T-Mobile US, Inc. — 2024 Q1

Okay. Great. Well, why don't I jump in, and I'll give a comment on -- or a lack of a comment on the first question, and then I'll hand it to Jon Freier for the second one. No, we're not really going to announce any particular plans today. I will tell you that nothing we do is going to question or challenge our long-standing strategy of being the value leader in this market. But surely, over the span of many years, what that means kind of changes over time. Costs have risen. Changes have happened in a broader industry context. And we're going to jealously guard that value leadership. And I think customers understand that if there are changes around the margins once every many years in a world where costs change, they'll understand and accept that.

I think you got it.

Okay. Competitive context on up -- what are we seeing on upgrades? What's driving that? What's happening with the competition, Jon?

Yes, you bet. So I'll tell you a little bit about what's happening competitively. It's been an intense competitive environment in the marketplace, but it's been generally consistent as you look at this overall competitive intensity. And for our business, we continue to have these differentiated growth opportunities, whether that be smaller markets and rural areas, whether that be within our high-speed Internet or in our overall enterprise and government space that Callie can talk about in just a few moments as well. And so during that overall competitive context, we have these unique growth vectors that we continue to be underpenetrated on, driving a lot of good success so far but continue to have a lot of runway in front of us.

I'll just add one last thing. As I said in my prepared remarks, 75% of our customers have 5G devices, and those customers are having a very differentiated experience with T-Mobile's lead in 5G. And we can talk more about that, I hope, during the call. I'm so pleased with what's happened. We continue to extend our lead. And so that -- the impetus when you're having a fantastic experience on your phone, to prematurely swap it out, just isn't there. And they'll do it in a stepwise way. They continue to do it. And you can tell we're upgrading people fast enough by the fact that all those people have 5G phones, which is right at or even above competitive benchmark. So our customers continue to upgrade at just the pace that we think is appropriate.

What kind of partner ecosystem are you building to execute on your strategy?

Let's go straight to Callie.

Well, thanks, [ John ], for the question. We saw very strong growth in Q1, outpacing our benchmark competitor again in postpaid phone nets. And to comment a little bit on the question that Jon was answering in the business category if we're seeing pressure in that category, I think it might be us. And one of the interesting things, I think, that's going on in our business right now is that not only are we delivering on top line growth but also on CLV growth across all segments.

It's really interesting when you hear us talk about enterprise, how different it is from 4 or 5 years ago. I mean we were trying our best to sell SIMs to companies that would take meetings with us like the procurement department. And what's happened in this 5G strategy as it's unfolded is Callie and team have built solutions to some of the most pressing connectivity problems that enterprises of all kinds face. And suddenly, we're in strategic conversations because we have capabilities like network slicing, like SIM-based security and many other emerging 5G capabilities that are way out in front.

Yes. Thank you, Mike. Totally agree.

Okay. All right. Let's try this again. Operator, can we get a question?

Okay. Let's start with the second one. All along, if I remind all of our listeners, I know you know this, our fixed wireless strategy has always been about selling excess capacity, where we predict normal cell phone usage won't suck up that 5G capacity. And so this gives us the opportunity to serve broadband customers. And now at scale, we're serving millions and millions of them under this strategy. We had originally said we saw this strategy leading to about 7 million to 8 million total customers in terms of opportunity. We don't have any updates on that. I've said several times, we're working on thinking about examining ways that we could try to extend that, and we haven't drawn any conclusions yet. We have to make sure it's done in an economic way, and we have to make sure it's done in a way that customers will love, and they have a fantastic product experience.

Well, let's start out with Mike Katz so we can disentangle some of these offers for you because there could be some misunderstanding out there. And then we'll go to Peter and talk about the financial, what we see in the financial picture as it relates to the expected turndown of ACP.

Yes. Thanks, Craig. First, to answer the first part of your question on what our expectations are with ACP, at this point, we're expecting that the program funding is going to end. And the impact of that is fully contemplated in the guidance that Peter talked about and shared earlier.

Yes. And let me maybe add to that just a little bit on your other questions, Craig. And I think Mike really highlighted our thinking around this well. Of course, it's in front of us, more so than behind us. No new activations as of February, but it's in front of us, but we think it's fully baked into the guidance range that we gave you, the range of outcomes that we anticipate.

And that's not new. We've had that program in place for many years.

Of course, yes. Absolutely. Absolutely.

Yes, absolutely. You're absolutely right, and that's thoughtful around -- remember, as Mike Katz said, the amount of ACP customers that are sitting in our prepaid base and Metro is very small. So that's a very small exposure.

And the amount in the postpaid base...

Zero. Postpaid is absolutely 0 for us. And so it's really finding products. And you saw us probably launch out there some ways to help consumers and think about can you get into other programs like T-Mobile Connect or other low-cost opportunities or Lifeline type of construct. So look, we're going to be very thoughtful around making sure customers in this critical category stay connected while being, of course, very thoughtful around the risk profile to T-Mobile.

Yes. As Mike pointed out, it's not just our customers that are facing this, right? Everybody else is. But we've got this incredible portfolio of brands that are famous for value. And we're going to make sure that those brands are in front of people because we're going to stand up and serve them at a time when they might find that they need a new offer, and we will be there with incredible offers for them.

You bet. We won't be able to give you too much on sort of broad strategy here other than the fact that we're opportunistic. The strategies we've employed so far, both across wholesale, which we got started on in a very small way already, as well as this new partnership, are about putting the T-Mobile brand and team to work, selling a fiber product that complements our wildly successful 5G product. And to us, that's a great strategy because we believe we have an opportunity to generate superior returns than a purely disinterested investor could do by virtue of our assets and our know-how. And we've proven that know-how to ourselves through our success with 5G Home Internet.

Yes. And again, Jon, I can't give you all the details because we have counterparties involved in this. First, it is a 50-50 joint venture. It will be unconsolidated for us. So it's an equity method investment for us. So everybody kind of captures that fine point. And then as Mike said, there -- just given that it's a 50-50, there will be, obviously, cash infusion from EQT as a partner in this as well.

1 debt-to-equity ratio, but it will be based on what the funding needs of the entity actually is to get to that 3.5 million.

It really is looking at what the best return profile for T-Mobile is. And sometimes, as you know, spectrum opportunities may come up. They may not come up. We could have some of the 2.5-gig leased spectrum come up, and then we have rights of first refusal around those. So it's still a balance. We don't have line of sight to how we would use every dollar of what's still remaining in that bucket. But as opportunities come up, we're going to tumble it through the normal capital allocation thought process that we have that we've described very many times, and that's exactly how you think we should think about it.

And nor should we, right? So I mean one of the reasons why we were this transparent, maybe unusually transparent with you, is that we wanted you to know that we could, in the normal course, pursue opportunities and yet still honor our stockholder return ambitions. And we wanted to make it clear that, that -- nothing has changed in that.

You take the first one, and I'll take the second.

Yes, absolutely. Thanks, Simon. It's a tremendously exciting story, actually. One of the reasons, as we've talked about before, is we've now achieved as of Q4 of last year, in this tremendously successful merger integration, the run rate synergies, which we raised a couple of times during the pendency of the deal and execution itself. And so now though, we continue with this guide to see run rates EBITDA increases that are significant, in fact, quite similar to what we had during those synergy unlock days. And there's a couple of things that create that.

I hope it doesn't sound like we're sort of flogging our book when we say we look at cash flow margins. We are. But also, I think cash is king, and a view that doesn't look at cash flow margins would miss the fact that we have, we think, a durably more capital-efficient strategy than our benchmark competitors. And therefore, from a geography standpoint, EBITDA margins don't tell the whole story, even though I'm pleased we're up 200 bps almost, and we're making great progress there. But the cash margins are the story because they are inclusive of what we think is a durably superior capital investment profile. And we'll talk a lot more about what we think our secret sauce is with you at some point when we have more time. But this is a strategy we have growing confidence in that it's going to be durable.

Yes. Thanks, David. Well, let me start with the second one, and then I'll hand it to Peter on the first one. Look, I'm really excited about this because I think we're getting a lot and enabling this company to accelerate growth. And if you think about close to $1.5 billion spread over in time, 3.5 million passings being the goal for that funding, from what we -- the capital we put out, that's less than $500 per passing. And to the premise of the question, that's not for sort of like half of it because the other way it works is that T-Mobile is the branded entity for all of those passings. And it's up to us to make sure that it stays that way and we perform and so on.

Yes, absolutely. And Dave, as we've been long saying, our focus is primarily on ARPA, drive accounts, land them, expand them. And we just gave an updated guide with respect to ARPA, both from that as well as those continued rate plan optimization. And we'll probably see that more unfold in the second half of the year. But that trickles down into ARPU as well. So I'd say probably this year, we're expecting ARPU to be up, say, maybe 0.5%, again, more weighted to the second half of the year. But it is very much, as you say, a mix-driven metric.

Sounds good. Let's start with the second one about network. I mean I am really pleased with what is happening with Ulf and team. We continue to actually extend our lead. If you look nationwide, don't look at somebody's favorite denominator, but just look nationwide at all of the customers and all of the experience that all the customers are having. We're actually pulling ahead, and our average speeds are double our competitive benchmarks.

Well, thank you, Mike. And yes, we're very excited about the network and how it keeps advancing. And you mentioned C-band. So some of our competitors have launched C-band and put it out there. And in the areas where they launched it, we do see that the gap between us and them narrowed a little bit even though we are still way ahead. But as you said, we also noticed that the overall median downlink speeds, we are gaining another quarter again.

Let's talk more about that one. Somebody -- so 85% of the time, our people are attaching to a site with all 3 bands of 5G. And how does that affect the quality of the connection and the reliability of the 5G connection?

Well, very much so because out of that, we also have -- and this is an even more remarkable stat. We have 93% of the traffic on mid-band, which means that there is no toggling. It just creates a much more consistent experience. There is no toggling between when you're an LTE. In fact, you're staying in 5G the entire -- no targeting between low band and mid-band. So another factor of no toggling.

That's why we are differentiated with somebody experiencing a cell edge condition of 5G, right, because our grid is tighter and our spectrum reaches further. And the net effect of those 2 things is you're on 5G and a high-quality 5G link more of the time. And 85% of the time, you're seeing all 3 bands where a lot of the time, we use advanced carrier aggregation techniques so that you get the benefit of all those bands in terms of your signal strength like the uplink might be in the low band, the downlink might be in the mid-band, et cetera, et cetera. And these are all advanced techniques that the rollout with our competitors is quite variable. But we're really focused on giving everybody a consistent experience.

That's very right, Mike. And it's recognized. I mean we saw in the Ookla measurements another quarter where we came in at the overall network leader. We were also recognized by Opensignal as having the most reliable experience. So I think those are remarkable facts showing.

Well, thank you all for joining our fireside chat about network. And -- but I did want to make sure because there is this kind of misnomer out there that everybody is catching up and the party is over. And it's -- and I've been saying this for years. We remain 2 years ahead of the party on 5G, and our customers are having a radically differentiated experience. And you can see it in the data, not just in the rhetoric. So really glad you asked about that.

That was great. I'm sorry, I didn't bring my popcorn for that one.

Thank you. And we'll go to Mike for both questions.

Yes. So first, on the fiber question. Remember, a lot of these wholesale markets that we've launched are brand new and haven't even been existing for a year. But when you heard Mike talking about the assets that T-Mobile has and how we think that those give us advantage relative to other investors, that is exactly what we're starting to see play out in these wholesale markets. Remember, at small scale, we're in parts of about 16 markets spread around the country. But what we're seeing is a pace that would get us over 20% in the first year inside those markets. So we're really pleased with the penetration that we're seeing there.

Now on your FWA question. And specifically, earlier this week, we launched a couple of new products. And let me just give a little bit of context to those. Mike talked about us moving over 5 million customers in our home broadband business this quarter, which obviously is a huge milestone for us. And we now sit at the center of millions of homes with the most important technology in their house. And we think that gives us an opportunity, and I think I've mentioned this in the last couple of calls, to look at opportunities to expand into other products and services inside the home as well as give us tons of insight from what we're hearing from customers of additional needs.

And you can send your orders for our new Away product at mike.katz@...

By the way, you asked one last question, which is about what we're seeing with the wholesale fiber penetration rates. It's all very early because remember, these are greenfield projects. And so these were -- our partners were starting out after the wholesale partnerships were struck. But so far, so good. At a small scale, we're seeing year 1 penetration rates trending to 20%. That's above industry benchmarks. That's a good sign on your way to terminal penetration rates that are much higher than that. So everything we're seeing from these small scale so far anyway, it's going to grow. But so far, small-scale pilots in the wholesale range was very positive. And that's adding, of course, to our confidence to do news like today. So hopefully, that covers your question, Sam.

Cadence, tell me one more time what that part's about.

We don't guide on it. But one thing we did do when we made the changes around sunsetting our [ launch era ] promotions is we indicated that this quarter would be more like 400,000 instead of the 500,000 we've seen in the past. And that's what happened. We delivered 405,000. We haven't guided on the rest of the year, but we've said we're well on track to the goal that we have always anticipated being by the end of 2025 in that 7 million to 8 million customers range.

Operator, let's squeeze in one question, please.

Yes, I can say a couple of things. And one of them -- and this will be a little unsatisfying, but I do plan to lay out a more long-term view on how we think about this space at our Capital Markets Day that I mentioned would be this fall because I know that people want a multiyear view. Even that view will include an element that we intend to be patient, opportunistic. And it will also include an element that says we have no interest in fundamentally changing who we are. We are a highly successful mobile business that's mobile-first that's generating superior cash flow returns in this industry because of our superior strategy. And we're embarked upon a shareholder return program that we think makes a lot of sense in this piece of our life.

Well, that's all the time we have for questions, and we definitely appreciate everyone joining us today. It's been an absolute privilege working with you. And if you have any additional questions, please reach out to either the Investor Relations or Media Relations departments. And with that, have a great day.

Thanks, everybody.