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

Okay. Well, welcome, everyone. I am in my magenta, thrilled to welcome Neville Ray. Neville is President of Technology at T-Mobile. I guess I should have, as you said, some yellow sprinkled into this shirt. Welcome, Neville. Thanks for joining us.

Great to be here with you, Jennifer. It's been too long since I had one of these events with you. So great to be here.

I know. That's right. Well, we're thrilled you're here. And maybe I'll put this into the let's get this question out of the way category. But can you comment, we all read your blog post, just what happened earlier this week with the network? The blog post, definitely, you owned it. But it did seem like some factors, well out of your control. Just curious on that.

Yes. Happy to talk to it. I've got a -- my IR team told me I've got to read a couple of disclaimers first, Jennifer. So let me just do those.

My bad. That's right. Go ahead.

Today, I'll 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 secondarily, I cannot comment on Auction 105 due to the quiet period that has started. So we got that done.

Perfect, okay.

So yes, let's talk quickly through the outage. At the outset, obviously, we apologize sincerely to the inconvenience that was created for our customers on Monday. But the 3 pieces, kind of what happened there? I mean what services were impacted? Why did that happen? And then what have we done about it? So those 3 things real quick. So the services that were impacted were primarily our voice over LTE services. So during the outage, our 2G, 3G voice services stayed up, although there was some congestion there. Our LTE data was up throughout the whole period. There was a minor period in Atlanta only where LTE was lost for about an hour. But outside of that, LTE data was up. And so what happened to a lot of customers that, when using VoLTE, turned to Facetime, be that video or just audio; they turned to Google Voice, they turned to any number of OTT apps, WhatsApp Voice, et cetera. So there's a lot of ways that customers completed calls off of VoLTE. And so the headline stat is about 20% of our normal call volume was lost on Monday, but the data services stayed up. So impactful, difficult for some customers, obviously. And we are very sorry for the occurrence. What actually happened? The whole thing was triggered by a [ common garden ] fiber outage. And the fiber outage exploited an issue in our routing platform configuration, which actually then led to one of these IP floods across the network and impacted what's the IMS stack, the VoLTE stack in our radio core. And that IP flood created all sorts of capacity and protection measures within the core architecture, which effectively stopped phones registering and core completion and so on. So what we did to come and get through that. We added a lot of capacity on the fly and very quickly once we understood where the problems really existed. And we came out of the outage -- started to come out about 5:00, 6:00 Pacific after starting around noon-ish. And by, what, 10 p.m. Pacific, we kind of pushed the all-clear out. So a lot of work has gone on since, hardening the network. It's not good enough from us, right? A lot of third parties involved, but it's our network and it's our service and it's what our customers come to us for. So we have to do better. But it was a series of events that, in many ways, the fiber outage to the routing platform to the core network vulnerability, all of those 3 things happened simultaneously, and that created the problem we saw.

Got it.

So difficult day. And we did everything we could to communicate to our customers, and not how you want to be performing in the middle of COVID and everything else that's around [ with some customers ] very dependent on their voice service. But we're in a better place. We've taken all of the actions necessary. And can never say never, outages are always part of any technology company, but we apologize, and we're in a better place.

So with that -- thank you for that, Neville, kind of the bad news part of the week. The good news part of the week was some very good sub numbers that you pre-released last night. It's been about 3 months since the Sprint integration. Based on those numbers, it doesn't seem like your customers or you all have missed a beat. I guess I'm just looking early days still, but some lessons learned. Any surprises on the good or bad side?

Yes. I mean, obviously, we worked for this combination of the T-Mobile and Sprint businesses for a long time, right? I mean it was a 2-year marathon. And I think we're all still delighted that we were able to successfully close the transaction, even when the pandemic had started. So we were in the early phases of COVID, and we closed. And so I'd say this, Jennifer. All of the things that we believed we can accomplish with this transaction, we're very confident on and with. For me, on the network side, obviously, this wealth of spectrum assets from the combination is just -- it's outstanding. We're in a very, very strong position. And now my role and my team's role is to ensure that we secure the full benefits from those spectrum assets as fast as we can. So this aggressive push on 5G rollout has already begun. And I'm very pleased to say that the results and the early results from 2.5 deployment for us are super-exciting. We did a lot of work last year at risk to prepare sites for 2.5 GHz radio adds. And that work paid off in that we were able to very quickly start the construction work to overlay the 2.5 in Philly and New York, were our first markets. We've added a L.A. to that mix now. And there are many more markets coming on fast. I'm sure we'll talk about the spectrum position a bit more as we go through the session here. But our initial deployments are super-exciting. We're seeing great speeds. So we're seeing gigabit peaks, 300, 400 megabit per second averages in those mid-band areas. We're getting a lot of coverage out in the spectrum because we're anchoring it to our mid-band LTE layer, so that offsets some of the uplink weakness on 2.5. And so we're seeing great coverage, great results, great performance. And so all of the things that we believe we could do with that 2.5 spectrum on our dense grid, coupled with the T-Mobile spectrum, all of those things are starting to come through, and our customers are starting to see them. So that's a clear and major excitement point for me. All of what we said, we could go deliver on and I'm very confident on. COVID's been obviously very difficult. And I will say that I'm very proud of the collective teams. I mean the Sprint team were a huge benefit. The majority of that network team now are working on advancing the 1 network, right? We very quickly engage those teams. They're excited about being on a winning team. We have a lot of energy in the field. I wish we could get together. We're a very hands-on business, right? We like to spend a lot of time with our people. And it's been -- that's been the toughest piece this last 3 months, is the COVID environment. We're all adjusting, and I think we found a great rhythm in the business. As you said, our sub numbers, our customer numbers, are looking great. I mean we've been able to recover our retail fleet quickly. Jon Freier heads up the retail business for us, and he and his team have done just amazing work to get us back and ensure our customers can get the service and the options they need for their wireless services. So all around, it's been a tough 2, 3 months with COVID, but I mean, the team has adjusted fast and this business has come out of the gates fast in a combined fashion.

Has there been any part of the supply chain that you've seen disrupted? I mean we've heard mixed messages there. Anything that would delay your 2.5?

It's been -- I'm not going to say it's been easy, Jennifer. It's been tough, right? The good news is that we've been able to work -- there's been a ton of work to make sure we could maintain our supply chain, let me say that. Without the work, I think we would have undoubtedly seen challenges. We've had some bumps in the road. Not so much on the radio front, but on some of the ancillary elements and equipment that we need to do one of these installs. There's a big kit of parts that goes into adding radio to a cell site. But the team has done just great work, working with our radio partners and the assorted vendors. And it's a global thing, right? We've got supply chain activity from all over the world, effectively. Obviously, China, Mexico, Canada, many, many different places. And the team has been working furiously, basically, to make sure we could keep our supply chain intact. And as I said earlier, we're starting to roll out 2.5 at pace. That volume, I've said before, is heading towards about 1,000 sites a month as we move into the latter part of this quarter and into Q3. So that's a huge volume. In addition to that, we're doing about 1,000 sites a month, plus, on our low-band layer. So that work continues on. So it's a lot of activity. So the supply chain, the team's done outstanding work there.

Got it. We obviously are at a 5G conference. Can you just give us your 5G playbook? I mean I think we know it, and you've mentioned talking about spectrum. I have to think this is where it comes into play, that part of the discussion. And the deep -- I always call you guys the big, empty airplane of spectrum. That analogy is probably ringing true more than ever now. But just how are you thinking about it?

Yes, we want to fill those seats fast, Jennifer, right? I don't know how many airline analogies I want to use right now.

Me neither.

But yes. I mean the 5G playbook, there's so many opportunities. But I loved your report recently, right, because it outlined what I termed at the beginning of the session here, a wealth of riches. But we're north of 300 megahertz of spectrum in the Sub-6, so mid- and low-bands. And that's -- effectively, that's a 3x multiple on Verizon's holdings, right, on similar kind of branded customer numbers now, they're slightly higher-exposed. And about -- it's a 2-turn -- 2x turn on AT&T. And so bringing those assets to the marketplace is an incredible opportunity for us. We've never been -- I just turned my 20th year with T-Mobile, my 25th year building wireless networks in the U.S., and I've never had this kind of spectrum position to build into, when our competition doesn't have a path to match us for some time. So the piece that I'm most focused on right now is deploying our radio to get that spectrum up and running. And the speeds and performance that we're seeing just a joy to behold. And we're only -- those numbers I gave you, like gigabit speeds, 300, 400 megabit per second averages, we're seeing that with like 60 megahertz of the 2.5 asset on 5G. So you think a year down the road as we move through integration and less moving towards 100 megahertz of spectrum, ultimately, 150 megahertz of spectrum on 2.5 in the 5G space, the results are going to be remarkable. And I mean, another comment on your report, not to suck up too much. But you mentioned there how it's not just about the spectrum, it's about how that spectrum is deployed in a network. And so we have a very dense grid. Obviously, I have more cell sites in the U.S. now than anybody else as I look at the Sprint and T-Mobile portfolios. But our plan to deploy on that kind of target range of about 85,000 sites, ultimately, that's a huge step-up. We have great density in places where it matters. And so applying that spectrum onto a greater and denser network provides us another turn on Verizon, so it's a 4x. And then we're going to use the lot of that spectrum obviously now for 5G ahead of their ability to do that with DSS or mid-band or whatever they're going to go do. So that's another turn. So if you think about applying that spectrum for the customer use, it's a 5, maybe even a 6 multiple, on what our major competitor in Verizon has. So that drives us to we've got to explore and extol and drive that competitive advantage as fast as possible. And this year is going to be a big year for us. So my playbook, Jennifer, simply is to get as much 600 and 2.5 rolled out as is humanly possible this year and next. I look at the additional time it took us to close this transaction as the time lost. I want to regain that time. I think in the U.S. -- I mean, this is a 5G conference you have today. We have a lot of work to do. I spent some time yesterday talking to some colleagues and peers in the industry looking at what's happening in Asia. And oh my goodness, I mean, these guys are moving at such a pace in China. And South Korea is doing great. Smaller market, obviously, but we have a lot of catch-up to do. And in my head, this year with the new T-Mobile, 5G is finally going to arrive in something that's meaningful in 2020. This is the year where consumers are finally going to be able to touch and enjoy a 5G experience with a breadth of coverage which is meaningful and usable and that they can enjoy. That will happen this year with T-Mobile first. And we've all made, and my competition has made, a lot of statements about 5G and what launched and when it launched, but reach and impact of that has been very, very limited today, very limited in terms of coverage or availability, customer experience, you name it. But this year, that will change. And this mid-band -- globally, you see mid-band taking off at such a pace, and that's the opportunity in front of the new T-Mobile, is to -- for us to catch that wave with the rest of the globe, especially the Asian markets and Asian ecosystems, and catapult the U.S. into a 5G position which is one we can finally be proud of. We're not there yet.

Okay. So a few questions with that, Neville. Just on spectrum, I know you can't talk on CBRS, but what about C-band? I mean could Verizon catch up? Or is there is a thought that why don't you even extend your lead by being there? Or are you fine? I mean I always quote you, you've never a spectrum megahertz you don't like, right? [ Do I have it about ] right?

Well, you're asking the network guy. I mean [ I want them all. ] But no, I mean, obviously, I've got to be careful with any comments on spectrum because CBRS is mid-band and C-band is...

Okay, okay.

But clearly, we have -- sorry to repeat myself. But I mean, we have such a material advantage right now against AT&T and Verizon, something we've never had. And we're deploying fast to make sure that, that advantage in differentiation is felt by our customers; and AT&T and Verizon's customers, so they come to us, right? But -- so I have no doubt, and I think AT&T and Verizon are being way more liberal with their comments about their strategies in C-band, but it's pretty clear. I think these guys are going to muster everything they can from their balance sheets to go to war around C-band. They have no choice. So I would anticipate both of those guys will play very hard. For us, we'll evaluate where we are. We have a great position today. C-band is a spectrum that we've supported coming to the market. We -- everybody needs more spectrum. Be that millimeter wave, C-band, wherever it is, it's always a good thing for the U.S. ecosystem to bring -- and that's always been our train of thought and mine personally. And so C-band is an interesting opportunity. We've got decisions to make. It looks like the auction now will move in the tail end of this year. But it's going to take some time for clearance, for deployment, for ecosystem and all those things. So my primary focus is less about that and it's more about making sure I can really extend the competitive lead in 5G on my competition. [ The benefit ] -- sorry, go ahead.

How about the bottom layer of the wedding cake, the low-band? You have some partnerships out there, including with DISH -- or trying to get together with DISH. What are some thoughts there? You had it during the crisis, the STA agreements. Do you need to extend those agreements? Or how do you think about it?

So I mean, just low-band, from the top, from 30,000 feet. I mean, obviously, we were the only company in the U.S. that ever even talked about low-band, Jennifer, in 5G. Actually, we're one of the only companies that talk about it globally. And our competition spent a bunch of time talking about how I didn't mean anything, and now they've spent much of the last year trying to catch my low-band lead. And so it's always fun when you see your competition. But the greatest compliment is when they copy your strategy, right? And so right now, that low-band story for us is critical. There's 225 million covered Americans with low-band, and that number's going to materially grow this year. And all I hear from AT&T is how they're trying to close that gap with their low-band build. That's kind of their main messaging and story now. But I'm going to keep extending that lead. That's my goal. We're nationwide today, north of 200 million people covered. And it's super-important to have that 5G base layer. Speeds are double what they were in LTE. Everybody said speeds are going to be disappointing. Twice as fast as LTE, I think, is pretty good. It's taken the industry about 4 or 5 years to double its LTE speeds, and we doubled our LTE speeds with 5G low-band in, what, 6 months. So I mean, you have to put these things into perspective. So for us, I mean, the FCC pledge, which we were fully behind, to ensure customers could navigate this COVID crisis in financially, experience-wise. I mean the SEC was great working with us, and we have a ton of great partners, including DISH, that's supported utilization of what was fallow spectrum for all of them so that we could add that to the mix and improve and increase capacity and speeds. The pledge comes to a close at the end of this month, and many of those deals will obviously fall away. And that's fine. I mean we've obviously been working to make sure that we can do all the things we need to, to ensure that capacity drop or change is not material to our customers. So hence, the big push on 2.5. We're actually refarming PCS, some fallow PCS spectrum from Sprint, too. So in these big markets where we have no intention of letting that spectrum going back into a fallow state with our partners creating an issue for our customers. Some of the partners have agreed to work with us on the longer term. We did strike a deal with Columbia, which is great. Some great 600 MHz on a long-term lease arrangement for several years with those guys in some big markets. The DISH story is out there. We continue our work with DISH, Jen, and the DOJ. Pleased to see that we're going to close with Boost now at the end of the month or first of next, which is great. But the spectrum lease arrangement with DISH is outside of that. It's not connected. And we continue a negotiation with DISH and with the DOJ on if there's something there that's sort of mutual benefit to both companies. So watch this space, we'll see where that one goes to. But that low-band layer, Jennifer, is critically important. And for us -- I mean, everywhere now, where I can add a 2.5 site, I've got an underlying 5G network. It's the complete reversal of if you think about the Verizon challenge with millimeter wave. I mean if you've got a highly kind of concentrated 5G experience with very, very limited coverage, what happens when you leave the hotspot bubble? Nothing, right? You drop straight back down to an LTE experience. And that's not a sustainable model. So I think our layer cake, clearly, mid-band is the global ecosystem. We love our low-band rollout. It's bringing real benefits in many parts of the country, especially rural America. And we've got millimeter wave, too. We now have more millimeter wave spectrum than AT&T. We've deployed in many cities, and we'll continue to evaluate millimeter wave options. I love it as a capacity layer, that top layer of the cake. I think there's all sorts of interesting things that can come with millimeter wave in the fixed broadband kind of displacement/replacement space. So that's another area that we're starting to work up ideas and thoughts. And Verizon's played pretty hard there, right, historically. Not too much in terms of results yet, but I think millimeter wave there is good. It's good for backhaul, right? That's another area where millimeter wave spectrum can come into play. So it's great to have these various spectrum assets. But love our low-band layer, and we're seeing great, great results from it. And I do thank the partners that worked with us during the pledge period for their support.

Just a question on the infrastructure. We had a tower panel earlier today. You mentioned you want to end at 85,000 sites. I think you're at 110,000 or thereabouts now. Are you working on securing new, holistic MLAs with the tower companies? I mean is the thought let's get the public guys in the saddle and then infill where we need to with private companies? Because some would say they've not -- this is not coming from the public tower companies, but that maybe you haven't moved as quickly because don't underestimate how hard your job is right now.

Yes. I mean there's a lot in there, Jennifer. I mean what we're doing right now -- I'd say this, right, for -- we do a huge amount of work with American, Crown, SBA, the big 3. And as you say, I've got a lot of sites right now. I don't need all of them. And out of the kind of 110,000-plus that we have today, I probably need about 75,000 of those, and I want to get on some more sites, right, this kind of 5,000 to 10,000 to get us to a target of 85,000. And so our decom volumes are in that 35,000-site range. We've always targeted that number. And this is coming off of out -- centered around a lot of colos where T-Mobile is, too, right? So but obviously, a big part of the synergy delivery for the company is coming off of collapsing 2 sets of fixed assets into 1. And for the tower guys, I mean, we're starting those discussions now, right, effectively. We're going to drive competition between the 3 of them. And the players that really want that really robust and long-term relationship with T-Mobile, they will win through. And so I don't need everything I have today, they all know that. But we are doing a lot of work. We're adding radio to existing sites. We have new sites that we want to add radio to over time, over the next 3 to 5 years, to get to that 85,000 target macro network. And so dialogue is kicking off, and we've had some, obviously, discussions over the recent weeks and months. We have DISH in the mix through the DOJ judgment. And there's an opportunity there for DISH to assume -- we have centers and sites that we want to move away from. So there's opportunity on that front. So it's a rich space. And we'll navigate, and work through that. It's complex and it's probably going to take several months to work through all of the various pieces, but we're starting on that now.

How about small cells, Neville? The -- just densification? Is that -- how is that on your priority list these days?

Yes. I mean we've done very well on the small cell front. I think going forward, Jennifer, the target range is tens of thousands for us, not hundreds of thousands, as the millimeter wave story would be. It's probably in the 40,000 to 50,000 range, which is about double where we are today. And that's because, at this point in time, we can deliver so much capacity into this network with mid-band spectrum on a macro grid. And every engineer worth their salt is going to tell you that's the cheapest and most cost-effective and most meaningful way to roll out and build these networks. And of course, that work itself is, in many ways, less complex than what you have to do with millimeter wave. We're adding radios and antennas to existing sites in 99 cases out of 100. And not trying to navigate small cells being constructed or installed in suburban or urban areas. I mean the small cell progress has been meaningful, but it's still a battleground with the various jurisdictions. And so if you're staring down the barrel of I got to build a couple of hundred thousand of these things, that's a nightmare scenario. A lot of work for somebody, a couple of decades, probably. But -- and so for us, I'm not going to say less of a focus on small cells, but it's certainly softened. I mean the major driver on small cell build for us was capacity. And now with all of that spectrum, we really have to go and build less than the target network would have been T-Mobile standalone, and we're in no huge rush to go do that. That said, we have great relationships with folks like Crown on small cell build, and we're going to go fulfill those. We've got a great spectrum now, both in mid-band and millimeter wave, if we decided to go down that path on small cell deployment.

Great. We have about a minute left, Neville. And I guess you may have gotten much sleep this week. If you have a wake-up at night worry, what you have to do? I mean I assume it's integrate Sprint. But can you drill down, like specifically what's the top of your to-do list these days?

Yes. I mean that to-do is all about how fast. I'm conscious of the fact that we have an incredible asset base, and I want to realize the benefit of that for the company and our customers as fast as is humanly possible. It's an incredible opportunity that we need to work through really, really fast. And so that's the thing that keeps me awake at night: I'm not -- I'm never moving fast enough. I'm incredibly impatient. And my team, God bless them. And I have an incredible team now. I've got John Saw with me. I've got [ Paul Sablestone ] from Ericsson. I've got Abdul Saad. I have a powerhouse team, which is great, right? But they all know and they feel that sense of impatience and desire to move so quickly through this rollout. And it just takes time. So -- but that's a healthy impatience, right? And that's okay losing some sleep over because the opportunity is so big on the other side of this build, and it positions our company in a way in 5G and leadership overall, which is just -- it's just an amazing opportunity. Everything we thought and dreamed could come of this deal is now in grasp, we have to go execute.

Great. Well, Neville, thank you so much. I really appreciate you showing your face and talking to us today. Thank you.

Thanks, Jennifer. Pleasure to be here. Thank you.

Take care. Bye, guys.