T-Mobile US, Inc. (TMUS) Management Presents at Citi's AppsEconomy Virtual Brokers Conference [Transcript]

T-Mobile US, Inc. (NASDAQ:TMUS) Citi's AppsEconomy Virtual Conference January 6, 2022 4:00 PM ET

Company Representatives

Peter Osvaldik - Executive Vice President, Chief Financial Officer

Conference Call Participants

Michael Rollins - Citi

Michael Rollins

Good afternoon! And welcome back to Citi’s AppsEconomy Conference. For those of you I haven't met, I'm Mike Rollins, and I cover the Communications Services and Infrastructure Stocks for Citi.

Just, before we get started, I'd like to mention that we have disclosures available to the right of the video player, as well as under the Citi disclosures tab if you are viewing this via Velocity. And for those joining us today, if you like to ask a question of management, you can enter it directly into your question box, the question will come to me and I'll work to integrate that into the discussion.

With that, I'd like to welcome Peter Osvaldik, Executive Vice President and Chief Financial Officer of T-Mobile. Peter, welcome back to the conference.

Peter Osvaldik

Well, thank you so much for having us again. It's always a pleasure. Always fun to kick off the year with this conference.

Question-and-Answer Session

Q - Michael Rollins

It is, and I just saw that you have some news that's hitting the tape. So we'll get to that, and maybe it just helps, given it is a New Year, we just turned the calendar. You know maybe it's a great place to start to sharing the strategic and operating priorities and then we can get into the fourth quarter results that you just disclosed.

Peter Osvaldik

Yeah absolutely! And before we jump in, let me just do the legalese and of course I may make some forward looking statements that involve a number of risks and uncertainties. So I encourage everybody to review the risk factors in our filings, and of course we're still in the quiet period for auction 110, so can't be discussing that at the moment.

So yeah, before we get into those great Q4 subscriber results and you know the ongoing Magenta story rolling on, let's talk a little bit about ’22, because it really tailors in and as we embark on ’22, I've got to tell you, we've got a tremendous amount of confidence in keeping this machine going, and it continues to be centered around three main priorities. One is, of course to continue just this unprecedented pace of network deployments and we just announced in a press release that we now surpassed this at year end and just hit 210 million covered pops on ultra capacity. So surpassed our 200 million nationwide goal and hit 210 and we can definitely get into a little bit later around contextualizing that and just how much of a tremendous advantage that is relative to the competitors.

And we also have now hit 310 million covered pops with our extended range of 5G. So this machine that Neville and team have going is absolutely going to be something that we're tremendously focused on and accelerating the pace as much as possible in 2022 given the competitive advantage that it creates for us.

And second of course, Sprint churn and we’ve talked about the importance for us and our focus on accelerating the integration of Sprint customers in 2022. Because of the tailwinds that that brings for us from a churn perspective, we always knew this was a base when we acquired them from a postpaid phone perspective that was churning over 2%. And the goal and what we laid out at analyst day was to close the gap between Magenta and Sprint churn by half.

And you know the more we get into it, the more optimistic we are and accelerating this because of the underlying performance of Magenta and what we're seeing there with the network and everything else that the value proposition brings, it's important for us to accelerate as much as possible Sprint integration, because that becomes instead of a headwind for us with the heightened churn, just right now a tail winds to a certain degree for AT&T and Verizon, it becomes a full tailwind for us and we’ll talk about underlying Magenta performance a little bit later.

And then of course the third is to continue on these differentiated growth opportunities that we have and that you’ve heard us talk about now for a couple of years, first being enterprising and governments, you know and tremendous traction, SaaS and continuing to feed that machine with everything that the 5G capabilities that we're building in this network bring there, an underpenetrated market for us.

The other is smaller markets in rural areas. Another area of rural under penetration which now not only the combination of Sprint and T-Mobile and the Spectrum assets and the deployment of this network brings us the opportunity to bring the T-Mobile value proposition and the network that was once reserved for top markets only and to smaller markets in rural area.

And the third is high speed broadband, where I’ll give a little bit of a sneak pre-comment on Q4. We just announced that we absolutely shattered our ending 500,000 customer goal in Q4 you know, and that’s just did a tremendous job there. So we continue to see great progression and great demand and looking forward to 2022 as that breaks. So that’s really the three main things we're going to be focused on as a team.

Michael Rollins

Great! There’s a lot to dig into, and we’ll take a moment and as we're getting into the fourth quarter results, we’ll introduce our first live survey of our discussion, which is, what the industry postpaid phone net adds for 2022 are going to look like?

You know if you don't see it immediately on your screen, just hit the scroll down by the disclosures and you should see the question come up, and we're not tracking individual responses, so it's confidential, respond as you like and the choices, just so Peter knows, because he can't see the survey live, you have a choice for industry phone net adds 2022 over 2 million to 4 million, over 4 million to 6 million, over 6 million to 8 million, over 8 million to 10 million and over 10 million, and I already see the responses starting to come in. So I’ll get to that in a moment.

But Peter, talk to us about what happened in the fourth quarter, the net add performance and what created the performance that you delivered today?

Peter Osvaldik

Yeah, absolutely! Well, you know again it's just the help of the Magenta brand and all the opportunities of growth that we’ve been talking about as we continue to further into it, is what allowed us to deliver these results you know. 315,000 postpaid account net additions, our higher Q4 in the last four years. 1.8 million total postpaid net customer additions, that’s our highest Q4 in company history ever.

In that, and that includes 844,000 postpaid phone net customer additions which increased year-over-year and of course I mentioned that we just shattered our goals for high speed internet and added 224,000 customers to end at 646,000 for the year. And so what you really see there is, the underlying Magenta value proposition, as you continue to see this network roll out and finally breaking down that barrier of customers, having to choose between the best network and the best value in the past is resonating tremendously. And remember, this is all being delivered in the period of compressed integration, which means heightened Sprint Churn.

Now again, we are focused on and believe we will have fewer totality acts on the Sprint side from the customer migration period, but because we’ve compressed it, those will be compressed into the next few quarters at least, you know very heightened profile. And so deliver 844,000 postpaid phone nets, plus the 1.8 million total postpaid net customer additions, in light of that heightened Sprint Churn is amazing.

In fact, I'll tell you, had the Sprint Churn in equivalent to Magenta Churn in Q4, postpaid phone net customer additions would have been 1.4 million, which would have been the highest in company history. So you see the health and the strength of the underlying Magenta brand and that’s why we are so focused on getting that Sprint accord integration done as quickly as possible. So yeah, I couldn't be more proud of the team and what we've delivered, and how we continue to march on with everything that we say we're going to do.

Michael Rollins

Great! And so, let me share some quick results of the survey. So from the industry perspective for 2022, 59% expected to be basically between 4 million and 6 million, 38%, 6 million to 8 million and 3%, 8 million to 10 million and we’re on track this year, this past year in ‘21 to be about 9.5 million. So, it kind of put that into perspective. So, you know the audience thinks there could be a significant slowdown coming in postpaid phone net adds. How does T-Mobile look at that?

Peter Osvaldik

Yeah, well as we think about ‘22 relative to ’21, I mean at some point this heightened amount will normalize more down you know and we can all hypothesize around what the factors were, not everybody discloses everything as transparently as we do in terms of accounts and churn and all of that.

But what I can tell you is, you have to ask yourself, who's best positioned to capture the majority of the growth. Even if it goes down, what's the best position of the company and we are uniquely positioned in that perspective from a number of fronts, first and foremost and again, we'll get into the network a little bit more. We could probably talk an hour on just you know the network progress, but its building a completely differentiated 5G network just as it is every single day being more and more important in the minds of consumers and businesses and enabling other brokerage agencies such as high speed internet for us.

So that’s one, you have a foundation of the product that you sell is differentiated, and then you have a combination of, and we are uniquely positioned to have growth in areas that we touched on just a little bit earlier, smaller markets in rural areas where we have a mid-teen share and right now when you fast forward to what this network deployment is going to be, now we're really going to be the only ones who are covering what we call smaller markets in rural areas with mid-band ultra capacity 5G, really game changing. So a tremendous and competitive advantage there to continue to take share.

Enterprise and government; you've seen the results, you know we talked about Q3 and previously just what we've seen relative to the competition. We obviously don't have Verizon’s numbers for Q4 yet, but you know we tremendously continue to accelerate there and Mike Katz and his team are doing just a great job.

Well, from just a core connectivity perspective of phone, but also you know these highly accretive other net phone connections that we're doing a tremendous job on, and you know I think again we're best positioned given the network capabilities that we're building, the only ones with a standalone core development. To really showcase for companies what these advanced network services that we all talk about, you know mobile edge compute, private networks, we are best positioned and the best partnership to be able to deliver those, and again that's not – those aren't even in our analyst day forecast of what we gave; that's all upside to us.

So it’s a matter of you know who do you believe is best positioned to take share. And of course we've already rolled out this 5G network, and that $210 million cover ups that I talked about is over 80% of our current T-Mobile customers. So there is no way that we're going to lose in the markets where we’re dominant and yet we have all this differentiated opportunity in the markets where we have low shares. So that's the way T-Mobile looks at it, and you know we're more than excited to get into 2022 and continue beating.

Q - Michael Rollins

Well, let’s see what the buy side thinks of what ‘22 could look like from a phone add perspective. You just did $2.9 million I think for the year in terms of postpaid phone net adds and we’re going to give our audience a choice of 1.5 million or less 1.6 million to 2.0 million, 2.1 million to 2.5 million. I'm actually going to edit this real time because we're missing a slice here. So, while I do this, let me get the survey up so we have 2.5 million to 3.0 million and more than 3.0 million.

Let me ask you this Peter, what about the quality of the adds? You know how did these adds come in, in terms of you know getting to the ARPU goals and the profitability goals that T-Mobile has been aspiring to hit for this year or this past year I should say?

Peter Osvaldik

Yeah, absolutely. In our results that we released every quarter I think speak for themselves in terms of our mantra and our goal has been profitable growth and that's what we’ve been delivering.

In terms of the customer additions, we're very, very pleased with what we’re seeing, both from a – you can look at it a number of ways in terms of how we're driving new customers in, for example the network, right, and the network is driving a tremendous amount of customers in the door.

Magenta MAX adoption we talked about previously are a true unlimited plan that showcases the power of this network. The adoption is over half for new customers coming in, so that is really bringing in prime consumers. In fact when we look at you know credit applications and the prime mix of credit applications, that's up year-over-year several percentage points.

When we look at Enterprise and Government points, I mean what we're bringing in, tremendously high quality customers with significance, you know these and again as I mentioned before, that goes beyond just postpaid phone, but this other connected category that is starting to grow and I think will grow tremendously during the era of 5G is another one where we're bringing in just really, really top quality customer.

So we're very pleased with what we're seeing in terms of profitable adds and how we approach every quarter, which you’ve heard us talk about is, we're not there chasing necessarily the leaderships of phone, right. We're there to integrate Sprint as quickly as possible to get that tailwind of churn behind us and allowing us to grow even further, and I'm bringing on customers in a very profitable centric way and that’s what we’re executing on.

Michael Rollins

Can you give us an update on where you are with the integration?

A - Peter Osvaldik

Yes, so there's – you know there's a number of factors around the integration that you heard us talk about. First is network integration. So as you know this build is happening of course, at the same time now we're in the period of decommissioning. So network integration, moving all of the traffic over onto the anchored T-Mobile network, which is rapidly being built as well and expanding, and we're well on pace there with what we previously said in Q3, which is to really help substantially all of the towers decommissioned by the end of ’22, and the traffic moved over by mid-2022. So that's the goal that helps us and allows us to free up all of that spectrum, get it over onto the T-Mobile anchor network, as well as decommission the sites and start realizing, you know what is the largest portion of synergy savings here coming from the network.

The other part is handset compatibility, and we talked you know at the closing of the merger, there was a significant amount of handsets that were compatible. But right now during this period there’s still a lot of Sprint customers that we're looking at and for example, ensuring that they have a 600 megahertz compatible device, right, to take full advantage of the network architecture and both extended range which is built on that low band, but then also the ultra capacity mid band 5G network that we're building. So really making sure in seating the right handsets for compatibility purposes to bring them in.

We talked about rate plan migration and we did the vast majority of rate plan migrations beginning in the first half of 2021, but there's a few more left to go here in Q1 and Q2 of this year in particular, as we grew in that base for what is then and you've heard us talk about this, a very seamless billing migration, because we're able to disconnect that network migration, the brand migration and the billing migration, that is going to be a very low touch and very frictionless customer experience and that'll continue beyond the network shut down, to make it you know a very easy, friendly, very true reducing type of events, but it's going to be a low touch, that’s going to continue into 2023.

The other thing that we talked about is you know, how do you bring the rest of the value proposition. For example, the Team of Experts Care Model, award winning model with our continuing to roll out to the Sprint customer base and that will continue throughout this year. But as it relates to the network itself, you know no change in the plans. From a CDMA perspective, we are focused on getting that network shutdown on March 31 to enable everybody there to benefit from the newest technologies, and then from a, you know a sprint LTE perspective as we said sun setting in the middle of 2022. So great progress on integration and hyper focused on at S&T.

Q - Michael Rollins

Is there a risk at this point that those dates could slip or based on the plans that you have and the discussions with you know some of the regulators that were involved, does it feel pretty firm now that those are going to be the dates for the shutdowns?

Peter Osvaldik

Yeah, it's certainly you know the plan that we're working towards and what we believe to be the case at this point.

Michael Rollins

And so let’s see what our survey results are for T-Mobile postpaid phone net adds in 2022. So the results are 4% 1.5 million or less, 13% 1.6 million to 2.0 million, 48% 2.1 million to 2.5 million, 26% 2.6 million to 3.0 million and 9% over 3 million.

Peter Osvaldik

Excellent!

Michael Rollins

Any reaction to our audience?

Peter Osvaldik

I love – you know I love hearing certainly what everybody's opinions are and I can’t wait to get to year end and be able to give you know the holistic financial story as well as issue guidance.

Q - Michael Rollins

You know Peter, you mentioned that there's heightened Sprint churn right now and you were comparing what some of the performance could have been if you didn't have that. What's the risk that this heighten in churn actually gets a little tougher in the first half of the year as you get towards that full Sprint LTE shut down and how should just investors be mindful of the flow of performance for T-Mobile during the course of 2022?

Peter Osvaldik

Yeah, it's – you know as I mentioned Mike, given that we're so hyper focused on getting this done as quickly as possible and bring customers over to the full value proposition as quickly as possible, this will be the period you know as we're thinking through 2022 of heightened churn. And again the benefit there is we still believe we're going to have fewer total heat acts than what was in our plan that underpinned analyst day. But it will be during the compressed period, so 2022 we’ll continue to see heightened Sprint churn, which is completely part of the plan, but you know that light at the end of the tunnel and that benefit is just so worth it to us.

And yet, despite what you've seen, in which you know that absolutely existed in Q4, so postpaid phone churn of 1.10 and that’s a tale of two stories, much like we’ve been dissecting for 84 [ph] and yet despite that heightened period, you know we still delivered what we did in terms of 844,000 postpaid phone net adds on the strength of that Magenta brand.

So 2022, that's the focus point. This will be a period of heightened churn for us, exactly what was part of the plan.

Michael Rollins

And in terms of, you mentioned earlier about the Magenta churn performance being obviously much more favorable when you talked earlier. How does that Magenta churn compare to other periods, whereas you know I think if you look at the aggregate postpaid phone churn number, it might have been up a little bit.

Peter Osvaldik

Yeah, no we're very pleased with that and I don't always dissect them and can’t give you every single number, but it continues to be right there with the industry participants and industry leading certain quarters and right there with others. So you know very, very pleased with what we’re seeing on the Magenta churn performance, as well as Magenta partying and how MPI went for us, all of those things really give us reason to believe in the strengthen of this brand.

Michael Rollins

You mentioned the progress with the network and today you also disclosed the deal with Crown Castle for both the towers and the small cells. Can you talk about the benefits for T-Mobile and also you know how to think about the cost that may impact T-Mobiles financials in 2022?

Peter Osvaldik

Yeah. Well, let me start with the network and you know what this Crown Castle agreements as well as the previous ones enabled for us. When you future look into what are we building versus what the competition has announced and you know it's really fun to finally see Verizon and AT&T come to the party, right, after saying that demand wasn't the strategy and going millimeter away for Verizon, finally getting on to the party.

Now, of course it's three years too late and we're going to continue to be two years ahead of the game. When you think about what we just announced versus $210 million ultra capacity mid band covered pops and all over nationwide. What Verizon has announced is they are going to light up 100 million colored pops and by the way, we’ve done our 210 with already 100 megahertz depth of mid-band spectrum. You know they are going to be stuck on a 60 megahertz sliver of C-band until sometime at the end of 2023 most likely. So a tremendous disparity there in what already exists, yet we're on our way to covering 300 million pops with mid-bands capacity by the end of 2023 and that's with 200 megahertz depth of mid band spectrum, so there’ll just be breadth and depth.

Now what Neville and his team are building here from a network perspective just is miles ahead of what Verizon is announcing and you know AT&T, it seems like they've announced 75 million is a goal by the end of 2022, so it feels to me like they’ve decided their customers just on the sort of 5G.

So you know we're here to help. We're building the network that can definitely cover everybody and has the capacity. But you know another way to look at it is, we believe we deployed 3x to 4x the number of mid-band sites than Verizon will have to light up under a million covered pops. Because when you think about geographic density, you know the 200 million to 300 million covered pops as we've talked about is 5x the geographic landmass.

So you know we're very excited about how this competitive differentiators for us is going to continue for the next couple of years. And so with that, you know what we focused on with Neville and Mike is how do we accelerate this network build? And our goal is really to try to bring in as much from 2023 into 2022, and I believe CapEx will likely be higher year-over-year as we race to implement you know and really create this network even faster than we planned. So pulling forward from ’23 into ’22 CapEx.

And then yeah, we talked about Crown Castle and that's just such a great win-win story you know and a great partnership with Crown Castle, and with this agreement and the previously announced American tower agreement, it really gives us everything we need to go and deploy this network as quickly as we are. So 12 year agreement, you know tremendously excited about where we landed from both inability to access Crown’s entire portfolio on a macro side. That absolutely lines up where we're trying to build incremental sites and get coverage, very excited about that.

You know the escalators that we were able to achieve, I’m just tremendously pleased with you know. Everything that we laid out at analyst day in terms of our assumption sets were what we would have to get in this deal have been met and in fact probably a little bit better than what I anticipated in the guidance that underpinned analyst day.

The other thing to note is you know that we talked about 35,000 small cell nodes. I think it's important just to clarify it for people. For us those small cell nodes, the 35,000 is primarily upgrades to existing locations, to add additional spectrum such as you know our mid band 5G spectrum. So it's not new locations, its primarily upgrades for us. And you know again, tremendously pleased. 12 year deal gives us everything we need from a certainty pricing ability to go hang all the technology that we want up on the sites, and of course that longer duration from an accounting perspective means yes, you're going to have higher operating lease liabilities and financial lease liabilities.

That's a result of that extended terms. We think that'll roughly be in the mid- $5 billion range for U.S. GAAP. That is going to increase the liability and that's the straight line impact that you mentioned. But for us that was all contemplated as I said in what we gave to you at Analyst Day and even slightly better. So very, very pleased with what we were able to achieve, and it’s a win-win, but a tremendous win for us.

Q - Michael Rollins

And does that influence the ability to hit your 2023 EBITDA, core EBITDA guidance range that you previously established?

A - Peter Osvaldik

Absolutely! It gives us everything we need to hit the synergies that underpins that 2023 EBITDA guidance that we gave you. Yeah, but this is again everything we need from a lease perspective with this deal; its set and done. So very, very pleased to have gotten this done.

Michael Rollins

So, I’m going to introduce our third survey, which is going to preview that we're going to get to the fixed wireless discussion. We’ll interject a couple of other questions in between, so we don't bias the audience of what they think. But how many fixed wireless broadband subscribers will T-Mobile add in 2022? Under 0.5 million, 0.5 million to 1 million, 1 million to 1.5 million or over 1.5 million and you just did, was it 546,000 net adds to end the year with 646?

A - Peter Osvaldik

Right, exactly. Oh wait…

Michael Rollins

So we’ll get to that… [Cross Talk]

Peter Osvaldik

Or can I give you some thoughts.

Q - Michael Rollins

Exactly! So we'll wait for the answers. And in the meantime, any update on the timing of dish or track phone revenues potentially rolling off in 2022 and 2023?

A - Peter Osvaldik

No, no real update there. You know I think again as we said with the AT&T dish deal, that could result in a slightly faster roll off of dish revenues, but with the capacity we're building in this 5G network, it also opens up opportunities for other wholesale partners and of course we’re also to-date over delivering against what we anticipated for 2021 in terms of customers and through Q3 you saw what we said around ARPU and what we delivered there, while we thought there'd be dilution with the adoption of Magenta MAX and what this product offering allows for consumers and the adoption for new consumers. We were able to keep ARPU guidance flat versus being down. So there's a lot of upside potential there.

We've talked about a lot of these advanced network services that we have coming down the pipeline; mobile edge, compute, private networks that remember were not included in the guidance that we gave, that under pinned our analyst day guidance ranges. Yes, we know they are coming. We believe we are best positioned given you know the network capabilities and the breadth to go capture those, but they weren't included. Those are all upside opportunities as well as you know if we can over achieve our penetration goals in smaller markets and rural areas, as well as enterprise and government.

So very, very confidence in the service revenue ranges that we gave for Analyst Day, as well as EBITDA that we gave for Analyst Day and you know dish rolls off faster than anticipated in that, but we have a lot of capacity to go fill.

Michael Rollins

Let's see what the results are. So our results from the survey, we have 7% under a $0.5 million, 31% between $0.5 million and $1 million, 59% $1 to $1.5 million and 3% over $1.5 million.

Peter Osvaldik

Wow! Well, excellent! You know I've got to tell you ‘21 was just a great year as you said you know, ending with 646,000 high speed internet adds. The quality of customers and what we're seeing come in, both from a usage perspective, the average customers using in the hundreds of gigabits per month, so more like 10x with a 5G.

Smartphones consumer our Magenta MAX is using, perfectly capable of handling that with a network that we're building. MPS scores are multiples higher than previous – of what those customers previous providers were, so very, very right there. You saw third party recognition commence, which was PC Mac readers choice for our high speed internet products.

So I think everything is going great there, we expect a little bit more supplier diversity on the router side in 2022 which will help fill that supply need. And I’d expect 2022 to be bigger than 2021, absolutely, and then 2023 to be bigger than that 2022 in terms of net adds. So very optimistic about what we're seeing there from a demand perspective and of course as you build the network and another reason why accelerating the bill from ‘23 into ‘22 is important, you create more capacity for these net additions, so very pleased there.

Michael Rollins

Are a greater percentage of these adds coming from existing broadband competitors or are they coming from markets that are generally under served with broadband?

Peter Osvaldik

Yeah, you know we're seeing both. And it’s very unique what we are seeing with the customer acquisition profile here. First off, just new to T-Mobile relationships. You know a significant percentage of these net adds are new to T-Mobile relationships and by definition, especially when you are seeing the usage on the MPS scores, the network is working really well for those customers where they live. And that I think provides a tremendous opportunity for us to cross sell the mobile wireless side of the house. That's a unique proposition for us that I don't think we anticipated to agree that its happened.

And in terms of geographic distribution and provider, yes, we are definitely seeing adds come from smaller markets in rural areas where perhaps you know the quality of a different product may not exert or it may be very limited. But we are also seeing it come from cable territory, rural and suburban. So it's you know the demand is there across all the geographies and segments, as well as said new to T-Mobile customers that allow us then to establish that household relationship and then grow it and grow ARPU over time. So I couldn't be happier with what we're seeing to-date.

Michael Rollins

So T-Mobile has been part of some pivots in the industry with the way services have been priced. It led a pivot in the industry for example with the unbundling of phones from rate plans a few years back. Are we at the beginning of another pivot where there’s going to be a bigger focus on bundling, fixed wireless broadband or just broadband I should say in the home, with mobile subscriptions and how do you see that playing out for T-Mobile.

Peter Osvaldik

Yeah, you are right. This industry is always competitive and makes pivots and most of those are driven by us in the name of giving customers more value and what they want. And its always promotional and we always played tremendously well in that.

Now as you think about this question of converged offerings, the U.S. has been and continues to predominately be, I think a market where consumers look at the mobile wireless and the fixed home broadband as two separate purchasing decisions, they absolute do. However again there for those that are looking at converged offerings, you know we believe we're tremendously well positioned.

First off, just the network itself, again and you know the whole thing as I said, a completely differentiated 5G network with both coverage, depth and capabilities, but also then taking away that age old consumer trade off of best network or value. So you have the best wireless network to go right on. And then for those that want it, we have this high speed internet offering that we've talked about the results as doing tremendously well and resonating tremendously well with consumers, as well as bringing new consumers in.

So I think we're very well positioned to compete as much as we always have, as well as innovate in areas of perhaps convergence. But I see the U.S. market continuing on with for a significant period of time with distinct purchasing decisions in the minds of most consumers here.

Michael Rollins

We often get the question, just about the competitive landscape broadly and just whether you see it shifting, getting more difficult, and then there's another side of this which we've gotten some questions on today into our site, which is if there's a way to quantify the forward progress T-Mobile is making at improving the brand perception, getting credit for the 5G work that you're doing. So, I guess it's a two-sided question. You know one, just in terms of how you view the pace and cost of the competitive landscape and the progress that T-Mobile is trying to make with its brand within that context.

A - Peter Osvaldik

Yeah, well let me start maybe with the brand perception, because we've seen a lot of goodness there and as I said, as 5G becomes more and more relevant and more and more of a factor in consumer purchasing decisions as well as enterprise purchasing decisions, you see our brand metrics just are doing phenomenally well.

In Year-over-year or if you look at the last two years as we do, both non-customer surveys and understand how they view T-Mobile, both from an overall network perspective as well as from a 5G network perspective, we see a lot of growth year-over-year in terms of consumers both understanding we’re the leader, as well as you know what 5G capabilities we’re bringing and that's on the consumer side as well as on the business and government side. We're both consideration metrics for T-Mobile, as well as seeing us as the 5G leader continue to grow year-over-year.

So I think we're doing a great job on the brand perception front. You see third party reports you know, now over a dozen independent third party reports talking about how we're number one in nationwide 5G speed, availability, reliability and those are the things that we're going to continue to lean on.

From a competitive environment and a promotional environment, there's always pivots, there's always different forms of how promotions are happening. Certainly AT&T and Verizon have pushed into the handset promotion space. AT&T I think very aggressively so. It's been very interesting to watch where they are seating handsets into their customer base that will work phenomenally better on the T-Mobile 5G network and you know what their self-announced 75 million on coverage goal by the end of 2022, it doesn't look like they are looking to give those customers 5G.

So we're very pleased with how the promotional environment is working out, because we always know how to work within it and that's how we're delivering the results and that's you know again the underlying Magenta brand and how it's doing it is phenomenal.

Michael Rollins

We're going to go to one more survey question, which is when do you expect T-Mobile will initiate share repurchases and we gave three choices for this; 2020, 2023 and 2024 or later and we'll get back to that topic in a moment.

You know Peter as your looking out to 2022, talk about a number of things and realize that you're going to get a lot more detail in a few weeks when you get to the official fourth quarter results. But are there any other areas that you want investors to be mindful of in terms of you know integration milestones or other aspects of the way the business strategies and integration strategy is going to evolve over the course of 2022?

A - Peter Osvaldik

I think it’s all back to those three priorities we talked about here onset you know. How are we executing against what we're committing to, both on the network build and we’ll continually update you on what we're doing in terms of coverage and reliability and perception stats, and you saw what we delivered in 2021 and Neville and team certainly have you know grand plans for 2022, which is why we're pulling in CapEx for ‘23 and we’ll have actually more CapEx in ’22 than ‘21 on the network, so that's one.

The other is Sprint integration. So how are we achieving and meeting these milestones for particularly network traffic migration and then decommissioning and you know for us, the decommissioning of the sell side or the CCU state is really what triggers the lease liability recognition and what triggers all the synergies on a go-forward basis. So that is going to be a pivotal year in 2022 where we’ll all be able to shut all of that down, decommission the sites and realize all of those network synergies. So that's a little bit differentiated than what you heard Crown say in terms of how they recognize revenue is how we recognize the decommissioning. So that's a milestone I would absolutely be looking to.

And then how are we progressing against those growth initiatives, right, that's which we’re doing phenomenally well to-date and how we’ll continue working against those in 2022. We have great plans against those, teams are energized, you know you saw the Q4 results, we're happy to continue executing against those.

Q - Michael Rollins

And just a logic perspective of what you just outlined. Does that mean if you're able to shut everything down, Sprint LTE, CDMA is already shut down by June 30, that there could be a step function decrease in network costs and a step function up in EBITDA, because if you decommission June 30, you get the opportunity to get those savings in EBITDA in the second half of the year.

A - Peter Osvaldik

Yeah, and it'll be around that mid-2022 point that we're targeting, so not necessarily exactly June 30 that all of the decomm of the towers will happen, right. But certainly as we progress through that in this year, then yes, as you hit that CCU state and we decommission it, you know it’s not dependent on when the lease term ends, that doesn’t happen, but it's really that point at which we trigger and on a go-forward basis we're going to get all of that synergy capture from the network.

Now, in cost of services of course you have offsetting factors. We talked about the straight line, non-cash, base expense from the Crown Castle deal. Of course we continue to deploy the network and we’ll be building new sites, so you have offsetting factors to some of that when you look at cost of service line item. But fundamentally that’s when we hit the CCU state of those towers in 2022. Go-forward you're going to start seeing all that synergy realization.

Q - Michael Rollins

So if we get to the survey question, and this is a question that we get a lot about your buyback opportunity, so 44% 2022, 41% ‘23 and 15% ‘24 or later. So I believe the guidance is for ’23, is when the share repurchases were supposed to begin. What are the opportunities and what would be the factors that could cause T-Mobile to bring that forward some time in 2022?

A - Peter Osvaldik

No, you're absolutely right. The guidance was up to $60 billion of share repurchase opportunity as we see this synergy back model and this growth model continue and deliver you know a conversion of service revenue into free cash flow at rates much better than the competition in that mid-term, and that's what allows the potential for shareholder remuneration.

As we think about timing, you know it's going to be dependent on a number of factors. How quickly can we get through this integration? How are we progressing against the plan? You certainly saw how we're doing it 2021, but how does ‘22 shape up and if we're progressing and over achieving all of those milestones, then of course it’s something that we discussed with or asked competitors opportunity to bring that forward.

Michael Rollins

Are you ready for our rapid fire; three questions in three minutes?

Peter Osvaldik

Let’s do it!

Michael Rollins

Great! First question, why should investors buy your equity?

A - Peter Osvaldik

Nobody else is executing a synergy backed model with clear differentiated and communicated growth opportunities as to why we should capture the share and continue to grow and that translates as I said into the best service revenue and to free cash flow conversion, and also as we guided, an unprecedented free cash flow CAGR from ‘21 to ’24 of 45%. That is the value on lock for investors that T-Mobile represents.

Q - Michael Rollins

Second question, is inflation a net opportunity, net neutral or net risk for your business model and financial performance?

A - Peter Osvaldik

Yeah, and of course you know from a broad perspective you know significant inflation would not be great for the economy or consumers. When you think about it from a T-Mobile perspective, I would say at a high level net neutral and the reason I say that is because we've had the foresight, Neville and team and others to really lock in rates for what constitutes a significant portion of our costs.

When you think about the, you know the industry first and leading with the OEM agreements that we gave with Ericsson and Nokia to fuel this build-out, that locked in cost, when you think about the tower agreements that we reached from American and now Crown Castle, that allows us to have certainty around cost elements for what are the very significant elements in our P&L.

So certainly you don't want to see significant inflation from an overall economy perspective, but for us let’s say generally net neutral.

Q - Michael Rollins

Final question; since this is the AppsEconomy Conference, what application can fundamentally change demand for connectivity or data consumption over the next few years?

A - Peter Osvaldik

I think there's a number of fronts that you're seeing, some that you're already seeing manifest that we've talked about. First the smartphone, right. Data use consumption on our Magenta MAX plan that’s fuelled by this network is tremendous and then it's not just data usage, but it also means how our customers and consumers actually interact it, right, the video usage, the music, the gaming, you know they are expecting and demanding more performance and more throughput from the network.

The other is outside of phone; all of the other non-phone connected devices that are starting to proliferate and I don't mean just tablets and watches, but you see other new devices coming onboard that I think 5G will enable tremendously and where again, we're best captured to use that.

The third I'd say is the advanced network services space that we talked about, right. Massive IoT, private networks, mobile edge compute, those are coming and will have a step change. And then things like high speed internet for us and what we're already doing there, that's another fundamental use case that allows us to grapple and harness the power of this networks. So you know I’m very excited about what the future holds in this space.

[End of Q&A]

Michael Rollins

Peter, it's great to see you. Thanks for joining us today.

Peter Osvaldik

Thank you so much Mike. As always great conference and I really appreciate the time to speak to you.

Michael Rollins

Thank you.