Q3 2024 T-Mobile US Inc Earnings Call
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Speaker Change: Mike Sievert, using cash tag T N U S.
Speaker Change: I would now like to turn the conference over to you Cathy Yao.
Cathy Yao: Senior Vice President of Investor Relations for T Mobile U S. Please go ahead.
Cathy Yao: Good afternoon, welcome to T Mobile's third quarter 'twenty 'twenty four earnings call joining me on our call today are Mike Sievert, our president and CEO, Peter has Baltic our CFO as well as other members of the senior leadership team.
Cathy Yao: 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.
Cathy Yao: Our earnings release, and Investor backpack, and other documents related to our results 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 with that let me now turn it over to Mike. Okay. Thanks, Kathy Hi, everybody welcome to the Q3 call.
We're coming to you from Bellevue today, and I'm joined by several members of our senior leadership team to talk about another outstanding quarter for T. Mobile now given our recent capital markets day, Peter and I are going to keep our remarks pretty light. So that we can get right to your questions and before I get into our quarter I do want to take a moment to recognize our team for their hard.
Cathy Yao: Hard work around the clock to help our customers fellow employees and communities to get back on their feet in the wake of Hurricanes Helene and Milton It was devastating to have back to back storms of this scale form in such rapid succession, but I am so proud of how our team showed up from readiness to recovery.
Cathy Yao: Their tireless efforts and use of innovative technologies made a huge difference in affected communities.
Okay, turning to the quarter in short it was a really strong one in fact Q3 is an example of the consistent execution, we talked about a few weeks ago as a core enabler of our bold multiyear plan as you know achieving that plan is predicated on delivering strong results reliably and repeatedly to.
Cathy Yao: Keep pace with our ambition and we did just that in Q3 empowering us to raise our 'twenty 'twenty four guidance, yet again I'll start with our mobile business. We delivered the best Q3 postpaid phone net adds in a decade fueled by record low Q3 postpaid <unk>.
Cathy Yao: On churn and continued year over year growth in gross adds we also continued to lead the industry in share of switchers and we grew share of households in both top 100 and smaller markets in rural areas, our powerful combination of our best network.
Cathy Yao: Best value and best customer experience continues to be a winning formula. We believe we have lots of room to run in our underpenetrated areas and segments, including among those who shop, primarily on network attributes all across this country.
Now you heard us lay down some pretty audacious digitalization goals at our capital markets day event, and we're making steady progress I'm proud to share that our total digital mix of iPhone launch sales in Q3 is up 40% just year over year and that for the first time the majority of T mobile branded iPhone pre.
Cathy Yao: Orders this year where digital.
Cathy Yao: This highlights the early progress we've already begun to make in further simplifying and digitizing and transforming the customer buying experience and it validates the appetite of our customers have for buying online when they are given the option for a more seamless process.
Cathy Yao: Our customer momentum also continues in broadband where we delivered industry, leading net adds once again and reached a major milestone of 6 million customers in just three years.
Cathy Yao: We're now halfway to our long term target of 12 million customers by 2028.
Cathy Yao: Our performance is fueled by our leading five G network, which was recently awarded once again as having the best five G availability in the world by open signal and our industry, leading technology will continue to further differentiate us as more and more new handsets come into the marketplace.
Cathy Yao: It can take advantage of our new technologies like voice over new radio are incredible four way carrier aggregation technology and so many other things across the board. Our team is doing awesome work to further extend our five G network leadership for the benefit of customers and they're noticing the superior speed.
Cathy Yao: Capacity and consistency relative to our competition.
Cathy Yao: Moving onto our financials in Q3, we once again demonstrated our ability to deliver profitable customer growth, which we translated to industry, leading service revenue growth, including year over year postpaid service revenue growth about to ask that of peers driven by our highest ARPA growth in <unk>.
Cathy Yao: Seven years, as we continue to deepen customer relationships.
Cathy Yao: Our core adjusted EBITDA growth of 9% led the industry by a wide margin.
Cathy Yao: That combined with our unparalleled capital efficiency led once again to industry, leading free cash flow conversion.
Cathy Yao: I said I'd keep it brief so let me sum it up our formula for generating outsized value creation from focusing on smart and profitable growth continues to work really well we have lots of runway ahead of us to continue to deliver profitable industry, leading growth as we drive forward on the ambitious plan.
We shared with you last month.
Cathy Yao: Okay, Peter over to you to provide an update on our guidance. Please alright, thanks, Mike and thanks, everybody for joining us as Mike highlighted we delivered yet another fantastic quarter and are raising our guidance yet again. So let me provide a quick update on our expectations for 2024, starting with customers. We are once again raising.
Cathy Yao: Total postpaid customer net additions and now expect between 5.6 and $5 8 million up 150000 at the midpoint relative to our prior guide.
Cathy Yao: We now expect the postpaid phone customer net additions component of that total to be approximately $3 million for the full year.
Cathy Yao: We expect our full year postpaid ARPA to be up around 3% year over year with industry, leading service revenue growth continuing to accelerate at a higher rate in 'twenty 'twenty four than we delivered in 2023.
Cathy Yao: We now expect core adjusted EBITDA to be between 31.6, and $31 8 billion for the full year up $50 million at the midpoint.
Cathy Yao: Turning to cash Capex, we now expect to be between 8.8 and $9 billion unchanged at the midpoint.
Cathy Yao: Our longer term expectations continue to be in the nine to 10 billion range annually as we outlined for you at our capital markets day, a few weeks ago.
Cathy Yao: And finally, we now expect adjusted free cash flow, which includes payments for merger related costs to be in the range of 16.7 to 17 billion up 50 million at the midpoint driven by both margin expansion and capital efficiency, resulting in industry, leading service revenue to four.
Cathy Yao: Free cash flow conversion.
Cathy Yao: In closing when we spoke with you all a few weeks ago at capital markets day, we outlined an ambitious plan of evolving from challenger to champion.
Cathy Yao: One that requires consistently strong execution our.
Cathy Yao: Our Q3 results are another proof point on that journey with our unique combination of the best value Best network and best experiences continuing to resonate with customers.
And with that I will now turn the call back to Kathy to begin the Q&A Jaffe, Okay, let's get to your questions. You can ask questions via phone by pressing Star then one N V acts by sending a post two at T. Mobile I R. R. At Mike Sievert, using cash Tag T. M. U S. We will start with a question on the phone.
Operator first question please.
Speaker Change: Our first question comes from Simon Flannery from Morgan Stanley. Please go ahead with your question.
Simon Flannery: Great. Thank you very much good evening.
Simon Flannery: Wonder Mike if you could just talk to the buyback or Peter the pacing of that it sounds like you were very active in the last few weeks, but less so in Q3 remember last quarter. You had been active in June was that the grid with that capital markets day, what was what's the thought about this and your how you think about the rest of this because obviously.
Simon Flannery: It's been sort of stop start for a little while here and then Peter maybe just help us on wholesale you you'd message that there would be impacts there from ongoing SEC.
Simon Flannery: Secular factors from ACP from Mint mobile just help us level set as we see this down to the sort of $700 million a quarter level is there still some more to go there how should we think about that going forward. Thank you.
Speaker Change: Thanks Simon.
First of all I'll I'll hand hand, it to Peter for both of those questions, but first of all I just want to say congratulations to you and on your retirement and thank you for first of all for keeping us all honest, but I also know the investor.
Speaker Change: Yours have hung on your every word.
Speaker Change: For many years and you observe them so well so we're all going to Miss Jerry and I thought maybe your last question would be a softball, but instead, a commodity or what happened with us.
Simon Flannery: You don't ever disappoint there Simon.
Peter Baltic: So much Simon you know what what happened both on the Q2 call we anticipated would be back in the marketplace and we saw a similar dynamic happened after our Q2 call as we saw before Q2 and that was our trading plan really didn't anticipate the faster than expected or earlier than expected.
Peter Baltic: Run up in the share price and what that meant for US is really it gave us an opportunity after that happened a second time to step back and rethink strategically how we wanted to approach the buybacks and we did that and now you see something that's less are informed by quick movements towards wherever we think its going.
Peter Baltic: And more of a consistent execution still thoughtful of many factors of course I can't get into all of those but it's a little bit of a change in strategy and that's what you saw happen after that strategic change since that point, we've been in the market place consistently so that's the buyback story and you know on wholesale which like I said all in.
Peter Baltic: 2025, what we expect is the trough of wholesale and other service revenue and an underpinning that though there was actually growth in wholesale and our partnerships. If you consider as you mentioned, both the ACP decline, which we now expect to be towards the higher end of that $3 50 to $4 50 range.
Peter Baltic: We gave previously and of course the long planned.
Peter Baltic: Transition of Tracfone away to Verizon as they complete that merger integration. So the underlying dynamics are great. When you take out the ACP and the Tracfone and that's what we expect as we hit that trough to continue to fuel growth past 2025.
Speaker Change: Great. Thanks, a lot.
Speaker Change: You bet okay.
Speaker Change: Operator next question please.
Speaker Change: Our next question comes from John Hodulik from UBS.
Speaker Change: UBS. Please go ahead with your question.
John Hodulik: Okay. Thank you.
John Hodulik: Two if I could guys first on spectrum.
John Hodulik: Yes.
John Hodulik: <unk> made some moves in the market it looks like you're trading some of your three or four or five for for some to dock side. Just so any thoughts on the strategy. Then obviously Verizon bonds inspected some from US M are you guys also in the market for additional spectrum at the right price and maybe an update on the 800 megahertz spectrum. That's one topic that didn't come up in your capital markets day.
Speaker Change: And then secondly.
Speaker Change: You have some good info on the digitalization efforts, Mike I mean is there a way for you to sort of frame or quantify maybe that there's potential upside or improvement in costs. You can get as you sort of walk through that process. Thanks.
Speaker Change: Well, let's do the digitalization one first John.
Speaker Change: You know if you recall at capital markets day, we laid out a pretty ambitious plan for value creation over the years and signaled a 'twenty 'twenty seven core adjusted EBITDA about $10 billion at the high point of our guidance above 2023 levels and so that kind of shows you the potential now a lot of that's revenue growth, which.
Speaker Change: It is partly driven by digitalization and a lot of that is re crafting the underlying operation getting more precise in our marketing preventing customer problems that are a source of so much value loss in this industry and so we didnt unpack all the details of which parts of drive which parts, but I can tell you that we arrived at that.
Speaker Change: Planned after working on it for almost two years and after detailing out a 14 quarter quarter by quarter detailed plan of what will land. One so that we have the barometers of knowing if we're running ahead of our plan that we can increase our promises to you if it looks like we're going to be running behind we can course.
Speaker Change: That's how we do these things and if you go back to our 'twenty 'twenty. One plans when you know a lot of people thought what we said back then was unbelievably ambitious and we did it but we did it because we had a detailed plan that we don't always provide a lot of transparency I think we do a good job there we provide more than others on transparency, but we also have to keep some of the secret sauce to ourselves.
Speaker Change: For competitive reasons to make sure you saw the barometers underneath that though we put some markers out there. We said we wanted person to person customer service interactions to be reduced by 75% in the planning horizon. That's a big marker. We said we wanted the majority of all activations to be digital and men.
Speaker Change: Any other markers that we put out there and one of the things that Peter said was that the actual business plan that we laid out didn't assume full achievement of each of those kpis. So in a world where we deliver each and every one of those kpis, there's upside beyond the guidance range and so we tried to put out a plan that's realistic.
Speaker Change: But at the same time ambitious and that's kind of what we mean by challenger to champion. It's a plan for the future. That's an evolution from challenger to champion that really.
Speaker Change: Causes us to have to do things that nobody has ever done and really rethink. How this industry works is you see us doing them in so many ways and hopefully that came across well at capital markets day now switching to spectrum. You asked a couple of different questions. One of them was about $3 four or five specifically and I'll just ask all to talk about what's going on there right.
Speaker Change: Well thanks, Mike.
Speaker Change: Well on our journey when we are building our own.
Speaker Change: Our network, which is C. A dense five G. Multilayer network, we are always working with our different layers in a different spectrum assets. We have we have a superior sub six gigahertz holdings today, which is which is providing us with our enormous capacity benefit and in that we always value spectrum short term.
Speaker Change: Long term and midterm and we see that 345 is no part of this plan. So that's why we did it and then there's transaction goes through a number of different approvals and so on and we will see but the way. We did it we are very satisfied I can say with how it came out on the 800 band.
Speaker Change: We concluded the auction without really a bid that was quantifying that gives us no new optionality really we can either deploy it or we could look at doing something a tool to benefit monetarily from it. So we have those optionality as we go forward, we're always working on our spectrum portfolio and continued to build its leading five Dana.
Speaker Change: Based on it.
Speaker Change: Hopefully that answered the question John.
John Hodulik: Thanks, guys operator.
John Hodulik: You bet. Okay. Thanks, John Operator next question please.
Speaker Change: Our next question comes from David Barden from Bank of America. Please go ahead with your question.
David Barden: Hey, guys. Thanks, so much.
David Barden: So I guess to start I guess it would be for Mike.
David Barden: You know you were you were in Germany at the at the D. T C M D, where they kind of elaborated on.
Hope that they would see that there.
David Barden: Interest ownership interest in in T. Mobile would rise I think they said to the high 50.
David Barden: Percent range from the current levels can you elaborate a little bit on your understanding of how that timing might work because that will impact how the the you know that.
David Barden: Mechanics of the buyback on the float work and it could magnify that effect and make it much more beneficial for the U S. Investors and then the second question if I could.
Speaker Change: Maybe Peter your 3 million postpaid phone net kind of target for the year implies about 100000 reduction in year over year, and that's in fourth quarter versus flat year over year in the third quarter is that just being conservative or is there something else to watch out for thank you.
Speaker Change: Okay, well I'll start, Dave and I'm, sorry to disappoint, you without being able to really answer the question much I guess the prototypical answer would be you kind of have to ask them I will say that.
Speaker Change: In this long journey.
Speaker Change: Being an independent company with D. T is our controlling shareholder we've seen their position range from the forties to the mid sixties, they've maintained a controlling stake the entire time and that governance structure for us from our lens has been pretty unchanged in other words the board structure.
The people involved we have all been together a long time.
Speaker Change: At this point T. M. U S is a very very important part of what they do and they're very clear about that were much larger as a company than they are now et cetera, and you know I think from a standpoint of governance. It really works you know what's good for US is generally good for them, especially because of the relative value and size et cetera, they've been incredibly.
Speaker Change: Part of our strategy, they're a great board.
Speaker Change: I feel that having industry experts on our board from D. T has been very helpful to us I think a lot of companies in our space don't have that benefit of insiders that are really able to ask the three layers of wise on all the things we want to do and at the end of the day you know this this management team and this board have made a lot of.
Speaker Change: Move together that have created enormous value and success now they did mention that that you know they wanted to they have multiple strategies and multiple capital allocation strategies that may result in them concentrating their position over time.
Speaker Change: But how and when that happens how that happens whether that happens you'll have to ask them as.
As to your second question Yeah, Dave.
The 3 million so its approximately $3 million from a postpaid phone perspective, and as you know Q4 has a unique attribute and that the last couple of months, which are really in front of us here are a period of really great activity. We are certainly positioned well as you saw in Q3 and of course, we have ambitions to outperform what we are.
Speaker Change: Put there, but we're always cautious with the two biggest months of Q4 ahead of us in terms of putting a guide out there that's achievable for us so somewhere approximately in that in that $3 million not right on with of course, the ability and aspiration for us to get after it.
Speaker Change: Perfect. Thank you guys.
Speaker Change: Thanks, Dave Operator next question. Please I will say, while we're teeing up the neck, we almost always get that question at this time of the year and you know because it's weird to have a guide with only two months left but you also have to remember that.
Speaker Change: The biggest part of the quarter is the part that's still in front of it. So every year at this time and we do get accused of being a little cautious I don't think it's cautious it's just that so much is unfolding later in.
Speaker Change: In the quarter I will comment that our quarter to date trends are spot on our planet looking really strong. So no question marks there whatsoever.
Speaker Change: Thanks, Mike next question please.
Speaker Change: Our next question comes from Michael Rollins from Citi. Please go ahead with your question.
Michael Rollins: Thanks, and good afternoon.
Michael Rollins: Two questions if I could first curious if you'd give us an update on the journey for deepening penetration in the U S M or a market as well as within a business vertical and then secondly, with respect that postpaid phone or is it looks like it was up I think 1.8% year over year and if I may.
Michael Rollins: <unk> correctly, just from some of the discussions in the past.
Michael Rollins: The base case expectation for the back half of the year may have been up 1% and just curious if you could impact the strengthen our two and.
Michael Rollins: Is there something to take from this strength as we look at future quarters. Thanks.
Speaker Change: Okay turns out to be a three part question, but I'm going to ask three different speakers to try to keep it tight but we're gonna go to Jon on S. MRA quickly to Kellion business, and then back to Peter on RP, and I I'm going to predict he's going to pivot you to ARPA, but.
Speaker Change: But John Yeah.
Speaker Change: Mike.
Speaker Change: Mike.
Speaker Change: So just smaller markets rural areas always take a moment to remind everyone that this is 40% of the mark at 140 million people 50 million households, we could not be more pleased with the progression of our growth in this space.
Speaker Change: Q2 was our highest wind shear quarter that we've ever delivered and here in Q3, we beat Q2, and so we've got a great series of momentum happening in the marketplace, where we're driving switching winning those switching decisions number one in terms of win share in the marketplace in smaller markets a rural area.
Speaker Change: Yes, and you know like I talked about our capital markets day, two the thing that you know built a lot of confidence for me is that our overall net promoter score is smaller markets rural areas is now number one in its 20% higher than the next highest competitor for me that builds ongoing customer advocacy customer loyalty and continue.
Speaker Change: To build that overall growth momentum that we have in that particular marketplace and that's while we're.
Speaker Change: You mean to build net new accounts in the top 100 markets as well. So we're having a lot of fun doing this ive been talking about it for three years and we're continuing to drive you know new highs and our switching activity in smaller markets in rural areas and I know you didn't ask about this Mike but.
Speaker Change: One of the things we reminded you of at the capital markets day, as we D averaged that top 100 set of markets for you a little bit and this dynamic that John's talking about that has been a huge tailwind for us in S. M. R. E is present in a lot of those top 100 markets Theres, a big part of those well, we're not number one and some of them were not even number too and so.
Speaker Change: Theres big tailwind potential there and in all three types, where we're number one number two or even while we're number three T. Mobile is growing so it really shows that our formula works across the board and now to the second part of your three part question, what's going on with business and by the way Kelly, while you're talking about that maybe you could hit Chetan Sharma as question about enterprise.
Speaker Change: <unk> solution deals what are we seeing could you name names, what's going on out okay.
Speaker Change: Well, John mentioned that Theyre, having a lot of fun and I got to tell you. So is this T. S. B team, we we beat our benchmark competitor again in postpaid phone net adds in postpaid net adds and in place churn, we're continuing to see profitable growth rising C. L. A is in all segments and and.
We also just declared our ninth consecutive quarter of positive trends in all segments against our competitors in enterprise, let me narrow and specifically on a couple of the segments and then in some customer wins and use cases and enterprise we had our best active issues on record so considerable growth.
Speaker Change: A crash and.
Speaker Change: All of our solutions and working with existing customers like American Airlines, where we're developing a b T. S solutions for their airplane operations or new logo growth with New York Life insurance, where we are helping them combined solution with smart and to make sure that there.
Speaker Change: Voice communications are secure and in government, we saw double digit growth quarter over quarter and net adds across stone D. T S and an HSI and a lot of that growth is supported by our wins in the in the third being the spiral for contract. So we are growing and winning with the army and Air Force and the Y 12.
Speaker Change: Security complex and then when I think about you know HSI in particular and this is one of our strongest quarters ever highest net adds in fixed wireless and I'm, we're doing really well. So we and we saw a lot of wins this quarter with retail multi site. So new customers include Les.
Speaker Change: Spirit, Halloween and Petsmart, and then in education, where we're able to solve some connectivity problems with some of the largest school districts in the country like Houston I S. T and and then again like I mentioned before bringing our fixed wireless solutions to the department of defense and we certainly have more room to run with an S. We had some really cool deployment.
Speaker Change: This year, we're starting with advanced network solutions to really see our pipeline continue to grow and then continuing to see more and more deals closed each quarter, the team's working hard against that and against that target and oxy petroleum as an example, and chatting to to answer your question online, where we deployed a hybrid an S solution.
Speaker Change: Cross 20 of their manufacturing plants and and so that's some of the work that we've been doing this last quarter.
Speaker Change: Great.
Speaker Change: And ARPA trying hard three well I'll I'll definitely be truthful and redirect you to ARPA in just a second but honestly, we do see strength there and previously what we have said is from an <unk> perspective, we see probably about a half a percent a year over year increase probably now see about 75 bps of that so a little bit of strength there but.
Speaker Change: The reason, we don't focus on ARPA as much as you know is because it is very much a mixed driven metric and so things like the successor Kelly just described in the business group, where you don't have high ARP Who's you tend to have lower our pools with higher ARPA is very very strong C. L. V's segment plans things like that that's why we pivoted into ARPA and again continue.
Speaker Change: Strength, there and just increased our guide very exciting to be at 3% year over year increase from an <unk> perspective.
Speaker Change: Thank you Mike Thank you Peter.
Speaker Change: Operator next question please.
Speaker Change: Our next question comes from Jonathan Chaplin from New Street Research. Please go ahead with your question.
Jonathan Chaplin: Thanks, two one for <unk> on the 800 megahertz again.
Jonathan Chaplin: We've seen some challenges to your request fused Pcs spectrum for the direct to device subs with with Starlink wondering if you think those challenges pose a real sort of headwind to you being able to use that spectrum and whether 800 megahertz might be an alternative.
Speaker Change: And then Mike a question for you AT&T said something that totally shocked us today that you know at some point they think.
They could open their network their fiber network.
Speaker Change: To wholesale.
Speaker Change: I'd love to get your perspectives on that would it make sense to you guys that they did that to leverage their wholesale network to sell bundled products. Thanks.
Okay, great well I'll start out on I guess on both of them and then CFO wants to add anything.
Speaker Change: On the direct to sell them there no we don't really see any barriers to progress there we're very much looking forward to getting our beta underway.
Speaker Change: During the Hurricanes, we were able to test with a temporary authorization and saw hundreds of thousands of successfully completed text messages to people that otherwise wouldn't have seen them, even though our network was recovered on a at a remarkable pace and so it's just it's getting closer and closer we have over 200.
Speaker Change: Out of lights in the Air I think this will work itself out. Despite you know are the obvious process that has to happen through the FCC. I think this is a fundamental good and we will be off to the races. Very soon as it relates to 800 is offset them. There's a lot of Optionality for 800 now you know we were required to sell it as.
Speaker Change: As an artifact of the merger and the consent decree and to auction. It under a set of auction rules, we did that and there wasn't a qualifying bid as as defined.
Speaker Change: In the consent decree and so we're no longer required to sell it that gives us optionality I remind you of a few things that Peter has said one of proceeds from selling it are not currently in our financial plan. So should we sell that spectrum that will be in essence incremental and secondly in Olson network plan utilizing that spectrum is not currently in the plan.
Speaker Change: So the reason I point. This out is it just we have a lot of Optionality and that's valuable spectrum, it's important spectrum and you'll have to stay tuned as it relates to our resolution on how we plan to use it as it relates to fiber and you know open fiber one of the things that you know has made cable.
Kind of interesting is that you do see a certain amount.
Speaker Change: You know of collaboration in that space, because there arent overlaps look I, it's hard to predict what the future will look like this is a very very competitive market I think it always will be very very competitive.
Speaker Change: And that being said a lot of things will unfold over the years and you know we'll have to see what's the very best way, we can serve can consumers and businesses, but we're open minded to all future constructs I can tell you that we're very very excited about our fiber plans and we intend to compete vigorously with them our strategy is to be.
Speaker Change: First to fiber in the places where we go and that's why we teamed up with some of the fastest moving players in this industry. So that we can race with abandon to provide this incredible service. We know we can provide that being said you know wouldn't speculate more on the future than that.
Speaker Change: Great. Thank you for the question next question. Please.
Speaker Change: Our next question comes from Craig Moffett from Moffett, Nathan and please go ahead with your question.
Craig Moffett: Alright, Thank you and first let me embarrass cathie by wishing you a happy birthday today.
Speaker Change: Yeah happy birthday Caribbean.
Speaker Change: Yes.
Speaker Change: Dana.
Craig Moffett: I know I know, you're not going to forgive me for that Kathy.
Craig Moffett: Let me ask the obligatory question about.
Craig Moffett: Upgrade rates because you you like your peers.
Craig Moffett: Continue to see very very low upgrade rates.
Craig Moffett: Headsets.
Craig Moffett: My guess is that kind of.
The debate about whether we're going to see a big handset upgrade rate. This year is largely already settled but as you look out to next year and what at least the handset makers have said is expected to be a more robust AI driven upgrade cycle. How do you think about that how do you prepare for.
Craig Moffett: And how do you as a share gainer or how do you potentially benefit from it.
Speaker Change: Yeah, great set of questions great well, we start with my cats.
Speaker Change: And talk about the upgrade rates, we're seeing in little future casting.
Speaker Change: Yeah, I mean in terms of the current upgrade rates you know like like you said are they they were low and a lot of that is just because of what we've been talking about the last several quarters that we see customers having their natural demand met by virtue of the way that our upgrade programs work and by virtue of how good the T mobile version of the <unk>.
Speaker Change: <unk> devices are both both in terms of penetration we have over 80% of our customers using five J devices, but also and maybe you can comment on this later some of the unique capabilities that are available on some of these devices because of our stand alone <unk> network. So what we see is customers having devices that generally work better and devices that.
Speaker Change: Are becoming more expensive and lasting and lasting longer than we think all those factors have come into play.
Speaker Change: <unk> and <unk> and you're seeing the outcomes of the upgrade rates.
Speaker Change: Looking forward.
Speaker Change: To predict a lot of the Oems don't share their their long term plans are what their devices are going to look like next year, but like just like going into this iPhone cycle I'd say the next the same thing about next year cycles, both with iPhone and with other other Oems, we think we're really well positioned on whether its a big upgrade cycle or not.
Speaker Change: And in that case or a big upgrade cycle, you know T. Mobile has constantly been the winner when Theres a lot of switching in the marketplace and we saw we saw that again during this this last iPhone launch and its demonstrated in a lot of the results that you saw here in Q3 with 315000 net new accounts by far the most out of anybody that reports airports in this industry.
Speaker Change: So we think in a world where there is a lot of switching because of because of a new device that creates a lot of a lot of upgrades because of this unique proposition of best network best value and best experience when customers are shopping T mobile's going to win and that's I think been demonstrated quarter over quarter for many years now.
Speaker Change: Okay anybody want to add to that.
Speaker Change: Well the only comment there on the phones that Mike mentioned is that many phones are are are coming up and getting four carrier aggregation two carrier aggregation in the uplink. These gives enormous benefits, it's 30% higher speeds.
Speaker Change: In the downlink 15 in the uplink. So these form the do stuff performs really well on our network and just a reminder, on the on what Mike brought up is that we are the only ones who has a pure standalone core we've had it since 'twenty 'twenty, it's well tuned it's rolled out over an entire network and it allows us to do these things and it allows us to the four carriers.
Speaker Change: And the downlink it allows us for the two carrier in the uplink with all those benefits for the new devices coming out and it also allows us now to use those so voice over the new air interface. As you mentioned in your opening that's a huge thing it really leads to much better of course at all times it leads to better quality and it gives us the opportunity for more.
Speaker Change: <unk> spectrum use so its interesting you know why do we say these things well first of all we pointed out for the reason, Mike said, which is when people are having a fantastic experience that's differentiated with their current device at T mobile than theirs, they're not as compelled to move you know, they're having a great experience. So they shop less that's great we have low upgrade rate.
Speaker Change: So as a result, when they wind up switching we win because we win the switching moments there's not enough talking in this industry about switching but it's very clear that these numbers show once again, where the switching winter and if there's a super cycle in the future and that Spurs switching that'll be great for us and this point that off that you're pointing out around.
Speaker Change: The newer devices, taking advantage of our advanced capabilities. It really speaks to another issue at capital markets Day, we were pretty clear that we don't expect to just defend this five G network lead we expect to extend it over time and the evidence continues to back us up on that you know we are much or margin.
Speaker Change: <unk> of superiority is greater today than it was two years ago and one of the drivers of this is not just the rate and pace of our deploying technologies, but its the tailwind represented by the fact that a lot of the devices out there today in People's hands don't take full advantage of the network. For example, the latest iPhone 16 has advance.
Speaker Change: <unk> capabilities that are uniquely unlocked by T Mobile's network and the more of those get in People's hands. The mortal unlock the embedded technology, we've already rolled out creating a tailwind for us to further extend our lead and that will be a great dynamic down the road when people have those in their hands and their face later with whether to upgrade further.
Speaker Change: And they're gonna be very happy with what they have so a really nice trends unfolding there I hope that helps Greg.
Speaker Change: I would add just one little bit because of those dynamics that we're seeing with Mike described as I think about Q4, we'll probably see the same seasonality from an equipment revenue perspective that we saw last year. So at the same kind of absolute dollar increase that we saw Q3 to Q4 is what I expect to happen from Q3 to this Q4, obviously higher than Q3.
Speaker Change: With that holiday seasonality.
Speaker Change: Happening there, but that's but the trend that we would expect.
Speaker Change: Thanks you.
Speaker Change: You bet. Thanks, Craig next question please.
Speaker Change: Our next question comes from James Schneider from Goldman Sachs. Please go ahead with your question.
Speaker Change: [laughter].
James Schneider: Good afternoon, and thanks for taking my question I was wondering if you could maybe comment on your plans for network upgrades on the wireless side for for next year, maybe talk about the relative prioritization of your three plus gigahertz.
James Schneider: B upgrades as well as how much you plan on doing in terms of rural and markets outside of the tier one markets and any other priorities you may have thank you.
Speaker Change: Thanks, Jim this might be a good opportunity for him off to kind of remind that we have a different approach for how to do this than many and it's algorithmic, it's driven by deep data and in that sense at the planned fullness around big macro.
Speaker Change: Topics like that are a little bit different for us in other words, we're looking now at a much more micro level than kind of a broad secular level without as much preference for well, whether its rural or whether it's urban etcetera.
Jim: Et cetera, but maybe you can explain customer driven coverage and how it drives our priorities into 2025 right.
Speaker Change: And first of all I mean, we have the greatest assets as I said before on the below six gigahertz those assets are allowing us to build a very consistent networks of weeds that also all the towers that we have and we have more than 80% of our towers are equipped very similarly, we are the only player in the in the market who has.
Speaker Change: Three layers dedicated to <unk>.
Speaker Change: In that when we are allowing us to build and expand as we are.
Speaker Change: Using them authority that we call customer driven coverage and customer doing coverage is something we have spent about one and a half year about developing a mythology. It's an algorithm. It's got pharma do based on AI, but we're using billions and billions of data points that we are assessing from customer experience data across the network, we're correlating that with.
Speaker Change: Business data and with real customer outcomes and otherwise what customers decide to do in our network.
Speaker Change: And then we are assigning a M. A C. L V value a customer lifetime value to a grid across the country more than 4 million little hexagon instant we have created across the country of 165 meter wide hexagons, we're assigning those values relative to competition to allow us to know exactly.
Speaker Change: Ah.
Speaker Change: Where we can build to please customers because at the end of the day. This is not a.
Speaker Change: Pulp drive, where you're just chasing populations and where populations live it's a much more complicated or to figure out exactly where customers value. Most are built and that's what we're doing around capital allocation and to answer your question. Jim It's really what we're doing on our capital allocation for next year, we're taking full advantage of our customer dividend cover.
Speaker Change: Now looking then at our assets and our to your question about the three gigahertz band.
Speaker Change: How much do we really need to look to deploy that well today, we have a and we weren't very smart into the to the auction around around them and C band, where we selected 50 markets, where we really could see that this spectrum fits very well to our grid. So when we deploy it it'll be optimized for our.
Speaker Change: Grid, our tower to tower distance in a way that it makes it very effective and it's in very in markets, where that could potentially over time be a need to expand our capacity, but as we see it now it is not needed. We have so much more room to run we are only about 60% deployed on our mid band spectrum to two five D. Today.
Speaker Change: And we have much more other things that we can take an action and among the others. The technology leadership that you just explained Mike. So that's where we are on our C band plan perfect. So Jim what you can take away from that a couple of things one is with apologies.
Speaker Change: You know what you can take away is what you just heard we keep a little close to the vest.
Speaker Change: How and when we will deploy each band and exactly where we will deploy and we do that for all kinds of reasons, but one of the transparency. We attempt to offer you is the following one we outlook at capital markets day that the $9 billion to $10 billion capital envelope.
Speaker Change: Is sufficient with our detailed planning to not only defend but to extend our <unk> leadership and to meet the goals that we established in our business plan. We've modeled this at a very detailed level. The way. The lens is different set of tools are different there, they're not blunt tools like let's go after the country side and lets you know go after it.
Speaker Change: Much more algorithmic both.
Both just described that we have tens of thousands of projects they might be small upgrades they might be reorientate ones they might be adding C band in the future to the premise of your question but.
Speaker Change: But we have tens of thousands of future projects that gets stacked ranked based on some practical concerns like zoning permitting but mostly based on the outputs from our AI driven algorithmic model called customer driven coverage and the result of that will be that we will stay ahead of the demand curve and continue to extend our own.
Speaker Change: Overall performance and five <unk> experienced leadership in the country within the Capex envelope that we provided to you.
Speaker Change: That's very helpful color. Thank you and then just as a quick follow up could you maybe comment on what do you see anything in either your macro indicators or your underlying consumer data that have you at all concerned that we're about to see a significant deceleration in the overall kind of gross add environment in the consumer wireless space. Thank you.
Speaker Change: Okay.
Speaker Change: And again I'm going to apologize I feel like you've asked me two in a row that I I'm not all that well equipped to answer and the reason why the second one's difficult is that we have sort of determine that T mobile or maybe even our industry writ large is not really that great of a canary in the coal mine on macroeconomic things and part of that is.
Speaker Change: The essential nature of our service and so we are not going to be the guys to ask to give you early indicators of changes or nuances in consumer behavior.
Speaker Change: And one of them and that's borne out by our numbers you know our customers are.
Speaker Change: You know kind of per category per segment.
Speaker Change: Paying at traditional norms are valuing the service.
Speaker Change: You know just no real secular changes there that are that are noteworthy as it relates to growth in the industry. There are weird dynamics that are hard to predict there. We've had we've done a pretty good job predicting our business I'd almost remarkably good job predicting our business, but predicting what happens sort of in the quote unquote market growth has.
Speaker Change: It's been more difficult in a lot of that is because some of what gets added to the industry. As you know kind of questionable sort of lower calorie net adds et cetera, and it's one of the reasons why we focus so much on switching we focus on the core business are you know families on postpaid traditional plans who.
Speaker Change: Been in this industry for a while and who switched to us from another provider that continues to be a just sort of a at a modest rate and pace the bread and butter of our superior revenue growth story. The other dynamic we focus on is an ongoing transference from prepaid to postpaid now this one this one.
Speaker Change: Possibly be a canary in the coal mine Youre looking for because we have seen over the past five years. During these vibrant economic times lots of transference from prepaid to postpaid and this most recent quarter. We saw it yet again, a strong I think it was 175000 net.
Speaker Change: Net transfers from our prepaid or postpaid showing that that trend just continues that one maybe maybe that one would be an indicator. If you see that slow down because this is a this is a demonstration that customers are qualifying for postpaid plans over these last five years. So that's one to watch and it continues to be in in <unk>.
Speaker Change: Recent trends in his recent history consistent with.
Speaker Change: Thank you okay. Thanks, you bet.
Speaker Change: Operator next question please.
Speaker Change: Our next question comes from Peter Zaffino from Wolfe Research. Please go ahead with your question.
Peter Zaffino: Hi, and thank you.
Peter Zaffino: It's a bit longer term in nature on spectrum costs.
Peter Zaffino: Your stock's valuation multiple experience and shows a lot of market confidence in your growth outlook and if you put your investor hat on Ms. You'd agree that the other key value driver is the cost of that growth and so I want to ask you about a distant but potentially expensive issue the sixth G cycle.
Peter Zaffino: Forgery and five G cost each of the major msos tens of billions of dollars you're five G solution with sprint was quite elegant I wondered if you'd share your view on that and whether anything about your business. Today is sets up the long run for a different level of spectrum and ran costs than we saw for.
Peter Zaffino: So the <unk> in five year cycles. Thanks.
Speaker Change: Well, it's a great question, Peter and it's you know.
Speaker Change: The premise of your question acknowledges this it's a little premature.
Speaker Change: But there's a lot of reasons to be optimistic about the long term trends and that's one of the reasons why we wanted to talk with you at our capital markets day about our vision for what comes after this current five G cycle.
Iran, and what it can be and yes, there's a potential big cycle coming but on the other hand, it may be a cycle, that's fundamentally more efficient to roll out than prior cycles and the promises of open ran that had been made for years may finally be realized at scale in the AI ran era.
Speaker Change: And this this allows you to offset potential future cost of replacement of future technologies with fundamental efficiencies and so.
Speaker Change: We're optimistic we were able to indicate that for our planning horizon over the next few years this $9 billion to $10 billion Capex.
Speaker Change: Area makes sense now that's not full scale six G timeframes, yet, but at the same time, we wanted to put down markers about our vision for what comes next with AI brand because it's so promising on the ability to do more one of the things that we drive our planned around is the match to core metrics, which.
Speaker Change: As technology over time should allow us to extract more and more network performance per Capex and Opex dollar and it should allow us to extract more and more network performance per unit of spectrum and that's what has happened and that's what we think will continue to happen, but this neck.
Speaker Change: Cycle may be more efficient than the big Verticalizing five G cycle was I will also say that the net cost of five G involved.
Speaker Change: You know a big part of that cost involved our competitors rushing in to spend an inordinate amount of money to try to get mid band spectrum, and whether you know and that was caused by the extra competition brought on by our merger you know had that unfolded differently. It may have happened over time and it really showcases.
Speaker Change: How much competition are merger brought to this industry and how quickly and today customers are the beneficiaries of that you know.
Speaker Change: But so so as the industry.
Speaker Change: One of the things I've talked about in the past is that yeah. While five G has been costly for some overall you see industry cash flows at or around all time highs and yet you see consumers benefiting with three to four times more speed and three to four times more data usage at similar price.
Speaker Change: To five or six years ago. So consumers are our giant winners from the five G cycle, but the industry remains quite healthy as well.
Speaker Change: And I think the the future bodes very nicely for 60.
Speaker Change: One of the things we intend like we did in <unk> when we looked around corners, and we saw that it went unfold on smartphones and in mid band, we intend to be a company that drives the future on six G as well and that's why we've struck our unique partnership with Ericsson, Nokia and Nvidia to help invent a Iran.
Speaker Change: And bring in the future about in a way that disproportionately benefits T mobile customers.
Thank you Peter Thanks, Thanks, Mike Operator next question please.
Speaker Change: Our next question comes from Sam Mchugh from B M. P. Parabolic. Please go ahead with your question.
Sam Mchugh: Can you maybe just a follow up on that in some ways. It's good to hear about might be consumer benefits that youll scale through the sprint deal.
Sam Mchugh: How is engagement going on with different parties on the U S cellular deal.
Sam Mchugh: But Matt.
Speaker Change: Then the second just a quick follow up on the ARPA growth I know often you know ARPA.
Speaker Change: But in terms of the upside surprise is that more of a mix effect of the gross adds or was it a price rise a little bit better than maybe you'd anticipated. Thanks very much.
Speaker Change: Okay, I'm going to start with Peter on <unk>, and ARPA and is it mix driven or was it driven by and then probably turn to Mike Katz to talk about how U S. Cellular's unfolding yeah.
Speaker Change: ARPA or pose a number of factors as you know on the consumer side, it's continual expansion of the relationship including with five G home broadband other connected devices. You know are really seeing strength in growth and expansion of customer relationships Cali spoke a lot about the success and T mobile for business across the segments and how you see ARPA.
Speaker Change: Spansion there in terms of the rate plan optimizations that was a very minor component of the year over year ARPA change and certainly not the driver for the 3% increase now that we anticipated really is core expansion of customer relationships. That's so exciting.
Speaker Change: Okay, and maybe while you're at it Mike you can talk about not just U S cellular but you might as well talk about metronet in Lou most we've been pretty busy.
Speaker Change: Out there so whats going on with these new combinations that we have.
We have several transactions that I would say all of them are in the process and the processes are going really well.
Speaker Change: In terms of Limos, we expect that to close in the first the first part of next year U S. Cellular which is also in the process maybe the middle part of next year.
Then metro net we also expect to close in 2025 and so good good progress through the through the whole regulatory process. There's obviously several several different groups that have to review and approve them and feel like those are going really well. So far we happened to have at the end of the table one of the nations most accomplished antitrust lawyers.
Speaker Change: So our general Counsel Martin also in any commentary on things we're learning as we go along and we've cleared both Lou most and Metronet has cleared the Doj review process is still pending before the FCC and that'll take a little more time as Mike just indicated and U S cellular.
We think this is great for consumers, it's going to lead to lower pricing.
Speaker Change: Especially for the U S cellular customers, it's going to lead to better coverage for all customers.
Speaker Change: So we're confident in that and we think we'll get clearance in due course, but we're working through the process with the various agencies right now.
Speaker Change: We have begun.
Speaker Change: Some planning with the Counterparties, particularly U S cellular and because that's a more complicated.
Speaker Change: Set of planning that we have to do and we've met the teams they're fired up I can tell you that they are excited about that core premise that mark just reminded everybody of this as a transact and this this isn't always the case. This is a transaction that very clearly will result in both lower prices and better network, both T mobile and U S.
Speaker Change: Customers will have a better network experience. There's no question about that and U S. Cellular customers will be offered lower prices as they migrate to the T mobile plans and that's that's just a classic win win so we're very confident.
Speaker Change: But we have to keep our heads down and go through the process and.
Speaker Change: Explain our case to all the parties involved very exciting time.
Speaker Change: Sure.
Speaker Change: Okay.
Sam Mchugh: Thanks Sam.
Speaker Change: Our next question please.
Speaker Change: Our next question comes from Tonight than catastrophe IR from.
Speaker Change: Barclays. Please go ahead with your question.
Speaker Change: Thank you.
Speaker Change: Maybe round pricing them.
Speaker Change: Mike when you look at our pricing across the industry right now it just seems like taking a much better than expected I mean John's not as high.
Speaker Change: Hum.
Speaker Change: When these taken pieces of bigger than we've seen multiple pregnancies and of course from your peers.
Speaker Change: Does that make you think that the value gap is maybe bigger.
Speaker Change: In wireless and maybe this becomes a recurring opportunity and related to that.
Speaker Change: Do you think about unit volume growth get a little bit and mixing with the density and density, but I think we've taken down and that's obviously great from a share perspective, but it does come with its own cost in the form of working capital and margin and so on.
Speaker Change: So isn't it.
Speaker Change: Prices are executing better than maybe the Netherlands can shift a little bit more.
Speaker Change: Words, Crazy and drive the rest of the P&L and cash flow and it might be different next year.
Yeah, that's a that's a great question and thanks for it.
Speaker Change: You know our strategy here has been remarkably consistent and you know as it relates to for example, the working capital and other P&L impacts of a growth orientation, that's kind of very much in the run rate. It's true this quarter, we had the best Q3 in a decade. So that's on the margin helpful.
Speaker Change: But it's in the same area code I mean, where were growing methodically consistently repeatedly and that's what you want to see from US as we chase. These very ambitious goals for the out year I will put our revenue growth plan up against anybody's. It. It you know our plan is one.
Speaker Change: That favors customers that focuses on value that promises value and that has resulted in service revenue growth and postpaid service revenue growth that lead the industry by a wide margin. So I want to make sure to caution us because.
Speaker Change: The strategy, we have which is to emphasize value and network and experiences. This team keeps reminding in every answer.
Speaker Change: That really works and so we're very cautious about putting that at risk.
Speaker Change: That being said, we have to keep up with the times you've seen us doing some of that I think you could even be said that that's gone very well.
Speaker Change: But we have to make sure that anything we do now and in the future is consistent with our vision that the uncaring stands for superior value and your premise of your question that May that May you know leave room and what it means to be that may allow us to make changes over time, but we will make changes with the northstar being.
Speaker Change: True to our brand should there be changes in the future.
Speaker Change: Thanks, Mike before we go to our last question on the phone I'm going to take one question from social media probably for Peter.
Given the nice EBITDA take up for the year can you help us understand what's driving that is that the rate increase or are there other puts and takes we should think about.
Peter: Yeah, absolutely. Thank you Cathie, you know Theres a number of things of course, we are at that time of year. When the year Guide is the Q4 guide and so maybe I'll just focus on all the puts and takes are within Q4 of course, there's more ads for the year as we just raised guidance yet again on total postpaid as well as total postpaid phone and then there's a few.
Peter: Puts and takes as I think about while the net is an increase in the midpoint there is a noncash <unk>.
Peter: Spectrum swap gain as that deal has closed that so about $137 million, but that is primarily offset by a slightly higher ACP decline. So as I mentioned earlier, we'll be at the higher end of that $3 50 to $4 50 range and then of course Theres hurricane costs that we're incurring in Q4 to make sure that.
Peter: We get the network back up and running and serve customers as quickly as possible on that front. So with all those puts and takes we still saw a nice increase of $50 million at the midpoint and I am very excited about that.
Peter: Every every guidance we gave is fundamentally driven by the underpinnings of the business right and every quarter has sort of some tail winds and there's some headwinds that are one time and this one is no different.
Speaker Change: Good one was that question from at Kathy's birthday online.
Speaker Change: [laughter].
Speaker Change: Alright last question. Thanks, operator.
Speaker Change: Our last and final question comes from Eric.
Speaker Change: Chow from Wells Fargo. Please go ahead with your question.
Speaker Change: Eric I greatly appreciate you squeezing me in so just wanted to maybe touch on the Hiseq HSI or fixed wireless business.
Speaker Change: Obviously, you updated your guide our capital markets day 12 million aspiration.
Speaker Change: We talked about it implies a modest T cell and that adds if we straight line it but you've been pretty consistent at this 400000 quarterly run rate.
Speaker Change: Does that still feel like an achievable number near term and maybe any other color you can provide on kind of how gross adds versus churn or have trended.
Speaker Change: And then you know any geographical split between urban versus suburban versus rural areas, where you've rolled it out. Thank you.
Speaker Change: Sure the majority come from cable.
Speaker Change: The majority come from with existing T mobile customers.
Broad trend lines haven't changed much.
Speaker Change: As we grow gross adds have to grow in order to outrun, even if churns consistent.
Speaker Change: Broadly every quarter is different but broadly over time, our churn trends have looked very nicely is this cohort has aged so that's really good.
Speaker Change: Every quarter will be a little different on that front, but generally I've been pleased with that over the last year and a half.
Speaker Change: But gross adds have to keep rising and so that's one of the reasons why you know theres a.
Speaker Change: Between the current run rate in the in the terminal size by by 2028 quote unquote at least for now and well see how it goes you know, it's you're right. It's been remarkably consistent consistent in that we've been gaining more net adds than anyone else in the industry some quarters more than everyone else combined and one of the things that gives us a lot of car.
Speaker Change: Since here is that people just love. This product you know this is the highest net promoter score by some measures product in the country and so that gives us a lot of confidence our average speeds are just like the cable averages you know our usage is a half a gig or have a terabyte a month and growing.
Speaker Change: The average speed and experience is triple what it was three years ago. So it's not a static thing it's rapidly improving and.
And again it matches cable, but it's a lot it's differentiated versus other fixed wireless offerings as well. So we're just really confident in the product and we will keep investing time and energy in the customer experience to make sure. It remains truly great and so far so good.
Speaker Change: Thank you Mike that's all the time, we have for questions and we appreciate everyone. Joining us today. Thanks, everybody we look for.
Speaker Change: Forward to speaking to you again soon and if you have any further questions you may contact the investor relations or media departments. Thank you.
Speaker Change: Ladies and gentlemen, this concludes the T mobile third quarter earnings call. We thank you for your participation you may now disconnect and have a pleasant day.