahead on the <unk> rates for years to come on.
This quarter showcased a few key points that are important to understand when you look at T mobile and when you look at the whole competitive landscape first we delivered the highest postpaid customer growth in our history in 2020, finishing on top of the pack again in Q4, while simultaneously delivering strong surge.
This revenue EBITDA and cash flow.
Look across the major players in this industry and Youll note that only T mobile delivered significant growth in customers and profitability.
Second point T mobile delivered the industry's best churn on our flagship T Mobile brand and we did it by delivering the best in class experiences across network value and customer service.
Let that sink in for just a second the best churn in the industry. Although we don't normally report on T. Mobile brand specific churn I did want to make that point clear T. Mobile went from worst to first on churn with our winning formula and that Formula is only getting better as we pull away from the pack on <unk> and more customers.
Again to care about that.
And here's the point, we know how to apply that same formula to our much higher churning sprint branded customers, creating a big potential tailwind on future performance. Once this integration is substantially complete.
Third key point, our growth and profitability are fueled by the rapid unlocking of synergies, which we are achieving faster than expected as today's numbers made very clear and finally.
These synergies have helped us deliver the nations fastest biggest and most available <unk> network, which is going to inform the competitive landscape for years to come so let's dive into these just a little bit as you saw on January when we shared our early customer results. We ended 2020 as the clear growth leader in wireless.
Profitably taking share again, despite all of the complexities of our merger in fact, we delivered our highest ever total postpaid net adds of $5.5 million and we grew our postpaid phone base by an estimated $2.2 million and industry best we did all of that and still delivered strong.
Angela building.
Building upon our improved scale from the merger with over 50 billion in service revenue growing year over year, when our peers were relatively flat and growing to 224 6 billion of adjusted EBITDA.
In a quarter when Verizon sacrifice growth for profitability and AT&T sacrificed profit growth for customer growth only T mobile delivered customer growth and profitability growth, beating consensus on pulse.
And with our guidance that Peter will share in a moment it looks like all of my T. Mobile is expected to deliver both again in meaningful ways again this year.
<unk>.
As I mentioned, we also didn't Miss a beat on churn our total postpaid phone churn across all brands was essentially flat year over year for both of the full year end of fourth quarter compared to Standalone T mobile a year ago.
This is including the legacy sprint customers that we're turning it over 2%. This time of year ago in Q4, and as I said postpaid phone churn for our branded T. Mobile base was the lowest of all national carriers and a company record low for Q4 are reflection of genuine customer loyalty.
That's earned by giving customers the best network and the best value with great customer experiences something that the Ontario is truly famous for.
And as we continue to integrate we're bringing more of that same T mobile experience directly to our sprint customers.
We saw on Q4, others may try to buy customer loyalty because they see what we see we're pulling ahead of the pack on network and we're about to take all of their customers, but unfortunately their results show that it's painfully expenses ultimately just a bad day, it's masked the real drivers of why customers eventually leave the factors.
There are no shortcuts to creating genuine loyalty and sustainably low churn and I'm confident we will see all of this play out down the line.
And while we're talking about great customer experiences just today J D power recognized T mobile for the best customer care in wireless for about 21st time and the seventh time in a row, meaning we've earned more top honors than any other wireless provider in the history of their study.
As you've heard me say before T. Mobile now has the scale and the resources to do something that's never truly been done before offer customers the best value and the best network perceived network quality was the moat around the Verizon and AT&T castles that allowed them to overcharge customers.
Three years of T mobile us freeing customers across the country from having to compromise. This evolution creates a path to penetrate further into prime customers and businesses that require the highest quality network experience and it creates compelling reasons for them to adopt more premium plans.
One of the reasons all of this works is that only T. Mobile is operating synergy back model, which allows us to simultaneously deliver customer and profit growth. While also investing big in the business. Let me say this on.
Our national capital plan may be ambitious, but it's known and it's supported by our massive synergies will talk about this more next month I expect.
Let's talk about those synergies for a minute we delivered $1.3 billion in run rate synergies in 2020, that's more than we guided last quarter and well ahead of our plan.
This progress includes the start of our customer migration work something that's key to unlocking synergies and we already have over 4 million sprint customers moved over to the T Mobile network.
I also told you that we expected synergies in 2021 to be more than double what they were in 2020, while we still expect it to double and then some as we now expect to realize two 7% of three point of 1 billion in run rate synergies in 2021 day.
Synergies will allow us to make smart investments in the future and that starts with the network only T. Mobile offers the fastest biggest and most available <unk> network in America. The countries has never seen anything like this network build we're tracking ahead of schedule and the results are clearly beginning to differentiate.
Not just on <unk>.
On network performance overall.
To have the best network, you have to win across both coverage and capacity.
Mobile is extended range five G. Now delivers five G coverage across one 6 million square miles, reaching 280 million people offering nearly two and a half times more geographic coverage then AT&T of nearly four times that of Verizon So called nationwide Saatchi.
And we're also expanding our ultra capacity.
At an unprecedented pace. This is where you see truly game changing speeds and capabilities enabled by the bigger channels of spectrum found in mid band and millimeter wave.
We brought ultra capacity of five G 206 million people last year 50 times more than Verizon is ultra wideband, just crushing our goals and now we're onto our next audacious goal to cover 200 million people nationwide by the end of this year.
For a number of reasons getting to 200 million us a much taller challenge, but we've ramped the biggest network factory of this country has ever seen.
We're up to the task of this is important we're now running a huge deployment of machine at pace with a proven rollout model something that takes a long time to ramp of process. We started way back in early 2018.
I expect we'll be talking more about this advantage next month also.
And third parties are seeing the results just last week, new independent data from open signal was released and it's based on billions of measurements from real customers and it proves T mobile customers get the fastest <unk> download speeds fastest <unk> upload speeds and they get of five G signal more often than anyone else.
And of course, you'll see these advantages in our marketing and messaging, including with our latest Super Bowl message. This weekend I actually think the perception battle is the biggest one and we're all over it.
This team operates and executes and our goal is to not Miss opportunities. For example, we're increasing our specialized sales force and building tailored products for large enterprise and government, we see room to run here.
We've competed mostly on price in the past if we're honest and now we have a premium product that's increasingly the catalyst for our wins on.
On the consumer side, we're planning to add significantly more points of distribution in thousands of sales and service agents to reach beyond urban areas, where we have historically had our big success. We have of multiyear expansion plan to bring real competition and a quality service to 50 million of U S households in smaller markets, where our mark.
What share is currently only half of what our national market share is this is a huge opportunity to bring our Untary Your story Tomorrow of America.
We'll soon rollout our five G home broadband offerings to bring critical connectivity to rural parts of this country and actual competition to the cable I believe on.
All of these opportunities are built on our game changing ultra capacity five G that we are rapidly expanding across the country further distancing ourselves from the competition every day.
So these are just a few things to whet your appetite will dive deeper into each of these opportunities next month. When you can hear directly from the leaders who are driving these growth areas.
So hopefully you get the idea that this team believes T. Mobile is well positioned we will expand our proven unheard of your strategy and capitalize on our emerging network leadership of our customer loving brand and our new scale as we tackle the challenges and opportunities that are ahead and as I said earlier this wasn't.
Just another great year of T. Mobile it was our best year, yet we delivered the highest postpaid customer growth in our history, while simultaneously delivering strong revenue EBITDA and cash flow growth only T mobile delivered significant growth in customers and profitability fueled by the rapid and faster than expected unlocking.
Of synergies and only T mobile can say that we offer the nations fastest biggest and most available <unk> network now.
Now we did all of us while navigating a pandemic that made us rethink how to best serve our customers and protect our employees and in only the first nine months after the merger great work kind of amazing team.
What.
We're just getting started.
So let me turn it over to Peter to take us through the financials and our guidance Peter take it away.
Thanks, Mike as you can tell we're fired up.
Finished the year with exceptionally strong results and there's no doubt we are entering 2021 with great momentum after raising our second half guidance on our Q3 earnings call, we executed on our winning playbook and beat expectations, yet again in Q4, so let's jump right in service revenues grew to $14 2 billion.
<unk>, primarily by our continued growth in postpaid customers cost of services of $3 8 billion reflects the accelerated volume of site upgrades to support the rapid deployment of our <unk> network as well as over 500 million of merger related costs as we continue our network integration.
SG&A expenses of $4 8 billion included over $150 million of merger related costs as we advance our integration efforts and included benefits from increased synergy realization net.
Net income of $750 million and diluted earnings per share of <unk> 60 were both better than consensus expectations and included merger related costs of $506 million or <unk> 40 per share in Q4 on an after tax proceeds of <unk>.
Just of EBITDA amounted to over six 7 billion ahead of our guidance and consensus expectations and included lease revenues of $1 2 billion.
Our pretax merger related costs, which are excluded from adjusted EBITDA were $686 million net.
Net cash provided by operating activities totaled $3 5 billion driven by our strong operating performance, while cash purchases of property and equipment, including capitalized interest amounted to $3 8 billion as we accelerated the buildout of our wide nationwide <unk> network free.
Free cash flow, which was fully burdened by merger related costs of 583 million amounted to $476 million an increase over Q3, even while funding our accelerated network investments.
Postpaid ARPA or average revenue per account amounted to $133 on each.
While postpaid phone <unk> was $47 86.
As we continue to grow the number of customers per accounts and <unk> was in line with our Q2 <unk> as we have previously guided.
A big shout out to our team sort of great execution, all around to deliver strong results in a very challenging year.
Okay, let's talk about how this momentum carries into 2021, which is of peak investment there from an opex and EBITDA perspective, while simultaneously delivering on our promise of continued profitable growth.
We expect total postpaid net additions to be between four and $4 7 million, reflecting our continued focus on profitable growth. Despite the ongoing COVID-19 impact on the switching environment.
Going forward, we will focus our guidance of discussion of results on core adjusted EBITDA for improved clarity and transparency given that we have de emphasized leasing as part of our value proposition and I know it is how many of you look at our results since the merger already we.
We expect core adjusted EBITDA in 2021 to be between 22, six and $23 1 billion. This is based on adjusted EBITDA net is expected to be in the range of $26 five to 27 billion and includes leasing revenues of three eight to a four point of <unk> billion.
The strong year over year increase in core adjusted EBITDA reflects the expected growth in customers and service revenue as well as an expected increase in synergies, partially offset by our investments to unlock profitable growth vectors and an expectation of increased switching activity driving higher customer acquisition.
As compared to 2020.
Core adjusted EBITDA for 2021 also includes the full year impact of the non cash expense from our master lease agreement with American tower recall.
Recall this is the straight line accounting impact, resulting from the long term nature of the agreement, which generates cash savings from day, one while allowing for full flexibility for network deployment.
Merchant related costs not included in adjusted or core adjusted EBITDA are expected to be between two five and three point of $1 billion before taxes, primarily driven by network activities.
Cash purchases of property and equipment, including capitalized interest are expected to be between 11, seven and 12 point of $1 billion. As we continue the robust pace of arc five G deployment of network integration, while also realizing procurement savings from our increased scale, enabling our investment dollars to go further.
Net cash provided by operating activities, including payments from merger related costs is expected to be in the range of $13 to $13 5 billion.
And importantly, this figure excludes proceeds related to the beneficial interest in securitization transactions, which is expected to be approximately $3 seven to $3 9 billion and it's classified in investing activities for accounting purposes. Together. This results on expected free cash flow, including payments from merger related.
Weighted costs to be in the range of $4 nine to $5 4 billion, reflecting growth of the strong cash flow generation capabilities of this business, even with higher levels of investments and does not assume any material net cash inflows from securitization.
We also expect our full year effective tax rate to be between 24 and 26%.
And lastly, we delivered $1 3 billion in synergies from 2020, and we expect synergies in 2021 to be between two seven and three point of $1 billion.
Breaking down 2020, we realized approximately $700 million of network synergies primarily from avoided new site builds and early decommissioned at the same time, we realized about 600 million from streamline marketing efforts under one flagship brand expedited retail rationalization and moved quickly.
Of all of our organizational structure.
As we look to 2021 synergies are likely to be fairly evenly split between network related and SG&A related savings with roughly two thirds coming from cost reductions and roughly one third from avoided costs that are not reflected in our run rate P&L trends similar to 2020.
Altogether, we expect 2021 to be another year of profitable growth kind of free cash flow of expansion, while continuing to invest in our network and the business to unlock significant expansion of future free cash flow of that is so exciting.
And I must mention the ongoing work done to significantly improve our capital structure and strength from our balance sheet.
Last month, we issued $3 billion of unsecured notes that sort of record low yields for five year a M.
On 10 year tranches on the high yield market, including issuing 10 year secured notes below 3%.
We will provide updated color around synergies mid and long term guidance as well as the strategic overview of the business at our analyst day next month, and we can't wait to have a great discussion.
And before we open it up for questions about our 2020 results on our 2021 guidance. Just a reminder, that we're currently on our quiet period for auction 107, and will therefore, not make any comments related to that all right. Let's get to your questions. You can ask questions via phone or via Twitter will start with a question on the.
Phone on.
Operator first question please.
Thank you if you would like to sit down with questions. Please press star one when you touch tone telephone.
If you are joining us today using a speaker phone. Please make sure of new function is turned off to allow your signal to reach our equipment.
And that of Star one if you would like to ask questions. Our first question will come from Phil Cusick with Jpmorgan.
Hey, guys. Thanks, a lot.
One of them like one for one for Pete Mike can you talk about your customer strategy. This year I've seen aggressive two year free line offers in the market, which should help of units.
How should we think about that going after accounts as well.
And then secondly, maybe dig into the EBITDA guide with double of the synergies on a similar mix of cost reductions year over year versus of wins I think people wonder why it can't be better. Thank you.
Hey, Phil Thanks, you were a little muddled there, but I think the first part you are asking about.
It's a competitive environment and customer growth on account growth.
We really like what we see and you should probably arent surprised to hear that because our model has proven over and over again to be flexible and in times. When there is incredibly intense competitive pressure, we find a way and at times when there's a more muted switching environment, we find a way.
And that's what we're doing and that's what you see in this very ambitious guide that we put in front of people today with all of the normal unusual caveats.
We're really excited and obviously, what we are expecting to see will be.
At 2021 year, that's hopefully transition that's us back out of by the end some of the dynamics that have dominated the competitive landscape in 'twenty due to COVID-19 muted switching.
Challenged payment environments recessionary circumstances, etcetera, we'll have to see how it goes but the thing you should take I think competence in us that our plan is nimble and flexible and we're able to call. The audibles as we see them as you saw with with three quarters of very very strong performance that we just capped off since the pandemic began.
No I think you were going to turn to Peter I was modeling for the second piece of switch over to Peter.
Yeah. Thank you, Mike and I feel like a little muffled. There I think you were asking about EBITDA on a as well as synergy capture and rather both could be better is that hopefully that's right. So let's start with us sooner, yes, sorry ma'am.
We're trading at two seven to $3 1 billion I remember nine months ago. When we close this merger and to already be delivering much faster than we anticipated $1 3 billion in 2020 alone and the guide of two 7% Rio in 2021, its just showing actually the rapid pace of.
It's happening here and if you remember, it's a multi phased approach and the vast majority of the synergy still come from network and decommissioning of the sell side somebody of associated backhaul leases et cetera, and the first step in that is to build the anchor network and you see the rapid pace of Neville and his team are just dominating.
But the delivery.
Ramp up of the machine that's going on flow all the way through 2021 that part is what unlocks spend on <unk>.
Ongoing migration of customer traffic and customers onto the <unk> per network and then of course, we can realize all of those synergies on the backend. So I've got to tell you I'm I'm fundamentally extremely excited about the $2 73 billion in synergies for 2021 as well as the rapid pace on the networking piece, which really sets us up for the <unk>.
John there.
With regards to EBITDA.
Again, let me give you a little more color.
First of you know we were the only major carrier to show meaningful growth when comparing 2020 to pro forma 2019, and our 'twenty. One guide highlights our commitment to the three priorities of profitably outgrowing the competition unlocking synergies bigger and faster and investing in our business to set us up for the long term growth on.
Free cash flow generation for some context, there was a couple of things that you'd want to highlight when thinking about 2020 in 2021 first as you know 2020 at slightly over $500 million of Covid related costs, which were excluded from adjusted EBITDA with the majority of those now being part of the run rate of the business 2002.
'twenty. One also has the higher noncash straight line lease expenses associated with that agreement with American tower and agreement that had significant positive MPV cash savings from day, one and operational flexibility for Neville and his team to continue the rapid pace of he used to point on.
We also anticipate us mindset of gradual return to higher switching in 2021, which comes with higher upfront sales expenses of course of the share taker in the industry, but also sets us up from a customer lifetime value of benefit to the enterprise value of this business and we're doing all of those things and growing core EBITDA year over year, while we make.
Investments in 2021 to enable that long term successful the company we heard about it from a network perspective as you heard Mike talk about on an enterprise as well as distribution of expansion to capitalize on the network. So if you consider all of those factors. It makes the guided core adjusted EBITDA of that much more compelling and highlights the success of of profitable growth.
All of them synergy back model, we are executing on which is also beginning to deliver on the free cash flow unlock of promise of the business as you can see from that element of our guidance. So.
Hopefully I captured all of your questions and on top of that right.
That's a new strategy if you'd come in modeling I can't hear you. We just start talking about whatever we want us we want to say so.
Thats not new.
Okay.
[laughter] alright, operator lets go back out to the phone.
Certainly our next question will come from John Hodulik with UBS.
Okay. Great. Thanks, hopefully you guys can hear me guidance from Phil.
Yes.
I guess the first follow up of any way you could sort of size each one of those categories that Peter gave of difficulty.
Color on the 500 million per debt.
Covid costs.
Just give us some sort of relative importance of spend on each one of those items I think will help a lot of it maybe if you could talk about how its set you guys up for.
Maybe better growth in 'twenty two what we can expect from some point of benefit from that and then secondly couple of questions.
Could talk a little bit about the competitive environment and sort of what you expect in.
'twenty one is the basis for the guidance, especially.
I think we had contact us talk about.
On the MBNA agreement and moving into the wireless market, obviously AT&T has been very competitive.
How do you expect to see the competitive market evolves as we go through 'twenty one.
That sounds great I'm gonna get Peter a minute to and second to unpack that so think about that.
A question and I'm going to go straight to that status, because I think John to us competitive environment, something we really should double click into and there's some things to say about sprint churn as a tailwind and Theres also some things to say about looking at the totality of our competitive environment across our book.
Verizon and AT&T, So Matt why don't you one of you pick up yeah, I'll take that thinks like us.
And John So it's interesting you asked about 2021 and I think what the important thing James go maybe taking your back and look at look at a year ago, what's interesting a year ago. In Q4, you had a competitive environment you had one competitor taking a lot of nets on competitor, you're taking out that many net and you fast forward a year in Q4, and you saw on select but in totality.
The amount of net being produced in the competitive environment is more of that is the same and so mike's been saying what we've been saying is what we anticipate us as a robust competitive environment, that's evolving and changing but certain.
Carriers, taking more of less share and us continuing to lead growth through that.
As we as we navigate and half of flexible model to really weighted the other piece of the question. When you look at where we've guided in in 'twenty one of what the next phase of our integration is what sprint is really turn it turn story.
We have yet to start to get to work and really doing what we did on the T mobile branded business going from worst to first on churn with our strength business that's in front of us.
We've gotten some things taken care of with the brand transition stores in sales and gross adds and where we're starting to get into this phase of <unk>.
By the work on the network.
Delivering the entire value proposition and of the strike based on so we see that.
As we start to move forward is that going to happen overnight, but we're really going to get to work and we feel great about our recipe to deliver great turn into the strength based so that's where you're going to see some of that as well.
Really important to hear that message I mean people have said hey, what's going on isn't isn't somebody moving what about AT&T aren't day, producing more net now and what you just heard from Matt is the sum total of phone net adds from AT&T and Verizon was the same this past Q4 as the prior year and so those two kind of tend to go back and forth and in any given quarter. There's just diner.
<unk>.
At&t's plowing, a surprising amount of money on missed big on EBITDA into some short term customer loyalty things, if you want to call them that to be generous.
Verizon on the other hand, they didn't spend as much and therefore, they didn't have the same kind of net I don't know what they were doing they might've been the amount of blown all the money.
Paying root metrics to tell them. They are ahead in the five day rates.
Good day on it feels good for them. So I don't know where that money went but it wasn't being plowed through to the same extent into net adds and so they beat on earnings but missed on net so it just goes back and forth. It doesn't change our game plan at all of our game plan is to continue driving genuine loyalty as you see in our T mobile brand being the lowest churning brand in the industry and to then.
Re apply that same playbook on the sprint customers and that is just such an exciting tailwind for our business now before we move on on I know you asked a question about.
EBITDA from Peter So, let's switch over to Peter Oswald.
Yeah. Thank you John and you know I'm not going to be able to guide to every one of those elements quantitatively, but you did highlight a couple of them on again, the $500 million of Covid related costs vast majority of loans returned of run rate of the business I know, we talked a little bit about some incremental debt from the keep America connected pledge in Q2 that was.
A very small component of that so the vast majority of those 500 million of our run rate costs from the business now on American tower.
Talked about or at least a couple of hundred million drag.
Drag from 2000, 22021, but it's hard it depends on how quickly and where Neville builds and what the priorities are there that could create some variability there, but that's how I would think about it.
Centrally magnitude wise and then you get into the other elements of the switching cost of selling costs as well as the investments and as Mike said that depends on what the environment looks like in front of US and of course, what we do every quarter is what we do best best in the industry, we delivered profitable growth and meet or exceed our expectations that we'd pull.
Out there for you and readjust and that's where we're going to do here, but.
I can't break out individual components, probably further of the math for you John.
Okay.
Terrific.
Operator, let's go back to the.
Phones, and then I'll ask my team here, if there's one or two that you feel like we.
We need to hit that it'll be.
Widely appreciated to be heard by others on the call I will go to Twitter as well it should take a look at those and see if you're on a two one of those on genital assigned that to us.
Great.
Thank you Sir our next question will come from Jonathan Chaplin with New Street.
Thanks, one for Peter on one for Neville for Peter I'm wondering if you could.
Rise your approach to setting guidance and how it might be different from Braxton. Since this is our first guidance under the old regime, and particularly interested in the net add guidance.
About double of the average guidance that you guys had set for net adds to the last of Ips and <unk>.
We beat that.
But it sort of 50% to 100%.
So im looking at the net add guidance from thinking if this is if this is of Baxter and died.
The real number it could be something.
Sure.
A little Crazy and then from level with looking at 200 million Pops covered by the at the end of the year with.
With fast <unk> on two five gigahertz.
Or it looks like things moved a little bit softer than expected in <unk>.
Capex deployment could you exceed that.
Yeah.
I'll start with theater right, Yeah, well, let me start with that so I didn't see us Baltic regime.
How does the odds of Baltic regime of operating theater.
Yeah.
Well, let me tell you this is Jonathan.
Actually isn't the first time, you're hearing of you heard me give guidance on Q3 as well end of Q2 actually if I can.
On half guidance and an update of that in Q3 and look where we came in right, which is again, what our commitment is always has us to profitably outgrow the competition and deliver against what we've put out there, but I love, how you're asking me about four pointed out of $4 7 million postpaid net add guidance next year in getting excited.
About it because what if you look at 2020.
That guide at the midpoint is over twice, what AT&T did and total postpaid and almost three times, what Verizon day time. So that's the guidance. That's the excitement here. There's a couple of factors to play out in front of US as we said one of those is what is that return in the switching environment. We obviously are still impacted by Covid.
And the question is how fast does that come in that will change the playbook for us and that's what you said you saw us deliver in Q3 soft deliver on Q4, and that's our commitment in the future, but how we do it and how we go about it isn't a reaction to what's happening in the marketplace at the moment in time. So it would be excited about the guide because of kind of amazing Guy.
From four to $4 seven on postpaid nets, and similarly on adjusted EBITDA as we talked about.
Peter if I could just follow up on that quickly if if switching activity doesn't come back as you expect can you still hit the guidance.
Go ahead of the guidance.
Yeah.
Jonathan.
Our commitment and you saw us do it in Q2 Q3 and Q4.
It is again to profitably outgrow the competition and deliver on what we put out there to you. So that's probably the philosophy.
That you should think of when you think of myself and Mike and on how this team operates and you saw it executed on and probably the most challenged switching environment that you could've imagined in Q2 Q3 as well as of Q4 of this year and so you know I can't predict the COVID-19 future I wish I could I get it all rid of it for all of us.
So that we can get out there and start living.
But I can't but I can tell you, we're going to adapt and we're going to deliver and that's the commitment you have from us.
Thanks, Keith that's great.
So let me, let me pick up Jonathan.
The amount of us.
The question right. So.
And before we go to $200 million this year.
Gulf of celebrate about 100 million book, we secured in 2020.
100 million hundreds of 6 million people covered with.
Oh for capacity you know mid band five G. I'm just you know.
Do the competitive comparison that you've helped us with it's about 50 times volume zero times.
The Verizon high capacity footprint, which is pretty stunning it's almost embarrassing when you think about it right.
So a lot of your question because even though we have a huge lead you're on.
And can we get even further in front of.
All of our competition and do more of and we've said we will do in 'twenty one.
Obviously, we're going to push on every target Jonathan.
But I'll tell you this but the most exciting thing from me in 'twenty on Mike referenced. This in his comments is the fact that we built an incredible network machine in 2020.
And we have to build on upgrade a lot more sites in 'twenty, one to get to that 200 million couple of people with the ultra capacity.
But we have of the machine, we have the resources the supply chain the commitments.
We have the processes and so this machine is moving of real price 200 million people covered is going with ultra capacity is going to be a huge leap against what our competition is talked about well said they can do so we'll keep pushing on it.
But I'm super excited to be able to sit here with high confidence and talk about delivering a nationwide high capacity high high capacity network in the coming you know 11 months on top of our coverage network, which just blows the competition away.
Our extended range five G capability there Mike.
<unk> mentioned this again more.
Bridge on five G from AT&T and Verizon combined yeah.
You'll have to let that sink in a little bit to really understand the position that we're in and on top of that coverage layer now we come out of and pile on this mid band assets. So tremendously excited about the progress we made in 2020, but.
We're just getting started on this thing so it's going to be a really fun year in 'twenty, one I talked about this a little bit of in my remarks, but I just want to underscore how remarkable to us the rate and pace that we're operating at right now because it's a real competitive differentiator and this isn't something you know netherland team or they're doing something that's never been done before operating at this scale. It was.
It was many many thousands of sites that had to be touched and upgraded with advanced <unk> technology to get us to that 106 million, let alone. The 280 million people that are covered by extended range of IPG.
But that's now moving to tens of thousands of sites in 2021 tens of thousands of macro sites with ultra capacity of <unk>. It's a massive undertaking and we started it way back in 2018 planning and siting permitting design in order to create a contiguous leading network, it's not something that can be created.
And as I said, it's a real advantage and I think we're going to probably have an opportunity to talk a lot more about.
So.
Terrific, let's go back to the phone.
Thank you. Our next phone question will come from Craig Moffett with Moffett Nathanson.
Two questions if I could.
First Peter.
I'm going to steal a little Thunder of probably from your analyst day, but.
Think about longer term margins here there are some differences between your business and and say Verizon or AT&T ease of use.
Tend to lease more backhaul rather than on it.
Do you have lower industry.
Retail prices.
How how do you think about the long term margin potential of the business relative to your peers.
And then Mike.
Mike I Wonder if you could just update us a bit on your progress in the areas, where you have traditionally under index on the.
The business services market or business wireless market and and then their rural markets of where you've been growing just how can you give us some price progress metrics I guess in those areas.
Yeah, It sounds good and Youre right, Craig we're going to double click into both of those as I said in my remarks.
Next month, and I will give pieter attempts to respond if he wants to steal a zone Thunder from next month, but you know as we've said for a long time, we see we see fantastic cash production.
From this model at the margin rates that we have already communicated we aspire to we don't have to achieve the margin rates that Verizon has.
In fact your question, it's premised on the idea that they'll be able to hang on to that and that I don't know that that's the case either I don't know where there's it's going I know ours is going up and the cash production that we're able to produce in this business model with the margin rates that we have aspired to or just phenomenal and sell exciting and.
Create a very very valuable enterprise and you know there are differences in our model on one of them is the terminal growth rate and so when you think about our faster growth in the investments in present periods to get there there will be differences between how we pursue our business plan and theirs and it shows that we're more bullish because we have better assets and therefore are willing to invest in a longer.
<unk> on a better terminal value and that's going to be experienced in this five year planning horizon is one of the big differences, but Peter why don't we go to you in that net I'll turn to you on the how are we doing on things like prime and small town rural and businesses. So Peter.
Anything to add to what I'm, saying.
Thanks, Mike and I don't want US steel all of my own Thunder from Analyst day, because Craig I want you to come and attend you know so I can't do that at this moment, but I think everything that Matt and me.
Mike talked about earlier and what Mike Just express now from margin perspective of exactly that.
Both of our plan doesn't predicate of what do you need to get through of Verizon level of margin and one could really question, whether they will be able to maintain it when you have the combination of the premium product in the form of our network and our premium value, how theyre going to be able to justify that with their customers, but that's not what we're here to do we're here to continue to profitably outgrow.
There's some incremental cost in the short run that come with that particularly on the sales side as you accrue much higher terminal value of for doing that and then you did talk about some of those structural differences, which are absolutely key and come out in capex versus opex of UC. So that's why it's so important and exciting to think about what the ultimate of free cash flow.
Generation of this businesses, which really takes out some of those differentials and focuses on the cash productivity. So really excited to highlight and update some of these figures for you next month from looking forward to doing that so.
Thank you and that's mostly on rural.
Correct. That's a great question of if Mike said, we're going to dive deeper into an analyst day, but just a couple of things on a hell of an alert that part of our record results. We had this year was success in business in particular in education of public sector and one thing that you should know about our business and we can we keep saying it is more nimble and more flexible and we show up in sort of need when people have that's partly.
Why we're able to do things through project 10 million delivering solutions for kids that have to deal with the pandemic and what's great about that on the back side of it is it opened up a lot of doors to date.
Where to answering a call in part because of the network perception, it's still lagging reality, but now that we're in the door proving how fast and nimble. We can help serve businesses on public sector, you know more and more calls of ring. So we're seeing great progress on this area. When you talk about rule on the heels of Devils Buildout of an extended range five G. I think that's one of the.
Big things Thats going to be a paradigm shift there. This year is when you take the performance we're seeing from the ultra capacity that work and the speeds and Inc.
Variance consumers have and bring it into rule.
And bring it to the prime consumers, it's a game changer, and it's going to be another vector for us to continue to accelerate growth going forward as we move upmarket hit the prime customers, who require the best of the best network to date, we have not had that we're going to get that very quickly on.
On the heels of this bill so we see a lot of upside.
Going forward into these areas.
And hopefully Roger Aetna on Twitter that gives you a little bit around your question can you give us more insights on consumer versus business businesses, both of our killing it on a big opportunity and consumer right now.
That's ahead of us of small town rural whereas I said in my prepared remarks, we have half of our national market share and this is a huge swath of the country. So big big potential tailwind there and of business, we posted double digit growth.
Which you know look I mean, everybody's got a smartphone already so when you've got a business of posting double digit growth, it's because you're winning share and as I said in my remarks, we're winning share not just as a price cap now please throw us a little piece. So you can reprice of your AT&T deal, we're winning strategic accounts the whole account and that's and we're winning it based on our quality and that's just the <unk>.
Changer, so very excited about what the potential could hold there.
Diana Goldberg on Twitter asks are.
Do customers really understand the value of <unk> or is there confusion over it and also she has separately one of the some of the use cases coming.
No they don't really yet and it's a great question and you know right now something I you know I think if you look at the country something like a low double digits of consumers with Super funds have switched to five G. Already that means most of people. It's just a twinkle in their eye and 'twenty 'twenty. One is the year one follow on unfolds when you've got people.
At the you know who's got an incredible phone that works 10 times faster than yours, and they are able to do things with it that you can't and you start to say I need to be some of that and you start to realize that when you get it from T. Mobile it's for real it doesn't just work on certain street corners of on the leaves aren't out or you have of suction Cup device to put on your window or whatever it is.
Works across 200 million people, which is the goal we've articulated for this year with our highest capacity variant ultra capacity of five G but to your.
It's not just going to be about smartphones and I'm not going to get into it today I'm sorry, I. It's a great question, but we see lots of potential and this is analogous to when <unk> started and you know we didn't see everything that would unfold in <unk> with the digital lifestyles mobile first digital lifestyles that we now lead them, but.
Similarly, with <unk>, which is an even bigger more discontinuous innovation, we're gonna see hardware and software innovations that transform how we live our lives on the go and the question will be what kind of of network capability will those innovators.
Develop too and we're convinced that it has to be of capability more like ours. That's widely available than that's available in isolated spots and so that's a really exciting thing and I'll get into on a little more detail at another time, but thanks for those questions.
Let's go back to the operator.
Thank you. Our next question will come from Michael Rollins with Citi.
Thanks, and good afternoon, two questions if I could first.
You mentioned the growth that's embedded in the guidance for 2021, but given all of the moving pieces.
Revenue you had a wholesale business you picked up of sprint prepaid business that left you you talked about the Covid costs can you help level set what the right comparable on a full year pro forma basis do you feel like the key metrics like service revenue and core EBITDA just so we can.
Better understand what kind of <unk>.
Growth rates are within the 2021 guidance and then secondly, you mentioned the improvement in the T mobile.
Heritage return and yeah as you delved into that performance was curious if there were any specific factors that you think had maybe an outsized contribution whether it's certain networks that's for those customers whether it's the.
Bundling of content or other on carrier initiatives that you've employed over the last few years.
It will start with the second one and then I flip over to Peter who will probably give you at least of qualitative if not quantitative answer them.
It's.
It's there's so many factors into this but I thought Matt do you want US you want to jump in.
Mike kind of hit it a little bit in the remarks, I mean, there's three things that really matter here, what's the value proposition you get it's the network and Italian customer service work and when you look at what part of delivering with this network. One thing that we also know it's perception of lags reality and what I can tell you our T. Mobile customers are seeing today is the reality of this network we are.
And you see it and how sticky they are on sure. He also announced these records on J D. Power Awards seven of ROE of 21, total weird, killing it and customer service one of them carry move with that team of experts. It took US 10 years to craft that and get it right, but you can just see what happens when it's right in line.
That's not yet at the sprint base, we're working through that that center of plan to bring it forward. So those are some big dimensions that we look to that of structural as we talked about to really deliver the value proposition to our customers genuine customer loyalty. It takes time yeah.
So pro forma comparisons Peter.
One of the things we said in our remarks is we're the only ones that posted genuine growth in service revenues and EBITDA and.
And we stand behind that it gets a little goofy when you try and get to the math behind it to try and unpack. It for you, but its significant growth Peter do you want or at least give a qualitative picture.
Absolutely Thanks, Mike and thank you Mike for the question on.
Yeah.
I wouldn't look at it you know we do provide disclosures on the fact book that attempt to do a good pro forma particularly on adjusted EBITDA and you can book of lease revenues there as well so look at that in the fact book, but I would say if you add all of that up and you can do that math from Fac book core EBITDA is about 22 billion for.
Our 2020 and a member of that includes having excluded the 500 plus million dollars of COVID-19 costs and the benefits from our lower switcher environment that we saw in 2020. So that's one way to look out of of men. When you put it in that context of guide is pretty exciting as I said that shows the significant 2022.
21 core EBITDA growth despite factoring in those things like the Covid cost the non cash straight line lease expense as well as the projected higher switching costs that we would see it of being the industry share taker as we help switching picks up over the course of the year with Covid. So that's probably where I would point you to us on that.
Fac book, but I can tell you if you look at it that way you can see the growth even despite the investments that we're making that will set us up on the discussion that we'll have hopefully next month.
And soon we should have this problem, we're about to start round tripping ourselves in this company, which is exciting did you did you have one follow up.
No I was just saying thank you for taking the questions.
Oh, Yeah, I think Matt Alright, let's go back to the phone operator.
Absolutely. Our next question will come from Simon Flannery with Morgan Stanley.
Great. Good evening, Peter just wanted to confirm that <unk> is not in your guidance on perhaps any color you could give on the transaction the synergy of integration opportunities. There and then any updates on the <unk> home broadband how thats going on any subscriber numbers or adoption rates.
<unk> of course, I'm going to share on that.
Yeah, well, let me start absolutely on track.
We're certainly looking forward to taking the next steps you're finalizing the purchase agreement and getting through the close and starting to do the same of network integration and customer integration as we average Brent. So we just see it as part of a bigger picture of their very pleased that we're getting to that point shantou and our best estimate is included.
And the guidance that we've provided of course, you'll then see once we close on geography changes between wholesale service revenue up into our service revenue on customer geography changes, which will be of course as we always are very transparent on when we close the transaction, but it is included in there and very excited to take the next steps there.
And welcome those customers until the T mobile family.
Peter you and I see you're out there do you want to comment on the transaction.
Yeah, I just repeat what Peter said look where besides we get past the appraisal phase and we're absolutely looking forward to.
Moving on with concluding a of purchasing sale agreement filing all of the appropriate regulatory papers getting regulatory approval and we're looking for hopefully looking for closed sometime in Q2.
And sign on quickly on home Internet, yeah, thanks for bringing that up I mentioned it a little bit of in my remarks, we're really excited we're in pilot phase right. Now we quietly moved from LTE pilot of five G pilot that was an exciting milestone, but its pilot and you know part of what we're doing here is we're just taking our time and making sure that we put together the experience base that.
We need and that means our supply chain. It means customer experience it means really being able to create a quality service and so far we really like what we're seeing so as this network capacity starts to really hit its pace in 2021, we've got a big opportunity to get commercial and to really go out there and started.
Tracking customers and bigger numbers the results so far with customers. We have attracted we're delighted with and customers are too. So that's that's going really really well.
This this is a chance to bring real competition to this space and our business plan relies on it we've got a pretty significant set of aspirations and our multi year outlook here. So I'm excited to talk more about that when the time's right and that will probably be more when we're when we're ready to announce it as a true non pilot commercial offering, but thanks for bringing that up very very exciting.
Okay.
Operator, let's go to the phone and it's now of the top of the hour and I think this will be our last question. We said, we'd keep it to the hours. So our last question. Please.
That question will come from Brett Feldman with Goldman Sachs.
Hey, Thanks for taking the question two actually so on your postpaid net add guidance of four to $4 7 million I was hoping you can give us some thoughts around how you expect that to break out between phones and other devices on one of the reasons I'm asking us I'm wondering if there's any headwinds we should be anticipating. So for example, what do you think you might have to you of tablet net adds that you guys have you did laugh.
Year, when there was a remote education serves us probably helped you out of it.
And then Mike as you said the vast number of consumers probably don't appreciate five day, yet because they don't have it. So my question is from level among the customers in your network, who do have five years of Axis <unk> do you see evidenced in their usage patterns that they actually do appreciated, particularly when they're in the ultra wideband coverage. So for example are they.
Screaming more or are they doing more of four K or are they actually using apps of maybe they don't typically us.
In the forging network. Thank you.
I do speed tests, a lot that way now.
Well, let's talk about the guidance Peter Peter out why don't you talk about postpaid versus postpaid phones and I have a feeling it's gonna be kind of of non answer but let.
Let's give it our best shot.
Well. Thanks, Thanks for thanks for that preview, Mike and breadth of questions embedded in there one was a 'twenty 'twenty to 'twenty 'twenty, one and you did see us absolutely dominate in that educational arena of of public and educational space and the delivery of 2020 of them was amazing and so it was reflected into 2021, you know that.
We won't be as big of an opportunity as we saw on 2020 on that's embedded in that guidance as well.
Regarding the breakout of phones versus other you know, we're not providing that breakout, but what I will say is we have of commitment as we continue to highlight of being the industry postpaid phone leader from a growth perspective, so think about it with respect of that that's my might come on a non answer answer so thank you for that.
That's pretty good alright.
You get the last word.
Super quick from me so Brett Yeah, we are seeing more usage on our five G customers and so on numbers up probably early running 15 per cent something like that which is of great stuff I'd tell you on top of Mike's comment one thing on customers do talk about when they all run on.
And on <unk> network of Ultra capacity network. They do talk about those speeds I'm blown away I never excited so go look at out of Twitter accounts and see how excited customers buy the speeds of the thing.
We've talked about speeds on that mid band layer of getting to 300 Megabits per second.
On a pretty damn close to that now and I'll just give you a quick shout out for Super Bowl This weekend of down in Tampa.
We've got 80 megahertz of five G on hundreds of mid band sites.
On a mix of 60 and 90 megahertz on speeds on the North of 500 Megabits per second on average actually sometimes go on north of 600. So yeah folks are talking about it they're excited about it and you said you're starting to climb.
Just one additional point, we're seeing is an emergent excitement, it's always been there, but but perhaps even more come into the fore around mobile gaming.
We're just hearing so much about it I think when I talk about innovators hardware and software developers seeing this technology and seeing business models, I think gaining us a place to keep an eye on it definitely you're seeing video consumption of especially high Def video consumption take off because thats not something thanks to binge on years ago, our customers were really habituated around them. So you can see that ticking up but.
But keep your eye on game on mobile gaming I think youre going to find that five G with its low latencies in very high capacity is something that it's definitely attracting developers, which means it's going to attract consumers.
I think that that's that's the show you guys. Thank you so much for tuning in again, hopefully you can sense of our excitement. This business is firing on all cylinders. We appreciate you and I don't normally get to say this we'll see you next month thanks everybody.
Thank you and ladies and gentlemen, this concludes the T Mobile U S fourth quarter 2020 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.