Q2 2024 T-Mobile US Inc Earnings Call
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I would now like to turn the conference over to Cathy Yao.
Senior Vice President of Investor Relations for T Mobile U S. Please go ahead.
Good morning, and welcome to T Mobile's second quarter 'twenty 'twenty four earnings call. Joining me on our call today are Mike Sievert, our president and CEO, Peter asphalt Beck, our CFO as well as other members of the senior leadership team.
During the 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.
Buck and other documents related to our earnings as well as reconciliations between GAAP and non-GAAP results discussed on this call can be found in the quarterly results section of the Investor Relations website.
Let me now turn it over to Mike.
Thanks, Kevin Hi, everybody welcome to the call we're coming to you from New York today, and if you're watching online you can see them with several members of the senior team ready to discuss these strong quarterly results.
And our recent news and of course to take your questions.
This T mobile team just continues to demonstrate strong execution across the board and we're taking up our customer growth and cash flow guidance for the full year once again.
I'm going to begin with a comment on customer growth because this quarter not only represented our highest ever Q2 postpaid phone net adds in company history, but we also pushed passed a major milestone 100 million customer connections. This growth was once again balanced geographically across.
Smaller markets in rural areas and top 100 markets.
We also grew our postpaid phone gross adds at the highest rate in nearly three years and at the same time, we delivered yet another record low upgrade rate this quarter speaking to the strength of our customers' experience on our differentiated <unk> network.
And speaking of experience, let me now turn to that network leadership, we swept every category for overall network performance and the latest open signal and Uccle tests. According to open signal T. Mobile's download speeds are up to three times as fast as peers alongside having nearly six times the five G abella.
Ability as our next closest competitor.
And our network was also awarded the most consistent by both independent third parties, a key indicator of an overall superior network experience.
We continue to invest thoughtfully and in a highly capital efficient model to extend our network leadership and it shows it is really a privilege to see our team's hard work show up in recognition like this and to share it with you.
Okay, turning to broadband or fixed wireless offering continues to resonate with customers, leaving us to capture a record share of industry broadband net adds this quarter.
And now we have an incredible 5.6 million fixed wireless broadband customers.
I Hope you all saw our news from last week as I'm excited to talk to you about our partnership with KKR to acquire Metro net the Metronet. Jim is the nations fastest growing pure play fiber provider. This is a unique company and asset they already reached over 2 million homes today and with this partnership or expect.
It did grow to 6.5 million homes passed by 2030, bringing consumers greater choice, where they need it most and we are equally excited to work alongside Kkr's expert infrastructure teams on this project.
And as with our Leu, most JV T mobile will leverage our scale brand distribution and existing customer relationships to grow faster and to do it smarter.
I can't highlight enough how both the metro net and Lou most jv's represent best in class partnerships in the fiber space because of the partners that we've chosen and T. Mobile's unique assets and capabilities. I believe this is going to be a very successful initiative for our shareholders.
Now going back to the current business and our financials in Q2, we once again demonstrated our ability to deliver profitable growth in customers and translating that to industry, leading service revenue growth and industry, leading core adjusted EBIT growth that combined with our capital efficiency has led to.
A record adjusted free cash flow quarter that grew 54% year over year and once again led the major wireless companies in free cash flow margin I could not be more proud of this team's results this quarter.
Okay and sum it all up we are staying true to our uncared DNA, while focusing on smart and profitable growth delivering record financial results, our durable and differentiated model continues to outperform and I look forward to sharing more about the UN carrier next chapter on value creation at our cash.
Capital markets day, which will be in the second half of September we're going to get that on your calendars very soon so Peter.
I hand, it to you to talk about our key financial highlights and an update on AGA.
You very much Mike as you can see we delivered yet another strong quarter, Mike already highlighted the momentum in our wireless and broadband business as well as our impressive financial results, but before turning to our outlook I wanted to briefly touch on our acquisition of <unk> mobile and ultra <unk>.
Speaker Change: We couldn't be more excited for them to join teen magenta from a financial perspective. The acquisition resulted in a one time prepaid base adjustment of approximately $3 5 million customers subsequent to the close the incorporation of mentioned Ultra also resulted in approximately 100 million in net.
Additional service revenue relative to Q1, which is net of the reduction in wholesale revenues and also resulted in a small benefit to core EBITDA as the revenue was largely offset with SG&A expenses as we made additional investments into the business to drive customer growth.
Alright, let me shift to an update on our expectations for the remainder of 2024, starting with customers. We are excited to raise our total postpaid customer net additions to now be between $5 four and $5 7 million up 150000 at the midpoint relative to our prior guide.
We now expect the total postpaid phone net customer additions component to be approximately half of our total postpaid additions up from our expectations last quarter and as part of that we anticipate normal seasonal postpaid phone churn trends in the second half as we saw a year ago.
We continue to expect our full year postpaid ARPA to be up to 3% higher year over year, and our industry, leading service revenue growth to accelerate at a higher rate in 2024, and we delivered in 2023.
Speaker Change: We now expect our core adjusted EBITDA to be between 31.5, and $31 8 billion for the full year unchanged at the midpoint, which is up 9% year over year. This.
This includes our latest estimate on the impact of HCP as well as funding our higher postpaid customer guy.
On ACP, we now expect a year over year impact to be in the range of 350 million to $450 million driven primarily by what we're seeing at some of our wholesale providers.
Turning to cash Capex, we now expect to be between eight seven and $9 1 billion as we continue to invest in lead in network performance with unmatched capital efficiency.
While our longer term expectations continue to be in the nine to 10 billion range annually as we discussed before 'twenty 'twenty four is a bit lower given certain capital efficient network activities, such as spectrum re farming and deploying additional two and a half gigahertz licenses from auction one always benefiting from the significant <unk> radio.
Deployments during our merger integration.
We would expect Q3 to be the low watermark for the year before we accelerating in Q4 with more site upgrades and build activity.
Lastly, we now expect adjusted free cash flow, which includes payments for merger related costs to be in the range of $16.6 billion to $17 billion.
150 million at the midpoint and up 24% year over year, driven by both margin expansion and capital efficiency and translating to an industry, leading service revenue to adjusted free cash flow margin.
Speaker Change: In closing, we delivered another strong quarter and expect another year of durable and differentiated growth as we continue to extend our network leadership and further scale our unique growth opportunities. We expect this to continue to translate into industry leading growth in service revenue.
For adjusted EBITDA, and adjusted free cash flow along with the highest adjusted free cash flow margin in the industry.
We're looking forward to sharing more on our multi year plans to continue to unlock shareholder value at capital markets day. This fall.
And with that I will now turn the call back to Kathy to begin the Q&A Cathy Okay, let's get to your questions. You can ask questions via phone by pressing Star then one M. B acts by sending opposed to ask T. Mobile I R. R. At Mike Sievert, using cash Tag T. M U S neulasta.
Speaker Change: With a question on the phone operator first question. Please.
The first question today comes from John Hodulik.
With UBS. Please go ahead.
Great. Good morning, guys can.
Can you talk a little bit about the fiber strategy I mean, obviously you guys have to.
Two big deals are announced in a number of other partnerships should we expect more deals sort of similar to what we saw with Lou most and Metronet.
And then can you give us any color on what you've seen in some of your pilot markets in terms of penetration rates.
And maybe the benefits of convergence convergence both in terms of <unk>.
<unk> broadband and wireless and what that does says maybe you're a wireless penetration in those markets.
Yes, John sure. Let me start I'll just ask the team to jump in first of all we're just really excited about where we are this was a terrific transaction for us to be able to partner with KKR to acquire metro and add on top of our previous transact transaction to partner to acquire a little more so now we have the beginnings of a critical mass in the space.
And.
For me. This is this is big I mean this these two transactions taken together with our partnerships in the wholesale arena are going to allow us to reach millions of homes. The luminous transaction, we see three and a half million homes passed by 2028, the metro not transaction, we see six and a half million homes passed by 2030.
There's probably a couple more million in the wholesale partnerships, we have so far and so that's a pretty significant footprint that we've put together and more importantly, we've chosen the best assets in the space and we're very excited about this now to the premise of your question I think what people can see from our strategy or a number of things one.
Our bias is pure play fiber.
Simplicity and elegance of that model.
It's doing it with partners so that we can get more leverage on our equity dollars.
Speaker Change: It's about.
Best in class assets that are performing and growing like we're seeing and we have some further appetite, but not much I want to make that clear I mean, these transactions that we have done get us millions of homes passed and do it in a way that we think is really smart and positive for our shareholders. So while we're open.
Minded to things that fit this strategy would have to be the right deal. Our appetite is somewhat limited for more I can tell you. We're not currently working on another transaction like this and since they've been coming every month or two I want to make that clear as well.
And but we're really excited about this this is a chance for us to make a big impact in the space and to do it with teams that are already the best in class out there. So that's that piece. The second you asked about performance. Yeah. We can talk about our pilot markets those are going well there earlier in phasing so it's hard to see but.
Speaker Change: Absolutely on track.
To me, what's more interesting is looking at the performance of these already and market teams that we are now going to be partnering with like Metro in that you know who we see penetrations in the upper 30, then they're more mature markets because they already passed over 2 million homes. So we can see at more scale, how that assets performing now our thesis has always been.
Speaker Change: Our brand and our distribution, our embedded customer base and our Knowhow can actually add performance to a partner like that and in a very cost effective way.
But it's on top of a team that's performing very very well.
Got it thanks, Mike.
Speaker Change: You bet operator next question please.
The next question comes from Simon Flannery with Morgan Stanley. Please go ahead.
Great. Thank you very much I. Thanks for the disclosure on ACP, perhaps you could just give us a little bit more color on how that flows through what how much of that $3 50 to $4 50 was in Q2 and that impacts into Q3 and beyond and then have you seen any benefit in terms of winning customers, saying they the metro Brown.
Trying to think like that and then Peter you talked about the expectations for churn and so forth second half of the year. What are you assuming in terms of an iPhone cycle Theres, obviously, a lot of excitement about an AI iPhone.
Given where your customers are another low upgrade quarter do you think we're waiting for a bigger surge or do you think this would be looking fairly similar to last year, which is I think what you said.
So Peter I'll turn to you on the ACP question, and maybe I'll comment on that.
Yeah, and thanks Simon.
Peter: You know and just there's a little bit of a history lesson for us as you know where you didn't participate in ACP through our postpaid brands. So there were no subscribers added there and through a metro we had a very small amount of customers. We primarily serve these customers through our assurance brand, which didn't include subscriber counts and through supporting our wholesale partners.
Speaker Change: Think about the arc of the $350 million to $450 million impact given of course ACP was still in play in Q1 and partially in Q2, I'd say the majority of that impact happening in the second half and even more of it in Q4 than Q3, because stole a little bit of a tail coming in Q3. So that's the best.
Are you primarily the majority of that again is going to be in wholesale and other service revenues and I'd expect Q4 to be probably the biggest impact there.
And Simon are prepaid nets up 179000 were the best quarter. We've posted in years part of that is obviously, joining with mint and ultra but part of that is that we have a fantastic portfolio of brands that meet the needs of value consumers into the premise of your question. This is a year when value consumers because of these changes will be re entering the market.
I think we're very well positioned there and then to your question about the upgrade cycle.
Speaker Change: Look I'm really excited about this year I think you.
AI is on every customer's mind I think we're seeing the major companies really pushing ambitiously in the space. There was a lot of excitement around apples launches.
Now some of those technologies are good on legacy phones as well like last year's funds were told from those announcements and so we'll have to see I'm not really here to predict cycles. I'll tell you that we're very very excited about what's coming and I want to remind people that our model isn't really dependent on that cycle. So we'd been at benefit.
From very low upgrade rates.
In many ways that's good for the efficiency of our model, but should upgrade rates take off due to a larger cycle based on excitement of the new phone launch, which we certainly hope for that is a share taking moment for us and so you either have a moment, where we're able to be efficient like the last few quarters with some of these very low upgrade rates or because we are the net share taker in this.
Industry, a chance for more jump balls, and so we design our business plan to be responsive to what happens and at the same time, we're excited about AI and we think consumers are excited about AI and we're looking forward to seeing what happens.
Thanks, Operator next question please.
Your next question comes from Michael Rollins with Citi. Please go ahead.
Michael Ian Rollins: Hi, good morning.
Yes, if you can unpack a bit more of where you saw the strength of the postpaid phone net adds in the quarter you mentioned.
Speaker Change: Diversified impacts during the quarter, but maybe a little bit more on where you stand on the rural market penetrations versus top 100 and business versus consumer in terms of impact and then secondly, Where's T mobile.
Speaker Change: In terms of.
The multi year return of capital calls, it's still up to $60 billion.
And is there any change in timing or magnitude and so you look at the performance in the second quarter and how much is left.
Speaker Change: Over the next call it you know.
One and a half to two and half years, if youre looking now at 26 to kind of get to the destination.
It sounds great, Mike So I'm going to start with John prior to talking about what we're seeing in the consumer space and.
Where are those customers coming from yeah, you bet. So it's been a it was a fantastic quarter. As you guys saw with 777000 postpaid phone net additions in Q2, our highest Q2 ever in the company's history as we talked about just a few moments ago and when you look at smaller markets in rural areas, which is 40% of the U S population or business continue.
Used to be incredibly responsive as a matter of fact in Q2, we had the highest switching that we have ever seen that quarter and so that's great to see we've been building the businesses I've been talking to you about for the last three years in smaller markets in rural areas with the network expansion distribution expansion, bringing our value proposition into these mark.
And it's really really doing incredibly well so well that we're just excited about the next turn in as we're setting our sights on ultimately getting to our fair share in the marketplace and so that's going really well in addition to the growth in smaller markets in rural areas were seeing growth in the top 100 markets as well and so this is where we.
I guess he had been very successful over the last two and a half decades and for us to take the share position, we have today and continue to build on it with more and more account growth is just great to see and why that's really happening is because we have prime customers that are continuing to seek a better network experience and with the best in class five G network and ultra.
The capabilities that we have in the top 100 markets. In addition to smaller markets rural areas as well, we're really attracting those prime customers into our overall franchise. So we're just really excited about the overall growth we're seeing good geographic responsiveness across the entire set of segments.
The other thing that we said in our prepared remarks, Mike is that we took the highest percentage of broadband that's ever in our history. This quarter, you know, 75% or so and that's that's huge and that adds to all of this and so we're obviously now are resonating with customers on multiple topics and that that plays on itself in some ways and so that's that's terrific to see so you're looking across.
Graffiti across customer segments, and even across product lines and seeing strength in those things start to play out each other.
Okay and your second question was about our capital allocation strategy, maybe I'll start with I'll start with the highest level Peter on how we think about yeah, absolutely you know and we've been remarkably I think consistent on this Mike with regards to the multiyear arc and how we think about capital allocation has always been invest in the core business drive the deferral.
Integration, particularly in network performance. So that we can continue to have that unique combination of best value and best network. After that it was worked for higher value accretive opportunities to create value over the long term for shareholders and you know when I think background just from the last analyst day to now.
It's been a significant amount of opportunity for us whether that's been spectrum purchases to enhance the long term continuing network leadership opportunity that we have whether that's been things like medicine, all tried and bringing back great brand into the team magenta family, whether that's some of the announced acquisitions of U S cellular in Metro.
Lew most so that's been great on all while doing that and delivering the results. We have we've also now had significant already to date shareholder returns.
Almost 150 million shares already repurchased and shortly here.
Almost fourth dividend by the end of this year, so I couldn't be more excited about what we've done here you know in terms of exactly what day will finish any sort of up to $60 billion. That's really hard to predict for you. We kind of put a mid 2026 timeframe out there because we're going to be focused on exactly that strategy that capital allocation.
Speaker Change: Sure.
And the underlying business itself has so much free cash flow generation and unlock there that is that's the exciting part here is we can do all three of these things in our capital allocation framework and drive significant shareholder value. I think you asked about also Q2 progression and I will say you saw a little bit of a different <unk>.
In Q2, and that's nothing more than just as we think about how to set strategies in place much like any prudent company, we do a multi month <unk> one plans and the particular plan we had in place hadn't anticipated maybe the pace of the runoff in the share price and so we got out of the market there because of that one plant, but now that we're <unk>.
Speaker Change: Has the blackout, we certainly anticipate being back in the marketplace and delivering up to now remaining eight 7 billion inclusive of dividends for the year. So well on pace. The business itself is what allows all of this capital allocation and investment we're very proud of what we've done to date and you know what the future of <unk>.
Like here.
Peter: Said, Peter So I mean, you know for.
For us, we're really pleased to be able to try to have it both ways here. So.
So many incredible opportunities that presented themselves and we have seized on those things that certainly what you want us to be doing and yet at the same time.
We have these ambitions for shareholder returns that are principally hasn't changed and to be able to have it. Both ways is amazing because you know you would expect the tradeoffs, but that shows you the strength of our business and we've been talking for some time that it would take us probably into 2026 to realize the business support for that up to 60 billion and shareholder return.
And that's certainly the case as we look at all of these transactions that are adding long term value to the company.
Peter: But stay tuned and we will do the best we can to keep that cash flow rolling in for years to come right.
Peter: Thank you thank you Mike.
Speaker Change: Operator, we're ready for next question.
Speaker Change: The next question comes from Jim Schneider with Goldman Sachs. Please go ahead.
Jim Schneider: Good morning, Thanks for taking my questions. Two if I may now that you've begun to gain an appreciable broadband skill with fixed wireless can you comment on your penetration of mobile wireless subscribers inside your broadband based on fixed wireless and then secondly could you comment on the overall pricing environment and long term sustainability of pricing actions.
To which you'd contemplate additional actions given the well controlled churn you reported in the quarter.
Okay great.
You can do the math on the first one you know we've now reached five 6 million homes with our broadband product.
Just an amazing resolve the strength continues with this quarter's performance being perhaps our best ever and the competitive context and what's interesting is our customers love. This product. So we're also winning so much great.
Great feedback from third parties and from customers as to how this product performs it gives us lots of confidence for the long term legs of the initiative and you can do the numerator and denominator math. We have said the majority of that $5 6 million is from existing T. Mobile customers that means they also have mobile and so they'd be part of our mobile accounts.
But we haven't broken it out in an exact numbers for you and the rest represent kind of a land and expand strategy that we've been talking about which is people coming in from the top 100 markets also from smaller markets in rural areas and choosing T mobiles through the broadband front door, and then giving us an opportunity to sell.
List, which is a cool dynamic to see but my cats, maybe you can talk about how this product is resonating in the marketplace.
Speaker Change: Because I think it's one of the things that might surprise some people yeah.
At the beginning.
I think the key to the success of this product is it's a great product and one of the things that we're seeing and we've seen this for some time is the satisfaction rates on our FW product lead the industry and every other category of broadband, including fiber three times higher than cable and that.
Speaker Change: That is not just staying flat, it's actually improving the delta of satisfaction between T. Mobile U S. F. W E and the rest of the industry is expanding which we're really excited about and that's translating exactly into the results that we just talked about where you saw the biggest share of broadband growth in Q2 coming from from T mobile.
Speaker Change: Both because we are attracting more customers and because we're seeing churn decrease across every 10 year cohort within the base and it's because it's a great product and its serving a need in markets, where there's been very very little choice. So it's just fantastic job by the team.
Hi, James.
To your second question about pricing I can tell you that our strategy, which has been in place for so many years is not a strategy that we have any interest in changing where the service revenue growth leader in this industry, where the postpaid service revenue growth leader by a wide margin and we do that because we have a value proposition that custom.
Trust us around and that's not to say that we are you know we're not going to make changes we made changes this year to keep up with the times first in a decade.
But we like being the value leader and that translates through our unique strategy into industry, leading revenue growth performance.
Speaker Change: Now what you'll also see is the growth of per customer revenues rising we talked about our average revenue per account growing at well over 2% and those kinds of things are great to see him, but I want to make sure that that people don't misinterpret, our actions as anything other than keeping up with the times and reinforcing.
Speaker Change: Our strategy, which is a deeply trusted covenant with the world's consumers American consumers that we are and will be the best value in the marketplace and that's sometimes includes changes that we'll make along the way and you saw us do that and I think you saw us perform through it.
Cause of that trusted relationship that we have with our consumers.
Speaker Change: Thank you.
Thanks, Shannon Operator next question please.
The next question comes from David Barden with Bank of America. Please go ahead hey.
David Barden: Hey, guys. Thanks, so much for taking the questions just a couple of follow ups if I could.
I wanted to kind of come back to Simon's question.
Mike Obviously, you know with the Wall Street Journal article out there, suggesting that the reason you're you're being coy about the fiber strategies because that's the straight you know that's the game theory. You know you don't want people to believe that you have a bigger fiber strategy in the in the Metronet press release, you called out it was a unique.
It was capital light, but.
Speaker Change: Kind of said the same thing about Lou mostly at a $1 billion capital Light transaction, then you had a $5 billion capital transaction.
Is is there a reason to believe that you either need to do a $10 billion capital a transaction or a $20 billion capital a transaction or is there a reason that you definitely will not do those things if you could kind of put a stake in the ground on.
On that that would I think a lot of people will be listening to that I think the second follow up would be just a I think a in answer to I think it was Mike's question on sources of postpaid phone growth I know that you guys had some real success in an enterprise of late if you could elaborate a little bit on how that contributed to the quarter would be great. Thank you.
Sure Dave will do both of those things first.
Speaker Change: First of all I'll just go back to my comments for a few minutes ago and reiterate our appetite for further transactions in this space is limited we really like the ones. We've done they give us a material footprint and were not currently working on something else like it that being said we're open minded you you hire us on your behalf to be pragmatic practical.
<unk> strategic and I think people can see our strategy and if there's the right partner the right assets the right pricing on it the right strategy are biased and preference for pure play we would be open minded, but with a limited further appetite and part of that is we're balancing you know all of our objectives you heard Peter talk about our capital allocation.
Speaker Change: <unk> strategy, we take that seriously we think our investors like the fact that we have a pure play elegant model as we step into fiber, we're keeping the elegance of that with a pure play fiber model, we want to be an outstanding execution machine that is able to execute really really well in the marketplace and we don't have any interest in changing that.
Flexion largely of who we are as a company because we perform so well. So we're open minded, but our appetite is limited from here on out.
Thank you know second question I will turn to Kelly fields to talk about what's going on in the business and enterprise space. Thanks, Mike Appreciate the question Dave.
Yeah, I'll start with once again, we outpaced our benchmark competitor in overall stone nuts, and some change and we saw once again positive.
Trends across all segments against all of our competitors I E. L. D is are healthy and we're very pleased with the.
Speaker Change: Contribution of that business to our overall.
Gross.
Speaker Change: And what I'll also mention is that in F&B and particular, we had our best quarter ever in postpaid phone nets and up almost 20% year over year in enterprise I win share continues to be our our overall share and I'll also mention and our prices are competitive we continue to be invalid.
Speaker Change: Leader and that customers are choosing us because we're the best we have the best the fastest the largest and most reliable most consistent network and what we've seen is that C. I N. C. T is that like enterprises, and even in and the federal government space I really seen when at Pfizer Standalone core.
What a a commercially available network slicing and an advance network solutions can do for them and we're starting to see some growth in our finalists and customers really coming to us to evaluate our entire solution portfolio and and so we see bush and grills, but also opportunities to.
Speaker Change: And our existing relationship with customers and growing our paths and some examples of that but I'll just share really quickly is you know.
The largest oil and gas company in the United States chose us and to provide advanced network solutions and their innovation lab, but they also and for all of their mobile workforce selected T mobile to provide phones and tablets and then added onto that are SaaS E. T cell secure products. So that's an example of how we're expanding and I relate.
We ship to their customers in a way that's profitable and we're very pleased that the new business.
Uh huh.
Speaker Change: Thank you both.
Thanks, Dave next question please.
The next question comes from Craig Moffett with Moffat Nathanson. Please go ahead.
Craig Eder Moffett: Hi, Good morning, I want to return to the fiber strategy for a second.
Can you talk I know you've said in the past this is not really part of our convergence strategy.
But it's been so much talked about by your peers and competitors.
You've obviously learned quite a bit in offering a bundle of wireless mobile and fixed wireless access with your <unk> product.
How are you thinking about convergence and the need for our converged offer.
Again, we go back to the same conversation we've been having about what to expect going forward. The two deals you've got to give you eventually 10% coverage of the country by the end of the decade is that a sufficient strategy.
For you or do you need to think differently about what your converged offers.
Coverage will be.
Hey, Greg Great question.
Speaker Change: Over the long haul we're open minded we were very proud of these transactions, we want to execute them extremely well, we want to get them closed and we will take a wider lens and see where we are and what we've learned one thing we feel very strongly about and I'm not sure I like the phrasing not believers in convergence I'll parse it differently for you one thing we feel very.
Speaker Change: <unk> about is that these transactions are not defensive of our mobile business. We believe our mobile business stands strongly alone consumer choice has been made very clear that wireless is a deeply considered sale. It's the primary purchase decision in a connected life and that people will choose the one.
Speaker Change: Airless company that is right for them and we believe we will compete effectively as a pure play a wireless company regardless of our simultaneous participation in broadband that being said convergence is real and that the customers that buy both buy them together and we have bundles today many of our.
Speaker Change: $5 6 million broadband customers today purchased that in a bundle and realized discounts by doing so and there's nothing wrong with that we think that's a dynamic that makes sense customers love discounts discounts makes sense to customers, but they can come in many forms and so I Wanna convergence is happening and that some people are buying.
Speaker Change: These things together and they kind of like that it's not happening in the sense that if you don't have this product you can't compete in mobile we have zero evidence to support that thesis and so I want to make sure that we parse it that way and then secondly, you know of course over the long haul you know we're open minded about this I.
Speaker Change: Just want to make sure that we're really smart about how we do it and for US joining with some of these are very very high quality teams, who are doing this the best in the country and who are doing it in an elegant and pure way and at a pace. That's really impressive is a fantastic way for us to step into this and you know we're not going to make.
Speaker Change: Further decisions about where to go from here.
Speaker Change: Until we're able to get more experience in the ground.
Speaker Change: Yeah.
Craig: Thanks, Craig operator next.
Craig: Next question please.
Craig: The next question comes from Jonathan Chaplin, New Street Research. Please go ahead.
Jonathan Chaplin: Thanks, Mike just one follow up on on Craig's question. So AT&T said, they're saying 500 basis points of additional mobile market share in markets, where they've got fiber I take it from what you just said.
Speaker Change: Evidence of the convergence benefit to mobile that you're just not seeing that.
Speaker Change: Would that would you think that this sort of the benefit that AT&T, saying, that's really just sort of a selection bias.
Speaker Change: And then I have a.
Speaker Change: A bunch of questions on the Metronet deal I'm, hoping you guys can give us some more detail first on how much of the $4 9 billion went towards buying the retail business versus the network how.
Speaker Change: How much of the $4 9 billion stays on the balance sheet to fund future investments and how much cash is coming in from KKR and Oak Hill, alongside your cash and how much additional debt you expect to take on in order to get to the $6 5 million.
Speaker Change: Sorry, Peter once you just shipped a spreadsheet over there.
Speaker Change: Yeah.
Speaker Change: Let me answer the first one.
Speaker Change: You know first of all it's very hard for us to tell and I think even for others, who are saying those things to tell whats causal.
Speaker Change: And so it does appear that the statement is true that you know.
Speaker Change: That competitor share is higher where they also have broadband, but they they have broadband and places of their historic strength and including you know back when their broadband product wasn't that interesting and so it's hard to tell whats causal there. The one thing that does appear to be linked in a way that's somewhat causal as the churn looks to be lower.
Speaker Change: And when people buy these bundled offers there does appear to be a marginal impact of churn, which is attractive and again, that's one of the theses for why we like this you know we think we can outperform a purely disinterested financial investor because of the embedded customer base, but remember churn in wireless is already historically.
Speaker Change: So there's only so much benefit you can count on from that on the wireless side and it's one of the reasons why you know again, we don't think it's necessary as a defense of our mobile business far from it.
Speaker Change: Yeah and on the on the Metro in that deal before I strip over the spreadsheets everybody I think let's you know if we step back to your point, there's a number of components of the $4.9 billion and one of those is of course, 50% ownership in the JV itself. Another element of it is actually acquiring all.
Speaker Change: The residential customers as well as the exclusive rights to distribute service et cetera residential customers in the future as the build continues and then the third part is funding the JV itself, so that to get to that six and a half million households passed number that business plan as it stands actual.
Speaker Change: It contemplates the need for no additional equity contributions of course, the JV itself will be appropriately levered.
Speaker Change: And that's as a JV that's off of our balance sheet with Counterparties. So I can't Unfortunately disclose all elements of this but those are the three main components and in fact, not only does it not require additional equity contributions we anticipate that again to meet that business plan of six and a half million households passed that will get dividends back.
Speaker Change: Back from the JV during the pendency of this through 2030, well in excess of $1 billion, sorry, I cant parse every element of it for you out.
Speaker Change: But it is all three of those together as well as kind of the dividends coming back in the great refunding to keep this build machine going and get to that $6 5 million.
Speaker Change: But one last sort of follow up questions just on.
Speaker Change: Okay, great. Thanks, guys.
Speaker Change: No that's okay I don't know.
Speaker Change: You'll take it just on the business can see tumor makes question on fixed wireless broadband can you give us a sense of how much of the ads coming in are from business and how that's evolved.
Speaker Change: Sure Yeah, we have we sell this product across all of our major brands and segments and so we have postpaid consumer except prepaid consumer and we have business and so far it's been predominantly.
Speaker Change: The majority of it has been postpaid consumer it's going really well and it kind of speaks to the ongoing opportunity that we have in the other segments and so you know.
Speaker Change: That's just how it's been flowing in and the product is really resonating with postpaid consumers and I talked earlier in the call about how these things tend to kind of feed on themselves and inside of the segment. We're benefiting from so much person to person torque values people get this they tell their friends about it how much money they're saving.
Mike: Heard from Mike about how this product is resonating, it's really performative and that surprises some people pleasantly and so those things kind of feed on itself and I think a lot of that opportunity might still be in front of us on the business side.
Speaker Change: Got it great. Thank you next question please.
Speaker Change: The next question comes from.
Speaker Change: Ben Cash award with Barclays. Please go ahead.
Speaker Change: Thank you Mike.
Speaker Change: And on the labor.
Speaker Change: It would be helpful to understand how you think about the build plan and the things that.
Speaker Change: Is this maybe.
Speaker Change: Maybe a strategy to open up capacity in the fixed wireless side, but maybe migrating some subscribers over from fixed one of the fiber or is this just in.
Speaker Change: Additional opportunity.
Speaker Change: Expand the footprint.
Speaker Change: And so in that sense many of them you need to have an overlap as you think through the fiber.
Speaker Change: And then with the fixed wireless footprint or could you just think about the completely independently.
Speaker Change: And then Peter maybe from a housekeeping perspective, there's a lot of puts and takes in terms of EBITDA guidance. This year.
Peter Lawler Supino: We have mainly been that as EVP the price increases so maybe if you could just parse out the component.
Speaker Change: Just to understand what the core trend line look like that would be an airport. Thank you.
Michael J. Katz: Okay can I those are great questions first of all on the fiber and the interplay with our fixed wireless business is actually a fantastic question and I'll turn to Mike Katz, Yeah. It is a fantastic question because we see one of the one of the reasons why we're excited about fibers. We do think it is quite complementary to our fixed wireless business are.
Michael J. Katz: Both both in situations, where customers that are looking for a different kind of performance like symmetrical speeds.
Michael J. Katz: Have an upsell path.
Michael J. Katz: But also because remember our fixed wireless business is an excess capacity model. So we sell fixed wireless in places in the network, where we have excess capacity that won't be consumed either now or in the future by normal mobile usage, and that's where we sell fixed wireless and in places, where we deploy fiber theres opportunity for us too.
Speaker Change: It takes some of the demand that we're seeing in fixed wireless where does act theres excess capacity pockets don't exist and move them to fiber. So there's there's really a bunch of complementary features to it I think to your question I think it's a really interesting one I can tell you its not the primary thesis of why we're doing fiber I think we're doing fiber for all the reasons that Mike and Peter talked about we think are unique.
Speaker Change: Assets that allows us to drive enterprise value and gives us advantage in fiber. That's the primary thesis, but I think a really unique potential tertiary opportunity is the one that you pointed out were fixed.
Speaker Change: Fixed wireless users as they migrate to fiber opens up potentially additional spots for fit for fixed wireless because of the nature of the excess capacity model.
Speaker Change: It's a really interesting point in and probably an opportunity for us as we deploy more fiber footprint and to illustrate that we have a long long list of people who have expressed interest in our fixed wireless product that we're not able to serve because we only put it in places where there is open capacity yeah. That's right I think that's one of the assets that we that we bring here is that we.
Speaker Change: Demand in some sense that out there.
Speaker Change: Seeds supply because of excess capacity that we can immediately move into fiber.
Speaker Change: Great question and then on the second piece Peter Yeah, I think it's a it's a re.
Speaker Change: We've kind of this profitable growth element of it taking over without this onetime distortion.
Speaker Change: Thank you.
Speaker Change: <unk>.
Speaker Change: Shall we take a moment to see whats online Kathy do.
Kathy: If you have questions coming in online we didn't hit.
Speaker Change: Rapid fire manner.
Speaker Change: Tech life channel are you completely averse to copper assets or would you consider them as a way to achieve more fiber.
Speaker Change: I think the words I would use is strong bias and we love the idea of the elegant model of a pure play fiber asset the teams that have that are performing beautifully.
Unknown Attendee: So it's a bias it's it's not a complete aversion to the premise of your question Roger Entner how.
Kelly: As TSB progressing Kelly you spoke earlier about enterprise strength, what about small and medium business do you want to talk about that briefly yeah. We continue to see strong growth and margin.
Speaker Change: Legacy business began in F&B, it's where we have the most sharratt square, our channels and assets and really shine in our core wireless business and something I'm really pleased that our team has been able to deal is too and as always missing enterprise.
Speaker Change: <unk> built a broader solutions portfolio that really addresses the needs of small businesses. So in the small and medium size business. They continue to to grow share. We continue to see very attractive C. L D's and I'm I'm pleased with the pace of the business. It's also a place where we see and continued quarter over quarter growth in our fix.
Speaker Change: Wireless business and still have opportunity for that to our base and ER and open up more opportunities and fixed wireless so a lot of really good things going on for our small business. The strong C. L v's across both consumer sorry across both small and medium and across enterprise really points to the fact that customers are buying this product for the reasons you outlined which is.
Speaker Change: Is because it's a great product. It's also a great value, but they are buying it because it's a great product and you see that in the strong C. L V development. So.
Unknown Attendee: Great point, Walt Pie check the U S is a big opportunity so why not more fiber why stop their cable town cable town with a K would say this confirms the questionable return on investment.
Speaker Change: Look we're open minded over the long haul as I said and I would take exception to the questionable return on investment as it relates to T. Mobile I really don't know enough about this to know whether or not in the absence of T. Mobile a lot of the companies out there are going to perform with great Rois, but T mobile can outperform because we have billions of.
Speaker Change: And years of embedded investment to create a capability and knowhow that we bring to the game and so you could actually the things could be simultaneously true I don't know cable could say look these guys will struggle, we don't plan to struggle, we bring a lot to the fight.
Speaker Change: Bill Ho, what's the long term trend of ARPA service revenue contribution.
Bill Ho: Talked about our revenue.
Bill Ho: Our revenue development, but I think talking about ARPA, and where we see ARPA going as a key measure of revenue per customer or any comments on that Peter Yeah of course, I won't update long term guidance here, but much like what you saw in 2024 and what our guide is our strategy has been to continue to increase our pumps and it's because this <unk>.
Speaker Change: At work consumers businesses are hungry for more of the experience of this network.
Peter Lawler Supino: <unk> and provides whether that's in the postpaid phone category itself, whether that's some other connected devices such as fixed wireless watches tablets, you know new connectivity solutions out there that is what's driving ARPA expansion and that's the strategy share taking combined with ARPA expansion earned ARPA expansion with the network.
Peter Lawler Supino: Experience that they have and the value leadership that we provide to continue to drive for the long haul ARPA growth. So that's the strategy here and of course, we'll have more on longer term trends at another time.
Bill Ho: It was a very strong quarter for us.
Speaker Change: And you see that in the second half, where we're sort of side on an industry question. Because we just don't know we're very confident in our plans for the second half.
Speaker Change: And as it relates to how much that relies on upgrade rates.
Speaker Change: Look at upgrade rates rise then we have more jump balls and the ability to grow faster and of course, there's always at least for a quarter or two or geographic.
Speaker Change: Timing price to that growth and so we need to be cautious about that too and you saw us hold firm on our EBITDA guidance as a result of that as well as as a result of ACP, but maybe Peter you could talk about what upgrade rates are assumed generally speaking generally speaking, yes, I mean look with Oracle.
Bill Ho: Org.
Speaker Change: All of my spreadsheet and won't be in a good place, but that's.
Peter Lawler Supino: Exactly right, it's hard to predict and again, if it's if it's a higher upgrade rate higher moments of switching that creates higher ultimate customer value and enterprise value for us as well being the share taker. So but that's part of the reason why we're always in a range scenario with you, but yes, we have the ACP element of it but we also have element.
Peter Lawler Supino: What is the opportunity going to be and if you see an opportunity where industry share taking can can flow to them to our benefit more than we think of course will take it you saw that happen in Q2 as we saw opportunities we made investments and we took more share. So that's part of the range. We are excited of course much like.
Peter Lawler Supino: We all are at every holiday season at every new iPhone introduction.
Peter Lawler Supino: As a moment of potential share taking can't predict exactly what's going to happen, but the EBITDA range gives us flexibility to achieve exactly what we want to with the plan.
Speaker Change: Thank you thanks to you both.
Speaker Change: Next question please.
Speaker Change: The next question comes from.
Piano: Piano with Wolfe Research. Please go ahead.
Piano: Hey, good morning.
Speaker Change: Questions on broadband in February I Wonder if you could describe how the mix of your gross adds has shifted say from 'twenty three maybe looking out to 'twenty five or at least 24 I'm wondering if the percentage of gross adds or number of gross adds in dense metro and in higher value more dense suburban areas.
Speaker Change: Is falling and whether it's rising.
Speaker Change: In smaller towns and then.
Speaker Change: Other after Julie a question relating to the longer term.
Speaker Change: Of the silo capacity model.
Speaker Change: Using one cell as an example, today's download capacity doesn't necessarily equal fellow capacity three years from now to the extent that consumption across mobile and home is rising and so as cells that today have room in the future get busier as densification, sometimes the right answer thank you.
Speaker Change: Great well, let me start with the second one.
Speaker Change: Which is the way our follow up capacity model works is pretty sophisticated I mean, we look at every sector and in fact smaller.
Speaker Change: Geographic.
Speaker Change: Elements than a sector and look at the predicted not current capacity usage of that sector, assuming ongoing share taking in line with historical norms of share taking in mobile phones, and assuming dramatic growth of usage of mobile phones on a per mobile phone basis.
Speaker Change: And ongoing growth in line with historical norms of usage for the actual broadband customers that we bring on and we take all of that forward and drag it right.
Speaker Change: Years, and then approve applicants for broadband only when that capacity will still be there and so that's one of the reasons why we have hundreds of thousands of people waiting for this product on waiting list because right down to your particular address unless we're convinced that product will serve you for years to come in a way that drives.
Speaker Change: Your happiness and does it without interrupting anybody's mobile service, we don't accept your application and it's a very sophisticated model one of the online questionnaires letters said that Verizon commented that there, they're balancing and capping at 400000 a quarter in order to avoid disrupting mobile subs are you do.
Speaker Change: The same thing and the answer is no because our broadband subscribers don't do that by virtue of how we do this so it's a it's a really sophisticated model that we're quite proud of.
Speaker Change: And then I forget the second half it was really a question around the breakout of gross adds and are we still seeing the same amount coming from urban suburban high quality and the answer is relatively yes of course as we continue to build into smaller markets in rural areas, which again I remind everybody for us it's 40% of the population of the top.
Speaker Change: 100 markets and everything else is smaller markets of rural areas, which has a lot of geography lot of a lot of great customers in it. So overall, yes. The majority is still coming from cable.
Speaker Change: The breakout between smaller markets from rural areas in our top 100 is relatively the same and they continue to be in more so very high quality ads. In fact, <unk> are up year over year churn is down year over year.
Speaker Change: Obviously, it might catch spoke a little bit about customer sentiment towards those products or we couldn't be more proud of how the gross adds are continuing to flow in and the makeup of those and the value that we're creating for customers as well as for T mobile itself. Thank.
Speaker Change: Thank you both thanks Peter.
Speaker Change: Operator, we have time for one last question. Please go ahead.
Speaker Change: The last question today comes from.
Sebastiano Carmine Petti: So petty with Jpmorgan. Please go ahead.
Speaker Change: Comes online, we do things in market and we're always looking to see kind of what resonates in what people respond to.
Speaker Change: But overall the general trend for us.
Speaker Change: We are post the period, where we were discounting every customer all the time during the introductory years, we move back to a normative pricing that we think is highly attractive and we like to understand those elasticity and so you'll always see us doing things.
Speaker Change: And before I hand, it to Cathy to wrap things up I will just tell you. Thank you for all these great questions. It's just an absolute pleasure to be able to talk about this team's outstanding performance quarter. After quarter. We kept our prepared remarks to just 11 minutes. So we can get the lots and lots of your question, but that's because we love you and we listened to you. So we try to.
Speaker Change: Be responsive and Kathy will let you wrap this up thanks, Mike that's all the time, we have for questions and we appreciate everyone joining us today.
Kathy: Look forward to speaking to you again soon and if you have any further questions you may contact the investor relations or media Department.
Speaker Change: Ladies and gentlemen, this concludes the T mobile second quarter earnings call.
Speaker Change: Thank you for your participation you may now disconnect and have a pleasant day.