Q2 2023 T-Mobile US Inc Earnings Call
Good afternoon. Following opening remarks, the earnings call will be opened for questions via the conference line by pressing one followed by four via Twitter by sending a tweet to at T mobile I R or at Mike Sievert, using cash take P. M. U S. I would now like to turn the conference over to <unk>.
Mr. Jud, Henry Senior Vice President and head of Investor Relations for T. Mobile U S. Please go ahead Sir.
Okay.
Welcome to T Mobile's second quarter, 2023 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, which involve 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 fact, but in other documents related to our results as well as reconciliations between GAAP and the non-GAAP results discussed on this call can be found in the quarterly results section of the Investor Relations website.
That let me turn it over to Mike.
Okay. Thanks, Jed Hi, everybody welcome to the call as you can see we're here with several members of our senior management team are coming to you live from Bellevue, Washington, and we're ready to take your questions.
But first let me share just a few comments.
If you'll recall at our analyst day in early 2021 we shared our strategy to build the best network, coupled with a leading on carrier value proposition and customer experience and grow our share in areas, where T. Mobile was massively underpenetrated relative to our peers.
That strategy and our approach has remained remarkably consistent and our Q2 results continue to show that it's working better than ever in fact T. Mobile delivered our highest Q2 postpaid phone net adds in eight years fueled by both industry, leading gross adds and the lower.
Postpaid phone churn in company history.
And importantly, we did this while industry growth normalized proving that the growth opportunities and durable advantages. We've been sharing with you really are unique to T mobile.
We also told you that if we delivered the best product and the best value and the best experiences. There was no reason, we couldn't get to the lowest churn in the industry I remember that end in Q2, we did it for the first time in our history T mobile reported the lowest postpaid phone churn in the industry.
That is a remarkable statement and it's a testament to the work our team has done to build the best network and to further our value proposition to deliver even better experiences to customers.
I'm sure, there's still going to be some back and forth between us and the other guys before we consistently put them in the rearview mirror for good on churn, but all the same it is great to get this first win.
We also continue to run the business in a smart and sustainable manner translating our industry, leading customer growth in Q2 into industry, leading service revenue growth and core adjusted EBITDA growth, while growing free cash flow by more than 60% year over year this industry leading customer.
And financial growth led us to raise guidance for the year again.
And we're fortunate to deliver these industry leading results within the context of a vibrant wireless industry with growing industry service revenues and industry cash flows and healthy competition that continues to deliver more value and better networks to customers and.
In fact on network, we not only defended but extended our leadership in both overall and five G performance with the latest third party reports showing that T. Mobile's lead is widening.
Looking at Uccle data T mobile once again swept every category for overall network performance with median download speeds more than double our closest competitor.
We've long talked about how our dedicated five G spectrum assets with superior propagation would result in a demonstrable advantage and customers' everyday lives experiences even as the competitors try to catch us T. Mobile's headstart, our dedicated five G spectrum assets at.
And our technology leadership are the things that allow us to stay meaningfully ahead as in like two years or more ahead and five G reach and overall network performance and to stay ahead for years to come.
And the most exciting part is that many prospective customers are only just beginning to notice which means lots of the benefit from this is in front of us.
And importantly, these things also allow it to do it all with the best capital efficiency in the industry.
Now we also continued to build on our fame for providing the best value. Our latest on carrier moved phone freedom frees customers locked up into those three year contracts at the carriers and our new go five G plus rate plan delivers the best value in wireless the response from customers has been really amazing and for.
Go five G plus instantly became our most popular plan.
And we're seeing improved porting ratios against every competitor, including yet another quarter of year over year improvement against cable and.
In fact total postpaid porting ratios for us have improved every month since we launched on freedom, including in July as more and more customers learn that they can break free from those three year contracts come due a better network and get a better value at T mobile.
All of these catalysts, coupled with our unique growth opportunities in Underpenetrated markets are what enable a differentiated and profitable growth strategy that separates us from the competition and you're seeing it again in these Q2 results. We added 299000 postpaid account net adds the highest reported.
And the industry showing that we continue to win the switching decisions in the market and we had postpaid net additions of $1 6 million again, leading the industry by a wide margin.
This included postpaid phone net adds of 760000, our highest Q2 in eight years, even as the industry sees more normalized levels of growth.
Our increased share was driven by our industry best phone gross adds which grew over last year's Q2, as well as the lowest postpaid phone churn in our history and as I mentioned the lowest in the industry for the first time ever at just 0.77%.
And T mobile for business, we had a record quarter with best ever phone net adds and our lowest ever phone churn enterprise and government customers buy based on their own rigorous testing of the networks not just price and our network leadership innovative solutions and customer experiences are driving major wins and fueling.
Our momentum in these segments, we're attracting profitable customers with C. L vs. In the hundreds of dollars each and still growing.
As I mentioned consumers are beginning to take notice of our network strides as well as we're winning prime networks seekers and the top 100 markets, who increasingly recognize that T. Mobile offers the best combination of network coverage and capacity to meet their needs. We saw our share of switchers in the top 100 markets.
Increase both sequentially and year over year.
In smaller markets in rural areas, where we continue to bring the first and in many places only five G network. We're seeing an incredible response, we're capturing a win share of switches in these areas in the upper thirties, which shows where not only on track to meet our goal of 20% share in 2020 five but.
It gives us confidence we have room to run in the years beyond.
In addition to mobile wireless.
We added 509000 high speed Internet customers, notably we've continued to grow our gross adds every quarter since we launched over two years ago as demand for the product just continues to grow.
And we saw sequential improvement in churn again, this quarter and net promoter scores that remain multiples higher than cable demonstrating how our high speed internet resonates with and satisfies an important target audience within this larger broadband market.
We also celebrated another major milestone in our sprint merger integration as we are now substantially complete with both the billing migration and retail rationalization well ahead of our year end target.
At every step of our integration journey the customer has been our primary focus as you know this has allowed us to not only unlock synergies bigger and faster than expected, but also to deliver industry, leading growth and record low churn at the same time.
I could not be more proud of what our team has accomplished in this area.
Okay, I'm going to wrap it up we are pulling into the station halfway 2023 with great momentum our postpaid phone net adds year to date are right on track with last year, which was a growth record year for us we continue to extend our durable network and value leadership over the competition, which fuels our growth opportunities and.
Our profitable growth strategy continues to translate into the highest core adjusted EBITDA growth and year to date cash flow conversion in the industry.
Listen in our industry change is a constant but our team navigates it definitely with the customer as our north star and because of that there has never been a more exciting time to be at T mobile.
Peter over to you to talk about our key financial highlights and an update on our guidance for 2023 absolutely banks, Mike Q2 was another quarter of best in class profitable growth, which underpins the updated guidance that I'll share with you in a moment it starts with the best postpaid service revenue growth in the industry up over five.
5% year over year, driven by continued increases in both postpaid accounts and postpaid ARPA, our disciplined focus on profitability resulted in an 11% year over year increase in core adjusted EBITDA and we grew our core adjusted EBITDA margin by over 300 basis points year over year.
In addition, free cash flow was up 64% year over year and with the highest free cash flow to service revenue margin relative to our peers year to date, we expect this to be a durable and differentiated unlock shareholder value going forward.
This strong financial performance also supported our share buybacks as we repurchased $25 2 million shares for $3 5 billion in Q2 with a cumulative total of 83 5 million shares repurchased for 11.8 billion as of July 21st.
Alright, let's jump into the details of our increased guidance for 2023.
We now expect total postpaid net customer additions to be between five six and $5 9 million up 250000 at the midpoint, reflecting growth across all of our market opportunities and we continue to expect roughly half of postpaid net adds coming from phones for the full year.
Our focus on profitable growth allows us to fund those higher customer net adds and still increase our core adjusted EBITDA expectation, which we now expect to be between 28.9 and $29 2 billion. This was up 10% year over year at the midpoint based on higher service revenues and merger synergies and excludes leasing revenue.
Approximately 300 million as retransmission substantially all remaining customers off device leasing by year end.
Our merger synergies are expected to be approximately $7 5 billion in 2023, achieving the full run rate synergy target provided at our analyst day, a year ahead of schedule as we build towards the full run rate synergies of 8 billion in 2024.
We continue to expect merger related costs, which are not included in adjusted our core adjusted EBITDA to be approximately 1 billion before taxes and we now expect cash merger related cost of one $6 billion to $2 billion for 2023 as they have underrun the P&L recognition to date.
Net cash provided by operating activities, which include payments for merger related cost is now expected to be in the range of 18 to $18 3 billion.
And we now expect cash capex to be between 9.5, and $9 7 billion delivering a capital efficiency unmatched in our industry unlocked by our network leadership, we expect Capex to taper in Q3, and then further in Q4 the.
The slightly higher operating cash flows fund the increased capex, resulting in strong free cash flow of 13.2 dollars 13.6 billion, which includes payments for merger related costs. This was up approximately 75% over last year, thanks to our margin expansion and capital efficiency and does not assume.
Any material net cash inflows from securitization.
This also represents a free cash flow to service revenue margin, which was multiple percentage points higher than peers with further expansion expected next year.
We continue to expect our full year effective tax rate to be between 24, and 26% and finally, we now expect full year postpaid ARPA to increase slightly more than the 1%. We had previously guided for 2023 as we continue to expand our account relationships across products and services as part of our.
Land and expand accounts strategy to grow service revenue.
Before I wrap up I want to remind folks that we closed the sale of our wireline assets to cogent on May <unk>, which had a partial impact on our results in Q2, and we expect the full run rate impact beginning in Q3 as I laid out last quarter.
In closing, we continue to extend our network leadership and further scale, our differentiated profitable growth opportunities to deliver the highest free cash flow conversion in the industry and unlock shareholder value.
And with that I'll now turn the call back to Jud to begin the Q&A Jud.
Alright, let's get to your questions you can ask a question via phone by pressing one followed by four and via Twitter by sending a tweet do at T mobile I R or at Mike Sievert using has hashtag T M U S.
I will start with a question on the phone operator first question. Please.
Certainly thank you that will come from the line of Brett Feldman with Goldman Sachs. Your line is open.
Hi, Thanks for taking the question and it was great to see wait and see the strong cash flow in the quarter.
In light of that we've got a few questions around why you decided to sit down and take a little bit on the buyback and I guess, maybe the higher level question. We're getting now that you're a much further into the program. How do you think about managing that program going forward and cash flow is obviously, an input you're going to be making some payments for C band spectrum. This year, so what Mr right.
Way for investors to kind of frame your expectations around how you're going to manage that on a go forward basis. Thank you.
Yeah. It sounds great. Thanks, Brad I'll start and then maybe hand, it to Peter for some comments.
You know the way I think about it is where we're buying at a pace through mostly through a pre design can be five one programs in order to be able to meet the authorization during the timeframe of the authorization. So if you recall the initial authorization of this program. It's a $14 billion program that takes us through September and if you look at some of our.
City early in the in the year, where we were able to grab some additional run rate now the remaining funds relative to the remaining time suggests a run rate where we have it. So it's not really a downtick so much as just a kind of a programmatic view and then.
And then maybe Peter can pilot on the second part the way we think about it broadly is that there's essentially been no underlying change to the thesis we've been communicating all along now our board Hasnt made a determination yet about the second step, but the inputs to those steps have to do with the free cash flow development of this company, which as you mentioned in the premise of.
Your question is right on track, we're guiding to 75% year over year cash flow growth. This year and you know the underpinnings of the growth in the business as you saw from our fantastic Q2 momentum suggest another good year in 'twenty four and so as the cash flow develops you know that's what gives us the confidence that that original thesis of <unk>.
<unk> $60 billion through 2025 is intact, but maybe you can also comment Peter on kind of how we think about this from a dedication.
Dedication of resources to this versus spectrum and other things spread out absolutely Brett Yeah. One of the things that we had underpinned at analyst day is that it's about up $2 65 billion of free cash flow, that's going to support the $60 billion potential shareholder remuneration and within that we had some room and had reserve some capacity for spectrum purchases.
Some other things and of course will fundamentally continued throughout this whole period wanted to deliver because of the underlying delivery of the free cash flow is what allows everything to happen and of course always look at opportunities before us for the higher highest value creation opportunity with your with your question on C. Band that was already included in our assumption here. So when we continue to see.
We have our optimism around the program in totality C band is fully contemplated within that.
That's great color if I could ask a quick follow up questions as we're talking about overall liquidity any update on the spectrum option that does hold then and if that works you get exercised how do you think about putting that proceeds to work.
Sure.
Well the first thing I would point out is that any proceeds from that have not been contemplated in our long range cash planning. So if theres cash that comes from that soon that would be incremental to the planning expectations.
We're still awaiting dishes decision. So just as an update on I think our filings made some of this clear the deadline has come and gone for them to determine whether or not they would exercise their privilege to buy that spectrum for $3 $6 billion, but they asked for some additional time of the Doj and we did not object to that and so we have come.
<unk> that we would not terminate their agreement and right to do that at anytime before August 11th but in fact, we're in discussions with dish about whether or not there might be a win win that's different from their initial privilege and if there is you know that'd be wonderful, but obviously.
You know that deadline is coming so but you know our view was it was worth taking the extra time, especially since they asked for it in case, there's a bigger win win to be had here.
Thank you I appreciate it.
Thank you.
You bet.
Operator next question please.
Thank you that will come from the line of Craig Moffett with Moffett Nathan your.
Your line is open hi.
Thank you two questions one as long as we're on the topic of dish.
Outside of the 800, if the opportunity came up would you have an appetite for more mid band spectrum, either from dish or perhaps any other source and.
And what we're talking about a certain meaningful sized chunks here.
And then second if you could just talk about the pacing and trajectory of fixed wireless as you know with a little more experience under your belt as you look out toward your long term guidance.
How do you how do you think about the pacing to get to $8 million or so households.
It sounds great well I'll tackle the first one and then maybe hand to Mike Katz for the second one you know and I don't mean to be flip Craig, but I think you you know you've been followed us for so long, even though we've never met spectrum, we didn't like and so of course.
And but one thing that distinguishes us from other providers is that when we get on our hands on spectrum, we put it to work.
Right away for the benefit of the American consumer and so that's not only in the public interest, but that's in the interest of T mobile and our customers and so you see that in how we're deploying so ambitiously the two and a half gigahertz for the proceeds of the merger having built the best five G network in history on that Spectrum Act.
And that came through the merger. So look I mean, you know we're always on the hunt for other ways to add capacity to our network because it allows us to do amazing things like not only continue to take share and grow and meet ever rising needs of customers on their smartphones, but also to get after the subject of your second question, which is.
Fixed wireless access and.
No to the first part of your second question nothing has changed in our aspiration.
On the hunt for that single digit penetration and maybe make a comment about what we're seeing in the marketplace and the rate and pace of our growth versus our expectations. Yeah. Thanks, Mike and thanks Gregg for the question.
We couldn't be happier with what's going on with this HSI business you probably you probably saw from all of our results. We just crossed over $3 7 million customers in this business and this pacing that we're on which we told you about last quarter and the quarter before of right around where we were in Q2 right around 500000 customers. We it gives us confidence that you have the seven to eight.
Million total customers that we committed to at the end of this planning period that we've got high confidence that we're going to get there and one of the things that Mike mentioned in his comments that thinks worth reiterating is we saw in Q2.
Again, our highest gross adds in our gross ads have increased every single quarter. Since we launched this product and then again in Q2, we saw sequential decreases in churn and I think that really speaks to the fact that this is a great product and it's a <unk>.
Great products that customers are really really loving and you see that both in this sequential churn decreased but also just in the overall N. P. S scores, which continue to be the highest amongst any broadband category in America. So we're really thrilled with where we are with this product back to my comments upfront I said things have been remarkably consistent.
And with what we rolled out to you at our analyst day in 'twenty, one and this is one of those things you know we said we saw a potential here of seven to 8 million subscribers based on the excess capacity profile of our built mobile network that means it's not capital burden and because of that we can we can make profit there and so it plays a role it's a single digit penetration role.
And we're on our way to going and seizing it for the benefit of our shareholders and our customers and it's right on track.
Thank you.
Okay. Thanks, Craig Operator next question please.
That will come from the line of Jonathan Chaplin with New Street Research. Your line is open.
Okay.
Thank you very much why don't you can give us context on on a couple of things firstly.
How are you thinking about the evolution of upgrades in the second half of the year as we go through a new iPhone cycle kind of point of view factored into.
Your guidance on <unk>.
On EBITDA for that it looks like upgrades to the industry had been had been coming in sort of lower than expected much lower than historical trends I'm wondering how that shipped in the second half of the year and then wondering if you can give us a little bit more context on fixed wireless broadband Chad you mentioned that had come down sequentially, which isn't surprising in that it is always low in the broadband market.
In the second quarter, what does it look like on a year over year basis, maybe you can give us some context around the kind of levels that it's at four.
Mature portion of the base, that's been with you maybe for a year or more.
Yeah, Jonathan Youre spot on and the premise of the question that looking at the aging of the basis the way to get at it will come to Mike on that in a minute, but first on upgrades historically low upgrades Peter what's contemplated for the rest of the year and maybe a little commentary on why do we think we're seeing that yeah, well, let me start with why do we think.
We're seeing that and fundamentally we believe we're meeting customers needs and desires and if you look at what we've talked about from a network perspective, and a value perspective. It makes a lot of sense you'd come onto this network and you have a five G device remember about two thirds of our postpaid base already has a five G device and they get experience on this network that is just phenomenal.
In the broadest sense of the word much more than the competitive sense can bring and we think there were just meeting their natural demand customers are happy with their devices, they're happy with their devices from a longer perspective remember we continue to have two year financing construct so they have the ability to upgrade earlier than the competition.
One of the unlocks a phone freedom that worry about we put out there that led to the port ratio changes. So fundamentally we think we're exactly meeting what customers need.
In regards to the second half the second half always tends to have slightly higher upgrade rates and you mentioned that you have a new product introduction from Apple you tend to have promotional construct on a little bit higher switching in the second half and we're typically the beneficiary of that we also obviously make a very very solid offers to our <unk>.
Base from an upgrade perspective, so we do have higher upgrade rates contemplated in what we saw in Q2, but we don't specifically guide to those other than Directionally.
Okay, and Mike over to you on a little bit more color on.
High speed Internet churn, yeah, I mean, I think building on what you are saying like you know what we have the youngest base of broadband customers in America and like I think we said in a couple of calls and the churn curves that we see for customers like in our mobile business tends to be higher in the earlier 10 year months and then.
<unk> as customers achieve greater greater tenure links with us and we're seeing the exact same thing in our in our broadband business and customers that have been with us for some months. They're turned it has decreased to the point that was right, where we expected it and so it's looking right on where our plan was and the behavior is has been just wrote right right on.
Right in line with what we expected.
Okay terrific and.
Maybe just tell us when it's time to go to Twitter. So we're not ignoring the people coming in on Twitter, because we always do some of that as well and but while youre thinking about it we'll go operator to one more online.
That will come from the line of John Hodulik with UBS. Your line is open.
Yes.
Great. Thanks, guys two questions if I could first on the margins obviously a lot of progress there are 200 basis points, but you guys still trail.
T T and Verizon by about 500 basis points.
Do you see that are closing over time or is it really just a bunch of them for lower Harpoon Doctor subgroup.
That's number one and number two Mike I think you said that you're quoting versus cable has improved and I don't think you've called that out before but maybe just some commentary about what you're seeing in terms of competition in wireless and cable I mean, they were talking about sort of more and more bundled offerings and I guess, I guess comprehensive sort of flattish.
Year over year basis, but just you know what the posture is there and what's driving that improvement in importing from cable.
Okay, I'll take that one but Peter we'll start with you yeah certainly on the margin question you know it's it's.
A lot more than an <unk> differential it's really some structural differences that we always call out for example, the the whole leased versus owned the backhaul strategy. The other thing that always noticed that with this significant higher switching that we see in the net add production that were giving obviously, we have more S and SG&A then.
The competition does we have a very dense network built out so theres fundamentals. Some structural differences that also mean, there was a capex opex differential and when you compare.
AT&T, Verizon and us and that's why it's always important to fundamentally look at conversion of service revenue into free cash flow free cash flow was the value generation engine that allows you to further invest.
Returned capital to shareholders or do all sorts of other things to create value and that is the measure by which we're really comparing ourselves to the competition to get rid of all the structural noise. Dan on that regard you. You know you heard what we announced today already there from a year to date basis in terms of beating them on the conversion ratio.
Next year Okay.
Also paid it to expand that ratio further so that's that's how I think about margins. It's interesting that when you listen to peer that you you here that even with our superior growth.
And our lower prices, both of which hit margins.
We have the superior cash production per service revenue dollar in the industry year to date and it and that is rapidly expanding 75% year over year guide this year on our way to higher cash flows next year and so it really shows you. The power of this model based on this team's ability to execute but also based on the balance sheet the incredible ASUR.
That we control the track record of execution that head start and many other benefits.
Okay, Great. The second one was a second one was cable so John let me come back to that Yeah. We did make a very light comment on it but it was light that we had been seeing improvements in our port ratios with cable last quarter, because we wanted to provide some commentary because cable in Q4 started to see.
Some pretty big net add trajectory changes and so we kind of double click into that because you kind of have to do that as a competitor to figure out you know is this going to come from us or what's going on and it's kind of interesting you fast forward to this quarter and I'll remind you that even in a world where cable is now a pretty big.
Share taker in overall postpaid T mobile produced the highest postpaid phone net additions for a Q2 in eight years and not only the lowest churn ever in our history, but the lowest in the industry and that kind of answers the question as to whether or not this dynamic from cable is coming from our side.
Right I mean, you know, we're performing better than before they were in the industry, but obviously theres a dynamic that affects others are both of our two look alike competitors plus prepaid. It you know there's a lot of brands that had been affected by this and theyre viable competitors to be taken seriously.
But it's just as you can see in our performance not affecting our results.
Great. Thanks, Mike.
Okay.
Who do we what do we have coming in online you've got a question from Raj retina on how strong was the business growth. This quarter, maybe if he can and T that went up and then I've got a.
A follow on question around them.
Enterprise sector as well so we can we can hit those.
Great. So Roger Aetna as how strong was business growth. This quarter can you talk about the V. A L.
And any additional color on overall business growth.
We also have.
Chetan Sharma coming and congrats on another great quarter. Thank you I was wondering if you could provide some color on traction you're seeing in the enterprise sector beyond connectivity.
What about vertical industries people using five G. Five advanced services et cetera. So maybe Kelly why don't you start on both of those and anybody.
Anybody else can jump in okay. Thanks, Mike.
Thanks, Roger and attention for the questions as Mike mentioned earlier, we delivered on our highest phone net adds and lowest Sunshine anther handedly beat Verizon again, and we're seeing profitable growth in all three segments in F. N B, we achieve positive part trends against AT&T and this makes five consecutive quarters.
Orders against Verizon and we grew our true quarter over quarter again.
As Mike mentioned in his opening remarks in enterprise and government business is good business with very profitable C. L DS.
Roughly 60% to 70% relative to consumer and Theyre rising year over year quarter over quarter, and and Q2 for enterprise for instance, we welcomed both the largest global asset management firm and yet another leading global bank as new accounts. We also landed two huge government contracts with EEP.
And the IRS and continue to double our net adds quarter over quarter with first responders most significantly in rural areas, where an older LTE network just doesn't cut it for critical response.
A lot of really good growth this quarter from an incredible team in the business group and then for the VA question. If I could just take that one for a second I wanted to say is as you may remember, we took Verizon share back in 2018, and now because of our network, we've taken the pole position and have.
Added roughly 20000 phones here to date supporting more than 50% of the VA phones today and I'll note to our contract also includes T mobiles and fight the Internet for the D. H community community based outpatient clinics.
So we're able to provide health care for veterans in rural areas because of the network that we have and that we have felt so just wanted to add some clarity on the on the VA centric and then one last thing on use cases for applications outside of pure connectivity I'll I'll start and touching list and some of the verticals, where we're seeing the most traction and that would be.
In retail where we see many use cases for 65 G solutions, where people are looking to and look at better cost and less and truck rolls and and support for perhaps older wireline services and are replacing that with T. Mobile's five G and in multi unit.
National retailers and then in health care is another area, where we're seeing and our CTO and CIO that's fine.
Large hospitals come to us and say look we need ubiquitous connectivity, both indoor and outdoor we need more of a programmable network, we need certain places in our buildings. So we went to designate private networks and because of our public five G network and the solutions that we can offer with our Standalone core we're able to offer a hybrid solution, that's really working in a place like a like a.
That has lots of different variation to the types of connectivity they need and then lastly, I'll say, we're seeing some traction in education large campuses that want to provide connectivity for their students, but also ways to use their data differently and to get into all of the dorms and places in the campus and rooms in libraries and perhaps older buildings.
Where there's really a need for ubiquitous coverage throughout the throughout the campus those are the.
The three areas that really pop out to me. The last one I would say is in in the federal use cases with the department of defense were not a surprise to anyone lots of areas for us to begin to deploy and hybrid networks and private networks for use cases specific to the military.
Well hopefully that answers it and more I mean, if you listened to Cali. It just reinforces what I said in my upfront remarks, which is some of the biggest and most sophisticated and profitable customers.
Are choosing T mobile because of the sophistication of our advanced network capabilities and our ability to translate that into solutions for their business and that's just so different from where we were a few years ago. It's a complete 180 and it's fueling momentum in fact, all time record results and our business groups. So hopefully that answers the question guys.
Terrific. So we go back to the Fund's astute operator next question. Please.
Thank you that will come from the line of Phil Cusick with J P. Morgan Your line is open.
Hey, guys. Thank you.
<unk>.
Wireless industry is still running maybe hotter than many expected at the beginning of the year. Certainly your momentum is strong are you seeing improving porting ratios versus other msos and and maybe the M. B a nose.
Or do you think there is a growing mix of customers, who are coming in without a phone history or a number.
And then second if I can capex might.
Mike you talked about tapering in the second half does that <unk>.
Jumping off rate in the fourth quarter indicate a much lower 'twenty four capex level. Thank you.
Yeah.
Okay, Great I'm going to let Peter answer the second Capex question. The first one is really interesting. The answered. The question is yes, and yes. Both are true. So yes, our port ratios are improving Ah <unk>.
Each and every month since we launched phone freedom against each and every competitor, including cable overall in cable individually and that's a really interesting fact that it shows that not only are people starting to discover our network advantages, which has sort of been a slow improvement over the last year and a half.
But we.
We have really sparked intrigue with consumers around this idea.
That we can free them from being trapped with the other guys are.
And you know in cable in some ways actually is helpful. In that in a dynamic competitive industry more people are jump balls and more people are saying should I be with one of those two look alike. You know kind of old line providers or should I be with somebody new and when they get asked that question.
And they are picking cable by and large they are picking T. Mobile as you saw we had the industry leading postpaid phone net additions now what is happening is cable is growing very rapidly and faster than I think a lot of people expected, but specifically to your premise of your question our port ratios with cable have been improving for year over year for nine quarters.
In a row and what you see is that the big step forward. They started to take in Q4. According to our analysis about 80% of the year over year increment in their performance from the same periods a year ago Q4, Q1, and Q2 is from non ports.
So they're actually not growing the porting side of their business at the same rate as the not boarding side of their business instead kind of printing postpaid ads.
Might be coming over from prepay they might be just simply net new they might be kind of dropped in the bag I don't really know, there's probably several different factors to it and.
And we just we don't know quite how to unpack it because we don't have all the information I mean, we'd double click into things.
Like Verizon's wholesale revenue and note that it is not growing that sort of an interesting diagnostic for us that helps us understand you know what might be happening so anyway.
Anyway, hopefully that under that helps it our industry leading.
Account growth of 299000 shows that T. Mobile is winning the switching decisions in you know high quality prime paying families the kind everybody's going for yeah.
And on Capex, Phil the way I think about next year, although we're not specifically guiding is we're still comfortable in the nine to 10 range that we gave out and remember I wouldn't take Q4 as a jumping off point because really the way often team have built this is a very lean manufacturing approach to the build one of the one of the secrets to our capital efficiency.
The bear and so it isn't that I'd take a run rate and an exit run rate than projected but nine to 10 billion feels about right for next year at this point in time and speaking of our lean network performance machine I think it would be a good time to just stop and take note of what's been delivered with this incredibly capital efficient profile.
You're asking about.
You know Olsen team you guys deserve it incredible credit we've now reached 285 million people with you know ultra capacity five G. This.
This is something that neither of our competitors principal competitors.
I have promised to ever do certainly not in the next two years and so we've been talking about this idea of being two or more years ahead, and the five D rates, but if anything it's expanding maybe you could share a few of the statistics of kind of where we are and also a little shadowing of where we're going well, thanks, Mike and the.
The last quarter, we actually pulled ahead in our leadership.
285 mid band Pops, we're heading towards 300 by the end of this year.
We have to remember that we reached 200 mid band pumps two years ago in 2021 on our low band, we reached 302 years ago, where others are now pulling into the station it gets harder and harder, but the pumps to grow through every 100 million Pops takes about three times the efforts in terms of upgrading them.
Building, new towers to be able to deliver the same pop grows. So this network is just fantastic and we are so proud of it and we're proud to support also with Kelly commented on earlier five G being capable of not only being the tremendous consumer driver. It's also drives now.
More and more of the business inside the enterprise space, which is a dream for all everybody who has followed a five G for many many years.
On top of that we have lots of room to move ahead.
We have today 255 megahertz of spectrum that is dedicated to five G on our mid band.
And you have to remember that our molten low band is all of the dedicated to five when others are talking about their their coverage, they're sharing this between LTE and <unk> and we're not we're dedicating spectrum. The mid band megahertz will grow to 200 megahertz dedicated to five by the end of the year by migrating more LTE spectrum.
Over over to five G. And then we haven't even started on what we can use food at 424 and beyond which is salaries C band. We can use our our 345 auction results. We can use our 108 auction results with us is enhancing our $2 five capabilities Eve.
Even more and we have yet to reform spectrum for example on AWS as well. So there is just so much more for us to run it and.
Couldn't be more excited that we're extending our lead in terms of our network well. It's a good thing you are because we're filling it up.
It's what's interesting is that with $3 7 million high speed internet customers and rapidly growing the average speeds on our network are not just twice as fast as our competitors, but growing we're speeding up not slowing down on this network in terms of the average person's lived experience and that's just phenomenal and it's and we've got tons of capacity.
City that we have not yet rolled out which opens up more and more opportunity on our way to not only the seven to 8 million high speed internet customers, but our ability to with the best network continued to take share from our competitors. We said at the beginning we had a two plus year advantage and we would have it for the duration of the five G error in your proven us right with that works.
Thank you.
Okay. Thanks, guys.
Operator.
Your next question comes from line of Simon Flannery with Morgan Stanley .
Your line is alright. Thanks.
Thanks, a lot good evening I, just following up if I could on that spectrum deployment.
I think in the past you've talked about rolling out fixed wireless to a majority of the U S. Perhaps you could just help us understand where you are on coverage today with the base offer and how that should evolve over time now that you're $2 85 going to 300 and I guess the related question is for Al you didn't mention the millimeter wave I know you'd been looking at.
Potentially a macro overlay product how are you thinking about that at the moment are attacking M to use with millimeter wave.
Well, let's start with the millimeter wave question, then we can come back to the.
The coverage on fixed wireless I can touch on that one.
So we are a we are actually using millimeter wave today, we we have deployments that we early on started off in Manhattan for example in Los Angeles.
In some areas, where we really have that extraordinary capacity need.
We can use the use the tool of millimeter wave our general strategy is not based on millimeter wave. It's based on our macro strategy, which you know is our layered approach, where a low band or mid band and now also deploying a buoying our Pcs spectrum for five G. But millimeter wave could also be potentially an interesting play for us.
When it comes to enhancing capacities that could be used for example for HSI and we're working with our vendors and we're working our way through our Oems to figure out if we can make a viable economic and technical performance case out of that with them and that kind of bridges to your second question. Maybe this is a good time to remind everybody how are <unk>.
<unk> model works for fixed wireless access.
Essentially right now we serve about.
The potential of about 50 million homes, but theyre not in certain geographies, they're geographically dispersed all over the U S. Because the way our model works is we're selling excess capacity sector by sector and so we what we do is study every sector from every tower in our in our network and determine what amount of normative smartphone.
<unk> will there be over the next several years and in areas, where there's still excess capacity. We today approve applicants for home Internet use and right now there's about 50 million home addresses where if you were to go into our tool and apply to be our customer we'd say, yes out of the $145 million in the country, but what's interesting is if you and several.
Of your neighbors all did the same the Ns person would get it no because it's a dynamic model what we're selling has excess capacity and because of that what we are modeling shows us that we will get to as we said at the very beginning about seven or 8 million households, with this excess capacity model, that's not burdened by capital and since it's not burdened.
Capital with an already built mobile network that you need for great coverage and competitiveness, we're able to profitably build this business at very low prices and it's just a win win for a sort of single digit penetration part of the market.
Now to the premise of your question on what <unk> was getting into of course, we're studying whether there are ways to go beyond that initial.
Excess capacity capital free model capital free ish model N.
And we havent drawn any conclusions about that yet I mean, we're looking hard at millimeter wave.
You know, we're looking at whether or not dedicating mid band spectrum to HSI would make sense, whether they're non standards based solutions and we just haven't drawn any conclusions is not immediately obvious that there are economic ways to grow this business beyond its initial single digit penetration, but you may see us doing trials in the marketplace.
As we experiment with this and try to crack the code.
And so you know you'll hear about us trying millimeter wave things or MDU strategies are not standards based.
<unk> solutions to see if theres a way to get after it and you see us trailing fiber.
Whether or not there's a way for our team our distribution our brand to add value in the fiber ecosystem and I've made mention of that before all of these things are things, we're doing to try to learn and the good news is we've got some time because we will hit this kind of initial terminal sizing of HSI still we've got two more years to run. So you know our heads are down seeing if.
There's a way to crack the code on this and of course at any of the things. We do there that we just talked about a capital burden model or something with fiber are all things that would have to be accretive to our analyst day guidance that we put out there.
Alright, Thank you alright, great operator next question.
That will come from the line of Tim Horan with Oppenheimer. Your line is open.
Just curious why wouldn't you be raising fixed wireless.
Prices now it seems like you have very very strong demand from everything we hear out there and you kind of have somewhat limited supply and I guess related to that the golf club, Japan can you give some color what that means for ARPA growth. The next couple of years. Thanks.
Okay, let's start with the second one on go five G and whereas ARPA going in ARPA and all that stuff. Peter we can start with you yeah absolutely.
I'll, let John comment on the success of <unk>, plus but as I always say you know when we think about <unk> and you saw a sequential increase of about 20 cents and we continue to believe on a year to year basis, our pool will be generally stable, there's probably some potential for sequential increase again from Q2 to Q3, but since it is such a mixed driven metric and you have to.
To put everything into it whether we're talking about all the benefits received from <unk> plus whether we talk about the benefits received from a segmented approach whether it's you know military 55, plus and how those might be lower our <unk> customers than the average that we see but our high seal the customers coming in very high quality customer similar.
Early in business, you know business you tend to get a enterprise government large accounts that have very very great C. L. V's, but would have given the nature of the volume purchasing a lower RPC. So all of that blends into our <unk> that we see as generally stable, but it's the ARPA strategy there.
Habits, the switching attracting accounts into T mobile and then the land and expand ARPA strategy, which you just saw in.
An exciting update to the guide from plus 1% to slightly over 1% on a year over year basis, there and that's really the focus point for us but the question on go five G plus so they've got handed the John firm all brands. It's been a phenomenal success, Yeah, and then I think Peter just to just to remind everybody that <unk> plus is really.
Our front book initiative, we're not going into the base and asking people to migrate to <unk> plus in doing all of that within the base truly kind of a front book initiative, but this is going fantastic and we had an opportunity to mention this on our Q1 earnings call back on April 27th when we launched phone Freedom go five G go five <unk> plus in mid April .
And like Mike said, a few moments ago. When you look at the overall porting ratios and the attractiveness of this offer and what's happening that we've increased our porting ratios every month against every competitor and have followed that through so far in July and over 60% of the accounts that are joining T. Mobile are now subscribing to <unk> plus.
There is utility that's different than magenta Max in terms of hotspot data that we've increased in terms of high speed Romijn in Mexico, and Canada across North America that we've increased but the big pain point that I think go five G plus of solving is that new and to promise first of all paired with the easy unlock and helping people get out of AT&T.
And Verizon, mostly AT&T, given the unlocked devices, helping people get out of that switch and a T mobile, but this three year contract cycle that AT&T and Verizon has we knew this was a big insight and a big opportunity that even I underestimated how big of a pain point that is the fact that you. You know you can't you can basically go to law.
School and complete law school faster than you can complete a final phone contract at AT&T and Verizon and so that's a huge pain point and the promise of dual five <unk> plus have been able to getting a new device same device offer as a new customer every two years, that's a differentiated and unique proposition in the marketplace, that's really different and is really.
Resonated with customers.
Well said, Okay and your last question was about HSI pricing I'll just answer it briefly.
I don't normally give sort of forward looking commentary on pricing. So I'll answer it this way instead, which is do we see ARP, who I know are we interested in ARPA enhancement for HSI and the answer is yes of course.
But generally when you look at our track record our philosophy in the past as to how to get about that isn't a jackup people's prices is to add value to their life bring new services show them increased offers and let them self select their way up and you know obviously, we're interested in that in this space.
Okay, great good.
Next question please.
That will come from line of Michael Rollins with Citi. Your line is open.
Thanks, and good afternoon, just following on the earlier comment on some of the integration milestones that you've hit what are the activities that are left to get to the full synergy run rate of seven 5 billion for this year's guidance 8 billion next year and can you unpack and maybe even size some of the opportunities.
For further cost efficiencies that may be embedded in your multiyear plan to drive that longer term margin expansion.
Good morning.
Okay.
Great Michael well, let's talk about where we are on synergies this year and what's left to be done I mean on the what's left to be done front not much.
The major milestones are behind us, but that doesn't mean, the synergy run rates are quite there yet. So maybe you can comment on that dynamic Peter yeah, exactly a few things in there of course, we said we have a small tail of customers to still get over and that will allow the final decommissioning of systems and things to that whether it's front office back office. Those are the things that are kind of.
I have to do from a cost perspective, theres, a little bit in terms of physical D. Com. One of the sites are shut off theres still physical D comm happening and on the synergy development you know as we get from seven and a half to the $8 billion next year really the big chunk of that is avoided costs. So we'll realize the vast majority of.
The run rate synergies by the end of this year, which you'd naturally expect given we're saying we're substantially done and then the shift to next year will be fundamentally those avoided site build costs.
And then just one other can you share how T. Mobile is looking at the role and mix of online distribution and how you're viewing the durability of customers wanting a physical retail location to buy an upgrade devices.
Right.
Yeah, absolutely and it kind of goes to the premise of your follow on question. Your initial follow on question, Michael I mean, obviously.
Across consumer markets generally customers want a transaction thats fast transparent simple and mostly digital and our industry has been very stubborn on that front, mostly due to the complexity of the offers across all the providers and so that's something that we're very focused on and I know everybody in the industry is.
Our digital capabilities are rapidly improving especially as it relates to self service for our customers. It's incredible whats going on left to right in our company as to how we're already applying AI technologies and machine learning to speed things up serve customers in a better way and we can get into some examples around that but because of emerging technologies.
<unk>, there's a lot of potential over the coming years to not only meet customers where they are finally in this industry because we've been kind of slow in this industry due to the complexity of our offers but also to potentially realize some efficiencies over time and that's a good thing because the cost of competition is high and you know as you've seen over the last few years, it's gone.
Gone up and so you know it's.
It's all about us seizing opportunities to be able to continue this formula that works, so well and for us to continue to do what we do with this flywheel of success, we can't sit on our hands, we have to be able to seize new opportunities not necessarily to outperform the promises. We made you those promises were really high fulsome.
Promises, but in some cases to achieve them in light of you know what we have seen in the past, which is some increased cost of competition, but at the end of the day is great for consumers.
Alright. Thank you next question please.
That will come from the line of Ric Prentiss with Raymond James Your line is open.
Great. Thank you.
Couple of questions wanted to follow up on the private network question.
Do you feel that's private networks <unk> private networks will become a material enough number on the revenues and associated question do you feel customers, whether it's consumer or enterprise really understand what <unk> means for them and why they should choose you with your head start just seems like the market is still just kind of like Oh, yeah, I'm not sure.
Or with five G S.
Sure.
You know on.
On the consumer piece I kind of agree and what people want is a really strong powerful signal everywhere. They go.
It's what they want and five G. As a means for us to get that in that better than anyone else, whether or not they give us credit that the thing that got them that was five G. I really don't care.
But we have the highest performing network with incredible reach of the high performing parts of our network <unk> than anybody else like by far like twice the landmass covered of ultra capacity <unk> than our next closest competitor and rapidly expanding as <unk> explained and Youre right. They don't really give five G credit for that but.
What they want make no mistake is a very powerful signal everywhere. They go because they are watching video more than ever they are glued to their tick tock and their Instagram stories and their sports and their Youtube and their videos in their zooms and they don't want buffering. They want that signal with no latency and no buffering and no jitter and that's the power of <unk>.
<unk>, whether they give it credit or not.
On the business side I'll.
I'll say the short version, which is we don't really know I mean, whether you to your question literally material. It means something in our company and that's big we're a big company.
We don't know when it'll be bigger than a bread basket, but we do know that we're best positioned to capture it.
And as Peter pointed out back at our analyst day, two plus years ago, we actually did not for that reason factor a lot of revenues in or really any at all from some of these advanced <unk> network services. Our strategy was let's make sure. We are best positioned to capture them and Kelly I think very definitely explained.
Some of the things that we're doing in this area with early adopting customers, but when it becomes something that's bigger than a bread basket and really contribute we don't really know because we didn't know we made you know promises in our long range plan on it but I can tell you this promise.
As that market develops we are beautifully positioned to capture it.
Great. Thank you.
Sure.
Alright.
It looks like we're right at time, so I appreciate everybody joining us today.
If you have any further questions. Please reach out to Investor relations or the media relations departments and again, we look forward to talking to you again soon thank you. Thanks everybody.
Ladies and gentlemen, this concludes the T mobile first quarter earnings call. Thank you for your participation you may now disconnect and have a pleasant day.
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