Q3 2021 T-Mobile US Inc Earnings Call

Yeah.

Okay.

Good afternoon. Following opening remarks, the earnings call will be opened for questions via the conference line by pressing the star followed by one and via Twitter by sending a tweet two at T mobile I R 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.

Alright, welcome to T. Mobile's third quarter 2021 earnings call joining me on the call today are Mike Sievert, our president and CEO, Peter Oswald, our CFO as well as other members of the senior leadership team.

During this call we will make forward looking statements that contain 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 Q3 results as well as reconciliations between our GAAP and non-GAAP results discussed on this call can be found on the quarterly results section on the Investor Relations website.

I'd like to remind everyone that historical results prior to the second quarter of 2020 represents Standalone T mobile prior to the merger with Sprint I would also like to note that we are now in the quiet period for auction 110 and will not comment on that today with that let me now turn it over to Mike, Okay. Thanks, Jud and hi, everybody.

Great to be here to share this quarters results with you and as you might have noticed we're entering the home stretch for 2021 and our team is feeling more confident than ever we've exceeded not only wall street expectations, but even our own targets at this stage of our integration journey in terms of customer growth profitability and synergies and with that success.

We're once again, increasing our guidance expectations across the board today.

The Uncared is about solving pain points and you may remember that when we closed our merger last year, we said that our combined assets meant that we would end the biggest pain point of all that age old problem of having to choose between the best network and the best value. We said we'd be in a unique position as the new one carrier with Ara.

Unique assets and financial position in the five G era to end that tradeoff and deliver both well let me tell you. This differentiated playbook that has never been done before in wireless is already contributing to our results and creating market, leading profitable growth, where it counts in topline postpaid customers and revenues and.

And cash flows at the bottom line only T. Mobile provides the best value proposition with truly unlimited plans fairly priced on the best five G network and with award winning service. This combination is differentiating our model from the other guys and uniquely positioning T mobile in significant ways that have long term.

Implications.

In Q3, we led the industry in postpaid net ads and postpaid service revenue growth again, just as we've done every quarter. Since we closed the merger. We also led the industry in core EBITDA growth and free cash flow growth, let's talk about a few of the highlights that are driving all of this growth.

Smaller markets in rural areas are already contributing about one third of our new accounts and brand equities are up across the board and we're still in the very early innings of our distribution expansion and ultra capacity build out in smaller markets in enterprise, we delivered our highest ever gross adds and net adds because.

Organizations really understand our five G leadership better than anyone.

For five G high speed Internet, we delivered our highest ever net adds in Q3 more than doubled horizons and two thirds of our net adds came from urban and suburban markets in other words cable territory.

Alright coming back to my point on how T. Mobile is uniquely positioned in our industry I understand that many of you have raised questions about the promotional environment and also about the source and sustainability of recent industry growth and some of them actually question, whether five G really matters to consumers.

I do believe this is a healthy and growing industry I understand that the actions of some of our peers may have soured sentiment on our category for some so today I'm purposefully focused on addressing these perceptions head on and sharing my view of how our approach and competitive position is differentiated both for customers and.

T Mobile's business.

The first question I'm sure. It's top of mind is the promotional intensity in this industry well isn't as I've said before it's at T. Mobile, we actually like healthy competition, because we historically win when customers start shopping around our competitors are leaning into device offers and while I can't really explain what they're up to I can't imagine it's.

Out of abject fear that we're coming to take all their customers because they don't have compelling pricing or a competitive five G network or significant underpenetrated growth factors like T. Mobile has so they're trying to temporarily by down churn, while they sell off assets and come up with a plan.

In contrast, our competitive push into device offers is strategic list.

Listen we have a once in a decade opportunity to leap ahead and stay ahead of everyone else as customers embrace five G. We're years ahead on five G. As you know and we're positioned to stay ahead and were therefore incentives to get people on five G. So they can experience that advantage every time, we upgrade a customer from <unk> to <unk>.

G. We take them from a device that works. Similarly on all three big networks to a device that works way way better at T mobile.

And secondly, we're laser focused on completing our merger integration ahead of schedule. This is huge because of the significant churn opportunity that we have which is why we're putting device offers in place to bring sprint customers to T mobile as quickly as possible and unlike some we generally pay for all of this in our P&L as we go along.

Long.

Meanwhile, AT&T and Verizon are running expensive promotions to put five G devices and their customers' hands, even though they are unlikely to find a much faster five G signal or notice a difference in speeds. Most of the time in fact every time they upgrade a customer from a <unk> device to a five G device theyre playing right into our.

Strength and spending a fortunate to do it and At&t's case, racking up billions of dollars of future impacts on their balance sheet.

Out of their customers feel when they take that shiny new five G phone home only to realize that most of the time. It works just like their forgey phone.

At T mobile those devices work demonstrably better with ultra capacity five G, reaching more than half the country today rocking speeds of 400 Megabits per second on average every one of those competitive customers being upgraded to five G. At great expense is a potential future.

T mobile customer.

The second question is around the source and sustainability of recent customer growth in the industry.

This is what would be easier to answer if everyone in our industry was not as transparent as T mobile such as disclosing accounts or what adjustments are being made et cetera. What I do know is that T. Mobile has a diversified growth opportunity in underpenetrated and new markets. That's unmatched in this industry.

One way to cut to the chase is to look at accounts instead of lines are postpaid net new accounts in Q3 doubled year over year with our highest Q3 account growth in seven years, even while in the thick of our integration were up more than 1 million net new accounts year over year. We did this while Verizon had.

No account growth year over year, and a T N T didn't disclose accounts and what's more we see significant opportunities ahead in smaller markets in rural areas, where leading America into the five G era as we March toward covering 300 million people with ultra capacity five G by the end of 2023.

A time by which others only aspire to cover 175 to 200 million people.

The difference in geographic coverage between 200, and 300 million people is huge roughly five times the land area.

Giving us a big competitive advantage in smaller markets and rural areas.

Listen as the Uncared in smaller markets, we are combining a suddenly much stronger network with disruptive value and the best customer service does that sound familiar it should newly competitive network combined with disruptive value and customer experience that's exactly the uncaring.

Playbook, we ran over the last few years in the top markets were bringing the same playbook to smaller markets in rural areas that took us from number four to number one in the major metros, except in the smaller markets. We're not just bringing a competitive network. Our goal is to bring a superior one anchored by our <unk>.

Vantage and five G.

And let's not forget that in major markets, we have room to run we're not just defending our castle, we got to our current leadership position without being perceived as having a network advantage now we have the opportunity to appeal to millions more customers in the larger markets as well who shop primarily on network.

Reach speed and capacity.

In enterprise and government markets, another big opportunity, where our five G leadership is already opening new doors, we've already seen an increase in our win share for traditional postpaid services and we're well positioned to capture advanced five G services with the most widely built out the <unk> network and the only stand.

Alone five G core which is exactly why many large enterprises are in active trials with T mobile for advanced capabilities like mobile edge compute and private networks and let me remind you that these advanced five G services represent upside to our plan.

Bottom line, our competitors are broadly distributed today, they're already in the smaller markets in rural areas and they already have outsized share in enterprise and they're overpriced with little five G to show for it making it tough for them to defend their flags when we come in with a better network and a better value I say all of us not to bash anybody but to.

Make it clear that as competition heats up you shouldn't paint us all with the same brush T mobile is executing and demonstrating that these profitable growth opportunities are real and they're differentiated.

As part of that industry growth debate I hear misperceptions out there that T. Mobile's growth has slowed relative to our pre merger momentum and I'd love to set the record straight on this one what we look at proudly as our magenta performance as a signal of our future success, we delivered our highest ever postpaid phone.

Net adds on the magenta brand year to date through Q3, our highest ever in company history happening now.

This year, even after normalizing for sprint transfers into magenta. The Uncared strategy is in full force and we're competing smartly and the result is high quality profitable industry leading growth.

With our magenta business firing on all cylinders. We're also working rapidly through the integration of the higher churning sprint base just to put this in perspective, if the if the sprint base had the same churn as our magenta base. Our phone net adds in Q3 would have been about 1.2 million way ahead of anyone else in the <unk>.

History.

That shows you the potential future tailwind to our growth engine as we work to get sprint churn down to magenta churn levels and it reinforces that our gross add flows are right, where we want them to be at least for this point in our journey.

While others are temporarily benefiting from elevated sprint churn today, we're working to make that very short lived with over half of sprint customers at least partly migrated we continue to execute our playbook to finish the integration in a compressed timeframe, which does have temporary impacts but brings forward the timeframes when both.

The customer experience and our business results have the benefit of integration being behind us I'm. So proud of how the team is executing to get all this done way ahead of schedule and we're particularly encouraged by what we see from sprint customers that have made the full migration to the T mobile value proposition as they already have.

Churn on par with magenta customers.

Changing gears I've seen some media articles and analyst notes, commenting on how consumers should be indifferent between <unk> and <unk>, given the limited availability and similar performance well, they're absolutely right. When they look at AT&T and Verizon those companies have much more geographically distributed customer bases and only a small percentage of their customers are.

Seeing big benefits from five G and nor are a high percentage of them likely to see a benefit from their early C band deployments at T. Mobile five G is a distinct differentiator here's a fun fact for you over 75% of T. Mobile five G customers are within our ultra capacity five G.

Coverage area that now reaches 190 people well over half the country enjoying blazing fast speeds of around 10 times faster than <unk>.

Ask a T N T and Verizon what percentage of their customer bases are in the footprint of their fastest five G.

And at T Mobile and T. Mobile's five G leadership is beginning to really matter to customers. We just see this demonstrated in several areas.

The first area, where we see our network leadership resonating isn't perception metrics among non customers.

In other words potential future customers.

According to our polling perception for overall network reliability has increased over 20% year over year and is now higher than At&t's Ira.

Our recognition as the five G leader among potential customers has increased over 80% from a year ago eight zero percent matching Verizon while Verizon scores are flat to down and we scored three times higher than AT&T potential customers are taking notice of our lead.

The second aspect is the adoption of magenta Max the best plan on the best five G network take rates continue to exceed our expectations and we now see more than half of new customers choosing Max.

The engagement that we have seen just reinforces our belief that the five G. Smartphone is the first killer app of the five G ore from video, calling which has taken off as a primary means of communication to tick tock and mixed reality and emerging meta versus applications T. Mobile's network is unlocking a differentiated smartphone experience in this.

Industry today, we see this not only in the take rates that I mentioned, but also in the way that customers are taking advantage of this differentiated experience using 35 gigabytes a month on average when pairing magenta Max with a five G smartphone 35 gigs a month already.

That's roughly triple the average board you usage in the industry and an experience that AT&T and Verizon will be hard pressed to support from a capacity perspective.

And did you see those new offers from the cable guys.

Cable is constructing for G offers in a five G world and they will be challenged without wireless owners' economics never mind. The fact that they're on the smallest five G network verizon's they already automatically throttle anyone using more than 20 gigs on their quite limited so called unlimited plan today.

That might barely cut it with some consumers for a very short time, but not where this industry is quickly going.

And the final question I wanted to address is around the quality of earnings in this industry.

Sure there are geography differences and some maybe aren't reflecting the full magnitude of their promotional spending and their EBITDA at the end of the day cash is key and real value creation should be measured by the conversion of service revenues into free cash flow T. Mobile has unmatched potential because of our industry, leading growth and synergy back.

Model and we've guided to deliver a significant CAGR of 45% from 2021 to 'twenty 'twenty four from our perspective, the current market valuation of our company based on our guided free cash flow would suggest that there is significant potential shareholder value not yet reflected.

Before I wrap up I do want to comment on the cyber attack, we experienced last quarter as we previously reported and updated in our filings today, we promptly located in close to the unauthorized authorized access to our systems after becoming aware of this criminal cyber attack against T mobile and our customers and we conducted a forensic investigation with.

The assistance of World, leading cyber security experts that's now complete.

We also undertook extensive efforts to support and protect our customers and to further enhance our cyber security practices throughout this process.

<unk>, our customers' data is a top priority for the company, which is why we've taken a number of steps to respond to this incident and I've created a ciber transformation office reporting directly to me elevating our cyber security team and this work accordingly.

We're further building our security forward mindset into our work and our culture and we're partnering with the best and the brightest like mandaean and KPMG to help us do it right.

Now before I turn it over to Peter to take us through a few financial highlights and our outstanding guidance I wanted to express how proud I am of this team we executed another terrific quarter, leading the industry in postpaid customer growth, while delivering industry, leading growth in postpaid subscribers postpaid.

<unk> service revenue core adjusted EBITDA and free cash flow all while further extending our five G network lead and increasing our expected merger synergies for the year overall, our strategy is absolutely working and we clearly have the best hand of cards to win in the years ahead, all right Peter.

Alright, Thanks, Mike as you can see we delivered strong results yet again in Q3, as we executed our winning playbook and exceeded expectations across the board.

Let's start by talking about growth, where we doubled our postpaid account net adds from a year ago, adding 268000 and as Mike mentioned that is the highest account net adds for Q3 and seven years. We also delivered industry, leading postpaid net adds of 1.3 million, including 673000.

Postpaid phone net adds this growth contributed to our record service revenue, including industry, leading postpaid service revenue growth of 6% year over year, and we were the only national provider to grow margins year over year.

We delivered record high core adjusted EBITDA, and our Forex increase in free cash flow from a year ago is just the beginning of our rapid free cash flow expansion journey and the unlocking of significant shareholder value.

I'm also extremely proud of the team as we continue to work with the rating agencies and in August all three agencies upgraded us based on the company's continued strong financial results and momentum with Fitch moving to an investment grade corporate family rating. These upgrades will provide us with significant incremental flexibility to further after.

Our capital structure.

So let's talk about how this momentum impacts our outlook for 2021 with another beat and raise quarter, we now expect.

Spec total postpaid net additions to be between 5.1, and $5 3 million, reflecting continued profitable growth and prudent share taking opportunities from increased switching activity expected in Q4.

Core adjusted EBITDA is now expected to be between 23.4, and $23 5 billion, primarily driven by service revenue growth and higher merger synergies, which are now expected to be between 3.2 and $3 5 billion as we continue our progress towards rapid synergy realization we.

Expect merger related costs not included in core adjusted EBITDA to be between two eight and 3.1 billion before taxes.

Net cash provided by operating activities, including merger payments is now expected to be in the range of 13.9 to 14.1 billion.

We expect cash capex to be between 12.1, and $12 3 billion as we continue the robust pace of our five Jude appointment and network integration.

Together this results in a free cash flow, including payments for merger related costs, increasing to between five five and $5 6 billion and does not assume any material proceeds from securitization.

Our Q3 effective tax rate was materially below our prior 2021 guide of 24% to 26% primarily due to state tax benefits associated with certain legal entity reorganization, we expect our effective tax rate to be between 20, and 22% in Q4, which would put us at about one <unk>.

15% to 17% rate for the full year.

One last guidance item that I'll note is that we now expect full year postpaid phone <unk> to be relatively flat to the 47 74 full year rate in 2020.

This is driven by the fact that Q4 ARPA is trending flat to Q3 as a result of benefits from continued magenta Max adoption amongst our customers and converting device insurance products for our sprint customers to the equivalent magenta products, which have higher revenue recorded in higher EBITDA contribution both.

All of which are expected to offset the typical seasonal promotional ARPA impact in Q4.

And we expect full year ARPA to be up more than $2 from last year, driven by our strategy to continuously expand our revenue within our account relationships.

Before I wrap up I'd like to come back to Mike's points on addressing questions out there. Some have questioned the real drivers of service revenue growth in the industry, which for some has been supported by grossing up third party content and cable M. B N O growth at T. Mobile our growth is primarily driven by our retail business as evidenced by.

Industry best 6% growth in postpaid service revenue.

And our content costs are treated as contra revenue, that's a reduction to our ARPA.

And one final point around the quality of earnings in the industry. Several analysts have written about how AT&T has rung up over $4 billion of promotions on their balance sheet and how it will pressure their ARPA and margins for years to come.

I think the industry has been unfairly painted with a broad brush based on the actions of one player.

At T mobile, we take most of our promotional expenses upfront with only a minimal amount amortized through the balance sheet.

No point in kicking Mccann on expenses when you are a sustainable growth company.

Altogether, our strong momentum and execution enable us to continue to invest in our network and the business to deliver significant expansion and future free cash flow.

We're on track with our plans to unlock value for our shareholders potentially including substantial share repurchases ahead.

And with that I'll now turn the call back over to Jud to begin Q&A Jud.

Right, let's get to your questions you can ask a question on B via phone by pressing star one or via Twitter by sending a tweet to at T. Mobile I, our ore at Mike Sievert, using hashtag T. M. U S. Alright, we'll start with a question on the phone operator first question. Please.

Thank you we'll take our first question from Phil Cusick of J P. Morgan.

Hi, Phil.

Hey, guys. Thanks.

<unk>.

Appreciate it so let's talk about the the cdna slowdown impact.

I know, you're saying you're planning this shutdown LTE at the end of next year anyway, how should we think about the C D and a little bit delayed and then and then second can you just talk about the with everything going on in the base, whether it's dish and AT&T and everything else, but the your confidence in growing EBITDA by by them.

Digits next year is.

Is that a reasonable expectation for the street.

Thanks, Phil I'll start with the first one maybe hand, it to Peter and he'll go ahead and guide you on 22 three months in advance.

On a on the CDMA, Yeah look I think most of what we had to say it was in our disclosure at the time, we'd been in talks with all the other parties involved including the department of Justice and following those talks we just decided to take it upon ourselves to voluntarily move that date out by three months and plan to Sunset. The CDMA network at the end of <unk>.

March and we did that after carefully looking at our own plans and determining that there wouldn't be a material impact from doing that.

Now to our outlook or our financials or our ability to deliver us synergies as expected, but we did want to make sure that everyone involved at the time that they needed to make sure that we meet the department of Justice is what I know is the is there a goal in the public interest which is to make sure that every single customer out there has the opportunity and is given the.

To switch to the superior network and time.

Now as we've said all along we believe that December 31st provides that ample time, and we've given everybody involved well over a year way more notice then they needed but when we look at the actual run rates it looked to us like even at the current rates and extra three months would be something that everyone would appreciate and so I'd like I'd like our partners to be.

Moving faster they don't appear to be and because of that we just took that voluntary action on their own you know and we think this is based on everything we're seeing we think this is all that would be necessary and so that that's something that we were pleased to be able to do as it relates to all the pros and cons and effects on EBITDA for next year, we're looking forward to an.

Adding 22, but I doubt Peter will give you much on it but the hand it to my friend Peter Yeah, Phil Yeah, We will certainly provide a full update and guide you as part of our year end calls, but let me give you a couple of points around how we think about 'twenty. Two first I know there's been questions around what's the potential impact of dish and I think we you know we highlighted it well at our Q2.

Earnings call dish revenue is already under $2 billion in 'twenty, one and as we look about how the business momentum is continuing we said that was always part of the plan again, we took dish on their word and I always assume that they would become a full facilities player and a range of duration of the L. R. P that revenue would go away.

And you heard us recommit and we're doing it again today around the 23 and 26 service revenue guidance given the underlying strength of the business and so that is probably the area where I'm. Most excited I mean, you've you saw the results today, you've seen the net account additions and the real growth around not just postpaid phone, but postpaid.

The other one of the areas of the business I'd like to highlight for 'twenty two is probably ARPA.

And with the momentum that we've seen in our updated guide just now to be relatively flat full year 'twenty one to four year 'twenty two I see a path with magenta Max and the excitement there from our customer base to be less than 1% dilution in 'twenty, two and remember that's off of a higher base in 2021, which is now going to be.

<unk> 2020, the other area I'd say is really where we're excited is free cash flow and you see what's happening are continually raising our drag this year as you're looking through the 10-Q. You also see it's allowed us to take opportunity and do significant prepayments with certain vendors and generate flexibility and savings.

And that working capital is already fully contemplated in our updated guide today. So as we think about 'twenty two I'm very excited about the opportunity for free cash flow and as Mike said that really is the ultimate expression of value creation is how you take that service revenue and translate it into cash flow.

Perfect. Thanks Pete.

Yeah.

Next question.

Our next question comes from Brett Feldman of Goldman Sachs.

Thanks, and maybe just to start off with a follow up question. Thank you for giving us some of that insight into next year why would a postpaid ARPA, who still have dilution next year. The sequential trend is obviously, you've been pretty positive as you've been moving customers into.

Into the Max plan, and you're you're deeper into the integration. So any other puts and takes it really just would play out over the next few quarters would be appreciated and then the comment you made about how strong your phone net adds would have been if sprint churn was aligned with our legacy magenta churn implies youre, losing a couple of hundred thousand sprint subsea quarter or still at this stage in the integration with <unk>.

90% of the sprint customer traffic on the T mobile network and over half those customers having been moved over.

What's your experience been with the point at which a sprint customer takes on the characteristics of a legacy magenta customer in other words at what point could we see a material positive inflection in the aggregate sprint losses. Thank you.

Terrific I'll start with the second one and then maybe I'll hand, it to Peter on the first one in Alaska, John If he has anything to add on the first one on sprint churn listen we're really pleased with what we're seeing but you have to bear in mind that what we're doing in this strategy as we're compressing integration into a tighter time frame and that means that whatever sprint churn is going to have.

And as a function of integration is going to happen in a shorter period of time and effect of the integration periods to a greater extent and our sprint customers are showing us a tremendous amount of patients as we give them a much better five G network experience and get them migrated over but still as anybody who follows this industry knows when you have an integration.

During that period of integration there can be puts and takes for customers and we're trying to do our best to give every customer a great experience as it relates to what we're seeing when somebody comes across from sprint to magenta and what we call a full migration and there aren't that many that have a full migration yet so there could be some selection bias here that that means you're fully on the T Mobile network.

You're fully on the T mobile biller, you're engaged with the T mobile brand you've moved to T mobile tax inclusive rate plans and you're experiencing T. Mobile team of experts surface, So where we're going where we're going very quickly for everyone. Those customers that have come all the way across our showing so far that's about the eczema churn profile as magenta.

Customers and that's very exciting because magenta is on par with anybody out there and in many time periods has been the best in the industry. So that's that's really really promising.

Now I think what we have the opportunity because we're compressing the time frame and we're only seeing somewhat elevated churn to actually come through this integration with less overall losses than we would've expected from the sprint side, because its happening during a compressed timeframe.

So we're very pleased with those trends and where you'll see us in our actions with things like our sprint forward initiative in things like our device offers moving to get sprint customers. The handsets, they need, particularly 600 megahertz compatible handsets as well as everything else they need to take full advantage of the magenta network and before we go on to ARPA I know, John if you'd like to add anything to.

What youre seeing and what your team is seeing with sprint customers because it's one of the most important questions. I think we'll talk about today because as you saw the underlying magenta performance is unbelievably great and we just have to get through the Senate yesterday. So what are you seeing well Mike you know I think you hit on a number of things that are that we're seeing within our team here and Mike what he said is.

We've got a we've got to make sure that we bring this full experience and we've done this integration in the last 18 months and disparate parts with rate plans for one to moving you know traffic and changing our Sim cards, but really bringing that full experience together like Mike said, you know great T mobile on tax inclusive plants, one to having a.

Ladies and greatest devices with the full network capabilities associated with those devices, namely 600 megahertz, because if you don't have a 600 megahertz device on the T Mobile network, it's like the T Mobile network from 2015. So it's really important that we do that and then of course the award winning team of experts customer experience and bringing all that together and not being enough.

You know still in the sprints application, you're logging into spread dot com, you're going through a sprint App you don't move in the whole experience over to team up with that's the big unlock for US. That's what we're really focused on we've been putting a lot of effort and a lot of work starting in Q3 on moving the full accounts over and not doing that and discrete events, but.

We started that in earnest in Q3, we've seen great results from that so far when you take a look at you know the customers that were porting now from sprint and they were coming back in a T. Mobile we've seen dramatic increases since we've put a number of initiatives in place back in August of this year and in Q3 and that we're still running so far in Q4 so.

I'm really pleased about that we continue to be bullish like Mike said, it's gonna be a compressed overall timeframe during that for any of you who have been covering this business for a long time, you know integrations on migrations and those things are tough, but we're always a little bit painful and they're always a little bit grueling, but as I take a look at my 27 years in this business in terms of how we've been handling.

This migration and overall integration I would say is first in class and best in class. So we got a lot of work still to do in front of US no question about that but we're well on track to.

To do what we need to do in 2022 and beyond so I hope you understand why we see tailwind is ahead.

Because obviously, we're in the height of this integration right now and we have a lot of work left to do you know we have a lot of keep sites that need to come over on the magenta side still that there is still on the sprint side, we have a lot of handset migrations to do so people can take full advantage of that destination network and we have lots of migrations that we need to do on customer service on rate plans.

On the full picture so a lot of work ahead, and but our goal is to get it all done at least a year ahead of schedule. So we're very focused on that and you've seen us show up each time with updates telling you we're going faster than expected. Okay. Brett the second part of your question I can roughly paraphrase it for you.

This negative 1% ARPA this year and we're going to pull into the station sounds like with flat ARPA. After all so why isn't that going to happen again next year absolutely Brent.

Well I mean, as you know right the.

Under the underpinned assumption under the L. R. P was 1% dilution year over year through the end of 2023, because the plan was really always focused on how do you get account growth and how do you expand those relationships and have ARPA growth. So as we look forward to next year. There. There's a number of things that could impact us certainly we talked about the great momentum from a.

Jen to Max and other other value add services that will be a tailwind to ARPA, but as you think about some of the growth opportunity areas for you and I'll give you. One example, which would be large enterprise and government.

There are.

Our actual phone ARPA, maybe lower than our blended base and so you're going into a new account relationship and enterprise or government, where that might be ARPA dilutive, but certainly a very very strong ARPA type of relationship and typically you will also see a lot of the postpaid other the other connected devices where in many cases.

The C. L V. Amongst those are much stronger than the phone business in and of itself. So that's one area, where you could see our pud dilution and yet tremendously value accretive to T mobile from a whole account relationship. So I'm not going to give you all the puts and takes you've got to let you leave me something to guide you on.

At yearend earnings instead of Q3, but certainly great momentum and again focused on ARPA expansion throughout the course of this plan.

Great. Thank you.

You bet, Brett a cap rate will go back to the phone and then just to prepare the team. If you can call out one or two you see on the AR on the Twitter feed that'd be great. We'll do that after this next one.

Thank you operator, our next question comes from Craig Moffett with Moffett Nathanson.

Hi.

Two questions for you if I could one now that we've seen your numbers and everybody else's. The industry growth rate is is now pushing even higher to a total phone subscriptions prepaid and postpaid combined to almost 3%. So now what seven times population I Wonder if you could just.

Talk about what Youre seeing there is that E b, b or or what is making the industry grow the way it is.

And then second there's been a lot of talk about convergence from your competitors about what they can do with fiber and in their wireless plans I Wonder if you could just talk about how you see the role of of combined offers of wireless and wireline and whether you think that.

At or fixed wireless and whether you think that's critical to be competitive.

Terrific well I'll start with the first one.

No.

I don't think we have all the answers as to what's driving account growth or or line growth over at all of our competitors and you don't see quite the same amount of transparency. It's one of the reasons why we decided to start talking much more about accounts and about ARPA because there's no there's not.

Ambiguity in that you know are 268000 net new account relationships on the postpaid side was the largest in seven years for our Q3 and you see ARPA rising and so it shows you the quality of that business one of the things we didn't talk about it is that our prime percentages up several points from year ago, and we're getting more.

More and more prime not surprisingly because we have a better and better network. So a track where it's starting to attract to higher levels. The best customers in the industry and so for US it's not some of the things that you might expect it's not E. B b, because we have no material E. B b and our numbers are generally that program is over on our lifeline side, which isn't in our subscriber rolls.

But is for our competitors and to a certain extent, it's not due to subprime it might be for our competitors, but our prime mix continues to improve its not due to some weirdness of lines underneath the accounts because you see account growth in ARPA growth very healthy and you see that flowing through to industry, leading postpaid EBITDA grow.

As well as our industry, leading cash flow growth and so.

Look I don't know how sustainable it is prepaid is about flat. So there's certainly been some amount of transference. There from what you would've expected to be an organic rate I don't know how sustainable it is but what investors should should ask themselves. It is if it doesn't become sustainable.

Who's going to win.

And who has a reliable ongoing strategy that we'll be able to deliver growth and all of the different time periods and look for us we have a strategy and a set of assets. It's going after majorly underpenetrated segments like small markets in rural areas, which are 40% of the country like enterprise like her.

Broadband your second question. These are huge places, where we don't play in the other guys do and so you know that between that and our massive lead and five G. We're two years ahead on the five G race and I'm here to tell you that in two years from now will be two years or more ahead in the five G race, and that's going to translate as well to.

Entity for us and so.

Look I think there is some amount of temporary and that's happening with the other guys. They they're feeding to a small extent on our integration driven sprint churn investors will have to ask themselves whether you believe us that that's going to be very short lived and will not will not only not be a tailwind for them anymore, but will turn around.

So we'll see we'll see how all that goes but we're really pleased with where things are going in with the underlying trends now your second.

It's about convergence and about home broadband first I want to talk about how we're doing is being a multi.

Category player with our push into home broadband and then maybe we can talk about the question on fiber et cetera, so that so.

You know the question on convergence as you know well, we'll have to we'll have to see but one thing. We do know is that consumers are beginning to realize that there are choices and they aren't having to put up with what they get today.

What we're seeing is that.

While there are a lot of places there are very limited choices in terms of what their their cable or fiber offering are and those offerings are typically very punitive they start out with promotions. They explode those end up paying very very high prices piece for modems fee other taxes other other charges that customers don't like and so what's translating.

For us and that is that we're seeing customers. The majority of our customers are not only coming as Mike mentioned from urban and suburban areas, but they're also coming from cable and fiber providers and why is that well a big part of that is customers want a good product and a great price and that's what they're getting with our products and so we're seeing people come in and say this is a product that.

He works and you know what I'm paying an amount that doesn't explode I'm paying a very fair amount and I don't have to be extremely irritated about having you know my my existing cable company sort of Gouge me on these things and so for US. This has resulted in what we've seen is our highest net add quarter since we since we launched the <unk>.

And we see continued momentum from people coming from from cable fiber and quite frankly, even other sources DSL satellite et cetera in rural markets. So it's R. Five G. Ultra capacity network gets built more and more we're going to continue to follow that and begin giving more and more customers choice. So we're still very excited about.

This product.

Perfect Okay.

Well, let's go Jud, let's see what's on Twitter and then we'll come back to the phones after that sounds good and we've got a great question here can you talk about potential enterprise five do you use case opportunities.

To go right to my Cats, Yeah, perfect well, you know as Mike talked about the beginning let's not let's not forget that the first big five killer five G. Use case is core connectivity smartphones tablets and other connected devices and you know I'm really proud to say that we have seen our win rate.

To improve in that area and our win rate is trending well above what our market share is and continuing to improve like we like we saw in Q3, and that's resulting in huge growth huge growth.

You just look at what's happened over the course of the last two years from 2022 to now our growth in core connectivity is more than 50% better than Verizon and.

And in the business space.

So we're seeing that the correlation of us as T. Mobile <unk> are emerging as the five G leader correlate with this big growth in core connectivity in business.

But you know your your question around these additional five G. Use cases, you know one of the things that we talked a little bit about it last earnings is we're involved in multiple trials with enterprise and government customers.

We think we're really well positioned to bring these new enterprise advanced network services to market because of the way that we've delivered our five G network. You know my Mic has talked a lot about the scale of our network covering 190 million people with our ultra.

Our our mid band five G network.

But we also have some other key features that we've built our five G network around that are really positioning us well to differentiate on these five new use cases like the fact that we've got a dedicated five G network core so our five G traffic isn't running through our <unk> network first.

A dedicated network core that's delivering better performance for customer end customer applications. It also gives us the ability to bring really cool features to market like network slicing that we think is gonna be a big opportunity for us with it with enterprising goes with government customers in the future. We have a highly distributed network of data centers. So we can help customers process data.

Data closer to their application on average than our competitors can and so we've got a number of these trials going with with customers right now and these are big even though you don't see US doing press releases every single week of about this we have big customers with big significant use cases like for instance, we're working with one of the larger.

Airlines in America right now are on a mobile edge use case application that allows them to process data faster under wing.

And improve there on ground operations at one of their major hubs, we're working with one of the largest U S auto Oems to help support a bunch of self driving use cases, and an autonomous fleet that they're building and so we're working with some of the biggest companies in the world, helping co innovate these solutions with them and we think we're really well positioned because of the.

Hearing decisions that Neville and his team made to differentiate on these advanced five G network use cases for our enterprise and business customers going forward.

Terrific.

Operator, let's go back to the phone.

Thank you we'll take our next question from Jonathan Chaplin of New Street Research.

Thanks, guys.

<unk>.

My you're so good is the lowest it's been in the third quarter. Since you guys close to budget and they understand that's not really a a flare a fair measure based you know given that you guys said earlier in the year on the second quarter call that you really saving your dry powder.

<unk> for the period of the year, we're switching is going to be high.

Presumably that's now and so I'm wondering if you could give us some insights into what you think has happened to your share of decisions.

Since the since the iPhone launched in September.

Yeah, well one of the things that we've talked about and I think you heard in Peter's earlier remarks is that.

After listen we did see him you know to.

The first question and impact from the data breach you know that happened in August and you know there was a muted effect there because of that I was quoted early in the fourth quarter, saying that we finished much stronger and we were seeing nice trends as we entered the fourth quarter and that kind of shows that this was.

While I'm, a big event and something we're very very sorry happened something that customers are generally prepared themselves to move on from and so that's good Oh.

On the other hand look our model one of the things I pointed out was that.

If you were to normalize our churn and and.

Look at what it May look like after we're finished with this integration and just for a minute I don't know if it'll look like this but just for a minute to say what what if all of our churn was at the magenta levels. Our net adds this quarter with that so go figure you talked about would have been 1.2 million on the postpaid phone side by far the biggest in the category and you know outsized versus.

You know what time periods in our history as well and it really shows you that that saga level that we're getting is reliable sustainable and about where we want it for this point in our journey and what you don't see us doing Jonathan that you may see elsewhere is kind of knee jerk reactions and lurches into them.

You know unanticipated very expensive promotions et cetera, et cetera, with no strategic apparent linkage behind it and you know we've got a plan we consistently deliver a where you know in any given period, we could take more gross add share, but we want to make sure that we're also delivering the industry, leading EBITDA growth and industry leading.

Cash flow growth and we're creating the wherewithal to make this a sustainable journey as we go penetrate all these underpenetrated segments that our competitors don't have and that takes consistency and reliability rather than chasing that last couple of points of sogou like the other guys are doing and so we're very pleased with this execution and you know we think investors.

Ought to be too when they look at the big picture.

Mike If I can just quickly follow up on that it also you guys had mentioned a couple of times, how complex and enormous integration processes.

And how disintegration is going far better than any integration of comparable scale ever in the industry.

We've seen.

When you say that at this point in your Johnny you were happy with the soda that you've got is it a function of just all of the complexity that needs to be managed in the business right now.

And once you get through the integration this will be the benefits on the sprint side to side, you'll have more management bandwidth and resources to focus on increasing the pace at which you take share is like maybe take focusing on sugar right now just unfair given the complexity in the business.

I don't think it's about management bandwidth, but resources or certainly a relevant point what one of the things. We're doing as you see is we're spending heavily into this integration and outpacing our expectations on the time frames for our cost to achieve plan. So that we can get this integration done more quickly and we think that's by far the right strategy that.

Customers get the benefits sooner the shareholders get the benefits sooner probably the magnitude of the benefits is positively affected by the rate and pace, but during that sausage, making out it takes a lot of resources and we want to be able to reliably deliver cash flows to you and down payments as we go along I think asking the market for a giant leap of trust for.

For us to plough deeply into our cash flow plan in a different way than you expected just because we're ahead on integration that wouldn't be a I think a great tradeoff for us to ask investors to ride along with so we're paying for this as we go and we're delivering the amount of soda and investing accordingly in saga that allows us to deliver high quality prime.

Customers that deliver outpacing EBITDA and cash flow growth even during the height of this integration, but something I'm very pleased about them, but to your point the underlying magenta business, which is all we're going to have as we get into a major part of 'twenty three is performing beautifully and it shows you the power of this brand.

And that the uncharacteristic in full force and effect.

We're tackling the biggest pain point of all that.

That trade off that people have always had to make between quality and price, we're delivering both and they're noticing like never before and those those trends I think bode very well for us on the backside of this integration.

And I would just go ahead.

Jonathan you were thinking ahead to what happens post integration you've got to remember we're delivering this sokha, while we're still expanding distribution and building the network around smaller markets in rural area. So this is the saga that we're delivering before we're fully deployed the carrier machine and 40% of the population.

And when you know you heard Mike talk about just how differentiated that experience is going to be we're bringing everything that made us. So successful to date, except doing it with a fully differentiated network experience that is just going to blow the other guys away in that 100 million.

Covered pops that is going to be a forging you know I don't know kind of five G experience relative to ultra capacity with T mobile with all of the on carrier goodness that comes from the last eight years, bringing it there. So just you know that's another area as you look forward as we bring this machine to that.

40% of how it could impact soda.

That's a great point, thanks, Peter Thanks, Mike.

You bet.

Go to the next question operator.

Thank you we'll take our next question from John Hodulik of UBS.

Okay great.

And I can tell you a couple of quick questions for you first on the cash EBITDA.

No. It's been decelerating for the last few quarters grew four 5% this quarter, but the guidance for the year. So that suggests a growth of over 5% I mean.

First of all is that that is that the way to think of it that this is a problem with that is the bottom in terms of cash EBITDA growth and then maybe to pull the Netherlands, because they seem sitting over there by himself.

Do you guys have visibility in terms of the synergies coming through with the sprint network that.

It's a sort of linear growth from here in terms of the acceleration of cats Kashi Ebitdas as you pull down that's been dark that's number one.

And then.

On fixed wireless anything else you can tell us about the same basically the size of the sub base because I think you have got 500000 subs by year end target out there or do you think about usage or how the networks performing in areas, where you guys are selling a fixed wireless service.

Okay, EBITDA synergy pacing and fixed wireless so Peter let's start with you Yeah, John I think you're trying to tease out I mean 22 core EBITDAR. So good good job again, I I think you know I'll revert back to all the comments about the business and how I see 22 shaping and the excitement around the free cash flow on the 'twenty 'twenty. One guide yeah, you're absolutely right you know it was another.

Not only synergy increase as a result of the integration, but also the growth from the underlying business. That's allowed us to increase yet again for a third quarter in a row core adjusted EBITDA to between 23, four and 23 5 billion. So tremendously excited about how that continues to grow and of course, the opportunity and momentum.

Some of the business as we look out into the 23 and 26 period of L. R. P M and maybe I'll hand, it over to <unk> to talk through you know decommissioning, but it's not linear in terms of how you achieve the synergies or as we spoken before how you really achieve and when you record the merger related costs, but next year is certainly.

A big year in terms of decommissioning and I'll, let Matt will talk about that that sets us up for such a significant portion of the synergies as we decommission the sites now yeah, Thanks, Peter and I'm not on my own John I Hope, there's a whole team here.

It just seems like a big ignore it at all.

But very quickly on on synergy on the development pipeline I mean, we're already you know well into synergy development and you know we made a good start in 'twenty, we're making great progress in 'twenty, one as Peter just outlined 22 is really our biggest year and it's not linear.

You know our goal is to substantially complete all decommissioning activity across the network inside 'twenty 'twenty. Two so we've made good progress to date, but 'twenty two is gonna be a big year and unrealistically you know it won't be linear during the year, either I mean things will certainly pick up and there'll be a tail of positive tail.

As we move into the second half, but we're making great progress and as we've always said. This this integration migration decommissioning strategy is all based on building the network first and you've heard from almost everybody on the call today. The progress we're making in terms of building the capacity and scale and reach and breadth of this network.

It was just Super exciting were ahead of our plan within arm's reach of a nationwide you know mid band five G. Ultra capacity network really before the other guys. You know even get started so we're in a great place and to you. The back half of your question John around you know how are we performing in areas where Darwin.

Successfully growing you know in home broadband product at a great rate, we're doing really well you know the growth is strong the huge demand for the product and the capacity that we can generate with this network is just phenomenal.

200 million people by the end of the year the covered with ultra capacity, we're targeting 100 megahertz 100 megahertz of dedicated fudgy spectrum across that footprint.

That's more spectrum on mid band and AT&T and Verizon will have available from C band between them both.

So the capacity and capability that we're generating is truly exciting and a lot of growth vectors in on great growth opportunities, including specifically about in home broadband product you referenced.

Yeah, that's for that we didn't we.

We didn't disclose lots of details I did tell you that we were running last quarter at twice the pace of Verizon who had a three year head start we launched this out of beta earlier this year and as well as you know this last quarter Dow and team delivered more net new home broadband customers on five G. Then.

Verizon did on fiber and <unk> combined.

Which kind of shows you that there's a lot of latent demand out there and it also shows you the capacity of our five G network and the kinds of things people are doing on that broadband hundreds of of gigs a month.

On that five G network and of course, we have that footprint now out there you know pretty widely available. So maybe you could talk about kind of feedback we're getting from customers.

Thanks, Mike the as you know as Mike mentioned, we're seeing customers.

One we're seeing great uptick uptake with the product, we're seeing customers use the product and several hundred gigs a month. We also have many using them anymore and novels network is is serving them just fine.

What's great to see too is a lot of third party recognition from like PC magazine, and I think and its readers choice.

Choice Awards, they rated us higher than all the other cable companies and we even this last quarter, we had a record high NPS that we track internally so customers seem to be liking. This very much and we you know initially we at the beginning of the year. We said, we aspire to be at 500000 customers by the end of the year you know, we're well on track to do that.

You know on our way to seven to 8 million customers by 2025, which you know I think we remind everyone. That's only a couple of percentage points of the overall industry. So you know this this really big opportunity for US is really just you know a small penetration into the industry and gives us lots of opportunity so off to a great start I mean, it's not surprising that there there is a.

Lot of delight out there and I hope, we can keep that up I think we will be able to it looks like the usage. While it rises is not rising as fast as our capacity, but look we're solving problems for these customers.

That's why they're so satisfied where either solving the problem of giving them a real viable high speed choice, where there wasn't one.

And boy that would that change your life.

Or coming into a place where you're so frustrated by cable and you want a decent deal and a fair price and a company that will put you first and treat you right. So you can unplug that court.

That's a big problem solved to $50.00 for home broadband the kind of home broadband, we have like five or 6% of our customers using a terabyte of months.

No. That's that's solving real problems for people and so not surprisingly those net promoter scores are high we're so excited about this business.

Okay. Thank goodness.

Thanks, John Let's go back to the operator, and then maybe even want to prepare US one more jud from this big screen of Twitter feed.

Thank you. The next question we have comes from David Barden of Bank of America.

Hey, guys. Thanks, so much for taking the questions I guess.

The first would be I think Mike you talked about more than 50% of the customers are taking a magenta Max at the margin.

You know, obviously, Verizon ATT of chewed through a lot of the opportunity to migrate metered to unlimited I was wondering if you could kind of share.

Where magenta Max stands as a percentage of the base and relative to the base what kind of.

<unk> lift are you getting and then the second question I have if I could is Ah.

Just related to again, the sprint network shut down its importance to the realization of synergies and Mike. Some of your comments about how you sat down with with all the interested parties related to the network shutdown and decided to extend the deadline to March 31st in the in the blog posts. It went out you said it would have no <unk>.

<unk> impact at least if we went that far or are we.

Convinced that we're ready to just in this and begin to get the network shutdown and we're comfortable saying March 31st it's the last concession we're making thanks.

So let me start with the second one Dave and then we'll talk about Magenta Max Yeah. We we just don't see any cause for a further delay and getting people upgraded to the right side of the digital divide and getting a high capacity <unk> five gene network in the hands of people who need it most as urgent. It certainly also important for our business and when we look at the.

Our run rates of upgrades and we study the run rates in the declining based on CDMA. All the curves pointed there just wouldn't be caused a delay it further.

So I wouldn't expect a further delay for that reason I certainly wouldn't expect a further delay that would have any impact on our financials our ability to go execute the plan that we promised you and nor does this one.

We looked at it carefully we found a way to do this.

Because we wanted to do the right thing for a partner that was asking us even though we don't feel that they needed it.

And we're pleased we were able to do it and we were pleased we were able to be responsive to our conversations with the department of Justice to do this on a voluntary basis and so no I you know, we just don't see that there would be cause to delay it further.

And then back to Magenta Max.

No I can't give you too much on the base here.

All very competitively sensitive, but the premise of your question is really interesting, which is the other guys might be starting to exhaust their opportunities man. We're just getting started.

So the base so there's lots of room to run in the base and this is the very best expression of the best five G network in the market and no wonder. It's popular you know and when people have been able to get amazing handset deals by signing up for this plan and that's been a catalyst they're using 35 gigs a month, what we think is on.

Its way to 80 gigs a month that this network will be able to handle no problem and that that shows you.

The magenta Max experienced shows you as Mike said, a little while ago that the smartphone is the first killer App of five G. We see huge usage and video and social media growth in mobile hotspot growth, our magenta Max customers don't walk into a building and look around for the Wi Fi signal and ask you for Wi Fi password they provide the Wi Fi.

Yeah, and that's where this world's going so we're so excited about what we're seeing but can't really parse it too much other than I agree with the premise of your question, which is do we have room to run on the base here Yeah, we do.

Mike I appreciate it.

If if you put that three five gig into concept on context on magenta Max that's three times the industry on what you're seeing unfortunate LTE. So it's just incredible in terms of the consumption on magenta Max when you pair it with the industry's best in leading five gene network. It certainly helps to put cable competition into perspective as I talked about in my prepared remarks.

You know you see quote unquote unlimited offers that throttle you that we're not talking about prioritization. If the networks. Because you were talking about just throttled. After 20 gigs first of all why are you calling that an unlimited plan.

And second of all that's a <unk> plan and a five G world and with where we're going I don't know where they go but I don't think that they're going to be able to have the owners economics in wireless to truly compete on value on the wireless side and you know and I don't think that AT&T and Verizon have the wherewithal or the plans are to compete.

With us on the quality of the five G network that we're building and so we really like the hand of cards for that reason strategically.

Thank you guys.

You bet. Thanks, Dave do we want to go one more on the did you find.

We've got a quick one here from from Bill Ho So ask with the recent best buy and Walmart distribution relationships are what's the view on these channels driving <unk> 21, and the future years growth relative to the pass to John If you want to hit on that quickly on some big announcements recently on that distribution front. Yeah. You bet. We're so excited about this we've made it a couple of announcements just in the last 30.

45 days or so where we have we're gonna be expanding our T mobile and metro by T mobile products not our we have expanded them into Walmart and across 2300 stores on Walmart and a lot of those in smaller markets in rural areas of course, and then also have launched T mobile and best buy.

Cross 900 stores, we're incredibly excited about this I think when you look at what Wal Mart has done and what best buy has done independent make and how they have completely revolutionized. There are there particular companies Walmart is the place to go shop in Rural America. It is incredible what Walmart has done digital transformation.

And then when you look at best buy as the Premier consumer electronics retailer across the United States. Those are if those are attractive opportunities for US you got to remember too is that we haven't really played in national retail and these large natural retailer and a very long time as a matter of fact, just in the last quarter. We quadrupled with these announcements are a number of national retail locations.

So we see those big opportunities for our company to to be in the customer basis of Walmart and in best buy and see you know significant switching opportunities in those spaces as well. So we were very attracted to what Walmart is doing what best buy is doing clearly they were attracted to the industry's best five gene networking.

You know all of the opportunity that our company represents over the next several years. So we're very bullish on that I don't have numbers you know exactly by channel to give you in Q4 or the years beyond but I would just tell you that we're very bullish about these opportunities we've got great strategic relationships with Walmart and best buy we've been engaged in a lot of conversations over the last several months and were very.

Excited about the future I'm very confident in our approach there.

Well terrific I'm going to wrap it up here in a second is first of all I want to thank you for all of these great questions and I know, we gave you some long answers and so apologies to the people that might've been in the queue. We didn't get to we're always available to you I know Jud and team are anxious to talk to you and answer questions in an FD compliant way. Following this meeting, but I really like the kind of questions that we had.

And as you noticed I prepared my remarks to try to address what I see as some of the big questions out there about our sector and we get a lot of people, saying man is it getting competitive what's going on are you guys still the growth leader in the answer to that is an emphatic, yes, we like it competitive we execute incredibly well when it's competitive and the question for investors is who has the.

Asian in the hand of cards on the assets and the team to sustainably deliver internet in a competitive marketplace with room to run and that's what we were hoping to address in a high quality way today and I answered your questions gave us those opportunities to address some of those topics. So we appreciate your thanks for tuning in Jud I anything final.

Just again, thank you everybody for your time, if you have any follow up questions. Please reach out to our Investor relations or media relations and we're happy to follow up Thank you again.

Ladies and gentlemen, this concludes today's T mobile third quarter earnings call. Thank you for your participation you may now disconnect and have a pleasant day.

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