Q2 2021 T-Mobile US Inc Earnings Call

Please standby.

Good afternoon.

Following opening remarks, the earnings call will be opened for questions via the conference line by pressing the star followed by 1 and via Twitter by sending a tweak to at 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 U S. Please go ahead Sir.

Thank you welcome to the T Mobile's second quarter 2021 earnings call joining me on the call today are Mike Sievert, our president and.

So Peter on evolving our CFO as well as the other members of the senior leadership team.

During this call we will make forward looking statements, which involve a number of risks and uncertainties that may cause actual results to differ materially from our forward looking statements.

We provide a 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 Q2 results as well as reconciliations between GAAP and non-GAAP results discussed on this call can be found on the quarterly results section of of Investor Relations website.

I'd like to remind everyone. The historical results prior to the second quarter of 2020.

And the represent the Standalone T mobile prior to the merger with sprint.

I would also like to note. The we're in the quiet period for auction 110, and we will not comment directly or indirectly on that spectrum with that let me now turn it over to Mike.

Okay. Thanks, John Hi, everybody well it is so great to be coming to you live from our bell.

Lv, Washington headquarters here, all gathered together with increasing numbers of our employees with each passing week and John.

It's great to feel the energy of this team and it's no doubt fueled by this quarter's fantastic results T mobile delivered another outstanding quarter of profitable and industry leading growth beating.

Beating our numbers across the board and leading the industry in postpaid net subscriber growth and service revenue growth, yet again, and we did it while simultaneously delivering record core adjusted EBITDA and free cash flow above expectations all of us while accelerating the transition of sprint customer traffic onto the T Mobile network further.

Extending our 5 G network lead and increasing our expected merger synergies for the year.

And these results all culminate in a 16% year over year increase in free cash flow, 16%, which is just the beginning of our rapid free cash flow expansion journey and the unlock.

<unk> of massive shareholder value.

Listen we're just pass halftime in the game here for 2021, and our team is feeling more confident than ever so we're increasing our guidance expectations across the board with today's announcement.

The net additions core EBITDA synergies capex investments and cash flow.

Further for the year are all being increased today.

These results stem from our focus on executing on our 3 core ambitions that I've talked with you about before delivering industry, leading profitable growth by expanding our addressable market and growing customer relationships.

Delivering substantial enterprise value by.

Outlook merger synergies faster and bigger while transforming our business and positioning the company for long term success with sustained 5 G leadership, our strong brand and the best customer experiences, let's start by talking about growth. Our 1.3 million postpaid nets were the best in the industry and we continue.

The lead the industry in postpaid phone growth year to date as well, adding another 627000 postpaid phone net adds in Q2 above our plan and consensus. This includes another strong quarter of growth from T mobile for business driven by customer wins in key industries, including airlines automotive and retail.

I rely on government agencies, such as the department of veteran Affairs and the U S Army.

Importantly, our reliable profitable growth is the product of our progress on churn T. Mobile again produced the biggest sequential improvement in postpaid phone churn compared to all other wireless operators this quarter delivering 0.87.

Percent, we continue to make great strides in improving churn for both our T mobile and sprint customers by providing them with best in class experiences and we continue to see the lowest churn in the entire industry from our loyal T mobile branded customers.

Our T mobile brands consumer churn is lower than Verizon and this.

The quarter, so as our business churn. This achievement is a testament to our awesome customer of loving team and also to our synergy backed model, which allows us to sustainably deliver the best value while rapidly building Fame as America's Best 5 G network and unlike the other guys. We've got room to run our higher sprint churn.

Rapidly improving giving us ongoing potential tailwind in this area.

<unk> of our customer of loving team. Just this morning, we were awarded the number 1 ranking from J D power in U S customer care performance for the 22nd time and our net promoter score for customer care among our sprint customers is up 40.

As a percent year over year the way we care for our customers is part of our secret sauce and its important moat around our business.

Now with all of the line growth we've been seeing in the industry. Another strong metric to watch is postpaid accounts.

This represents new overall customer billing relationship.

<unk> chips as we said during our analyst day, our strategy is built upon establishing new account relationships and growing them over time with additional products and services to drive ARPA growth.

This quarter, we delivered our highest ever postpaid account growth at 349000, and we continue to focus.

The 8 pressuring quality profitable growth I'll say it again this quarter's account growth was our highest ever at least in all of the years I've been here. That's over 600000 net postpaid accounts added year to date compared to Verizon, which is still negatives for us. So far this year and AT&T, who doesn't want us share account growth of.

Information.

In addition, we are the largest prepaid provider in the country and we're consistently growing and delivering strong rps in this valuable customer segment, despite our size and despite the ongoing industry growth of postpaid at the expense of prepaid in Q2, we delivered 76000 net.

Net adds which reflected record low industry, leading prepaid churn of just 2.62%.

Okay, let's discuss the financial outcomes, 1 thing that continues to distinguish us as an investment is that all of my T mobile us converting that record service revenue and our synergy backed model.

Industry, leading core EBITDA adjusted EBITDA free cash flow growth.

What's even more exciting is that we're delivering these results before we begin to fully capitalize on our 5 G leadership and before we fully tap into the new market opportunities and Underpenetrated segments. We've been discussing Peter will tell you.

In the on our financial results here in a minute, but what I'll say is that T. Mobile showed again today that we consistently deliver smart growth on the top line metrics, while consistently leading on financial outcomes like core EBITDA and cash flow pacing nicely to unlock the massive cash flows we outlined in our 5.

More of your plan a plan that promised outcomes. We are reiterating here today built around consistent disciplined market leading profitable growth.

Our opportunities are enabled by the fact that we already have America's largest fastest and most reliable 5 G network.

And as we continue to pull further away from the pack with the pace of our network build we're clearly beginning to differentiate ourselves not just on 5 G. But on network performance overall.

Already this year 7 third party network reports show that T mobile customers get the fastest 5 G speeds and spend the most time connected the 5 G.

Others are clutching to the work of a single paid consultant to support their network claims our 5 G leadership is showing up of loud and clear time, and again and reports that are coming from multiple independent industry, leading firms that look at real customer usage from billions of device measurements.

Now I.

Well I'll spend a lot of time talking about 5 G and for good reason, but we have also quietly eliminated the legacy advantages that AT&T and Verizon previously enjoyed on LTE, which is where most traffic remains today.

In fact, the latest nuclear data shows the T mobile customers get the fastest overall network speeds nationwide.

And T mobile swept every mobile category in <unk> latest report.

This is in addition to open signals the latest findings of that T. Mobile delivers the best for the availability and umlaut latest report, which highlights again that T. Mobile has the most reliable network overall, so whether customers are on <unk>.

E R..5 G. They're covered by a far reaching and speedy network at T Mobile <unk>.

Speaking of far reaching did all of your catch levels Blogged earlier. This week, he announced that T. Mobile's extended range 5 G. Now reaches 305 million people, that's nearly everybody and we surpassed our year.

L T milestone roughly 6 months ahead of schedule. Thanks to the terrific momentum of our team think of it this way.

Our 5 G network covers 92% of Interstate highway miles across 5 G across America with 5 G..92% today compared to just 68 per cent for AT&T and only 50.

Year end per cent for Verizon as an example.

However, where we are really unlocking transformative experiences for our customers is with our game changing.

Ultra capacity 5 G, which as you know we are rolling out at an unprecedented pace, we already cover half of the U S.

Population delivering average download speeds of.

Of 350, Megabits per second to 165 million people with ultra capacity 5 G and we continue to increase both of the breadth and depth of our mid band deployment, providing a 50% increase in our customers' average 5 G download.

The 1 but the speeds.

Just since the beginning of this year. According to billions of real time device measurements by open signal that's because we're not just rolling out ultra capacity of 5 G to more of the population targeting 200 million people by year end, but we are also adding spectrum targeting 100 megahertz.

Hertz before year end about with AT&T and Verizon will light up sometime next year with C band combined.

We're well ahead in our 5 G leadership, but what I hope is also becoming increasingly clear as the T. Mobile is positioned to maintain our 5 G leadership for the duration of the <unk> era, thanks to our superior.

Of your spectrum portfolio are unprecedented deployment momentum and our synergy backed model.

We're doing just what we said we would do during the merger process, leading America into the <unk> era and doing it without leaving the rural areas behind.

And this leadership is beginning to really matter to customers.

The 5 key areas here in 7 out of 10 customers say, they're excited about it T. Mobile's 5 G network perception is rapidly changing of just since March T. Mobile has seen a 25% increase in people viewing us as the leader in 5 G. Now at 26% were closing in on Verizon stagnant, 35% number on this.

This metric and we're way ahead of AT&T.

And as for business customers already over 40% of enterprise decision makers think of T mobile as the leader in 5 G.

With 5 G quickly, becoming 1 of the top things the customers say, they're looking for in their next wireless provider our network has increasingly.

Being a catalyst for them to choose T mobile.

This network progress is also helping to fuel the rapid realization of merger synergies and our continued progress on integration for the second quarter in a row, we're raising our synergy guidance for 2021. This progress includes continuing to migrate sprint customers to the T Mobile network.

[noise] become improve their experience, which is key to unlocking synergies. We've already moved 1 third of sprint customers to the T. Mobile network and this is important we're now carrying approximately 80% of the total sprint customer traffic on the T. Mobile network. This is all within just 5 quarters of closing the merger.

And as planned we're also expanding into new and Underpenetrated businesses, we commercially launched our broad 5 G home Internet offering at the beginning of the second quarter, we continue to see great customer satisfaction and product demand continues to put us on track for our target of 500000 home Internet customers. This year.

Even with demand exceeding our supply for modems at times earlier this year and we're already seeing third party recognition, including PC magazine recently publishing its readers choice Awards, where T. Mobile home Internet is ranked higher than every single cable provider by actual customers for overall satisfaction and likelihood.

Women.

For enterprise and government. Our plan is built on taking share in core wireless and it's well on track as I discussed earlier, but in addition, our 5 G network creates a platform for growth beyond core wireless and we're focused on helping customers realize value from emerging technologies, such as private networks and mobile.

The direction of compute which are exciting potential upsides to our plan. We're already in trial programs with major enterprises in these areas, including 12 of the Fortune 50, even though we don't issue of empty press releases about it every week.

Meanwhile, we're building our best value Best network best customer experiences.

Mobile Angela to smaller markets in rural areas, as well, which make up 40% of U S households, we've kicked off initiatives to add significantly more points of distribution to reach beyond urban areas as well as new initiatives and offers we're already seeing some early success as smaller markets in rural areas drove nearly 1 third of our new postpaid.

The paid account Activations in Q2 up from about a quarter last year the potential here is super exciting.

So as I get ready to turn it over to Peter to take you through our financials I want to take a moment to thank our team for delivering another remarkable quarter delivering the highest postpaid customer growth and service revenue growth in the industry while traveling.

Is formulating that into the highest core adjusted EBITDA and free cash flow growth in the industry. We continued to execute our integration playbook to unlock merger synergies ahead of schedule and we further expanded our 5 G lead with the nation's largest fastest and most reliable <unk> network planting the seeds for our future success.

<unk>, Okay, let me turn it over to Peter to take you through the financials and our guidance all right. Thanks, Mike as you can see we continue to have strong momentum across the business, we beat expectations of yet again in Q2 as we delivered on our winning playbook. So let me briefly discuss these great results service revenues.

Grew to $14.5 billion up an industry, leading 10% year over year or roughly 6% normalizing for the boost <unk> and 2% sequentially driven primarily by our continued customer growth.

Both cost of services and SG&A expenses, excluding merger related costs.

<unk> were lower as a percentage of service revenue on a year over year and sequential basis, reflecting the continued scale benefits we are delivering from merger synergy realization net.

Net income of $978 million and diluted earnings per share of <unk> 78 were both also better than consensus expectations.

Core adjusted EBITDA was a record $6 billion and up 7% year over year, driven by continued profitable service revenue growth and synergy realization.

Net cash provided by operating activities grew to $3.8 billion driven by our strong operating performance and synergy realization.

Cash purchases of property and equipment, including capitalized interest amounted to $3.3 billion, which was up 1 billion from a year ago as we continue to aggressively invest in the build out of our nationwide <unk> network free.

Free cash flow, excluding gross payments for settlement of interest rate swaps amounted to 1 point.

1 billion, which grew an industry best 16% from a year ago, even with the significantly higher Capex investment and was also fully burden by merger related costs of $198 million.

Postpaid ARPA or average revenue per account was $133.55.

7 continue to deepen customer account relationships.

Postpaid phone <unk> was $47.61 up.

Up from the low watermark in Q1, as we foreshadowed we expect continued tailwind from Premier of service revenue adoption, including benefits from magenta Max to be partially offset by the remaining.

As retail of sprint customer rate plan migrations and growing lines per account.

Overall, we continue to expect full year 2021, postpaid phone <unk> dilution to be less than 1% compared to 2020.

And we continued to strengthen our balance sheet and lower our cost of capital in May we issued senior.

Notes in an aggregate amount of $3 billion at an average interest rate of approximately $2, 97%, including setting a record in the high yield market for the lowest yield ever for a 5 year tranche underscoring our momentum as we progress towards our goal of an all investment grade capital structure.

Meaning if we use the proceeds to retire 3 notes with coupons roughly double the cost of the newly raised debt.

Amazing execution, yet again by the team all around to deliver the strong Q2 results. So let's touch on how this momentum impacts our outlook for 2021 with another beat and raise quarter from T Mobile us.

Mike mentioned, our guidance reflects the Opex investments ahead of US both in the network and growth initiatives that Mike discussed while simultaneously delivering on our promise of continued profitable growth.

We now expect total postpaid net additions to be between 5 and $5.3 million, taking the low end above.

The top of our prior guidance range of 4.4% of 4.9 reflecting continued profitable growth and prudent share taking opportunities from expected increased switching activity on the second half of the year the.

This also assumes a higher mix of postpaid phone net additions as a percentage of the total postpaid net additions.

Above second half.

Core adjusted EBITDA is now expected to be between 23, and $23.3 billion, primarily driven by service revenue growth and our expectation for higher merger synergies in 2021, which are now expected to be between $2.9 and $3.2 billion as we continue our.

And the rest towards rapid synergy realization.

We continue to expect merger related costs, which are not included in core adjusted EBITDA to be between $2, 7 and 3 billion before taxes with the second half being relatively evenly split between Q3 and Q4.

Net cash provided by operating.

Operating activities, including payments for merger related costs is now expected to be in the range of $13.6 the $13.9 billion up from our prior guidance of 13, 2 to $13.6 billion.

We expect cash capex to now be between 12, and $12.3 billion up from.

Our prior guidance to be at the high end of the original range of $11.7 to 12 point of $1 billion as we continue the robust pace of our 5 G deployment and network integration.

Together this results in free cash flow, including payments for merger related costs, increasing to 5.2 to $5.5 billion.

Which does not assume any material proceeds from securitization. This reflects our increasingly strong cash flow generation more than fully funding higher levels of capital investment.

And finally, we now expect our full year effective tax rate to be between 23 and 25% the improvement versus.

Prior guide being primarily driven by certain state tax benefits.

Altogether, our strong momentum and execution enable us to continue to invest in our network and the business to deliver significant expansion in the future free cash flow. We're on track with our plans to unlock significant value for our shareholders.

Centrally including substantial share repurchases ahead in the future.

All right, let's get to your questions you can ask questions via phone or via Twitter, We will start with a question on the phone operator first question. Please.

Thank you if you would like the signaling with phone questions. Please press star.

<unk> of 1 on your Touchtone telephone if you are joining us today as a speaker phone. Please make sure the new function is turned off to allow your signal to reach our equipment.

Again that is star.

1 for questions.

Our first question comes from Jonathan Chaplin with New Street research.

Thanks.

<unk>.

Just 1 from me.

I'm wondering if you can give us some more context on the dish deal it would be great to get a.

A little bit more of an understanding of kind of of the mechanics behind the scenes.

And and and the reasons why you let that that that relationship.

But.

It also would love to get some context from you on how you think the sort of a new deal that they've got with AT&T impacts the wireless industry of rural thanks.

Thanks, Jonathan Okay, well first of all of Peter Yeah on the 100 Bucks to the first question was in fact about dish.

[laughter], Let me, let me point out of couple.

The thing I hate to be predictable.

Yeah.

Let me point out of couple of things about this 1 is I want to make sure people understand particularly investors understand that when we presented to you our 5 year plan.

We had already factored in rapid declines for dish revenue into our plants and so that's kind of in the run rate I'll get to it it could be.

So a little faster than we had thought but I want to make sure you understand that and we've done that for a number of reasons..1 we can observe a rapid decline in customers over at dish and we don't have a lot of knowledge about their operations and so there's no reason for us to do anything other than drag right on that when we make our plans.

And secondly, we took them at their word that they would build a facilities based network in vaca.

8 hours of as soon as possible and so all of that was built into our run rate. So much though that in our 5 year planning horizon by the end of it we had substantially.

<unk> taken out all of the dish revenues in our plans and the vast majority of them by the end of our planning period now it's possible that with this development that 8 with AT&T that they will move faster than.

Even we anticipated and moving off of our network and that will open up some both opportunities as well as some gaps on our financial plan and I want to make sure of couple of things are clear first of all we've looked at this carefully and we are here today reiterating every aspect of our 5 year plan both in the medium term and in the long term that we communicated earlier this year and there's a.

A couple of reasons for that when we look at this you know 1 of the things I've learned in wireless is that every time you have got a good guy coming at you Theres some opposing bad Guy you have to manage like great growth.

The cost you on EBITDA for example, and you got to manage that or in At&t's case billions and billions of dollars in future revenue reversals hung up on their balance sheet.

But on the other hand, when you get a bad guy like potentially dish moving faster off of our network than we had thought it opens up opportunities and 1 of the 1 of the things that we see right away is that when they move off of our network that's going to open up both management attention, but more importantly capacity and so many things on our plan are predicated on available capacity like for example.

Broadband, where we don't think we're going to be so much paced by the demand we're gonna be paced by the available network capacity. So there's an opportunity to go faster or enterprise share, taking where our ability to put ambitious offers in front of customers is paced by what available capacity or ability to bring in new wholesale partners or double down with our existing ones. This.

The thing that ultimately when we look at it we're not really that displeased which gets to the core of premise of your question because it's going to allow us to do what we do best focus on our knitting and get after share taking in building. This great network and that's always been sort of the core premise of the 5 year plan that we put in front of you I'll say a couple of things to wrap up 1.

Is something that we like and respect the dish team and we're here for them.

So to the extent that they want us were here more or less it's up to them. We will honor every obligation and continue to honor every obligation that we've made the both of them and to the government and overall, we're going to get after growing our core business and working with our core partners.

We're here today after looking at of carefully to reiterate every single promise that we made to you on our 5 year plan.

Okay.

Great. Thanks, Mike.

You bet John.

And our next question will come from Craig Moffett with Moffett Nathanson.

Hi.

And I may cost you another $100, because I'm going to go back to the dish.

1 more time and just.

On the duration of the dish deal is quite a bit longer than what you were willing to offer when you. Originally signed the deal can you just talk about.

On.

Were you.

I'm willing to extend the deal or was the duration.

On a significant part of of the negotiation and then I guess just a more general question Where's all the growth in the market coming from I mean, we're seeing growth that's now.

5 times population growth rate and in total phone subscription.

Can you just talk about what it is that's driving that kind of growth and how sustainable you think that will be for how long.

Yeah, So let's jump in on both of Us and I might ask Peter John too to.

Add to it as for the agreement 1 of the things that you know obviously the point out and I think everybody knows this is that our.

The arrangement with dish as a product of a merger of remedy package and it was highly negotiated and it wasn't something that we.

We looked at on our business plan and had built in originally we plan to operate the foods business. So it was part of a remedy package.

And in that sense, we were sort of for us together and asked to negotiate this.

<unk> you know we did have a shorter term than what we saw.

The catered in the AT&T agreement, but I don't really have much comment on that I'm not.

Privy to what interactions happen between them between dish and AT&T I'm very immersed in the interactions we've had with dish and yeah. You know it had a certain term and it had it for a reason because remember the remedy.

Which was meant for dish to get after building their own facilities based network as fast as possible and to move their revenues and their customers onto that as fast as possible that was always the intention and some are asking whether this still enables that or still we'll we'll see that happen or not I don't know you'll have to you'll have to.

Check with them.

As it relates to the second question, what we're what we'll see.

Going forward 1 of you guys want to jump in John Let me, let me jump in on just dish 1 more because I know we have before cost me $300.

We have some questions coming in on the impact and as Mike said right. We're here today reiterating the mid and long term guidance that.

We put out there at analyst day, and Theres been some questions out there around what was it $2.5 billion of revenue currently I think there are some extrapolation, perhaps from dishes cost of service line item.

Just here to say, it's already less than $2 billion on an annual basis in 2021, and again, because we assumed dish would be of successful competitors.

Petitor and would build out their own facilities and take customers off that was already reflected as a decrease on the run rate, but also 1 of the things that we talked about on analyst day is the prudent plan that we put in front of you right with.

With multiple upside opportunities and that included things as Mike alluded to of mobile edge compute virtual networking.

But also the ability to either.

Slow down the <unk> dilution that was assumed in the plan as we expanded relationships go deeper faster in smaller markets rural areas and a whole host of other factors of the ability to grow ARPA on a faster rate as we deepen relationships and what youre really seeing.

In 2021, and what's encouraging is the success that we've had to date from the new account perspective from an ARPA growth perspective from the ARPA of stability that we're giving you. So we're here to absolutely reaffirm everything in the mid and long term guidance on.

All the way down to free cash flow I see some questions on Twitter coming in.

So just wanted to make sure that was out there and again that's that's the focus of this team we put out prudent plans and then our job is to beat them and that's why we're here reaffirmed and we still see the upsides that we saw then absolutely very exciting potential so as it relates to accounts. You know this is 1 I know that everybody is asking this and all of us only have.

Have a lens on our own business and so we really can't give you all of that much to go on I can tell you a few things 1 as you heard in my remarks that we're making sure that everybody understands where our focus is and.

Our focus is on growing profitable overall account relationship 600000 of them on the postpaid side.

That way so far this year this last quarter the biggest new account.

In our history and accounts are are of great metric because the.

Totally new billing relationship, it's probably somebody porting over.

They are an important metric I heard during the earning season 1 of my competitors sort of said Hey, we're focused.

On quality growth.

And not all accounts are created equal.

And you know what I, what I would say to that us but service revenues are.

T Mobile led again on service revenue growth with 10% normalized for some things last year, 6% overall service revenue growth of the best in the industry.

And so.

Look theres, some prepaid to postpaid transference going on there's some deepening of the account relationships with add lines going on.

There's a lot of dynamics, but it's 1 of the reasons why I want to make sure that youre hearing us focusing on our knitting about growing overall profitable relationships that result in the markets Best service revenue and EBITDA growth.

Anybody want to pile on and say where things are coming from I think that's perfect. Yes, I mean, the only thing I would add.

Mike and Hi, Craig.

Yeah, Theres, a big transparency from the prepaid category to the postpaid category, you're seeing that had been more from the macro perspective lots and lots of people from prepaid moving into the postpaid based on the economic realities.

As seen in the country, which makes our prepaid growth that much more impressive when you think about us being the leading prepaid provider in the entire industry in and put it up another 76000 postpaid phones, excuse me prepaid nets, and having our industry or our record low churn on merch on on prepaid, it's just really incredible.

Is that your sort of what's happening in that space and that's a big draw into postpaid specifically is what youre seeing from a macro perspective in prepaid.

Good Thanks, Craig.

Thank you.

You bet. So let's do another 1 from the phone and then let's see if somebody's scanning the ones coming in on Twitter, we can pick 1 or 2 of those if you want to call.

The amount, but first let's go back to the phone.

And our next phone question will come from Brett Feldman with Goldman Sachs.

Great. Thanks, Hey, so as you highlighted during your remarks, this was a pretty solid churn quarter.

You observe the sprint customer base kind of go through this transition into a T mobile customer base.

What are the points along the way that seem to be correlated with step function improvements in churn among those legacy sprint customers and as you look out over the next couple of quarters. As you continue to go through the process. How often are we going to be hitting those because I think that the real focus here is it seems like you're making great headway at moving the base of over.

How low can share and go and how quickly you can get there as you move through that process. Thank you.

Thanks, Brad I mean, we have a lot of work left to do them.

Pleased with our progress we're ahead of schedule, but this next year is a really critical time and remember in an integration like ours, they're separate.

We designed this to be able to do.

So discrete events when it comes to the migration 1 is when do you migrate the substantial portion of their network traffic to us when do you migrate their account relationship in terms of the core network that they're attached to 3 is when do you migrate their rate plans who of destination right plan for us when do you migrate their biller because that can be of.

The discrete event and finally, when do you start telling them their T mobile migrate their brand all of these can be discrete events and all of them can contribute to churn improvement by the way Theres. Some bumping us we're actually starting the process long promised of turning down the network on the on the source side and adding that capacity to the destination side and that will create.

So most of the delight, but it will also create some bumping us so there'll be opportunities netted out with some pressures on overall it looks like of net opportunity to us.

We're entering of really acute stage here over the next 12 months, where we will begin doing billing migrations at a faster pace will begin doing brand migrations. The way we serve people with our exclusive.

<unk> of team of experts model will be start to ramping to ramp up and we will simultaneously start turning down those network sites that are not keep sites. So that we can start to get you those concrete synergy flows in all of those things will be happening simultaneously and so far we're just we're just delighted with how it's going.

But.

But at the same time, we see lots of opportunity to put on arm around and loved those sprint customers and we're all over it.

If you don't mind, if I can ask a quick follow up you know early in the process. There is a lot of questions about whether the sprint customer base had the potential to have the churn profile of the legacy T. Mobile base. You know now that you are several quarters in and some of those customers have been with you for.

For a while what's your latest assessment there do you think that the long term churn profile of that acquired base can match or get close to what you have historically shown us.

Absolutely and 1 of the ways you can look at that is when we look underneath of the different kinds of situations of sprint customers. For example people who are happily into a device.

<unk> payment plan that was given to them on fair terms and who have a great rate plan. Their churn is already remarkably low and most of their data is on the T Mobile network and so we see that situation in our base on the other hand people who have.

The situation, that's less palatable to them from a variety of promotions that had raising prices or the way the device plan works or they're.

Not in the device relationship with us and they're kind of a jump on those churn numbers are still higher and our job is to welcome them to T mobile with the great taxes and fees included rate plans on Netflix on us on T mobile Tuesdays and team.

<unk> team of experts care and of course, the best of <unk> network in the country and that's happening at pace, but we're only working our way through the base.

And breadth of your point you know this is 1 of those areas of opportunity that we highlighted at analyst day, where the plan over the medium term was really to close the gap and have the T. Mobile so the the extent that we get through this period of this next period of 12 to 18 months rollout all of the benefits of T. Mobile, it's an opportunity as we see maybe closer alignment during.

2 of the magenta base it could.

Could wind up being of a nice upside because the only closing half of the GAAP.

Yeah, that's what's written into our plan.

Great. Thanks.

Alright, what are we seeing on the Twitter before we go back to the phone well you've got like what's the.

Got a couple of good questions in here 1 of.

That payer split of hides gigahertz deployment, which I'm sure Neville could hit and a little bit about on postpaid phone gross adds in the out of lines, which I think we have some great insight on as well it doesn't do the calls anymore. He's just a digital the digital.

Okay Fair enough you got in multiple questions alright, well, that's the read it out so it will go on.

Let's see.

Does the.

About 2.2.

The impact free cash flow guidance no.

Why is there only 40 megahertz of 2.5 gig in some markets when it will it be of 100 megahertz.

Or 160 everywhere, the let's talk about that because how are advantaged Neville translates into.

Not only people covered pops, but.

The dish megahertz deployed to those pops the to get to geek out on an old industry term megahertz Pops.

The difference between what we can offer in the next few months versus AT&T and Verizon and then how that translates into of years long advantage. It's pretty start maybe you can talk about where we are and where we're going yeah, absolutely. So if if we pick up on.

Mike's comments.

But more on the 165 million covered people, we have already today with a real true capacity mid band solution.

With 35 million away from the end of year ago of 200 million people covered with the ultra capacity solution, which is of nationwide claim basis. So.

Earlier, that's the progress, we're making with Super close its July I'm very confident about our ability to hit the 200 million on to your question. That's the point in time with targeting on average of 100 megahertz of spectrum will be available across the footprint of 100 megahertz of the 2.5 gigahertz spectrum the best.

Mid band spectrum, there is out there.

In this <unk> category.

That's exciting and if you compare and contrast that to what AT&T and Verizon have announced to date, they're talking about 100 million people covered some point in time in the new year and between them between them on the C band Spectrum holdings they have 1.

100 megahertz, Verizon 60 on AT&T 40, so when you compound the footprint on the spectrum available. Obviously, we have a massive lead on the good news is that you know that lead us there and it's durable on its sustainable as we move into the coming years, AT&T and Verizon will try.

What we will do this year by the end of 2023, when they get more C band spectrum available in the second tranche of course, we get C band spectrum at the end of 2023, 2 but the important piece is we're not sitting at 200 million covered pops of the end of this year. Our goal is to be at 300 million covered.

The unmatched by the end of 'twenty, 3 and to double of that spectrum position from 100 megahertz of mid band. The 200 Mega hubs and then your question won't you mentioned of 160 megahertz of 2.5. Our plan is to have all of that deployed for 5 G plus additional mid band from our AWS and Pcs holdings, the set us up for an incredible.

The leadership position, the AT&T and Verizon will spend many years trying to match.

I was expecting of follow up questions, but I forgot who is on Twitter. Okay. So okay.

Let's go back to the phone and then we'll get ready for another 200 went after it.

Thank you. Our next question will come from Phil Cusick with Jpmorgan.

I felt hey, guys. Thanks.

Hi, Mike you noted in the fact that the the phone increase was driven in part by T. Mobile for business, where are you on that can you quantify the size of that customer base on the growth and then similar on home broadband can you tell us sort of what the contribution was there in the quarter on how that.

Is from here. Thanks.

Beautiful, we'll turn it over to the leaders of those 2 business groups I I am just delighted with what we're seeing on T mobile for business. It's a big contributor we outpaced the Verizon this quarter fantastic even outpaced the Verizon on churn so people wonder whether were for real in business.

We're for real maybe.

He can talk about what's driving it and then we'll flip over and talk about what we're seeing on home broadband.

Yes, Thanks, Mike I'm really pleased with what we saw this quarter and as we talked about in analyst day, our focus has really been going after the postpaid core connection.

Opportunity because if you look at all of the opportunities in enterprise core connectivity still.

<unk> is the largest opportunity both from number of subscribers, but also from from revenue. So we've been really focused on taking share there and we've been really leveraging of several very distinct strategies to go do that first and foremost its network and its all of the things that Neville just talked about with 5 G. We have a distinct advantage right now.

Mike <unk> network, we've got a huge lead that right now our competitors can't touch on that matters in this in the enterprise space and so we've been using that to really get conversations started with enterprise using it to get into testing with enterprise and when they test us side by side, we win we simply win because we can't be touched on <unk> right now.

We're also really focused on on disrupting in enterprise, specifically around simplicity and value 1 of the things that you've heard us talk earlier in the year. When we launched Ww FX solutions, what's how complex. The enterprise space is with core wireless still lots of pooled plans and sharing and when youre doing that across tens of thousands.

Now and if all the ways. It's incredibly complex. So complex in fact that we see come see enterprises hiring third party companies to manage it and we've really seen enterprise respond favorably when we can come in and offer a much more simple and much more straightforward for a value proposition.

The those have been some of the big Keith says, they're doing it and like Mike said, it's really.

The insulated into incredible results, we beat Verizon again until the postpaid adds and that growth is translating both into of year over year revenue improvements that are double digit and the network is really resonating with the base, where we saw both year over year and sequential decreases ensuring from a from a postpaid.

Postpaid customers and you heard Mike.

Mentioned in the opening comments lower than Verizon this quarter.

So we think about blended not just on the team of upside, but overall blended of blended overall terrific.

Well done on your second part of your question, Phil was about home broadband and <unk>.

We're just out of the gates, we're really pleased with what we're seeing now.

Draper leads all of our emerging businesses and 1 of the things I will say to tee up Dow is the 1 of our early insights is that it sure doesn't look like this is going to be about demand.

It's going to be paced by network capacity as I mentioned in my answer on dish by device capacity for a minute here as we recover from COVID-19, but not by demand and by the way the customer experiences.

It's pretty exciting too, but that why don't you tell us what youre, saying, yeah. Thanks, Mike I mean first off thanks for the for the question Phil because of our Super enthusiastic about this business.

And as you as we've talked about previous this year, we really entered 'twenty, 1 with a 100000 customers on a pilot and the.

We officially launched in April to 30.

Millions of households, with our <unk> home Internet service.

And there's really it's worth us it's early days here at the basic.

The Echo what Mike said, we started and what we've learned is that 1 is the customer satisfaction and what customers are telling us about the product is really positive of our customer satisfaction scores are very high and in industry.

It is known for basically.

Bottom of of the barrel customer satisfaction metrics and so that's really.

Really great to see and it's nice to get the the are the.

The results of the survey in the PC magazine's readers' choice.

Article and so it's great to see that and then what that's also translating to US we are.

Are seeing demand.

Outpace really outpaced supply in the second quarter and we've done a lot of things, where we're working to catch up with that we think we're gonna be caught back up here in the next next month and so what that means is out of our aspiration was to end the year with 500000 home.

The home broadband customers and.

And we feel really good about that trajectory.

Thanks, Phil.

Okay, what else do we have thanks, Mike winters.

You bet.

We should go to there's a couple of on here about prepaid, which you touched on but there's lots of will come from Bill Ho of prepaid seems to have a resurgence given yesterday is the breadth of offer given the free the you know the comment.

Comments on postpaid prepaid blurring us anything triggered this you know second half prepaid thinking and any color on this amazing stellar dropping prepaid churn and he kind of goes on about the aggressive offer that we just launched but 1 of the things. It's 5 G. You know look we just as a company. We don't believe the 5 G us for rich people on postpaid plan.

We thank us for everybody and that's really important and we're moving absolutely ambitiously to make sure everybody gets the chance to see and experience. This remarkable network and by the way with prepaid customers. That's even more important for so many of them because their phone for many of them is their only connection to the internet and it has to.

Great connection and it's just such an advantage for us to have the nation's leading prepaid brand on the nation's leading 5 day network and we never held back from day..1 we said Hey, that's for you also and right now we have an incredible offer for people to switch from booster cricket that don't seem to be going at a fast pace to introduce prepaid customers to <unk>.

And not only to give them a great rate plan, but also to give them a brand new Samsung Galaxy <unk> phone and so you know it's a fantastic off of really it's about celebrating this 5 G moment and getting people to come see what our network leadership is all about and I think that's a contributor that network leadership, both on <unk> and <unk> is certainly a contributor.

Tribute or to the lowest churn we've ever seen or anybody's ever seen from a major prepaid brand.

So let's go back to the phone.

And we'll go to Doug Mitchelson with credit Suisse.

Oh. Thanks, so much of you mentioned in the prepared remarks, you're expecting higher switching activity in the second half of the year. So I'm just.

So if that's something you're already seeing and is that suggesting that there'll be a higher churn environment for the higher you know the entire industry is resolved just curious of the implications there and.

And then for novel beyond putting more spectrum to us.

The.

The growth in fixed wireless might be constrained by you delivering.

Curiosity to the team versus the demand for the product.

Or other things that are happening in future years beyond that to the drive capacity of you're Gonna go back and touch the towers again or it could be software updates are there.

The new 1 ton of deployments that you're not doing this go around anything on capacity would be on putting the spectrum to use would be helpful. Thanks.

Okay.

I'll start and hand, it to Neville and then we'll go back to your first question.

It's funny, it's the opposite the.

The question, we often get asked US is actually the the opposite the converse of yours, which is your building all of this incredible capacity what are the use cases tell us. Please number of about 5 use cases, how are you going to fill up all of that capacity and it's really important you asked.

And the way you did because.

You know wireless home broadband is 1 of the killer apps of 5 G and that's why I mentioned earlier that anything that frees up capacity to allow us to go faster on this multibillion dollar opportunity is a good guy and but maybe we can talk about that you know that.

Whole equation on what you're seeing when it comes to enabling home broadband and other high capacity applications.

I mean, I think obviously the the hub of the opportunity is spectrum and.

We are in a strong position on I outlined for you the pace at which we're deploying that funds the spectrum, which is going to create.

Asked the question of a fairly sharp contrast, with our competition I mean, I I love on messaging on on 5 G for roll on part of that is the the prepaid segment of the customer base that we just talked about but it's also really hitting.

All corners of the United States right going into rural market small town.

Create on bringing 5 G capacity and capability of an incredible pace and I think that's going to position us for a long term advantage in those market areas that capacity and capability going into those market places is gone to us open up enormous opportunity on the in home broadband so it's.

It's not just the application of the great set of spectrum, it's where and how on the pace of which we do it.

The other piece is you know not to get too geeky right, but 5 G is just really beginning and you know the features and capabilities in the spectral efficiency that we can secure from of fiber.

On the marrow, where we're at the very beginning of the journey, we're only just now rolling out.

<unk> in the mid band space and if you look of what happened with LTE over a decade plus material improvements in the capacity and capability of what we could support with already on network and that's going to come with <unk>.

The 2 theres, a very rich future on roadmap to enhance the capacity and capability that we can bring so you add all of those pieces together. This isn't an incredible 5 G factory that we're building on to Mike's comment I mean, we're excited about all of the opportunities with which we can fill up this capacity.

The bear market that will rollout over the next 3.4 of 5 years, but that leadership opportunity, especially in the near term is going to be critical across the country on.

Especially in those major markets, where we make the first stop.

Cool Alright, you're out of your first question was about switching and trends, we're seeing with churn in the second half.

I'll tee it up of hand, it to John you know a lot of this the seasonal I mean, the second half is usually a period with higher switching activity and higher churn on.

This year, the additional dynamic of Covid, which is a little bit of a wildcard, but the broad trends notwithstanding delta variant do look like a continuation of opening up.

And then of course in the in.

So the time in prior years, we've generally had a big important new phone launches and you know you should take all of that together. We've made sure as you saw on the guidance to fund our planned to compete profitably ambitiously reasonably but the compete in the second half to make sure that we're competitive but John 1 of you see say, what youre, saying, yes, that's exactly what I was going to say Mike that.

The seasonally in the second half of the of the year you have 3 big moments, you've got a big back to school moment that'll be much more of a prominent moment this year versus perhaps last year than like Mike said, you have a premium smartphone introduction. That's typically in the fall timeframe. You know you never know, but typically in the fall timeframe and then of course, you have the holiday period. So.

The faulty and as we're seeing the continued reopening we've been seeing that I think I said last quarter that there were some places throughout the country, even last quarter like Texas and Florida in some states like that that we're fully open and then other places like New York and California is still gradually reopening we're still seeing that in terms of those states and some of those big.

Markets that are still gradually reopening we expect that to continue like Mike said, just a few moments ago don't know, where delta's going or any of the cut the kind of variance that might be out there, but we're well on the positioning of the post vaccine environment to be able to manage that we expect there to be much more activity in the second half of the year, but versus the first half we're prepared to win in that space, That's where we win the most.

So what was what we love to see that kind of competitive activity and theres more people evaluating their options out there we love that because we want them to look at T mobile and when they look at T mobile when they're in the market to shop, and perhaps switch they picked us more than the.

The not so we're excited about it.

Thank you alright.

Okay, let's go back to the phone.

Our next phone question will come from John Hodulik with UBS.

Okay, great. Thanks, guys.

Hey, Mike how are you.

Maybe let's go back to the rural and suburban strategy.

It's nice to hear that the.

In terms of accounts has ticked up to the third of kind of the new new new accounts this quarter.

How high can that go and do you expect it to continue to tick up and I guess, along with that how far through the investment phase on our we talked about hiring local experts of increasing distributions is that in the run rate or should we expect more and then lastly, along with.

You guys talked about sort of getting on the synergies, especially the taking down of decommissioning of the sprint network.

It seems there is an equation there was either some increased investment on distribution, but eventually we're going to see the the costs come through when do we see that inflection and the synergies override the new investments and we start to see.

That acceleration in the.

Adjusted EBITDA number.

Terrific.

Well first of all of them, let me just say on small markets in rural areas of my opinion on I'll toss. It to John is were in the first inning.

We're just getting going a lot of these investments around distribution around the new way of distributing product around.

The new offers around reputation where you know those things take all the time, it's just at the very first inning and yet we're seeing the market respond.

So that gives us that makes us very optimistic you know Peter I think rightly pointed out that in our 5 year plan. We shared with you there were a number of important upsides and 1 of them is.

We.

We would hope there might be a chance to exceed our migration from the 13% market share we had today to the destination of 20% in the 5 year horizon that we communicated to you.

Told you that in this quarter in the first inning, we're seeing about a third of our Activations are come from those markets pretty exciting so.

And Jonathan the some of these questions are about okay. What have we accomplished and what's next and what can we expect yeah like Mike said I I I too just so excited and increasingly enthusiastic about this opportunity for us and as Mike highlighted in his opening comments. This is a huge opportunity for us it's roughly 40% of the market call. It 50 million households, 140.

Would people.

All at the low teens market share so we have a huge opportunity.

Specifically to the activities. We said this year that we would be opening 200 retail stores, that's well on our way.

On pace to be able to get done also hiring 1000 mobile hometown experts in this 1000 of my hometown of experts just remember.

40 million of going into cities and towns, where it doesn't really make a whole lot of economic sense to build brick and mortar distribution. So on this is more of extending our reach into places that we ordinary could ordinarily couldnt get to with retail distribution, that's well on pace as well so.

200 stores for this year thousand hometown.

I'm from this year, we made a commitment to have up to 2500 hometown experts. So we're ahead of a thousand of this year as the down payment on that 2500, and then the the balance of that coming into the future quarters and into the next couple of years. So we're increasingly excited about it like Mike said almost a third of our.

Postpaid.

On experts of the accounts coming in from smaller markets rural areas up from call. It a quarter in 2020, the big opportunity is in the first inning. The slow burn we got a lot of perception of the change, but we're capitalizing with this distribution push based on the incredible network that Neville and his team of building out there and bring in 5 G to a lot of these.

Good news I mean, what's it's incredible when you think about it on theirs.

Not really of <unk> strategy I think from from some of our competitors in Rural America, and they shouldn't be left behind and we have a huge opportunity to go out there and bring ultra capacity of <unk> in so many places and be able to make a big difference of these markets.

Perfect.

Place Oh, there was the question second part of his question was about the synergies synergies on EBITDA. So I think the run rate as John mentioned, it's really continues on the second half from an investment perspective, both in distribution here Bowl fan as we've talked before bringing our team of experts model into the sprint base on a more full basis. So there continues to.

The investments on also the second half of course, as we said with the larger switching opportunities with more of the.

Phone launches quote unquote that we don't know about but may know about and of course holiday season, and such and then our promotional constructs as you know tend to be more front loaded we don't hang it up on the balance sheet, but as we go through that at.

That tends to impact core EBITDA in period, so you'll see a lot of that the investments the promotions that we anticipate to be higher as we have more switching and of higher postpaid phone net add in the second half of that all comes through in core EBITDA, but all of that is offset by the continuation of synergy unlock and I think you've asked when is the inflection point.

In particular as it regards to the network. While we're starting now we are still targeting 7 to 8000 day comps by the end of this year and with the pace that Neville is going we feel confident about what we put out there at analyst day, and so you see by 2023, we're already assuming we will overachieve.

Of against the $6 billion and ultimately on our way to $7.5 billion of run rate synergies by 2024, so very exciting and you're already seeing that happen. When you look at the year over year margin as a percentage of service revenue you know the competition. Obviously, both went down in terms of margin.

As a percentage of service revenue and we went up.

So you see the power of those synergies on that unlock already starting very exciting.

Terrific.

Thanks, John.

You bet.

So we'll go back to the phone and then maybe do we do we have a couple of more on Twitter as well, maybe 1 and then you have Oh I have to go and when do I have to go on.

Really have to 1 of more phone calls on okay great.

[laughter]. Thank you we will go to Simon Flannery with Morgan Stanley.

Great. Thank you very much so coming back to the fixed wireless on the home broadband maybe Neville you could just talk a little bit about the the learnings that you are seeing on this critique about your ability to handle.

And that kind of on the usage of the typical brought on customers. So what are you seeing so far and I think you've been advertising of speed around 100, Megabits a second but at the same time of Youre, saying your ultra capacity networks, averaging that 350 Megabits a second so what's the upgrade path for those speeds as you roll This network and add more spectrum in there and then any color on where.

Handled estimates are coming from or the east coming from D. S. L coming from cable neutral brought on to any color there would be great.

So the level for the first adoption of second yeah. So thanks I'm on I mean, obviously, so far we're making great progress I mean, Dow on the team have been working really hard to get the this business moving on the network is.

The cooling of real pace to support the capacity and capabilities the required the the the real sweet spot on this program is really the ultra capacity and you've heard us multiple times now talk about the pace and rollout of the ultra capacity layer and that's what really brings this home broadband.

His mission to life and allows us to move into these higher tier speeds I mean, we've committed that and we've talked for many months now around the speeds and capabilities that we can support across this network across this entire network on those speeds being north of 400 Megabits per second and that all comes to life as we realize.

And so all of that spectrum I talked about earlier on moving on to a 5 G layer and the massive rollout. Unlike I think of anything in the U S. As seen on our mid band spectrum layer.

Our ability to support the growth is absolutely the the economics of the because we have a deep on heavy layer of Midland.

On spectrum and 2.5 gigahertz and so we can secure these upgrades on the economics with on.

Most of the single radio deployment to leverage and unleash the 2.5 gigahertz spectrum very tough to do the stuff. If you have to pull together lots of fragmented bands of spectrum.

As for example, AT&T has to do so for us.

Big Big multi lane highway being opened up not just in Metro where we've been focused primarily for the last.

4 quarters, or so but across the nation and our ability to really transform the home broadband space in many parts of the country with.

It has very little competition on very poor service at times, you know us is absolutely of that for us to go run it.

I think so terrific.

Cool, Thanks, Simon Alright, so where.

Are we going to.

Last question you can do off of it you have to admit I have to go where we're going.

Take the last question. Therefore, we'll go to the phones.

And the operator.

Thank you. Our next question will come from Michael Rollins with Citi.

Thanks.

Hi, a couple of follow up questions.

First on the RFP just curious if you can unpack what's happening.

In the RPM in the quarter and for the year in terms of some of the helps the Hertz and how magenta Max May also be contributing and then just taking a step back what's the expected pace going forward to introduce new on carrier initiatives and when you look at the totality of the value that you're offering.

We are seeing of continued evolution of the take rates for services, such as Netflix or the T Mobile Tuesday program.

Okay first of Peter and then to John and I'll make US my thank yous on excuses I've Gotta do 1 on air a hit so I think you guys on won't pay on hand at the Peter All right Yeah. Thank you Mike.

I can and thanks, Mike for the question, so ARPA and really the story of ARPA you know I'm very pleased with like I said in the prepared remarks around what's happening with <unk> and really a lot of tailwind that we're seeing with the adoption of magenta, Max which was just really a manifestation of is another use case of the power of this network and bringing this differential.

<unk> product out into the marketplace.

And the ability for John and team on the consumer side to really translate that into value from an RFP perspective. So that's a lot of the tailwind that we saw from a value added service on a sequential basis. Remember we told you of Q1 was going to be the low watermark as we really focused in Q1.

On on moving a significant portion of the sprint base until their target rate plans and a little bit of that will continue throughout the latter part of this year and of course theres going to be continued investment in terms of expanding account relationships. Because remember. This plan is built on ARPA growth not ARPA growth of our pool is still throughout the duration.

Planned through the end of 'twenty 3 expected to decline roughly 1% on a year over year basis. So those are a lot of us the puts and takes you know again the ARPA trajectory. This year, very very confident and less than 1% dilution given all of the tailwind there and the other part of that.

Also is an impact.

<unk> hear us business and you heard about the success in business business tends to have larger, particularly enterprise and government larger account sizes. So you typically see that coming in at a lower <unk> than the average consumer but also you know tremendously valuable customer relationships there. So.

Happy there in.

<unk> of the from carrier you know I I wish I could just maybe I'll Twitter you out exactly what we're going to do from a non carrier perspective, and when it's coming but the 1 thing that is true from this team Manaus.

A maniacal focus on profitable growth, but never losing that entrepreneurial spirit that we have so you know there's there's more on the horizon I'm sure when it.

Terms of us on carrier moves. So we are not done solving the pain points in this industry or new industries like home broadband so really appreciate it Mike.

And I think probably with that we will have 2 at this point conclude the call. So thank you everybody for tuning in and it's just an amazing set.

Net of results again, another beat and raise quarter for T mobile and we're just very optimistic about where we're going and very glad that you could spend the time with us. So operator can you now please conclude the call.

Ladies and gentlemen, this concludes the T mobile U S second quarter 2021.

It comes all 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.