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

Okay, everyone. Thank you all for joining us, and welcome back. I'm very pleased to announce that our next speaker is Neville Ray. Neville needs no introduction. He's the President of Technology at T-Mobile. Neville, thanks for being here today.

Thanks, John. I'm delighted to be here. Before we get started, I just have to do the disclaimer thing. Is that okay?

That'd be great.

Okay. All right. So today, I will make some forward-looking statements during this conversation, including comments about the expected benefits from the merger with Sprint. Such statements involve a number of significant risks and uncertainties, including the risk factors set forth in our SEC filings. And I cannot comment on Auction 105 today due to the quiet period that has started. That's the formalities, over to John.

Okay, fantastic. So we've got about 40 or 45 minutes. Again, same format. Batya and I will be asking questions. And if you have any questions in the audience, please shoot them over and we will make sure we read those into the conversation. So a lot to talk to -- about today, Neville, maybe we can start with the current state of the T-Mobile network. You guys have been deploying 20 megahertz of 600 megahertz spectrum on 5G. Where we -- are we in the deployment of that spectrum at this point?

Yes. I mean, if I could just back up to the top, John, on where we are with the network overall, I mean, obviously, COVID has been an incredible unfortunate series of events, and hearts go out to everybody that's been impacted by this thing. For us, I mean, in terms of network performance, very early on, obviously, it became incredibly obvious to us that connectivity was going to be more important than ever during this pandemic. And so making sure that our network was performing at its best was absolutely critical for us, and I got to say I'm super proud of our team. We've seen a lot of traffic come on to the network, both data and voice, I'll provide a couple of highlights there in a second. But the team has done incredible work to make sure the network has been humming along and improving. And we've been fortunate, blessed in many ways whereby we've been able to continue to add capacity and do all of the maintenance work that we need to on our network to keep it running well. Just a couple of quick stats for you. I mean, voice has kind of been up. We've seen peaks north of 30%, 40%. I mean, messaging, depending on the medium 50% to 100%, SMS at the lower end, picture messaging, MMS, RCS at the upper end. And then the fascinating thing has been collaborative tools like online education tools. I mean we've seen stuff and applications there up almost 500%. So folks have been really using their wireless networks during this time. The other thing we had to do was we had to close a deal in at the very beginning of it, John. So after 2 years of work, furiously fighting away to get this deal, 1 understood, 2 communicated and 3 approved. Our final approvals and close finally came at the beginning of the pandemic. So we've had a lot of different things to juggle and work with, but everything has been going well. And so to your question on spectrum and 600 megahertz specifically, as you know, we were one of the few major players, AT&T and Verizon didn't really play in the 600 megahertz auction that occurred. It seems like a long time ago, but just a few years ago now. The other major player was DISH and some other holders. But we're the only guys that really lit up 600 megahertz. And we were very conscious. We've been working to get even, John, for much of the last 7 years with AT&T and Verizon on coverage. And whilst we had some low band spectrum, we needed more. And that 600 megahertz layer was imperative for us to get that rolled out quickly. And what we did is we started that work was we were able to benefit from advances in technology where we could deploy. What I'll say is the industry calls a dual mode radio. So a radio that could support both LTE and 5G in a common physical radio. So we've been rolling 600 out at pace. And our nationwide holdings are just over 30 megahertz. That's what we successfully purchased in the auction. So that's a nationwide average. We have more than that in certain markets. And we've been rolling out that 600 with an LTE layer and, of course, a 5G layer. And in December of last year, we announced we've reached nationwide north of 200 million covered POPs with our low-band 600 megahertz 5G is the first and only nationwide 5G network today. And the average spectrum in there is -- it varies, John, but around about 20 megahertz. And of course, that 5G is working with dual connectivity on top of our LTE layer. And that footprint continues to expand. We've just recently had our Q1 earnings readout, which was a great set of results and delighted to update on the network front. We added cities, key areas like Detroit, St. Louis, Columbus, Ohio. And now we've just recently launched the Bay Area, including San Francisco, and our covered POPs now on that 600 footprint are 225 million. So that's up from the earnings stats we had before. And I think the nearest to us is AT&T, with maybe just a little over half of that on low-band 5G footprint. So anyway, I bundled in a lot of pieces there. Sorry to open up with a long-long answer, I'll try to be brief as we go.

That was -- and I want to get into some of that -- what you're seeing on 600 before I move to others. But first on the COVID outbreak and all the rise in traffic. Are you seeing that start to stabilize or even head back towards normalcy, the market obviously is factoring in some return to normalcy here. Are you guys seeing that from a network utilization standpoint?

Yes. I think, that's fair, John. I mean the data traffic was peaking very early on. Obviously, there was just networks were flooded with communication, everybody trying to figure out new normal and the biggest change that we saw was this shift in traffic. So traffic moved away from -- in New York from the heart of Manhattan into the suburb. So we saw mobility usage decrease markedly, especially during the early phase of the pandemic. But is starting to come back, but it's nowhere near pre-COVID levels. And what we've seen is a lot of folks, obviously, sheltering at home and then using their wireless devices in those environments like never before. And so we've seen a lot of traffic move into suburban. Well, well, I'd say residential areas, both urban and suburban. And so that's a -- it's a different pattern of usage. I'm not going to say that's easy to overcome. There's work you have to do as a wireless operator when you see a big shift like that. But we've been pouring a lot of capacity into this network for many years. We're very well equipped from an LTE perspective to address large spikes in volumes in traffic. And so as I said at the beginning, our customers have been doing well. But we start to see some level of normalcy in terms of traffic start to return, it has leveled off. But it is definitely higher. And many of those kind of -- some of the tool spaces, educational stuff, et cetera, and collaboration tools, I mean those levels are incredibly high compared to where they used to be. And I think folks have found really new ways and they're aggressively using new applications and services in that space on wireless as well as fixed, obviously, but many customers are now using their wireless phones and devices and connected laptops, whatever it might be to serve their needs in this time.

Right. So getting back to the 600 deployment for 5G. I mean, having followed the company for years, and we've always sort of seen the lack of low-band spectrum as an issue for the company. You've rectified that with the spectrum you won in the auction and now the spectrum using from DISH that we'll get to. So what kind of sort of performance are you getting from that network? Is there anything you could tell us in terms of, I would say, first, sort of maybe time on LTE or time on 5G, given the propagation characteristics of that 600 megahertz spectrum, given the devices that could use that spectrum? And then anything you can tell us about these initial speeds you're seeing and what is a thin layer of spectrum deployed for 5G at this point?

Yes, yes. I mean, there's a lot to talk about in there. I mean, you know me, I love to talk about this layer cake, right?

Yes, and we'll get to that.

Let's talk about the first layer, right, which is low-band 5G. And I'm not going to try and beat my own chest here, John. But I mean part of the evolution of thinking for us with 600 megahertz was we came out of an auction with a lot of fallow spectrum right at the time that 5G was starting to be talked about in the market. And so we were kind of the first player and I believe globally, that said, let's make sure we've got a rich and strong coverage layer in 5G using low-band spectrum. I mean up until that point, the discussion had really only been about millimeter wave. And even mid-band spectrum was still just being talked about. But we went straight to, well, look, we're going to put 5G out there because you think about IoT and building coverage, all those pieces, it's critical. Every other technology has worked that way. You start with strong low-band coverage and as you said, for T-Mobile, we had the fight with an arm behind our back for years with no low band. So it was super tough for us. But as soon as we got our hands on material low-band assets, we were able to level the playing field and compete more evenly. So it's fascinating because what's happened is everybody, our main competitor, said, "Oh, we don't need that low-band thing." And now the tune has changed, great, and everybody is chasing us in terms of that nationwide 5G capability, and I'll explain why in a sec with some availability stats for you. So yes, AT&T is building their way there, right? And they are adding 5G radios as fast as they think they can, but they're chasing us. And they're a long, long way from the footprint that we have in place across the U.S. today, as I said, 225 million people covered at what is 1/3 of the U.S. population now can touch 5G with our low band. And then the Verizon guys, I mean, starting at a very different place, very localized hotspot like 5G with millimeter wave only, we've been doing millimeter wave too, and now they're passed to providing some decent coverage that goes around corners and goes in buildings as DSS, right? And so dynamic spectrum sharing, whereby they're going to look to introduce and share their low-band spectrum between LTE and 5G users. And we can come back to that later. It's a path, but it's a compromised path. You still need new radio for it though, John, right? So you've got to go all the way through deploying 5G capability for DSS, but you have no new spectrum to benefit from it, so it's a really tough path. I mean, we have a very different and simple investment choices, we were lining up on spectrum. So if you look at benchmarking that's out there today, limited, it may be on 5G, but you see incredibly high availability numbers from us. I mean, I'm seeing everything up to 80% on folks with capable 5G devices in the areas where we've deployed 5G in the major markets and across that footprint. So I'm not saying we're done. We're adding and will be adding thousands of 600 megahertz 5G-capable sites. I'm not adding sites, I'm adding radios to existing sites, but that work is continuing, and we'll continue infill and improve that footprint as well as expand it geographically as we go through the year. But that availability is key, and of course, that low band is in building. It's covering rural areas, broad geographies. And so 5G is out there. And one of the criticisms that got leveled at us in the deal was this 5G and rural America thing, it was just talk. We're already there. I mean, we have well over 1 million square miles of the U.S. geography covered. And everybody knows the stats, I mean, big, big part of that, by definition, has to be rural America. So we're lighting it up. And then you compare and contrast us to the other folks. I mean you go the other end of the spectrum, and on those similar benchmark studies, I mean, Verizon's availability on millimeter wave 5G is being tagged as less than 1%. And this is the problem with it's just physics, John, right? I mean you have to deploy literally hundreds and hundreds of thousands of small cells with millimeter wave capability to get close to what you can do with mid-band, let alone, low-band 5G. And hence, the layer cake, you need that broad availability. We continue to add more spectrum to that layer, too, right, especially as we start building out the mid-band layer, talk about that in a second or two. We just executed the deal with -- it's a 3-year deal with Columbia. But that's adding material spectrum for us over the next 3 years as we combine these networks with the T-Mobile and Sprint networks together. And in some markets like Dallas and Houston, that's like 30 megahertz of 600. And so speeds that we're seeing, right, the average speeds in LTE are in this 35, 40 megabit per second range. And we always said those numbers would go up like 20%, 25%. We're often seeing doubling of that, if not more. It depends on where you are and when you're using the phone. But basically, what's happening is that low-band 5G layer in almost all cases today is sitting on top of and anchoring to our mid-band LTE. And so we call that ENDC in technobabble, but dual connectivity, where you can add the capabilities of the 5G layer on top of the underlying LTE layer in mid-band. Can't do that low-band on low-band today. So what that means is your 5G layer is effectively acting on top of your LTE layer. And as we add and can commit more spectrum there and less dependence on LTE, those speeds will continue to improve. But that's not the end game. Obviously, the full layer cake is the end game.

Right. Before we move to that, before we move to the new strategy with the new T-Mobile, you mentioned the Columbia deal. And I think, we brought up the DISH spectrum. Can you talk about the benefits you got? First of all, maybe some more detail on the Columbia deal. I know they're, I think, sort of private equity-backed spectrum aggregator. How much spectrum did that give you? And I guess, it's a 3-year lease? Is there anything longer term built into that transaction that could secure that spectrum longer term?

No, I'm not going to go into any of the financial details on longer-term arrangements, John. I mean, effectively, it's a 3-year deal. And so there's [ clubs. ] So if you look at the 600 megahertz auction, I mean we were the primary purchaser. And then DISH, as you mentioned. And then Columbia, and then as [ bring that ] additional folks and partners. And yes, during -- so one thing I did mention earlier on was we signed up for the FCC pledge, the Keep America Connected. And as part of that process, we work with the FCC and effectively all of the holders of 600 megahertz that weren't using that spectrum, including DISH, but including Columbia and including Bluewater, a whole host of all those 600 folks. So I owe them all a thank you, right, because they all basically volunteered use of the spectrum during the pandemic on the initial phase of the FCC pledge. That's been extended now through June 30 across almost all licenses. And so yes, we were able to add 600 megahertz very quickly. One of the benefits of the new radio that we deployed is it can work across the bandwidth of the radio. So there's 70 megahertz available in the entire band in the U.S. 35 plus 35, and the radios that we deployed can use all of that band. Even back early days, PCS, AWS, whatever it might be, the kind of constrained bandwidths that you could use. But in 600, because it's new, we could use all of it. So within literally a couple of days, we were able to turn up that spectrum, and it's effectively doubled. You've seen this in benchmarking, doubled our LTE speeds. We committed most of that spectrum to LTE because we work with the customers. The vast majority of customers are obviously using 600 megahertz. So if you don't have 5G handsets yet, good growth there, but not yet. So yes, that was -- again, thank you to the partners there. And the Columbia deal is the one that extends on past that. So that's, as I said, a 3-year arrangement. There's spectrum in Atlanta, Miami, folks can go and look up the list, John. It's a very nice volume of spectrum there that we can use now for the coming years. And the DISH story, we're in as part of our final agreement with the Department of Justice. There's the potential for a lease arrangement with DISH for their spectrum. And I can't give you any updates on that today. That process is – and dialogue is ongoing. But there's some potential there where we would have another lease arrangement with another holder of the spectrum.

Got you. Then maybe...

Just one follow-up, if you don't mind. You did mention the majority of the 600 is allocated to LTE at this point. The 225 million POP coverage, is it -- how much spectrum do they have allocated for 5G right now? Is it about 10 megahertz or more?

It varies, Batya. So I mean some of these rural environments, we have 40 and 50 megahertz of spectrum. And so we've actually dedicated more to 5G in those environments. But it's between 10 and 20 generally, that's the kind of where we sit. So as we said, I mean, it's a 5G layer. The good news is that you have a lot of LTE underneath it, for example, in New York or in Seattle, where I am, you're anchoring to an LTE mid-band layer. So you take all of that LTE speed capability, you add on top the 5G layer, and you get the benefit from compounding aggregation of spectrum, which it's super cool in a 5G world. And you look at 2G, 3G, 4G [ or the price ], unfortunately, I've been around for all of them, and I'm not complaining. I'd like to say I've got one more G in me. And you have to pick, right? So when you rolled out LTE, you have to either put the device on the 3G layer or the 4G layer, you couldn't benefit from both. And now with 5G, this is one of the cool pieces where you can compound and aggregate the various channels in LTE and 5G together. And the customer can use the full bandwidth, depending on loading, et cetera, et cetera. So that's one of the great capabilities and features that the technology teams rolled into 5G.

Got it.

And let's pivot to that -- to the layer cake deployment. You guys have highlighted New York City and Philly on your call. I guess, can we assume that you guys are moving ahead in dozens of other markets, and we could expect -- whether it's quarterly or we can -- you guys will make announcements as you guys get scale in each market?

Yes, John. I mean, you know me, I'd love to talk about it every day, right? We're making progress. So just a little bit on -- obviously, that mid-band layer cake, that mid-band of [indiscernible] is becoming a primary global kind of 5G band and capability. And we've seen mid-band 5G now kind of dominate the talk across the globe effectively. And so for us, I mean the transaction. We have strong mid-band assets that we had as T-Mobile U.S. stand-alone. But obviously, the opportunity to combine with Sprint presented incredible efficiencies, right, on that mid-band layer. So but just to quantify that for you, I mean, if you add up now the 2.5 layer for T-Mobile, new T-Mobile, it's north of 150 megahertz, right? That's what Sprint brought to the party. And then you look at the PCS and AWS layers aggregated together, that's north of 100 megahertz. So from a mid-band perspective, now the company has north of 250 megahertz of mid-band spectrum. So that's really the meat in the sandwich, right? I mean -- and that's where all the action is going to be. We're working, we can talk about propagation on 2.5 and how we're addressing that. But for us, it was supercritical to combine those mid-band assets. If you add everything up, John, sub-6, then AT&T and Verizon's positions, we're north of 300 megahertz. AT&T is about half of that. So we're effectively almost double AT&T's sub-6 gigahertz spectrum holdings, everything, 4G, 5G, whatever you want to call it. And then for Verizon, that number, we're almost 3x, Verizon's sub-6 gigahertz holdings, both those numbers that I gave you. So you add that 250 on mid-band at the low-band that we've got, it's an incredibly strong position. So putting that all into play was key. And the thing I'd like to say, we didn't sit on our hands during the pandemic -- sorry, during the pandemic -- during the deal pendency, come back to the pandemic time frame in a minute, and it was important for us to make sure that when the deal closed, we were able to move quickly to deploying that 2.5. And as you referenced, on the day of close, actually, we were lighting up spectrum and sites with 2.5 gigahertz on the T-Mobile network in Philly, big footprint in metro Philly. And so what we were doing last year, at risk, we were doing, what I call, long pole in the tent activity. We are out securing, leasing and permitting from the jurisdiction, so we could place the radios on our sites once we have authority from the FCC to use that spectrum. And effectively, what we did, we were building in March with a lease and permitting pipeline, and we turned that stuff up in April. We did the same in New York earlier this month. And we intend to rapidly roll out our 2.5 layer benefiting from the work that we did last year. And of course, we're now doing and literally thousands of sites, I mean, we'll be lighting up across almost -- I'm not going to say all of the major metros, but a large number of the major metros as we move through 2020. I'm not saying we're going to get all that work done in 2020, I wish we could. But I'd have to talk to Braxton about doing that. But '21 is going to be another formative year for us. And I want to get that 2.5 rolled out as fast as possible. And just on the pandemic thing, John, one more piece there where my brain was running to earlier on. Early on, it was starting to look challenging to get permitting run through these jurisdictions. They were all starting to shut offices and trying to figure this thing out. The great news is that I'm not going to say all of them, but a vast majority [ of them did ], some form of keeping work running. A lot have gone to online processes. And so the good news for us is that I didn't want to lose 2 months of pipeline building during the pandemic, and we haven't. And we've been able to continue to process our applications for us to add radios and antennas on these sites. And so we've got a very strong and healthy pipeline lined up as we move through the year. Building these things, doesn't take long, and I think that some of these misnomers out there about -- I think I heard one of our competitors on another event last week, say it was going to take us several years to roll out 2.5 gigahertz. Well, it's not quite the case. I mean we're moving super fast. I can -- my team with our vendor partners, big shout out to Ericsson here for their work in New York and Philly, but we can have radios and antennas on the site in single-digit days. It's not as if it takes months and months of construction work, we can actually deploy the technology quickly. It's complex, but with the right resources, we could do it fast. What takes the time is the permitting and approval process. And so keeping that pipeline moving. So we're in a good position to roll the stuff out is key. Supply chain has been good. I'm going to say that our teams have worked with health and safety is paramount for our own teams, our vendor partners. I mean we've been working throughout the pandemic because we're classed as an essential and critical service by federal government. And so whilst a lot of construction industries have stopped or slowed down, we were able to keep working. And as we move into this month, John, we'll be knocking out about 1,000 sites on 600 megahertz and about 1,000 sites on 2.5. So the pace of this thing is fast. And we'll continue to push hard here and get that mid-band benefit out to the U.S. consumers.

Can you give us -- just lastly on the follow-up, could you give us a sense of maybe where do you expect coverage to be in that -- of that 2.5 by year-end at that pace as that number of towers per month continues to grow?

I don't have a number for you today. And I think give me the balance of this quarter. And we're going to have much -- we're still doing a lot of work to pull the 2 companies together and figure all these pieces out, leasing obligations, et cetera, and working with tower guys on how and where we deploy. My plans are to deploy 2.5 as rapidly as we can. And there's work to be done with multiple parties to make all that happen. But it looks -- I could give you a number today, I want to make sure company is comfortable with it, and we've worked through all the angles. And quite frankly, I want to be able to beat it. But it's so key, John, I mean, back to this whole debate on 5G and what's happening in Asia and other parts of the world, we're seeing this mid-band rollout really make the big difference. So I'm kind of -- I've got my base layer in place, right, and it's expanding and growing. Now we're adding material mid-band, and it's tough for my competition, but believe me, I've waited a long time to make it tough for them. I've been fighting from a rear guard kind of action, a defensive position almost on spectrum for years. And as it stands now, I gave you the 2x and 3x against AT&T and Verizon, respectively, even on millimeter wave. I'm not going to talk much about future millimeter wave, but where we are today, I mean we've got 1,100 megahertz now with millimeter wave spectrum. And that's more than AT&T, less than Verizon. But when you look at our spectrum strength and the capabilities we have and our execution record and reputation, we're going to be running hard here. And I want to get that mid-band layer out because I believe that's the formative layer where we can drive not just the 5G experience, but we can drive a really compelling one. Clearly, we're seeing speeds in the 600 megabits per second range, average is north of 400 and we're only using, at this point in time, about 40 megahertz to the 2.5 layer. And so as we go through this combination with Sprint, we migrate the customers and we commit more and more spectrum towards 5G, it's going to be an incredibly high-performing layer of spectrum that comes through. And you can talk a lot about deal advocacy, about the capabilities of this network and averages of 400, 500 megabits per second, and we're already starting to see that capability with even more limited deployments of spectrum of the 5G layer on top of LTE. So I'm incredibly excited about what we're seeing, and we're going to communicate as fast and as often as we can on the benefits and goodness of this 2.5 layer.

I think part of the reason why some of your peers have been saying it's going to take you 5 years or more, it's kind of thinking the pace is going to be 1,000 towers. So -- and first, I'd say, is that going to ramp from here on? And I think during the call, you had mentioned maybe you could reach about 25,000 towers within 12 to 18 months. Is that right?

That's right. Yes. Thanks, Batya. So I mean the 1,000 is kind of per month going into construction announced, that's where we are now. That's starting, right? And so my messaging there is that we closed the deal, we've got a look at my calendar, what, six weeks, and we're already -- I challenge my competition to come up with those types of stats in their steady state right now on anything they're doing, 1,000 sites a month on one spectrum band, right? That's on top of the 1,000 we're doing on 600 megahertz. And the pace and scale of that, if you work this through, when those numbers ramp and grow. I want to get to 25,000, 30,000 sites over the next 18 months. That's kind of where we want to be. I mean to put that into perspective, right, I mean, this is -- it sounds like ugly snark. I mean physics is physics. If I look at the square miles of what we launched in Philly -- in metro Philly, and it's a decent footprint, but it's far from done on 2.5. And we did that in a month, right? During March, effectively, we rolled those sites out. But that footprint is 2.5x Verizon's millimeter wave footprint on a national basis. So if you add up all of Verizon's millimeter wave, wherever it may be across 30 cities, 40 cities, 60 cities, the footprint is so small, it's almost 1/3 of what we did in one market. And so back to John's question on availability and capability, if you're relying on a millimeter wave footprint, and yes, the speeds may be good on millimeter wave, we have the stuff in New York, it rocks when you're sitting under the tower. But you can't build a cohesive and meaningful 5G experience. I mean I don't know what the application is apart from standing under the street light to download the movie, right, before you go and do what you're going to go do. I think I'd probably rather go and sit inside Starbucks and do it on WiFi, to be perfectly honest, than stand out on the street to do it because it doesn't work too well indoors. And so that isn't going to generate a whole host of exciting innovation in the 5G space, especially around consumers. But that mid-band layer is, and we're already seeing that in South Korea. I mean, really super exciting, AR/VR stuff, I mean, folks will seize and grab these network capabilities very, very fast, but you have to put down a meaningful layer. That's what we are mobility players, right? And unless you do that and you provide a service and application that can work where people live, work and play inside buildings, in their homes, out on the street, in their car, whatever it might be, you have to provide that ubiquity of mobility experience. And the only way that folks are doing that on broad geographies is low-band and then into the denser urbans, the populated areas you go mid-band. And then when it's really, really dense and maybe inside stadiums and event locations and so on, you've got millimeter wave play. But that's the layer cake and the workhorse is that mid-band layer, and that's the one we're most focused on.

In Philly, for example, where you overlaid 2.5, what kind of speeds do you get there?

So yes. So the peaks we're seeing in Philly as 600 to 700 megabits per second. And that's just a thin layer of 2.5 right now on top of mid-band LTE. The other benefit, Batya, that's coming from this stuff is -- so we're running a somewhat different deployment. And this is important in terms of the reach of 2.5 because we're anchoring to mid-band LTE, and we're using that for the primary uplink. And so without getting into too much technobabble, right? But 2.5 has been historically somewhat constrained on propagation, but mainly because of uplink. It's like any other wireless spectrum uplink is the weaker link from the mobile to the back to the base station. And what we're doing is, we're using primarily an LTE uplink in mid-band, omni-band in AWS and PCS. So what does all that mean? It means that the geographic coverage from 2.5 overlaid on one of our sites, it's about 25% greater than existed using 2.5 uplink. So Sprint was using 2.5 up and down. We're using AWS, PCS primarily up and the 2.5 down, and that gives you much bigger cell radius. And so when you add these volumes of sites coming out, you can cover a lot of geography on our mid-band grid with grade 2.5 with the rollout mode that we're adopting.

With that, are you able to use some of the existing Sprint equipment that was deployed for 2.5?

We're not right now. But I mean, basically, the plan is a lot of that equipment was obviously fairly new. They deployed in parts of 9 cities. And so where we can, absolutely, we'll do that. But to be honest, it's not -- when you look at the size and scale of we're going to be investing $40 billion over the next 3 years in this network. That's the plan. It's a massive investment that we announced. And so the existing Sprint equipment, there's some in the warehouse, obviously, we can use, and there's some vendor consistency that we can leverage. But it's not necessarily a big part of the puzzle.

You guys gave a CapEx number, a pro forma number on the call. And I think it suggested it's going to ramp as we go through the year. Is that -- I mean, I guess what's preventing it from ramping now? Is it just -- is it sort of tied to how many new sites you're bringing on and that 1,000 per month ramping up. Is that the issue? It's the permitting on that...

Yes. I mean, as I said, I mean, that was my reluctance to give you kind of an end of year number, John, right, because there's a lot of moving. I think across the company, just I'd ask you guys to be and everybody just to be a little patient with us. We're still working through a lot of moving parts with the Sprint business. But our capital guidance is strong. And the build plan, we were very serious about the commitments we made during our deal pendency period. And we are fully funded. I mean, Braxton did an incredible job that was -- it was actually the day of close. We were doing our debt raising, and we raised very successfully all of the funds we need to go and execute on this plan. So thank you to anybody watching that played a part in that, and it was a big deal, funding and fueling need to go do what we need to do.

A lot of focus, sort of like the activity from here until the end of the network deployment in terms of how many towers are you going to need? How many small cells are you going to need? Can you like wrap us -- wrap everything you've said before, I think the idea is -- the focus is definitely to bring the 2.5 in. There are some overlapping sites that you would decommission, but you're expanding your footprint as well. Maybe like a summary of all that activity we should expect.

Yes. I mean I think the headlines, Batya, if I look at the end state of the network, I mean, our modeling right now, and this is end state, like 5, 6 years away, right? And so what's kind of in the plan right now is about 85,000 macros, something in that range. So there's going to be growth in that macro footprint, as we fill out the network and add some more sites in some rural areas and other parts of the country. So that's kind of the headline map. We're less dependent on small cells in the next 2 to 3 years than we ever were because of the mid-band capability and this is the beauty of my plan against Verizon's right now. I mean, Verizon has no choice but to try and rapidly deploy hundreds and hundreds of thousands of small cells. And God bless them. I mean that is very, very hard work. I mean we have a lot of small cells ourselves. But I mean every engineer worth his salt is going to tell you that the easiest way to deploy vast capacity and performance is using macro sites with lots of spectrum, right? That's way more efficient than trying to build 20 small cells underneath each macro to come up with something the approaches maybe even what you can do on the macro level. So that's our plan in the early running. Now obviously -- so the end state, I think, is -- we've got something like 50,000 small cells in our sights. That's very achievable over the time frame, but we're going to watch that. I mean, hopefully, we're going to be in a position as an industry where 5G uses is really exploding the right way. And so the whole thought on small cells is where you see extraordinary capacity needs and, especially some of the in-building activity, big venues, that makes sense to use millimeter wave and small cell applications in those environments. Post COVID, I'm sure people are going to be going -- we hope, we're all going to be able to go watch a football game and do the things that we all love to go do. And so there's a place for small cell technology and architecture, but it's relatively constrained in our model. We are in that whole process. I mean, we have our sights on. We have a lot of sites across the 2 networks. And the beauty of the transaction is we can collapse 2 sets of fixed assets down to 1. And finally, we've got the economies of scale that Verizon and AT&T have. So that puts to about 35,000 sites, we would decommission, something of that order. And so there's some puts and takes when you try and do all the math. I mean, the -- we're going to keep some of the sites, obviously, well north of 10,000 of the sites from the Sprint network and add those to the T-Mobile network. There's going to be some organic growth on the combined network as we move through the outer years. And we're going to decommission, as I said, about 35,000. Those synergies. That's a run rate benefit to our business of about $4 billion a year at full rate. And I think this synergy number that we've talked about for some time, $26 billion is our target on network synergies, where we're not providing a more aggressive or larger number than that at this point in time, but there's a lot of sentiment within the team and across the business, that we can beat those numbers. As we did with Metro, we improved efficiencies and synergies with Metro almost, what, 40%, 50%. And so we know how to go do this work, and we're on it, but a lot of moving parts, but I'm excited with the progress we've made and how we've been able to come out the gates quickly on this.

And just one thing quickly on network synergies. Should we expect that you're going to achieve them linearly over the next 3, 4 years? Or could it -- I mean, could it be more front-end loaded as you exit some of these towers before?

Yes. I mean, I think we haven't communicated that profile yet, Batya. I'd say it works this way, right? So again, this is another 3-step thing, right? We have to -- the first step is we have to build and deploy 2.5 primarily capacity on the T-Mobile network. And as we do that, we can then absorb all of the Sprint customers and move them and migrate them across to the new T-Mobile network and off of the old sites. Thankfully, contrast to Metro, 80% of the postpaid Sprint phone base, their networks on -- their phones on LTE are compatible with the T-Mobile network. So Metro, that number was 0, when we started, 80%, right, with Sprint. So actually, that migration is less about handsets. It's more about the experience and building the capacity on the T-Mobile side. But the faster we go on build, the faster we can migrate. And then once we've migrated, then obviously, we can set about decommissioning sites. So some of the synergies are going to have to wait until that third step of the process is in flight. We have to migrate the customers first, meet our commitments to, [ perhaps using ] the various technologies on the Sprint network. And then we're in a position to turn this thing down. So it's -- there'll be certainly some synergy activity on the network. The business will deliver synergies in many other areas ahead of network, for sure. But there will be synergies that build towards a kind of a 3-, 4-year kind of from that run rate of that $4 billion I talked about. And a lot of it will come -- big chunk of it will come in the latter period.

Okay. Well, Neville, wrapping up, well, we're almost out of time here. The company has absorbed a 2-year delay. Well, not totally because you guys moved ahead with some of the work before the deal was approved. But as you look at where you'll be in, say, a year or 2 years from now, versus where your competitors will be and Verizon millimeter wave and then DSS and maybe you can fold in some of your views on DSS in there. And maybe think about what AT&T is doing, even with that delay, do you believe that there will be a gap in terms of when you have critical mass of the layer cake, and a performance advantage versus the time line you're looking at for both of those companies, whether it relates to DSS, availability and operation of C-band? Or do you still think that even with the delay, you'll have this head start as we hit the ground running to 5G, call it, 6 to 12 months from now?

John. A lot in there, John, right? I'll try and be brief because we don't have too much time. But I mean, my intent, absolutely, I've said I've spent a lot of time getting even with AT&T and Verizon, right? I have now got a material, material asset advantage. Anybody can look at the math and the numbers, right? And so we have a material spectrum advantage for the first time in the company's history and I intend to have a heyday with that. So that's why I'm going to deploy quickly and move ahead with a full layer cake of spectrum, especially that mid-band layer, which will provide broad and ubiquitous 5G. And AT&T and Verizon are going to struggle to compete in the early running and even into the medium term. So 7 years getting even, now I'm going to move ahead. And that's absolutely the plan of the business to make sure that customers understand we have the best network in the U.S. We've talked about forever this compromise, do I buy for value, do I buy for great network. Well, with the new T-Mobile, you'll get both. And that's going to be the plan. And it's what we're starting to execute on now, and we'll build out that layer very quick. The question is how soon and fast can AT&T and Verizon compete. I mean they're fighting with each other every day in these marketing wars. 5GE, now AT&T attacking Verizon on their latest claims. I mean they're all focused on the marketing. I'm focused on building the network. And that's what's important. Neither company has a large and meaningful 5G network today. Neither company has access to material mid-band until you can argue really C-band comes along. CBRS is a small event in reality. But C-band is coming. And the question is, when does the auction start? How quickly does the spectrum clear? And what's the appetite going to be of AT&T and Verizon and others, to play in that space. But they have to secure the assets, clear the assets as well as purchase the assets. And we all know that, that can take a long period of time here in the U.S. to achieve. I have the assets. The only thing between me and a great ubiquitous 5G experience is it's not the money anymore, right? Braxton has funded me. It's how quickly we can get the work done. So I have what I believe is absolutely a multiyear advantage. And the sooner we deploy, the sooner we can bring that and explain that to the marketplace and the consumers. 5G handsets are coming on fast. We've got 8 in the marketplace already. I'm hopeful we'll be close to, I think, the number is 20 or so by the end of the year. Can't speak for Apple when [indiscernible]. But 5G phones are coming across all tiers, John. That's the exciting piece, not just the high end kind of millimeter wave devices, but mid-tier phones are going to be and are available now in the marketplace. So even post COVID, I mean we're confident there's going to be a lot of excitement and desire around 5G and the experience and capability that we can deliver, and we want to be the guys out in front.

Perfect. Well, we'll leave it right there. So we've got a ton of other questions. We could talk to another hour, but our time is up. Neville, we really appreciate it. Thank you for staying [indiscernible].

Thanks so much.

Batya, thank you. Yes, you're welcome.

Thank you.

Thanks, guys.