T-Mobile US Q3 2021 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2021

Key Takeaways

  • T-Mobile led the industry in Q3 postpaid net adds, postpaid service revenue growth, core adjusted EBITDA growth and free cash flow, hitting record highs.
  • The 5G Ultra Capacity network now covers 190 million people—over half the U.S.—and is on track to reach 300 million by end-2023, delivering average speeds of 400 Mbps.
  • The Sprint integration is ahead of schedule, with full completion targeted by March 2022 and 2021 merger synergies raised to $3.2–3.5 billion.
  • Magenta MAX adoption surpassed 50% of phone net adds in Q3, with customers averaging 35 GB/month—three times typical LTE usage.
  • Full-year guidance was increased to $23.4–23.5 billion in core adjusted EBITDA, $13.9–14 billion in operating cash flow and $5.5–5.6 billion in free cash flow.
AI Generated. May Contain Errors.
Earnings Conference Call
T-Mobile US Q3 2021
00:00 / 00:00

There are 14 speakers on the call.

Operator

Good afternoon. Following opening remarks, the earnings call will be open for questions via the conference line by pressing the star followed by 1 and via Twitter by sending a tweet to T MobileIR or Mike Sievert using TMUS. I would now like to turn the conference over to Mr. Judd Henry, Senior Vice President and Head of Investor Relations for T Mobile US.

Speaker 1

All right. Welcome to T Mobile's Q3 2021 earnings call. Joining me on the call today are Mike Sievert, our President and CEO Peter Ausvaldik, our CFO as well as other members of the senior leadership team. During this call, we'll make forward looking statements that contain a number of risks and uncertainties that may cause actual results to differ materially from our forward looking statements. We provide a comprehensive list of risk factors in our SEC filings, which I encourage you to review.

Speaker 1

Our earnings release, Investor fact book and other documents related to our Q3 results as well as reconciliations between our GAAP and non GAAP results discussed on this call can be found on the Quarterly Results section of the Investor Relations website. I'd like to remind everyone that historical results prior to the Q2 of 2020 Represent standalone T Mobile prior to the merger with Sprint. I would also like to note that we are now in the quiet period for Auction 1 100 and 10 and will not comment on that today. With that, let me now turn it over to Mike.

Speaker 2

Okay. Thanks, Jud. Hi, everybody. It's so great to be here to share this quarter's results with you. And as The Un carrier is about solving pain points.

Speaker 2

And you may remember that when we closed our merger last We said that our combined assets meant that we would end the biggest pain point of all, that age old problem of having to choose between the best network We said we'd be in a unique position as the new uncarrier with our unique assets and financial position in the 5 gs era and in cash flows at the bottom line. Only T Mobile provides the best value proposition with truly unlimited plans, fairly priced and uniquely positioning T Mobile in significant ways that have long term implications. In Q3, We led the industry in postpaid net adds and postpaid service revenue growth, again, just as we've done every quarter since we closed The merger. We also led the industry in core EBITDA growth and free cash flow growth. Let's talk about a few of the highlights that are driving all of this growth.

Speaker 2

Smaller markets and rural areas are already contributing about 1 third of our new accounts and brand equities are up across the board. And we're still in the very early innings of our distribution expansion and ultra capacity build out in smaller markets. In enterprise, We delivered our highest ever gross adds and net adds because organizations really understand our 5 gs leadership better than anyone. For 5 gs high speed Internet, we delivered our highest ever net adds in Q3, more than double Verizon's and 2 thirds Our net adds came from urban and suburban markets. In other words, cable territory.

Speaker 2

All right. Coming back to my point on how T Mobile is uniquely positioned in our industry. I understand that many of you have raised questions about the promotional environment And also about the source and sustainability of recent industry growth. And some have actually questioned whether 5 gs really matters to consumers. While I do believe this is a healthy and growing industry, I understand that the actions of some of our peers may have soured sentiment on our category for some.

Speaker 2

So today, I'm purposely focused on addressing these perceptions head on and sharing my view of how our approach and competitive position is differentiated, The first question I'm sure is top of mind is the promotional intensity in this industry. Listen, as I've said before, at T Mobile, we actually like healthy competition because we historically win when customers start shopping around. Our competitors are leaning into device offers. And while I can't really explain what they're up to, I can imagine it's out of abject fear that we're coming to take all their customers Because they don't have compelling pricing or a competitive 5 gs network or significant underpenetrated growth vectors like T Mobile has. So they're trying to temporarily buy down churn while they sell off assets and come up with a plan.

Speaker 2

In contrast, As customers embrace 5 gs, we're years ahead on 5 gs, as you know, and we're positioned to stay ahead. 5 gs. We take them from a device that works similarly on all three big networks to a device that works way, way better at T Mobile. And secondly, we're laser focused on completing our merger integration ahead of schedule. This is huge because of the significant churn opportunity that we have, Which is why we're putting device offers in place to bring Sprint customers to T Mobile as quickly as possible.

Speaker 2

And unlike some, we generally Most of the time. In fact, every time they upgrade a customer from a 4 gs device to a 5 gs device, they're playing right into our strength and spending a fortune to do it and AT and T's case racking up 1,000,000,000 of dollars of future impacts on their balance sheet. How do their customers feel when they take that shiny new 5 gs phone home only to realize that most of the time it works just like their 4 gs phone? At T Mobile, those devices work demonstrably better, with ultra capacity 5 gs reaching more than half the country today, Rocking speeds of 400 megabits per second on average. Every one of those competitive customers being upgraded to 5 gs at great expense The second question is around the source and sustainability of recent customer growth in the industry.

Speaker 2

This one would be easier to answer if everyone in our industry was as transparent as T Mobile such as disclosing accounts or what adjustments are being made, etcetera. What I do know is that T Mobile has a diversified growth opportunity in underpenetrated and One way to cut to the chase is to look at accounts instead of lines. Our postpaid net new accounts in Q3 doubled year over year with our highest Q3 account growth in 7 years, Even while in the thick of our integration, we're up more than 1,000,000 net new accounts year over year. We did this while Verizon had No account growth year over year and AT and T didn't disclose accounts. And what's more, we see significant opportunities ahead In smaller markets in rural areas, we're leading America into the 5 gs era as we march toward covering 300,000,000 people With ultra capacity 5 gs by the end of 2023, a time by which others only aspire to cover 175,000,000 to 200,000,000 people.

Speaker 2

The difference in geographic coverage between 200,000,000 and 300,000,000 people is huge, roughly five times the land area, giving us a big competitive advantage in smaller markets and rural areas. Listen, as the uncarrier in smaller markets, we are combining a suddenly much stronger network with disruptive value and the best customer service. Does that sound familiar? It should. Newly competitive network combined with disruptive value and customer experience.

Speaker 2

That's exactly the uncarrier playbook we ran over the last few years in the top markets. We're bringing the same playbook to smaller markets in rural areas that took us from number 4 to number 1 in the major metros. Except in the smaller markets, we're not just bringing a competitive network. Our goal is to bring a superior one, anchored by our advantage in 5 gs. And let's not forget that in major markets, We have room to run.

Speaker 2

We're not just defending our castle. We got to our current leadership position without being perceived as having a network advantage. Now we have the opportunity to appeal to millions more customers in the larger markets as well, who shop primarily on network reach, Speed and capacity. In Enterprise and Government Markets, another big opportunity where our 5 gs leadership is already Opening new doors. We've already seen an increase in our win share for traditional postpaid services and we're well positioned to capture advanced 5 gs services With the most widely built out 5 gs network and the only standalone 5 gs core, which is exactly why many large enterprises are in active trials with T Mobile for advanced capabilities like mobile edge compute and private networks.

Speaker 2

And let me remind you that these advanced 5 gs services represent Upside to our plan. Bottom line, our competitors are broadly distributed today. They're already in smaller markets in rural areas and they already have out share in enterprise and they're overpriced with little 5 gs to show for it, making it tough for them to defend their flanks when we come in with a better network and a better value. I say all this not to bash anybody, but to make it clear that as competition heats up, you shouldn't paint us all with the same brush. T Mobile is executing and demonstrating that these profitable growth opportunities are real and they're differentiated.

Speaker 2

As part of that industry growth debate, I hear misperceptions out there that T Mobile's growth has slowed relative to our pre merger momentum, And I'd love to set the record straight on this one. What we look at proudly is our Magenta performance as a signal of our future success. We delivered our highest ever postpaid phone net adds on the VAGENTA brand year to date through Q3, our highest ever In company history happening now. This year, even after normalizing for Sprint transfers into Magenta, The Un carrier strategy is in full force and we're competing smartly and the result is high quality, profitable industry leading growth. With our Magenta business firing on all cylinders, we're also working rapidly through the integration of the higher churning Sprint base.

Speaker 2

Just to put this in perspective, if the Sprint base had the same churn as our Magenta base, Our phone net adds in Q3 would have been about 1,200,000, way ahead of anyone else in the industry. That shows you the potential future tailwind to our growth engine as we work to get Sprint churn down to magenta churn levels. And it reinforces that our gross ad flows are right where we want them to be at least for this point in our journey. While others are temporarily benefiting from elevated Sprint Churn today, we're working to make that very short lived. With over half of Sprint customers at least partly migrated, we continue to execute our playbook to finish the Integration in a compressed time frame, which does have temporary impacts, but brings forward the time frames when both the customer experience And our business results have the benefit of integration being behind us.

Speaker 2

I'm so proud of how the team is executing to get all this done way ahead of schedule. And we're particularly encouraged by what we see from Sprint customers that have made the full migration to the T Mobile value proposition as they already have churn Changing gears. I've seen some media articles and analyst notes commenting on how consumers should be indifferent between 5 gs and 4 gs given the limited availability and similar performance. Well, they're absolutely right when they look at AT and T and Verizon. Those companies have much more geographically distributed customer bases and only a small percentage of their customers are seeing big benefits from 5 gs And nor are a high percentage of them likely to see a benefit from their early C band deployments.

Speaker 2

At T Mobile, 5 gs is a distinct Here's a fun fact for you. Over 75% of T Mobile 5 gs customers are within our ultra capacity 5 gs The coverage area that now reaches 190 people, well over half the country, enjoying blazing fast speeds of around 10 times Faster than 4 gs. Ask AT and T and Verizon what percentage of their customer bases are in the footprint of their fastest 5 gs. And at T Mobile and T Mobile's 5 gs leadership is beginning to really matter to customers. We see this demonstrated in several areas.

Speaker 2

The first area where we see our network leadership resonating is in perception metrics among non customers or And is now higher than AT and T's. Our recognition as the 5 gs leader among potential customers has increased over 80% From a year ago, 8 0 percent matching Verizon, while Verizon scores are flat to down, and we scored 3 times higher than AT and T. The second aspect is the adoption The engagement that we have seen just reinforces our belief that the 5 gs smartphone Applications. T Mobile's network is unlocking a differentiated smartphone experience in this industry today. We see this not only in the take rates that I mentioned, but also in the way that customers are taking advantage of this differentiated experience Using 35 gigabytes a month on average when pairing Magenta Max with a 5 gs smartphone.

Speaker 2

35 gigs a month already. That's roughly triple the average 4 gs usage in the industry and an experience that AT and T and Verizon will be hard pressed to support from a capacity perspective. And did you see those new offers from the cable guys? Cable is constructing 4 gs offers in a 5 gs world, And they will be challenged without wireless owners' economics, never mind the fact that they're on the smallest 5 gs network, Verizon's. They already automatically throttle anyone using more than 20 gigs on their quite limited, so called unlimited plan today.

Speaker 2

That might barely cut it with some consumers for a very short time, but not where this industry is quickly going. And the final question I want to address is around the quality of earnings in this industry. Sure, there are geography differences and some maybe aren't reflecting the full magnitude of promotional spending in their EBITDA. At the end of the day, cash is key and real value creation should be measured by the conversion of service revenues T Mobile has unmatched potential because of our industry leading growth and synergy backed model, and we've guided to deliver a significant CAGR Of 45% from 2021 to 2024. From our perspective, the current market valuation of our company Based on our guided free cash flow, would suggest that there is significant potential shareholder value not yet reflected.

Speaker 2

Before I wrap up, I do want to comment on the cyber attack we experienced last quarter. As we previously reported and updated in our filings today, We promptly located and closed the unauthorized access to our systems after becoming aware of this criminal cyber attack against T Mobile and our customers. Protecting our customers' data is a top priority for the company, which is why we've taken a number of steps to respond to this incident. And I've created a cyber transformation office reporting directly to me, elevating our cybersecurity team and this work accordingly. Now before I turn it over to Peter to take us through a few financial highlights and our outstanding guidance, I want to express how proud I am of this team.

Speaker 2

We executed another terrific quarter, leading the industry in postpaid customer growth, all while further extending our 5 gs network lead and increasing our expected merger synergies for the year. Overall, our strategy is absolutely working and we clearly have the best hand of cards to win in the years ahead. All right, Peter, over to you.

Speaker 3

All right. Thanks, Mike. As you can see, we delivered strong results yet again in Q3 as we executed our winning playbook and exceeded expectations across the board. Let's start by talking about growth where we doubled our postpaid account net adds from a year ago, Adding 268,000 and as Mike mentioned, that is the highest account net adds for Q3 in 7 years. We also delivered industry leading postpaid net adds of 1,300,000 including 673,000 postpaid phone net adds.

Speaker 3

This growth contributed to our record service revenue, including industry leading postpaid service revenue growth of 6% year over year, And we were the only national provider to grow margins year over year. We delivered record high core adjusted EBITDA and our 4x increase in free cash flow from a year ago is just the beginning of our rapid free cash flow expansion journey and the unlocking of significant shareholder value. I'm also extremely proud of the team as we continue to work with the rating agencies. And in August, all three agencies upgraded us based on the company's Continued strong financial results and momentum with Fitch moving to an investment grade corporate family rating. These upgrades will provide us with significant incremental flexibility to further optimize our capital structure.

Speaker 3

So let's talk about how this momentum impacts our outlook Reflecting continued profitable growth and prudent share taking opportunities from increased switching activity expected in Q4. Core adjusted EBITDA is now expected to be between $23,400,000,000 $23,500,000,000 primarily driven by service revenue growth And higher merger synergies, which are now expected to be between $3,200,000,000 $3,500,000,000 as we continue our progress towards rapid We expect merger related costs not included in core adjusted EBITDA to be between 2.8 and $3,000,000,000 before taxes. Net cash provided by operating activities, including merger Payments is now expected to be in the range of $13,900,000,000 to $14,000,000,000 We expect cash CapEx to be between $12,100,000,000 $12,300,000,000 as we continue the robust pace of our 5 gs deployment and network integration. Together, this results in free cash flow, including payments for merger related costs, increasing to between 5.5 And $5,600,000,000 and does not assume any material proceeds from securitization. Our Q3 effective tax rate Was materially below our prior 2021 guide of 24% to 26%, primarily due to state tax benefits associated with Certain legal entity reorganizations.

Speaker 3

We expect our effective tax rate to be between 20% 22% in Q4, Which would put us at about a 15% to 17% rate for the full year.

Speaker 4

One last guidance item that

Speaker 3

I'll note is that we now expect full year postpaid phone ARPU to be relatively flat to the $47.74 full year rate in 2020. Continued Magenta MAX adoption amongst our customers and converting device insurance products for our Sprint customers to the equivalent Magenta products, Some have questioned the real drivers of service revenue growth in the industry, which for some has been supported by grossing up third party content and cable and B and O growth. At T Mobile, our growth is primarily driven by our retail business as evidenced by our industry best 6% growth in postpaid service revenue. And our content costs are treated as contra revenue. That's a reduction to our ARPU.

Speaker 3

And one final point around the quality of earnings in the industry. Several analysts have written about how AT and T has rung up over $4,000,000,000 of promotions on their balance And how it will pressure their ARPU and margins for years to come. However, I think the industry has been unfairly painted with a broad brush based on the actions of 1 player. At T Mobile, we take most of our promotional expenses upfront with only a minimal amount amortized through the balance sheet. No point in kicking the can on expenses when you are a sustainable growth company.

Speaker 3

Altogether, Our strong momentum and execution enable us to continue to invest in our network and the business to deliver significant expansion and future free cash flow. We're on track with our plans to unlock value for our shareholders, potentially including substantial share repurchases ahead. And with that, I'll now turn the call back over to Jud to begin Q and A. Jud?

Speaker 1

All right. Let's get to your questions. All right. We'll start with a question on the phone. Operator, first question please.

Operator

Thank you. We'll take our first question from Phil Cusick of JPMorgan.

Speaker 2

Hi, Phil.

Speaker 5

Hey, guys. Thanks. Appreciate it. So Let's talk about the CDMA slowdown impact. I know you're planning to shut down LTE At the end of next year anyway, how should we think about the CDMA a little bit delayed?

Speaker 5

And then second, can you just talk about the With everything going on in the base, whether it's DISH and AT and T and everything else, but your confidence in growing EBITDA by double digits next year, Is that a reasonable expectation

Speaker 2

for The Street? Thank you. Thanks. So I'll start with the first one, maybe hand it to Peter, And he'll go ahead and guide you on 22, 3 months in advance. On CDMA, yes, look, I think most of what we had to say was in our disclosure at the We've been in talks with all the other parties involved, including the Department of Justice.

Speaker 2

And following those talks, we just decided to take on our self to voluntarily move that date out by 3 months and plan to sunset the CDMA network at the end of March. And we did that after carefully looking at our own plans and determining that there wouldn't be a material impact from doing that to our outlook or our Our ability to deliver you synergies as expected. But we did want to make sure that everyone involved had the time that they needed to make sure that we meet the Department of Justice is what I know is their goal in the public interest, which is to make sure that every single customer out there has the opportunity and is given the opportunity to switch to the superior network in time. Now as we've said all along, we believe that December 31st provides that ample time and we've given everybody involved well over a year way more notice than they needed. But when we look at the actual run rates, It looked to us like even at the current rates, an extra 3 months would be something that everyone would appreciate.

Speaker 2

And so I'd like our partners They don't appear to be. And because of that, we just took that voluntary action on our own. And we think this is Based on everything we're seeing, we think this is all that would be necessary. And so that's something that we were pleased to be able to do. As it relates to all the pros and cons and effects on EBITDA for next year, we're looking forward to an exciting 2022, but I doubt Peter will give you much on it.

Speaker 2

But hand it to my friend Peter.

Speaker 3

Yes, Phil. We'll certainly provide a full update and guide you as part of our year end calls. But let me give you a couple of points around how we think about 2022. First, I know there's been questions around what's the potential impact of DISH. And I think we highlighted it well at our Q2 earnings call.

Speaker 3

DISH revenue is already under $2,000,000,000 in 2021. And as we look about how the business momentum is continuing, We said that was always part of the plan. Again, we took DISH on their word and always assume that they would become a full facilities player and during the duration of the LRP, That revenue would go away. And you heard us recommit and we're doing it again today around the 23% and the 26% service revenue guides given the underlying And so that is probably the area where I'm most excited. I mean, you saw the results today.

Speaker 3

You've Seeing the net account additions and the real growth around not just postpaid phone, but postpaid other. One of the areas of the business that, I'd like to highlight for is probably ARPU. And with the momentum that we've seen in our updated guide just now to be relatively flat full year 2021 to full year 2022, I see a path with Magenta MAX and the excitement there from our customer base to be less than 1% dilution in 2022. And remember, that's off of a higher base in 2021, which is now going to be flat to 2020. The other area I'd say is really where we're excited is Free cash flow.

Speaker 3

And you see what's happening or continually raising our guide this year. As you look into the 10 Q, you also see It's allowed us to take opportunity and do significant prepayments with certain vendors and generate flexibility and savings. And that working capital is already fully contemplated in our updated guide today. So as we think about 2022, I'm very excited about The opportunity for free cash flow and as Mike said, that really is the ultimate expression of value creation is how you take that service revenue and translate it into cash flow.

Speaker 1

Next question.

Operator

Our next question comes from Brett Feldman of Goldman Sachs.

Speaker 6

Thanks. And maybe just to start off with a follow-up Thank you for giving us some of that insight into next year. Why would postpaid ARPU still have dilution next year? The sequential trend has obviously been pretty positive as you've been moving customers into the MAX plan and you're deeper into the integration. So any other puts and takes that really just would play out of Next few quarters would be appreciated.

Speaker 6

And then the comment you made about how strong your phone net adds would have been if spring churn was Aligned with legacy Magenta Churn implies you're losing a couple of 100,000 Sprint subs a quarter still at this stage in the integration. With 90% of the Sprint customer traffic on the T Mobile network and over half of those customers having been moved over, what's your experience been with the point at which A Sprint customer takes on the characteristics of a legacy Magenta customer. In other words, at what point could we see a material

Speaker 2

Perfect. I'll start with the second one and then maybe hand it to Peter on the first one and I'll ask John, if he has anything to add on the first one. On Sprint Churn, listen, we're really pleased with what we're seeing, but you have to bear in mind that what we're doing in this strategy is we're compressing integration into a tighter timeframe. And that means that whatever Sprint churn is going to happen as a function of integration It's going to happen in a shorter period of time and affect the integration periods to a greater extent. And our Sprint customers are showing us a tremendous amount of patience As we give them a much better 5 gs network experience and get them migrated over.

Speaker 2

But still, as anybody who follows this industry knows, when you have an integration, During that period of integration, there can be puts and takes for customers, and we're trying to do our best to give every customer a great experience. As it relates to what we're seeing, when somebody comes across from Sprint to Magenta and what we call a full migration, and there aren't that many that have a full migration yet, So there could be some selection bias here. That means you're fully on the T Mobile network, you're fully on the T Mobile biller, you're engaged with the T Mobile brand, you've moved to T Mobile tax inclusive rate plans and you're experiencing T Mobile team of expert service. So where we're going, where we're going very quickly for everyone. Those customers that have come all the way across are showing so far this about the same churn profile as Magenta customers.

Speaker 2

And that's very exciting Because Magento is on par with anybody out there and in many time periods has been the best in the industry. So that's really, really promising. Now I think what we have the opportunity because we're compressing the timeframes and we're only seeing somewhat elevated churn to actually come through this integration with less overall losses than we would have expected from the Sprint side because it's happening during a compressed time frame. So we're very pleased with those What you're seeing and what your team is seeing with Sprint customers because it's one of the most important questions I think we'll talk about today As you saw, the underlying Magenta performance is unbelievably great, and we just have to get through this integration.

Speaker 5

So what

Speaker 2

are you seeing, John?

Speaker 7

Well, Mike, I think you hit on a number of things that We're seeing within our team here. And Mike, what he said is that we've got to make sure that we bring this full experience. And we've done this integration In the last 18 months in disparate parts, with rate plans for 1, 2, moving traffic and changing our SIM cards, But really bringing that full experience together, like Mike said, you know, great T Mobile, tax inclusive plans, 1. 2, having the latest and greatest devices with the full Network capabilities associated with those devices, namely 600 megahertz. Because if you don't have a 600 megahertz device on the T Mobile network, it's like the T Mobile network from 2015.

Speaker 7

That's really important that we do that. And then of course the award winning team of experts, customer experience and bringing all that together and not being in a Still in the Sprint application, you're logging into sprint.com or you're going through the Sprint app, moving the whole experience over to T Mobile. That's the big unlock for us. That's what we're really focused on. We've been putting a lot of effort and a lot of work starting in Q3 on moving the full accounts over And not doing that in discrete events.

Speaker 7

But we started that in earnest in Q3. We've seen great results from that so far. When you take a look at The customers that were porting out from Sprint and they were coming back into T Mobile, we've seen dramatic increases since we put a number of initiatives in place It's going to be a compressed overall time frame during that. For any of you who have been covering this business for a long time, integrations and migrations and those things are tough. They're always a little bit painful and they're always a little bit grueling.

Speaker 7

But as I take a look at my 27 years in this business in terms of how we've been handling This migration and overall integration, I would say it's 1st in class and best in class. So we got a lot of work still to do in front of us. No question about that. But we're well on track to do what we need to do in 2022 and beyond.

Speaker 2

I hope you understand why we see tailwinds ahead because obviously we're in the height of this integration right now. And we have a lot of work left to do. We have a lot of keep sites that need to come over on the Magenta side still, that they're still on the Sprint side. We have a lot of handset migrations to do so people can take full advantage of that destination network. And we have lots of migrations that we need to do on customer service, on rate plans, on the full picture.

Speaker 2

So a lot of work ahead and but our goal is to get it all done at least a year ahead of schedule. So we're very focused on that and you've seen us show up each time With updates telling you we're going faster than expected. Okay, Brett, the second part of your question, I can roughly paraphrase as Peter, you promised us negative 1% ARPU this year, We're going to pull into the station, sounds like, with flat ARPU after all. So why isn't that going to happen again next year?

Speaker 3

Absolutely, Brett. Let me as you know, right, the underpinned assumption under the LRP was 1% dilution year over year So as we look forward to next year, there's a number of things that could impact us. Certainly, we talked about the great momentum from Magenta MAX you and I'll give you one example, which would be large enterprise and government, where the our actual phone ARPU may be lower Then our blended base. And so you're going into a new account relationship in enterprise or government where that might be ARPU dilutive, But certainly a very, very strong ARPA type of relationship. And typically, you also see a lot of the postpaid other, The other connected devices where in many cases the CLV amongst those are much stronger than the phone business in and of itself.

Speaker 3

So that's one area where you could see ARPU dilution and yet tremendously value accretive to T Mobile from a whole So I'm not going to give you all the puts and takes. You got to leave me something to guide you on at year end earnings instead of Q3. That's certainly great momentum and again focused on ARPA expansion throughout the course of this plan.

Speaker 2

That's great. Thank you. You bet, Brett. Okay, operator, we'll go back to the phone and then just to prepare the team, if you can call out 1 or 2 you see on the Twitter feed, that'd be great. We'll do that after this next one.

Operator

Thank you. Our next question comes from Craig Moffett with MoffettNathanson. Hi.

Speaker 8

Two questions for you, if I could. 1, now that we've seen your numbers and everybody else's, the industry growth rate is now pushing even higher to Total phone subscriptions, prepaid and postpaid combined, to almost 3%. So now, what, 7 times population. I wonder if you could just Talk about what you're seeing there. Is that EBB or what is making the industry grow the way it is?

Speaker 8

And then second, there's been a lot of talk about I wonder if you could just talk about how you see the role of combined offers of wireless and wireline and whether you think that that Or fixed wireless, whether you think that's critical to be competitive?

Speaker 2

Terrific. Well, I'll start with the first one. I don't think we have all the answers as to what's driving account growth or line growth over at all of our competitors. You don't see quite the same amount of transparency. It's one of the reasons why we decided to start talking much more about accounts and about ARPA because There's no ambiguity in that.

Speaker 2

Our 268,000 net new account relationships on the postpaid side Was the largest in 7 years for a Q3. And, you see ARPA rising, and so it shows you the quality of that business. We have a better and better network. So we're starting to attract to higher levels the best customers in the industry. And so for us, It's not some of the things that you might expect.

Speaker 2

It's not EBB because we have no material EBB in our numbers. Generally, that program is over on our lifeline side, which isn't in our subscriber roles, but is for our competitors into a certain extent. It's not due to subprime. It might be for our competitors, but our prime mix continues to improve. It's not due to some weirdness of lines underneath the accounts because you see account growth and ARPA growth very healthy.

Speaker 2

And you see that flowing through to industry leading postpaid EBITDA growth as well as industry leading cash flow growth. And Look, I don't know how sustainable it is. Prepaid is about flat, so there's certainly been some amount of transference there from what you would I don't know how sustainable it is, but what investors should ask themselves is, if it doesn't become sustainable, Who's going to win? And who has a reliable ongoing strategy that will be able to deliver growth And look, for us, we have a strategy and a set of assets that's going after majorly underpenetrated segments, Like small markets in rural areas, which are 40% of the country, like enterprise, like home broadband, your second question. These are huge places We don't play and the other guys do.

Speaker 2

And so, you know, that between that and our massive lead in 5 gs, We're 2 years ahead on the 5 gs race and I'm here to tell you that in 2 years from now, we'll be 2 years or more ahead in the 5 gs race. And that's going to translate as well to opportunity for us. And so, look, I think there is some amount of temporariness Happening with the other guys, they're feeding to a small extent on our integration driven Sprint churn. Investors will have to ask themselves whether you believe us that that's going to be very short lived. And we'll not only not be a tailwind for them anymore, but we'll turn around.

Speaker 2

So we'll see how all that goes. But we're really pleased with where things are going and with the underlying trends. Now your second question is about convergence and about home broadband. First, I want to talk about how we're doing as being a multi category player with our push into home broadband. And then maybe we can talk about the question on fiber, etcetera.

Speaker 2

So, Dow?

Speaker 9

So the question on convergence is we'll have to see. But one thing we do know is that consumers are beginning to realize that there are choices, and they aren't having to put up with, what they get today. What we're seeing is that, While there are a lot of places there are very limited choices in terms of what their cable or fiber offering are And those offerings are typically very punitive. They start out with promotions, they explode those, they end up paying very, very high prices, fees for modems, the other taxes, other charges that customers don't like. And so what's translating for us in that We're seeing customers, the majority of our customers are not only coming, as Mike mentioned, from urban and suburban areas, but they're also coming from cable and fiber providers.

Speaker 9

And why is that? Well, a big part of that is customers want a good product and a great price. And that's what they're getting with our product. So we're seeing people come in and say this is a product that actually works. And you know what, I'm paying an amount that doesn't explode.

Speaker 9

I'm paying a very fair amount. And I don't have to be extremely irritated about having my existing cable company sort of gouge me on these things. And so for us, this has resulted in what we've seen as our highest net add quarter since we launched the product. And we see continued momentum from people coming from cable fiber and quite frankly even other sources DSL, satellite etcetera in rural markets. So As our 5 gs ultra capacity network gets built more and more, we're going to continue to follow that and begin giving more and more customers choice.

Speaker 9

So we're still Very excited about this product.

Speaker 2

Perfect. Okay. Well, let's go, Jud, let's What's on Twitter and then we'll come back to

Speaker 7

the phones after that.

Speaker 1

Sounds good. We've got a great question here. Can you talk about potential enterprise 5 gs use case opportunities?

Speaker 2

Let's go right to Mike Katz. Yes, perfect. Well, as Mike talked about

Speaker 10

at the beginning, let's not forget that the first big five killer 5 gs use case is core connectivity, Smartphones, tablets and other connected devices. And I'm really proud to say that we have seen our win rate continue to improve in that area. And our win rate is trending well above what our market share is and continue to improve like we saw in Q3. And that's resulting in huge growth. If you just look at what's happened over the course of the last 2 years from 2020 to now, Our growth in core connectivity is more than 50% better than Verizon's in the business space.

Speaker 10

So We're seeing that the correlation of us as T Mobile emerging as the 5 gs leader correlate with this big growth in core connectivity and business. But your question around these additional 5 gs use cases, one of the things that we talked a little bit about at last earnings We're involved in multiple trials with enterprise and government customers. And we think we're really well positioned to bring these new enterprise advanced network services to market because of the way that we've delivered our 5 gs network. Mike has talked a lot about the scale of our network covering 190,000,000 people with our ultra our Mid band 5 gs network. But we also have some other key features that we've built our 5 gs network around that are really positioning us well to differentiate on these 5 gs use cases, like the fact that we've got a dedicated 5 gs network core.

Speaker 10

So our 5 gs traffic isn't running through our 4 gs network first. We have a dedicated network core that's delivering better performance for end customer applications. It also gives us ability to bring really cool features to market like network that we think is going to be a big opportunity for us with enterprise and government customers in the future. We have a highly distributed network of data centers. So we can help customers process data closer to their application on average than our competitors can.

Speaker 10

And so we've got a number of these trials going with customers right now. And these are big even though you don't see us doing press releases every single week about this, We have big customers with big significant use cases like, for instance, we're working with 1 of the largest airlines in America right now on a Mobile Edge use case application that allows them to process data faster under wing and improve their on ground operations at one of their major hubs. We're working with 1 of the largest U. S. Auto OEMs, to help support a bunch of self driving use cases and an autonomous fleet that they're building.

Speaker 10

So we're working with some of the biggest companies in the world, helping co innovate these solutions with them. And we think we're really well positioned because of the engineering decisions that Neville and his team made to differentiate on these advanced 5 gs network use cases for our enterprise and business customers going forward.

Speaker 2

Terrific. Operator, let's go back to the phone.

Operator

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

Speaker 11

Thanks, guys. Mike, your SOGA is the lowest it's been in the Q3 since you guys closed the merger. And I understand that's not really A fair measure

Speaker 5

based given that you guys said earlier in

Speaker 11

the year on the Q2 call That you're really saving your dry powder for the period of the year where switching is

Speaker 2

going to be

Speaker 11

high. Presumably, that's now. And so I'm wondering if you can give us some insights into what you think has happened to your share of decisions since the iPhone launched in September.

Speaker 2

Yes. Well, one of the things that we've talked about and I think you heard in Peter's earlier remarks is that, after listen, we did see, To the first question, an impact from the data breach, that happened in August. And there was a muted effect there because of that. I was quoted early in the Q4 saying that we finished much stronger, and we were seeing nice trends as we entered the Q4. And That kind of shows that this was, while, a big event and something we're very, very sorry happened, something that customers have generally prepared themselves to move on from.

Speaker 2

And so that's good. On the other hand, look, Our model, one of the things I pointed out was that, if you were to normalize our churn and look at what it may look like After we're finished with this integration and just for a minute, I don't know if it will look like this, but just for a minute to say what if all of our churn was at the magenta levels? Our net adds this quarter with that SOGA figure you talked about would have been $1,200,000 on the postpaid phone side, by far the biggest in the category and outsized versus time periods in our history as well. And it really shows you that, that SOGA level that we're getting is reliable, sustainable and about where we want it for this point in our journey. And what you don't see us doing, Jonathan, that you may see elsewhere is kind of knee jerk reactions and lurches into very expensive promotions, etcetera, etcetera, with no strategic apparent linkage behind it.

Speaker 2

And we've got a plan. We consistently deliver. In any given period, we can take more gross ad share, but we want to make sure that we're also delivering the industry leading penetrated segments that our competitors don't have. And that takes consistency and reliability rather than chasing that last couple points of SOGA like the other guys are doing. And so we're very pleased with this execution.

Speaker 2

And we think investors ought to be too when they look at the big picture.

Speaker 11

Mike, I can just quickly follow-up on that. It also you guys have mentioned a couple of times how complex and enormous the integration process is And how this integration is going far better than any integration of comparable scale ever in the industry, at least We've seen. When you say that at this point in your journey, you're happy with the SOGA that you've got, Is it a function of just all of the complexity that needs to be managed in the business right now? And once you get through The integration, the sort of the churn benefits on the Sprint Cyto side, you'll have more management bandwidth

Speaker 2

I don't think it's about management bandwidth, but resources are certainly a relevant point. One of the things we're doing, as you see, is we're spending Heavily into this integration and outpacing our expectations on the time frames for our cost to achieve plan So that we can get this integration done more quickly. And we think that's by far the right strategy. The customers get the benefit Sooner, the shareholders get the benefits sooner. Probably the magnitude of the benefits is positively affected by the rate and pace.

Speaker 2

But during that sausage making, yes, it takes a lot of resources. We want to be able to reliably deliver cash flows to you and down payments as we go along. I think asking the market for a giant leap of trust For us to plow deeply into our cash flow plan in a different way than you expected just because we're ahead on integration, That wouldn't be a, I think, a great trade off for us to ask investors to ride along with. So we're paying for this as we go. And we're delivering the amount of Soga and investing accordingly in Soga It allows us to deliver high quality prime customers that deliver outpacing EBITDA and cash flow growth even during The height of this integration was something I'm very pleased about.

Speaker 2

But to your point, the underlying Magenta business, which is all we're going to have as we get Into a major part of 23 is performing beautifully. And it shows you the power of this brand and that the Un carrier is in full force and effect. We're tackling the biggest pain point of all. That trade off that people have always had to make between quality and price, We're delivering both and they're noticing like never before. And those trends, I think, bode very well for us on the backside of this integration.

Speaker 3

And I would just add, Jonathan, you were thinking ahead to what happens post integration. You've got to remember, we're delivering this Soga While we're still expanding distribution and building the network around smaller markets in rural areas. So this is the Soga that we're delivering before we're Fully deployed the un carrier machine in 40% of the population. And when you heard Mike talk about just how differentiated that We're bringing everything that made us so successful to date, except doing it with a fully differentiated network experience that is just going to blow The other guys away in that 100,000,000 covered pops that is going to be a 4 I don't know kind of 5 gs experience relative to ultra capacity with T Mobile with all of the un Carrier goodness that comes from the last 8 years bringing it there. So just that's another area as you look forward As we bring this machine to that 40% of how it could impact Soga.

Speaker 11

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

Speaker 2

You bet. Let's go to the next question, operator.

Operator

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

Speaker 12

Hey, Mike. How are you? Good. A couple of quick questions for you. First on cash EBITDA, It's been decelerating for the last few quarters, grew 4.5% this quarter, but the guidance for the year sort of suggests growth of over 5%.

Speaker 12

I mean, First of all, is that the way to think of it that this is the bottom in terms of cash EBITDA growth? And then Maybe to pull Neville into it because I see him sitting over there by himself. Do you guys have visibility in terms of the synergies coming through with the Sprint network That, it's a sort of linear growth from here in terms of the acceleration of cash EBITDA as you pull down that Sprint network. That's number 1. And then on fixed wireless, anything else you can tell us about the sub base, maybe the size of the sub base, because I think you have that 500,000 subs by year end target out there Or anything about usage or how the network is performing in areas where you guys are selling fixed wireless service?

Speaker 12

Thanks.

Speaker 2

Okay. EBITDA, synergy pacing and fixed wireless. So Peter, let's start with you.

Speaker 3

Yes. John, I think you're trying to tease out of me 'twenty two Corey, but so good job again. I think I'll revert back to all the comments about the business and how I see 'twenty two shaping and the excitement around free cash flow. On the 2021 guide, yes, you're absolutely right. It was another not only synergy increase as a result of the integration, But also the growth from the underlying business that's allowed us to increase yet again for a Q3 in a row core adjusted EBITDA to between $23,400,000,000 $235,000,000,000 So tremendously excited about how that continues to grow and of course the opportunity and momentum of the business As we look out into the 2023 and 2026 period of LRP.

Speaker 3

And maybe I'll hand it over to Neville to talk through decommissioning. But It's not linear in terms of how you achieve the synergies or as we've spoken before how you really achieve and when you record the merger related costs. But next year is certainly A big year in terms of decommissioning and I'll let Neville talk about that. That sets us up for such a significant portion of the synergies as we decommission the Neville?

Speaker 4

Yes. Thanks, Peter. And I'm not on my own, John. I got hope there's a whole team here. We're all in the room.

Speaker 9

It just seems like you're being ignored.

Speaker 4

Very quickly on synergy and the development and pipeline. I mean, we're already well into synergy development and We made a good start in 2020. We're making great progress in 2021. As Peter just outlined, 2022 is really our biggest year And it's not linear. Our goal is to substantially complete our decommissioning activity across the network inside 2022.

Speaker 4

So we've made good progress to date, but 'twenty two is going to be our big year. And realistically, it won't be linear during the year either. I mean, things will certainly pick up and there'll be a tail, a positive tail as we move into the second half. But we're making great progress. And As we've always said, this integration, migration, decommissioning strategy is all based on building the network first.

Speaker 4

And you've heard from almost everybody on the call today, the progress we're making in terms of building the capacity and scale and reach and breadth of this network It's just super exciting. We're ahead of our plan. We're within arm's reach of a nationwide mid band 5 gs ultra capacity network, really before the other guys even get started. So we're in a great place. And to the back half of your question, John, around How are we performing in areas where Dow is successfully growing in home broadband product at a great rate?

Speaker 4

We're doing really well. The growth is strong. There's huge demand for the product and the capacity that we can generate with this network It's just phenomenal. That 200,000,000 people by the end of the year that are covered with ultra capacity, We're targeting 100 megahertz, 100 megahertz of dedicated 5 gs spectrum across that footprint. That's more spectrum on mid band than AT and T and Verizon will have available from C band between them both.

Speaker 4

And so the capacity and capability that we're generating It's truly exciting and a lot of growth factors and great growth opportunities, including specifically about in home broadband product you referenced.

Speaker 2

Yes. And as for that, we didn't disclose lots of details. I did tell you that we were running last quarter at twice the pace of Verizon, who had a 3 year head We launched this out of beta earlier this year. And as well as this last quarter, Dow and team delivered more net new Home broadband customers on 5 gs than Verizon did on fiber and 5 gs combined, Which kind of shows you that there's a lot of latent demand out there. And it also shows you the capacity of our 5 gs network and the kinds of things people are doing on that broadband, 100 of gigs a month, on that 5 gs network.

Speaker 2

And of course, we have that footprint now out there pretty widely available. So maybe, Dow, you could talk about what kind of feedback we're getting from customers. Yes. Thanks, Mike.

Speaker 9

As Mike mentioned, we're seeing customers 1, we're seeing great uptake with the product. We're seeing customers use the product in several 100 gigs a month. We also have many using many more and Neville's network is serving them just fine. What's great to see too is a lot of 3rd party recognition from like PC Magazine and I think in its reader's choice awards, They rated us higher than all the other cable companies. And we even this last quarter, we had a record high NPS that we track internally.

Speaker 9

So customers seem to be liking this very much. And we initially, we at the beginning of the year, we said we aspire to be at 500,000 customers by the end of the year. We're well on track to do that. On our way to 7000000 to 8000000 customers by 2025, which I think we remind everyone that's only a couple of percentage points So this really big opportunity for us is really just a small penetration into the industry It gives us lots of opportunities. So off to a great start.

Speaker 2

I mean it's not surprising that there is a lot of delight out there, and I hope we can keep that up. I think we will be able It looks like the usage while it rises is not rising as fast as our capacity. But look, we're solving problems for these customers. That's why they're so satisfied. We're either solving the problem of Giving them a real viable high speed choice where there wasn't one.

Speaker 2

And boy, that that changed your life. Or Coming into a place where you're so frustrated by cable and you want a decent deal and a fair price and a company that will put you first and treat you right, so you can unplug that cord. That's a big problem solved too. $50.0 for home broadband, the kind of home broadband we have like 5% or 6% of our customers using a terabyte a month. That's solving real problems for people.

Speaker 2

And so not surprisingly, those net promoter scores are high. We're so excited about this business. Thanks, John. Let's go back to the operator. And then maybe we want to prepare us one more, Jud, from this big screen of Twitter feed.

Operator

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

Speaker 13

Hey guys, thanks so much for taking the questions. I guess the first would be, I think Mike you talked about More than 50% of the customers are taking Magenamax at the margin. Obviously Verizon, AT and T have chewed through a lot of the opportunity to migrate metered to unlimited. I was wondering if you could kind of share where Magenamax stands as a percentage of the base and relative to the base, what kind of ARPU lift are you getting? And then the second question I have, if I could, is just related to, Again, the Sprint network shutdown, it's important to the realization of synergies.

Speaker 13

And Mike, some of your comments about how you sat down With all the interested parties related to the network shutdown and decided to extend the deadline to March 31st. In the blog post that went out, you said it would have no financial impact, at least if we went that far. Are we Convinced that we're ready to just end this and begin to get the network shutdown and we're comfortable saying March 31 is the last concession we're making.

Speaker 2

Yes. Let me start with the second one, Dave, and then we'll talk about Magenta MAX. Yes, we just don't see any cause for a further delay. And getting people upgraded to the right side of the digital divide and getting a high capacity 4 gs, 5 gs network in the hands of people who need it most is urgent. It's certainly also important for our business.

Speaker 2

And when we look at the run rates of upgrades and we study the run rates and the declining base on CDMA, all the curves There just wouldn't be cause to delay it further. So I wouldn't expect a further delay for that reason. I certainly wouldn't expect a further delay that would have any impact on our financials, Our ability to go execute the plan that we promised you and nor does this one. We looked at it carefully. We found a way to do this Because we wanted to do the right thing for a partner that was asking us even though we don't feel that they needed it.

Speaker 2

And we're pleased we were able to do it. And we're pleased we were able to be responsive to our conversations with the Department of Justice to do this on a voluntary basis. And so no, we just don't see that there would be cause And then back to Magenta MAX. No, I can't give you too much on the base here. It's all very competitively sensitive.

Speaker 2

But the premise of your question is really interesting, which is the other guys might be starting to exhaust their opportunities. Man, we're just getting started. So the base so there's lots of room to run-in the base. And this is the very best expression of the best 5 gs network in the market. And no wonder it's popular.

Speaker 2

And people have been able to get amazing handset deals by signing up for this plan and that's been a catalyst. They're using 35 gigs a month. What we think is on its way to 80 gigs a month. This network will be able to handle, no problem. And that shows you the Magenta MAX experience shows you, as Mike said a little while ago, that the smartphone is the 1st killer app of 5 gs.

Speaker 2

We see huge usage in video and social media growth and mobile hotspot growth. Our Magenta Max customers don't walk into a building and look around for the WiFi They provide the WiFi, you know? And that's where this world's going. So, we're so excited about what we're seeing, but Can't really parse it too much other than I agree with the premise of your question, which is do we have room to run on the base here? Yes, we do.

Speaker 2

Thanks Mike. Really appreciate it.

Speaker 7

If you put that 35 gig into context on Magenta MAX, that's 3 times the industry What you're seeing in 4 gs LTE. So it's just incredible in terms of the consumption on Magenta MAX when you pair it with the industry's best and leading 5 gs network.

Speaker 2

It certainly helps to put cable competition into perspective, as I talked about in my prepared remarks. You see unlimited offers That throttle you. We're not talking about prioritization if the network is busy. We're talking about you're throttled after 20 gigs. First of all, why are you calling that an unlimited plan?

Speaker 2

And second of all, That's a 4 gs plan in a 5 gs world. And with where we're going, I don't know where they go. I don't think that they're going to be able to have the owner's economics in wireless to truly compete on value on the wireless side. And I don't think that AT and T and Verizon have the wherewithal Or the plans to compete with us on the quality of the 5 gs network that we're building. And so, we really like the hand of cards for that reason strategically.

Speaker 2

Thank you, guys. Thanks, Dave. Do we want to go one more on the did

Speaker 1

you find? Yes. We've got a quick one here from Bill Ho. So he asked The recent Best Buy and Walmart distribution relationships, what's the view on these channels driving 4Q 2021 and the future years growth relative to the past? John, if you want to hit on that quick, we had some big announcements recently on that distribution front.

Speaker 7

Yes, you bet. We're so excited about this. We've made a couple of announcements Just in the last, 30, 45 days or so, where we have, we're going to be expanding our T Mobile and Metro by T Mobile products, not our, we have expanded them into Walmart and across 2,300 stores in Walmart and, a lot of those in smaller markets and rural areas, And then also have launched T Mobile and Best Buy across 900 stores. We're incredibly excited about this. I think when you look at What Walmart has done and what Best Buy has done in the pandemic and how they have completely revolutionized Their particular companies, Walmart is the place to go shop in rural America.

Speaker 7

It is incredible what Walmart has done digital transformation. Then when you look at Best Buy as the premier consumer electronics retailer across the United States, those are attractive opportunities for us. You got to remember too is that we haven't really played in national retail in these large national retailers in a very long time. As a matter of fact, Just in the last quarter, we quadrupled with these announcements our number of national retail locations. So we see those as big opportunities for Our company to be in the customer bases of Walmart and in Best Buy and see significant switching opportunities in those spaces as well.

Speaker 7

So we are very attracted to what Walmart is doing, what Best Buy is doing. Clearly, they're attracted to the industry's best 5 gs network And all of the opportunity that our company represents over the next several years. So we're very bullish on that. I don't have numbers exactly by channel to give you In Q4 or the years beyond, I'd just tell you that we're very bullish about these opportunities. We've got great strategic relationships with Walmart and Best Buy.

Speaker 7

We've been engaged in a lot of conversations over the last several months and we're very excited about the future and very confident in our approach there.

Speaker 2

Well, terrific. I'm going to wrap it up here in a second. First of all, I want to thank you for all these great questions. And I know we gave you some long answers. And so apologies to the people that might have been in We're always available to you.

Speaker 2

I know Jud and team are anxious to talk to you, and answer questions in an FD compliant way, following But I really like the kind of questions that we had. And as you noticed, I prepared my remarks to try to address what I see as some of the big questions out there About our sector and we get a lot of people saying, man, is it getting competitive? What's going on? Are you guys still the growth leader? And the answer to that is an emphatic yes.

Speaker 2

We like it competitive. We execute incredibly well when it's competitive. And the question for investors is, who has the situation and the hand of cards and the assets and the team to sustainably deliver in a competitive marketplace with room to run. And that's what we were hoping to address in a high quality way today. And your questions Gave us those opportunities to address some of those topics.

Speaker 2

So we appreciate you. Thanks for tuning. And Jud, anything final? No. Just again,

Speaker 1

thank you everybody for your time. If you have any follow-up questions, Please reach out to Investor Relations or Media Relations, and we're happy to follow-up. Thank you again.

Operator

Ladies and gentlemen, this concludes today's

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