T-Mobile US, Inc. (TMUS) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us for the 7th Annual MoffettNathanson Media and Communications Conference. And for the seventh consecutive year, I'm really delighted to welcome this morning Braxton Carter and Neville Ray from T-Mobile. Finally, after 2 long years, the new T-Mobile, I'm happy to say.

Guys, it has to be sort of bittersweet for you. All these conversations that we're having with companies for obvious reasons, are sort of starting and focusing a lot on the COVID crisis. You waited 2 years for your merger to be approved. It was like pulling teeth. When it finally happened, it was, what, 1.5 weeks later that the COVID crisis hit, and you were sort of back in to hurry up and wait mode. So can you just talk about kind of where things stand? For example, I think I saw my first new T-Mobile advertisement just this morning. Where you are with sort of introducing the new T-Mobile to the American public?

Yes. Let me start, Craig. And first of all, let me tell you, 7 years goes by quick, doesn't it? I remember your first one back in the day, but it's really a pleasure to be here, and I wish we weren't virtual. But kudos to you for continuing on during this difficult environment, and it's really an honor that you asked us to participate. It's been one heck of a journey. And to add a little bit to that, we were having a Board meeting in Boca when we got the word of the states. Immediately after the meeting, flew to New York, met with the rating agencies to kick off our fund raise and that was going to happen the next week and then lo and behold shutdown and extreme disruption in the markets. But we were really happy to be able to close this transaction during this crisis, and then have our inaugural IG fund raise in the market the day after with a great deal of success. It's amazing, what a journey. And by all accounts, we should have been well a year in to the new T-Mobile and the unlock of the synergies. But I think the one thing about our plans all along were to get the merger closed and day 1 which is what we really referred to as the kickoff of the new T-Mobile was always going to be a 90- to 100-day period after. There's only so much you can do pre-merger, and we did have the luxury of understanding a lot of the issues and having a very fine-tuned playbook on execution of the integration. But that time delay was always going to be there to align the new go-to market, which will be one go-to-market strategy. And at this point, we are anticipating that, that will happen in the third quarter. I'd really look at late summer as being the appropriate time period. So during this interim period, it's kind of interesting. We would have been operating 2 legacy companies with their legacy go-to-market offerings. And with a lot of flow not happening with social distancing and stay-at-home orders, it's actually great that we have this time to prepare to come out very, very strong with the way that we're going to come out from a marketing standpoint. So we don't really look at it as losing anything. Sure, we're anxious to get going, but it was always going to take a period of time. And our thesis is that essentially, we have a situation where this demand for our services is not going to be permanently lost during this time period. It's really going to be a push forward. And every other carrier is in the same position. The difference is T-Mobile's an extreme growth story with an incredible momentum as a brand, and we're putting it on steroids with the new T-Mobile. And we're very, very excited about that.

Do you need to wait though for retail stores to be fully open before -- for example, if -- by late summer, there are meaningful regional differences as I think seems likely, does that change the way you think about the go-to-market strategy? For example, you go-to-market on a regional basis rather than a national basis so that the retail channels can catch up to where you are?

It's a really good point. At the start of the crisis, we were one of the leaders in protecting our employees and protecting our customers. And we shut down 80% of our distribution on legacy T-Mobile and 70% on legacy Sprint. We are in the process of reopening some locations in certain parts of the country. And we're actually quite encouraged as states are lifting some of the orders and loosening some of the guidelines that are out there that we're seeing a return of some flow which we're excited about. But let's fast forward. I mean certainly, this country is not going to be normal next month or the month after. It's going to take a while to work through this. And I totally agree with your thesis that it's going to be regional. The problem for a wireless carrier with national scope is everything we do is really national in positioning. And you certainly could have some parts of the country that are shut -- still shut down or extreme restrictions. And -- but you'll have other parts of the country that things are returning to normal. And either way, our plans are our plans, we'll plow forward. What we won't do is chase that incremental net add at a cost that doesn't create value. Everything that we always have done creates value, creates MPV, creates cash flow. And just to put a number down, we're not going to chase something irrationally, but we're super excited about our new go-to-market strategy, let alone the massive head start that Neville has on the network components of this, which is we're super excited about.

So let's turn to that now, and then we'll come back to that go-to-market strategy. But Neville, when we started doing real work on the integrated company and switching to our pro forma model, one of the things that it struck us that was perhaps underappreciated was how much benefit this Sprint customer base was going to get from the access to the T-Mobile network right out of the gates because of the readiness of so many existing handsets. Can you just talk about sort of the initiatives that these, what I would call, prepositioning initiatives of -- in order to lower Sprint's churn rate and give those customers a better experience and what's going on to do that sort of in the background, if you will?

Yes. I mean if I could, Craig, further in some of your first question, some commentary to that. Because it took an inordinate amount of time to close this transaction. But I think that 2 years that we had shoulder to the wheel with all the various parties engaged on this thing was beneficial in its own way. And specifically on the network side of the house because we were somewhat at risk able to commence a bunch of activities to ready ourselves for the close of the transaction. And so as you said, we closed on April 1, and on April 1, with all of the preplanning and work that have gone on between the 2 teams, several things were happening. I mean, one, we're very, very focused on reducing network churn in the Sprint customer base. It's a very large, very valuable volume of customers there, and network churn has been the thorn in the side there for the Sprint business. So we spent a lot of time looking at how do we attack that. So 2 things out of the gate for 1. The first piece was opening up our T-Mobile network across all of our sites, be that in the cities, in the rural areas wherever it may be, opening up that access for the Sprint customer base, the postpaid customer base. And as you said, large volumes now have compatible handsets, it's north of 80%. And so what have we seen with that. If I look at the traffic patterns, and I was checking with the team in anticipation of your question today on this, 2/3 of the increased roaming traffic we're seeing from Sprint customers. It's not in rural America. It's in urban and suburban environments. And it's because what we're doing is where the Sprint network goes away, then you come on to the T-Mobile network. And so that can be in your basement in Manhattan on a low band. It's obviously happening a lot in suburban environment. And that Achilles heel for Sprint coverage is effectively being sold for those LTE customers with a compatible handset. And we're seeing, in any given week, about 10 million customers. So that's more than 1/3 of the Sprint base leverage that roaming. And of course, the roaming is better. The second piece is historical roaming for the Sprint base, there were limitations on speed, how much data they could use. This is untethered, unlimited, high-speed LTE from T-Mobile. So that Sprint base is, out of the gate, seeing a very, very different and expanded network experience on LTE. And we've also now opened up our nationwide 5G footprint on low band to the Sprint customers with 5G phones. The vast majority of those are compatible. We've [ EMR-ed ] the phones. And so we're seeing a lot of increase and access to that 5G layer from that Sprint 5G base. Customer numbers are still small, Craig. Craig, they're not huge. The biggest impact is on the LTE base.

I want to come to 5G in just a minute, but I want to stay with this theme of reducing Sprint churn because that's one of the things that we've said is a key success factor early on for this merger. Braxton, the flip side of churn besides customer dissatisfaction or I guess, the other big input to churn besides customer dissatisfaction, particularly in an environment like this, is ability to pay. And historically, Sprint's customer base has been somewhat lower credit quality than yours. Can you just give us any insight into what you're seeing with respect to bad debt for that -- and nonpay for that set of customers? And then just more broadly, what you're seeing in these early days of the unemployment rate being where it is?

Yes. So let's talk about legacy and then we'll fast forward into the future. From a T-Mobile standpoint, we often heard of that over the last 7 years about our base. But when you look at what we've done from a segmentation standpoint and from a growth standpoint and the vast majority of our share coming from AT&T and Verizon, we certainly are very different company today than we were 7 years ago in terms of credit quality and quality of customers. For the first quarter, we had about a $30 million increase in our bad debt expense and that was 100% related to the new accounting standards where you're taking reserves in advance based upon forward economic model and there's no question that this country is in a recession, we're certainly in a global recession and without that, our bad debt would have been flat year-over-year. One of the things that I'm really proud of during the T-Mobile tenure, 5 years ago, we brought in a group of people from the credit card industry and if there is a DNA that understands credit, particularly early signs of credit issues, it's folks coming out of that industry. And they've really transformed the way that we handle our credit policies and collections, very dynamic, very customized, AI-based, and we're going to take those practices and totally incorporate it into what is in place at legacy Sprint. There is no question that when you look at the true economic bad debt, remember 85% of legacy Sprint was on the leasing model and that bad debt doesn't on the devices -- actually gets depreciation and doesn't hit bad debt expense. And we certainly understand and it's significantly higher than ours at legacy T-Mobile. But it's actually an opportunity. In Sprint's defense, they did operate under wider credit standards or looser credit standards, but they also charged interest on the portfolio. So economically and holistically, they were funding some of that credit expansion through interest carry, which is actually an intriguing concept and one that when we were looking pretty close at some of the things Sprint was doing, that could have a place for the new T-Mobile. So we're continuing to evaluate that. But the first and most important thing is the quality of the network. And I know we're going to talk a lot about the network here, but that's what creates the propensity to churn. This network just doesn't work for me where I live, work and play. And with the foundation Neville is laying in place, I think we're going to see significant improvement. Now to fast forward to the second quarter, another thing that's painful is the FCC pledge and this again is applicable to all carriers. And essentially what we have is a situation where people who are not able to pay their bills, their connectivity cannot be shut off, which is an amazing way to facilitate collections. Communications are a base human need and people really can't do without it. But this bill shock is you have several months' worth of payments accelerate, or let's say, stack up. And then all of a sudden, you're not looking at -- you're looking at a bill 4x of what you usually have to pay. And when we have the type of unemployment that we have here in the country, that is obviously a problem. In our guidance for the second quarter, when we unpacked the COVID piece of the guidance, we are forecasting newco to be between $75 million and $125 million of incremental bad debt on top of normal run rates, specifically related to the pledge. But it's the right thing to do for our country. And we're not just sitting back and going, "Oh, that's really not good, and that's unfortunate." We're working on many initiatives to mitigate that issue. Specifically, we're doing work out plans. And what's amazing, even during these times as this crisis has gone on, we've had a significant number of customers that have made some payment or all payment that [ plead ] the hardship. But by doing a 4-month workout, by maybe tacking on some EIP at the end of the contract. Now the problem with that, you're not going to record revenue during the period that you're deferring, that's going to be a deferred revenue. So certainly, impact on that. And we're also looking at rate planning constructs. Our pledge is connectivity. Our pledge isn't everything in our richest rate plans to everybody. And that's the way to place people who are really under economic distress, with core connectivity. We're doing our part, but we're also reducing the exposure. So we have a multitude of operational mitigations that we're putting in place at this point. And it's something that we're watching really, really closely because this very unusual pandemic environment is certainly going to put some pressures on bad debt in the future.

So you're already the most competitive -- certainly in the postpaid market, anyway, the most competitive of the majors with pricing. And one of the questions has been around when you go to market, you're going to -- you've said you're going to lower Sprint's ARPU down to yours over some period of time. Can you just give us a way to think about that? I know you may not be able to give us too much precision at this point about how quickly you're going to transition Sprint's pricing, but how should we think about that ARPU adjustment coming for the Sprint customer base?

Yes. So -- and you also bring up a great point. We are the value play in the industry. And we have 45% of the industry's Sub-6 spectrum at this point and only 30% of the customers. And especially during tough economic times, people are going to be looking for value. And with AT&T and Verizon experiencing the same types of issues that we are, we should actually be in a position that when this country does start opening back up, that we should be able to accelerate growth, a much larger switching pool as people look for value during these tougher economic times. And I think it's an amazing opportunity ahead of us. And I think this model is going to be very, very resilient as compared to what we're seeing with AT&T and Verizon being the scaled incumbents and controlling the vast majority of the subs in the country. So I think we're going to be uniquely positioned on that. That's kind of an overall observation, but specifically, on your question about the ARPU trajectory, there is again a day 1 philosophy that we're going to have a new go-to-market strategy for the new T-Mobile. And as part of the strategy, we're still the uncarrier. We grandfather all of our customers. We don't change the deal when somebody walks in the door and has signed up for something. The trick here is totally related to the capture of the synergies, 2/3 of which are network, is we have to migrate those customers over to the T-Mobile stack. And the new T-Mobile go-to-market offering will be patterned off of what we've done at T-Mobile legacy. It's not going to rely on the EIP. EIP is going to be a tool in the toolbox. It's going to be traditional equipment financing. It's going to be very similar with some improvements of what we've done at T-Mobile. And we think it's going to be a really neat value proposition. And over time, as people gravitate to these new rate plans, we will automatically provision those rate plans onto the T-Mobile network or the new T-Mobile enhanced network, taking them off the legacy Sprint network. And it is going to be over a period of time. We've officially put out. It's going to take 3 -- approximately 3 years to do this. But knowing Neville and seeing what an amazing head start he's already had, maybe we can do a little bit better than that. We'll see. But don't underestimate the power of Neville and his team. So that means we're talking about a multiyear trajectory to get to normalization. All this was built into our modeling on the new T-Mobile and it's something that we've been planning on all along. And then it goes back to what we did. We pledged for 3 years, we're not going to raise prices. It's kind of that generally stable ARPU strategy that will take us forward once we get through that normalization.

And that generally stable ARPU, you think that can be sustained even while you're pricing the Sprint customer base down?

No. I think there will be declines over the next 3 years to more normalize the Sprint ARPU legacy to the T-Mobile legacy. But once we got that migration done, we should be in an environment where we can resume the generally stable. And we're planning on giving guidance for the balance of the year on our second quarter; first new T-Mobile earnings call, which we're really excited about, and we'll be able to give you some more color. We're still, quite frankly, Craig, working through a lot of the harmonization of the KPIs, the definitions and all that's going to have an impact. So I'm not really in a position where I can provide any magnitude color at this point, but it will be coming.

So well -- Braxton, I'm going to come back to synergies and things in a second, but I want to go to Neville for a second. So we've talked a lot about some of the things you have to do. But the thing that you get to do, the fun part, if you will, is really getting the 2.5 gigahertz spectrum online to the point that it can truly differentiate your product from anything else in the market. I think you've already got Philadelphia online and New York City coming. Can you just give us an update about how quickly the 2.5 experience will be available to customers in various footprints? And what that's going to be like as a consumer of the new T-Mobile?

Absolutely, Craig. I mean it's -- you're bang on. It's right at the heart of everything that's exciting that we want to go do. It's all fun, right? I mean I love what we do here. And there's nothing more fun than looking at the treasure trove of spectrum that we have. I think as you've noted and reported, we now have a wealth of assets in -- at the right time for this 5G rollout. We're at 3x, 3 times, effectively the Sub-6 gig spectrum of Verizon, and with 2x the Sub-6 gig spectrum effectively of AT&T. And the big delta is in mid-band as you correctly know, Craig. So we've been rolling out and planning to roll out 2.5. And I want to say that's going to happen at a furious pace. And this ties into the earlier question that I provided some commentary on. Last year, I mean, Braxton gave me the okay to start doing some of the work at risk to get ready for the close of the transaction. So we started to secure leasing and permitting to actually overlay and roll out the 2.5 radio on our existing sites. So I'm not building new sites, I'm adding radio and antennas to existing sites. So that's still -- it's still a volume of work. But the long pole in the tent is how long it takes the jurisdictions to approve that activity. I can build a site like that in a week. It doesn't take me very long, 5 to 10 working days to actually place the materials on the site. But the long pole in the tent is getting the penalty. So we took a lot of that work, put it under our belt and underway last year. And so as a 4/1, we were able to come straight out of the gate on close. We've been building in March, and we started to turn up the downtown metro area of Philly. And just last week, we did our parts of New York. And so now that's all happening in that 2.5 space. That's super exciting for us. There's a wealth of assets there. There's a real problem in the U.S. around mid-band 5G spectrum, not for us now that this transaction is closed. And so we're in a great position to roll that out. We've said -- I said on the earnings call last week that we will deploy across thousands of sites this year. And I think that's going to surprise our competition. They think this is going to take us kind of another 2 to 3 years to get some momentum and speed, and it won't. I mean we already have momentum, and we'll be building at a clip of almost 1,000 overlays a month as we move into May and June. So the 2.5 rollout is key. We're moving fast. I mean this year, you're going to see a lot of the major metros start to light up with 2.5. The experience is great, Craig, right? I mean we're adding a lot of spectrum here. Even 50, 60 megahertz of 2.5, that's what we started with in New York and Philly, is taking peak speeds up from maybe 100 Mbps in LTE to 5 or 6x that. And average is from 30, 40 Mbps to about 8 to 10x that. I mean we're seeing that just in the early rollouts. So when you come to that consumer experience, on a mid-band layer with a lot of spectrum, experience is going to be great. Speeds are going to be really strong. You're not going to see that buffering. You're not going to see that latency. You're going to see a great 5G experience. And the beautiful thing about it is, I don't want to snub too much on Verizon, but I mean you have a footprint, right? I mean the other stat I threw out last week, what we turned up in Philly, Craig, just that little kind of metro start on 2.5 gig rollout. It was 2.5x larger than the entire millimeter wave footprint that Verizon is launched to date, right, over their last 12, 18 months' worth of work. And so if you want to talk about the real 5G consumer experience that's got breadth and depth and high speeds and so on, we all know, I mean across the globe, everybody is focused on making that happen first with mid-band. And so we want to lead the way. We've spent the last 7 years getting even, right, on LTE with Verizon and AT&T. And now the opportunity for the new T-Mobile is to move ahead with 5G, deploy these assets quickly and especially that mid-band, as you say. Now we are continuing, obviously, to push and rollout our low-band 5G. That is now reaching almost 2/3 of the U.S. population if you can believe that. So you talk to a lot of rural communities now. They're already receiving as we committed and promised to do for the FCC and the DOJ. They're already seeing 5G in rural America in a way that some of these communities haven't even seen LTE. So that 5G rollout on low band is moving at full speed, and now we start to lay on top the mid-band layer with the 2.5 gig. So it's a super exciting story. We've worked so hard to make this happen. Time has helped us in some ways, as I said earlier, because now we've got a lot of planning, a lot of work underway, and we can start to deploy these assets.

So if I think about your -- the arc of your story over the last, call it, really 6 or 7 years, at least, it has actually been this story of -- well, a big part of it has been that low-frequency spectrum for you that you've gone from being, what I used to describe, as a super-regional and 2/3 of the country to then having better in-building coverage in urban, then better macro coverage in suburban, finally starting to penetrate rural. It seems like what you're describing, Neville, is another trip through that segmentation scheme now with more mid-band spectrum and that, that changes the experience, but you sort of go back through the same set of geographic segments of what does it do for urban markets, and then what does it do for suburban, and what does it do for rural? I wonder if you can just talk about that. Maybe Braxton, just talk about the -- where you are in relative to your national market share in those 3 broad buckets? And how you're doing sort of reindexing toward the average? And how much runway there is still there, particularly now as you bring the mid-band online?

Yes. I think that it's one of the aspects of the new T-Mobile that we're super excited about. I mean there's no question that we are heaviest penetrated in the dense core urban areas of the U.S. And then you take a step down there from suburban and then another significant step down on the rural piece of the equation. And that's one of the exciting things. With this set of assets, we are already pursuing a geographical segmentation expansion of our distribution. And now we're going to be in a position to really put this on steroids where a tremendous opportunity exists in suburban as well as the rural part. And you couple that with the enterprise opportunity, where both legacy Sprint and AT&T were a fraction of the market, and combined, we're still less than 10% of the enterprise market. And with this set of assets, I don't see why we can't own the enterprise market. We've got the capacity, we have the connectivity. We're already seeing amazing inroads into large enterprise and government, leading up to the merger. And it's just going to get better from here on out. And it's one of the things that gives us a lot of confidence that we have an amazing growth company for many, many years to come. I think you put on a very key point.

So I want to stay with that because the other segmentation, as you mentioned, is not just geographic of urban, rural, suburban, but it is consumer versus enterprise. The value proposition, it would seem to me, of the mid-band spectrum is really especially applicable to enterprise customers in 5G. And for the first time, you've now inherited a sales force from Sprint with some of those relationships, but perhaps not with the kind of network capability in the past that you will have now. So what is the sales pitch, if you will, to go into even the mega account, the FedExes and UPS of the world to say, your connectivity can take an order of magnitude leap forward with our new network. Is that the pitch that you're making to these customers? And how is it resonating?

Yes, absolutely. And remember when you are dealing with large enterprise, it is a longer sales cycle, which is highly better. If you're a CIO of a large nationwide or global company, you're going to want to make sure that if you're going to change carriers that you have a solution that's going to work seamlessly for you. And these very well-wetted trials that we're doing in a lot of enterprises, the initial hook is, "Hey, we could save you a lot of money." AT&T and Verizon are the premium-priced providers in the country. Our network is at par with those networks now, and we're getting ready to leapfrog once and for all on the legacy capabilities of Verizon and AT&T. And once you're in the door, and you can really show your stuff and there's tight coordination between Neville's network team and our TFB team on these areas. It's going to be super exciting. The -- kind of an amazing stat, and we typically don't bust things down, but right now and for the last several quarters at legacy T-Mobile, roughly 20% to 25% of our net add production was coming directly out of the business in the enterprise channel. And the opportunity going forward is, I think, going to be more significant as Neville starts rolling out all the assets that he has right now and will be a large part of a very large growth initiative that the new T-Mobile is going to experience.

I'd just add, Craig, if I can. I mean I think the heart of the messaging -- and I think this translates across both consumer and business. It's -- Mike covered this very well last week. I mean there's been this trade-off in the industry, right? You can have a great network, but you're going to pay more for it, right? And so the heart of our proposition is just what Braxton said, right? It's you're going to get great value from the new T-Mobile. And you know what, you're going to get the best network, right? That's a combination. That's a killer combination. Sounds simplistic, but best strategies are, right? And the fact that we can deliver -- our goal and ambition as a network team, right, is to have the best network in the U.S., and we have the assets to go do that, the people, the capability, the execution jobs. We know what to go do. And we have a history with -- our own carrier history of delivering great value. And I think that's incredibly appealing. It starts in consumer, right? And obviously, that's a cutting round in consumer for us. But when you look at that enterprise and business space, these folks, as Braxton said, they're educated, highly educated, right? They go on test networks. They want to have the best product for their teams and their people. And so -- and they want great value, too. Those 2 messages translate across. And I go back -- if you went back 5, 6 years or 10 years in T-Mobile, our problem was we didn't have nationwide coverage effectively, right? And so you didn't get [ passed along ] with enterprise and business. Mike Katz and his team has been doing incredible work this last couple of years, really penetrating big enterprise in a meaningful way. I mean we're a real competitor in that space now because we level the playing field. And now the piece is how do we take these 5G capabilities we have, accelerate this deployment and accelerate our growth in these segments. And I see that plan working across both consumer, enterprise, small business, you name it. Everybody wants to get that T-Mobile value, and they want to be confident that their network is going to be excellent. And that's my job to deliver and with some help from Staneff and the team to make sure people know about the quality of the product that we have. We still have work to do there. We're all conscious of that. It takes time to move perceptions in the marketplace. But we certainly have the assets and the capability to go do that now.

Braxton, what's the size of that market? If I had to break the market into residential, SMB and enterprise, just broad brush what is the...

Yes. Well, it's a great question. But we -- our estimate's about 1/3 of the U.S. population is on a corporate liable or individual liable rate plan through enterprise relationships with the carriers. And that's particularly interesting, when you look at our overall market share, that we've obtained in the other 2/3 of the country and talks about the size of the opportunity. Just getting our fair share, our tens of millions of incremental customers coming into the new T-Mobile. And I tell a lot of folks I mentored internally, operational stents are extremely important. And if I was a younger person, I would be really aggressive in trying to get into the business part of this because it's going to be an amazing rocket ship for new T-Mobile for years to come.

Well, so that's one of the really exciting parts of the merger. The other part is more financial. And it is often characterized by the simple observation that your margins are light years away from Verizon's. Now that you're in at least a couple of months into looking under the hood at Sprint and having some real insight into the synergies, tell us what you think -- first of all, what's your take on the synergies relative to your going in expectations about how large and how fast? And then as you layer on to that, the kind of operating leverage that you get from growth, how can we think about the margin profile of this business going forward?

Yes. So again, one of the benefits of taking 2 years is we've done a lot of additional work on the synergy piece of the equation. And since closing, we now have full visibility and are sizing the opportunity. We are absolutely convinced that the hard synergies, i.e., not including any revenue synergy, are in excess of the $43 billion. In typical T-Mobile fashion, we probably won't ever raise that guidance. We'll talk about it qualitatively and we'll report out as progress occurs over time. But the opportunity is definitely larger, which is pretty exciting because you're looking at a $6 billion run rate annual synergy, which, again, we're in an industry with -- that's extremely capital-intensive with a lot of fixed costs. And the scaling of those fixed costs, we took a significant step with the acquisition of Sprint. But with the remaining growth platform and the unlock of $6 billion plus run rate synergy is going to have a very significant impact on the margin trajectory and leveraging the fixed costs that all wireless carriers have. And when -- we talked about this in the past, and again, we'll be providing more color on the future. But the positioning was margins in the mid- to high 40s in the medium term, really, the 2-, 3-, 4-year period, and margins in the 50s -- in the high 50s in the long term, once the work's done, once we've continued to scale organically and that's an amazing opportunity. And that's still being the value player in the U.S. Yes, maybe we won't get to the 60% margins that Verizon has reported in the past, and -- wait, Verizon is not even reporting wireless margins anymore. I mean it's just one big conglomeration and a lack of transparency, really what's going on within, the way they present their financials now. But put that aside, we got a significant pricing umbrella that will be maintained and will unlock amazing margin potential and cash flow in this business. And we all know that the only thing that really creates value is cash. Ramping cash flow in a sustainable way is what the key drivers of value for any enterprise. So couldn't be more excited.

So let's stay with that for a second, Braxton, because your original merger plan sort of modeled taking that cash and delevering effectively down to 0?

Yes, that will never happen.

Yes. What will actually happen?

Now -- but that was meant to show as aspirationally. What it would look like given the cash flow generation out of the company. But we all know that a certain level of leverage is very conducive to the equity. And having that appropriate balance in your capital structure is also another component in the value creation model going forward. And my very, very good friend, Neville Ray, will tell you, he's in a very differentiated position. But we will be participating in future spectrum opportunities, there's no question about it. And there could be strategic things that come up. What we have done, and this is particularly important to our debt investors, is we have committed that we're on a path to get corporate family investment grade. We now have latitude to do $45 billion in investment grade, but that corporate family investment grade is an aspiration and a commitment that we have as a company. And it's not going to be tomorrow -- sorry about that, guys. It's not going to be tomorrow, but the opportunity here, going full corporate family investment grade is fairly significant. And just look back over the last 1.5 months, I mean unprecedented disruption in investment grade, but the high-yield situation was multiples of that problem. What it takes to get there with the rating agencies is a commitment that your capital policy has leverage no greater than 2.5x. And that doesn't mean that you can't deviate and go higher for specific opportunities as long as you can show a very rapid pace to getting back to 0.5x leverage. And somewhere between the 2, 2.5 is really the right way to run the business, from a leverage standpoint, again, and the benefits of that to the equity and value creation of the company.

And then what do you do at that point? Do you use the excess for dividend? Do you buy back stock? Is it a combination of the 2?

Typically, you don't go the dividend route until you're no longer a significant growth company. Because then you're trying to attract investors for a different reason. And that's why we like the shareholder return platform of buybacks as long as we're a growth company. The thing about a buyback, you can pause them for unique opportunities and then restart. Once you put that dividend and you're bringing in yield investors, you don't ever go back. Or if you go back, you're going to have extreme disruption in your ability to raise capital because people know they can't rely on the basis that they made the investment to the company. But this is going to be several -- of course, it's going to be after all the integration is complete, and we have 1 combined network. Our business plan is fully funded to do everything that we need to do. But once you start unlocking an incremental $6 billion run rate of cash flow on top of the normal cash flow coming out the business, you're going to be looking for places to put your capital. And that's when we'd be looking at strategic shareholder return.

So last couple of questions are just more technical ones. First, when do we see the DISH prepaid deal close? And then second, if you can just update us on the status of your tax assets?

Yes, sure. So we expect that the DISH deal will close in June. And I think Charlie reiterated June 1 or July 1 on his earning call that he just had. So you're hearing consistent out of both sides of the equation. And quite frankly, he has to close the transaction, and he's very well positioned to do it. Never count Charlie of anything. On the tax side of the equation, the new T-Mobile will not be a cash taxpayer until 2024. And when you think about the unlock of the synergies, I mean that's almost perfect timing. And that's based upon where we are today. But the modeling with about a $19 billion combined NOL, of course, taken into all impacts surly, and can you really utilize all the NOLs, we're highly confident that we'll be in 2024 before we start paying taxes. And from an effective tax rate modeling, again, in our purchase price allocation, you got to do the same thing for tax purposes. But at this point, we don't look at a significant deviation of the effective tax rate for the newco compared to where we were at from a legacy standpoint. And our guidance is in the -- look, when we gave at the end of the year for legacy T-Mobile was 25% to 26% effective tax rate.

Well, I want to thank you both. T-Mobile is, to me, the most exciting growth opportunity that I have the privilege of covering. And so I've got to say I'm very excited to see what happens with your company over the next coming years. And I wish you and all your employees safety through this difficult period. And I look forward to a very strong T-Mobile on the other side. So thank you for joining us. Thank you to everyone who has been on the webcast and videocast as well.

Thanks, Craig. It's been a pleasure. Thank you very much.