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

Good morning, everyone, and thank you for joining us for the eighth annual MoffettNathanson Media & Communications Summit. I'm delighted to be joined today by Neville Ray and Peter Osvaldik of T-Mobile. This is our eighth summit, and it's the eighth time T-Mobile has been with us. Neville, I think you've been with us every one of those 8 years. And so I actually went back, and the first time you were with us, your stock was trading at $33 a share. Shares have quadrupled since then, and they've beaten the market by 150 points -- percentage points. So it's obviously been a very good run for you guys. Peter, I'm delighted to welcome you for your first appearance here, hopefully, the first of many.

Neville, I want to start with you. Because I think a lot of people, when they think about -- they sort of understand that T-Mobile is now sort of the 5G company and that so much of the value proposition now hinges on 5G. About a month ago, you authored a white paper talking about how you were past the C-band auction and that mid-band is now the sort of principal battleground. And you laid out the advantages that you've got in 5G: propagation, densification and time to market. Can you just talk about those 3 things and how you think they position you for 5G?

Yes. Delighted to be here, Craig, to start with, and great to see you. So 8 years. Goodness, it's been a run. So -- but before we jump in, I have to do that disclosure thing. So Peter told me I had to say this. So I'm going to say it. So before we jump in, just want to note today that we could make some forward-looking statements that involve a number of significant risks and uncertainties and encourage you to review the risk factors set forth in our SEC filings. So pack that away. So to your question, Craig. Obviously, we're delighted with the progress in the company overall. Nobody is more excited about our progress on network than me. And if we go back 8 years ago, we were just getting started really on our LTE rollout, and 5G was something off in the way-distant future. And here we are today. We're the leader in 5G. We have the fastest, the largest and the most reliable 5G network. And so if I could, to address the specifics in your question, and maybe answer them in reverse order because this time to market thing is important. And the company that steps out first with the next generation of technology in a meaningful and powerful way, if you look at history, that's the company that leads in the segments and the era. And we look at this 5G lead that we've set out upon and that we're now gapping the competition with as a durable lead, one that we can sustain and maintain throughout this 5G era. So you can interject and stop me when you want, Craig, because I may talk way too long. So you're the best gauge of when this is getting painful for the audience. But if I could, just on coverage, right, and leadership in 5G coverage. As you know well, we've rolled out our Extended Range 5G service using our low band, primarily our 600 megahertz spectrum. Across the U.S., we're now serving 295 million people. That's 90% of the people living in America. And our coverage footprint is about 1.6 -- it is north of 1.6 million square miles now. And to put that into perspective, I mean, that's about 4x the 5G coverage that Verizon has and more than twice what AT&T has. So there is only one 5G coverage leader. Our leadership is clear, and there's no dispute on that. And we are using, in many cases, follow and dedicated spectrum, not dynamic spectrum sharing, where companies are sharing LTE and 5G together within the same spectrum. So that gives us a speed lift. And our speeds in that 5G layer on extended range are double -- more than double our average LTE speeds and industry LTE speeds. So that's there. I mean we launched nationwide on that service last year, but we keep on pushing and densifying that low-band network and extending its reach and range. And our plan is to take that pretty much across the entire United States as we move through the balance of this year and next. And then you get to the really exciting piece, right? We call it our Ultra Capacity 5G, the mid-band 5G layer. And it's been a fascinating journey in the U.S. There's been a lot of discussion about what spectrum is important, what spectrum is most valuable. What spectrum is going to deliver the best 5G experience. And I think now we all understand we've got, what is it, $83 billion reasons to understand that mid-band is the primary key driver of 5G experience, both from a coverage and performance perspective, on top of what you do with extended range in your low band. And for us, that's where we have those important things you talked about. When we think about time to market, we're at 140 million people already covered with our mid-band ultra capacity layer using our 2.5 gigahertz spectrum that came to us through the combination with Sprint. Great spectrum. We're deploying it at a very, very rapid pace. We'll be at 200 million by the end of this year, maybe a little earlier, we'll see, but that's a nationwide 5G layer. And speeds there, Craig, 300 megabit per second plus. So this is kind of the 5G story that's going to be ubiquitous, broad coverage, great capability, really fast 5G service that's going to bring that wave of innovation and new experiences as we saw happen with LTE. And that mid-band layer is going to continue to grow for us. I mean we'll be at about 250 million by the end of next year, and we don't stop there. We're going to take this to 90%, 92%, 93% of all Americans. And so that march on mid-band is critical. And so when you come to your question about time to market, where is our competition? Where are AT&T and Verizon on that mid-band layer? The millimeter wave story, I think, has been told and it's now somewhat boxed away. A millimeter wave is a useful asset. You use it in venues, in limited geographic coverage areas, high capacity requirements, et cetera. But it can't provide you broad coverage. We all know that ding-dong, I think that story has kind of been told now. So you look at mid-band, and where is our competition? So AT&T and Verizon secured spectrum in the auction, which -- the first batch of which they get at the end of this year, and then they're waiting until the end of 2023 to get at the rest of that spectrum. So what did they get in the first round? Between them, 100 megahertz, 60 for Verizon and 40 for AT&T. And you can't build -- the spectrum is only in a subset of the [ PAs ] across America. So you can't even build a nationwide network. You get to 170 million, maybe 180 million POPs with that first tranche of spectrum. And so not only have AT&T and Verizon got a lot of work to do to catch our pace of deployment. They don't have the real spectrum assets that we do. By the end of this year, we're targeting to be there or thereabout 100 megahertz on that mid-band layer. So here's some -- I don't generally try and do math in public, but here's some fun math to think about, maybe a new way to think about that advantage and where we'll be at the end of the year. If you take our 200 million covered POPs, which we'll be there, and there or thereabouts, 100 megahertz of spectrum. And you think about multiplying those 2 factors, those 2 elements together, so you've now got millions of covered megahertz POPs. That number for T-Mobile is about -- it's 200 million times 100 megahertz. So it's about 20 billion, right? If you take the Verizon math on that and assume they got to 100 million on 60 megahertz, it's about 6 billion. So 6 billion versus 20 billion, right? By the end of this year, when they get started and do all this initial C-band work, they have 1/3 of the capability that we do in the 5G arena. And they're stuck with that limited 60 megahertz of spectrum for all of the next 2.5 years. AT&T's numbers, 75 million, they've said, to be deployed, 40 megahertz. Do that math, 3 billion. So you've got 20 billion, 6 billion and 3 billion. That's kind of stunning to get your head around in terms of the leadership gap that we're putting in place and the march that we're on. So I'll stop there, Craig, because I've said a lot. But hopefully, that tees up this time to market advantage. Because it's not just deployment where we lead, it's what you're deploying in terms of radio depth and what happens with those radios on those sites. And we're deploying way more spectrum than our competition in that process, which allows us to deliver the speeds and performance that 5G is so dependent on.

That's a great setup, Neville. So Peter, I want to turn to you because I think it's fair to say that a lot of your investors are quite excited about that 5G period. The problem is we're not really there yet. We're still in this period where LTE largely defines the market. And in that period, AT&T is running a very aggressive promotion. They've sort of shrunk the gross add pool with their retention offer. That, in theory, it's clearly putting a lot of pressure on Verizon, which Verizon's net adds, I think, look even more challenged in -- now that we've seen just how strong overall growth was in the market and see those losses now in that perspective. I wonder if you could just reflect on what the market is like right now. And how does AT&T sustain that promotion? And if they do, how does that change the way T-Mobile thinks about the approach to the market through the next -- at least until the next iPhones come around and then in that next generation, as we start to get a little closer to 5G, but we're still in this what I call the sort of the anxious twilight of LTE?

Yes. And that was an excellent paper, by the way. And the competitive environment has been around for a very long time, right? We seem to be talking about this every quarter. Every quarter is this, "What's happening?" And yet we deliver it. And historically, we've absolutely seen peers, I think, tend to fluctuate. Maybe it's a growth focus this quarter. Maybe it's a profitability focus this quarter. Regarding AT&T, they certainly seem to have found a way to kick the can on the cost of these promotions. There's obviously a lot of future discounts hung up on the balance sheet there. And that could continue for a while. But we are fully aware of that when we raised our postpaid phone net add guidance for the year. And to us, you've heard us say this before, and our ambitions and what you really should measure us on are clear. And it's industry-leading profitable growth. It's delivering substantial enterprise value, and it's positioning ourselves through investments that we make now to allow the unlock of those massive free cash flows in the mid and long term that we laid out for you at Analyst Day. And so we look at performance every quarter through the lens of those ambitions. And sure, we could achieve more nets in each and every quarter if we wanted to, but we always focus on our playbook, which is balancing the growth with the profitability and not reacting to what we see as uneconomical promotions in the marketplace. So we're going to continue to run that playbook because we're looking at this thing from a mid- and long-term perspective and unlocking those massive free cash flows. And we're comfortable, as you can see, operating in today's environment and as that environment changes. Last year was very challenging for the entire industry as well as for the world, of course. And yet you saw us pivot and deliver in a low-switching environment by being the flexible nimble shop that we are and attacking new opportunities, for example, in the educational space. So we're very comfortable operating in this environment. We're very happy. As it is promotional and as you get new competitors in there, what you do is create switching consideration in customers. And we're still in that space and always will be where, if you generate switching consideration, we tend to be the share taker, given the value proposition along with the network that's been built. So very comfortable there. And you're right, 5G, LTE were effectively at parity on. We've talked about that from a 3 network perspectives. But 5G is becoming, every single day, a more important consideration for customers. And it just happens to coincide with the massive build that Neville and his team are doing. And you start to see that actually manifest itself. And I'll give you a great example, which was Magenta MAX that we laid out there, a truly unlimited plan that the competition just can't match because they don't have the power of the network behind it. Tremendous take rates on that, very successful to date, and it actually is demonstrating the power of 5G and the network that Neville is building and attracting a higher-end premium customer to T-Mobile. So very, very comfortable in this environment, very happy about it. And we'll let AT&T do what AT&T does, I guess.

So Peter, you mentioned there switching consideration as a key driver of your business as a share taker. AT&T and Verizon, in the run-up to your most recent results, were talking about positive porting ratios against T-Mobile. And I think, as you pointed out on the call, it's a bit misleading because your Magenta brand is still porting extremely positively against everyone. That does suggest that your Sprint brand, though, is still losing customers and -- as you go through the transition. Can you just pull those things apart for us a little bit? And talk about kind of what you're seeing with that transition and how quickly you get all the way through it.

Yes, absolutely. And you're right. There was a very astute question on the earnings call. And yes, I think as you look at -- it's a very unique time from a porting ratio perspective because of this manifestation of Sprint and T-Mobile. And I don't know what data Verizon and AT&T do have or don't see, but you're right, relative to the T-Mobile flagship brand, which demonstrates the full value proposition of T-Mobile, they're very negative from a porting ratio. And so that does suggest on the Sprint side, as you might expect, as we're dragging around this higher level of Sprint churn that we're working to reduce feverishly, that on a totality basis for them, probably shows a net parity or maybe slightly negative on our perspective, but that's not the Magenta brand. So what it actually highlights is a couple of things: one, the amazing tailwind that we have behind us and the opportunity as we continue to cut that Sprint churn, which we're actively doing, and I'll touch on in a second; but also shows, when you look at postpaid account growth, and we delivered 260,000 new postpaid accounts in Q1 relative to, I believe, a loss of Verizon, I think it was in the 60 range. So that demonstrates to you again that profitable growth and what's really happening on that Magenta side. And at the same time, we were the only carrier that reduced sequential churn. And that led to, as we said, on the Magenta side, being the best churn in the industry and on the Sprint side, seeing continued improvements there as we do a number of things. I think we highlighted, obviously, 20% of accounts migrated, but 50% of the traffic is now on the T-Mobile network. And that's only going to continue to get better as Neville continues to build out both low and mid-band and we drive more traffic there. That's the #1, of course, consideration for customers. But then all of the other things that we're layering on from a Magenta value proposition, as we say, inclusive of team of experts, which is something that we're rolling out, inclusive of other value proposition items. So we bring more and more of that goodness as quickly as we can to the Sprint customers and drive that wind into our sales as that churn reduces. Now in the plan, as we've said, for the next few years, we still assume that we're only going to cut that in half relative to Magenta. So that's a potential upside if we can move quicker and faster on that and cut that churn. And there's no reason to believe that inside of a few years, it isn't really one blended Magenta churn.

And I'm assuming that for those legacy Sprint customers that have access, in particular, to the low-band frequency in their handsets, the 600 and the 700A, and therefore, have a much better coverage experience now than they had back when they were Sprint customers, is it fair to say that the churn rate for that cohort is meaningfully different than the churn rate for the cohorts who don't have access to that -- the low frequency yet?

Yes. Well, I won't break out all the numbers for you, but it's absolutely one of the main drivers. And Neville and his team, along with our consumer team, led by John, are very much partnering and looking at out of this Sprint base, right, who is ready, based on the network build that's getting bigger every single day, to have a better network experience with T-Mobile, knowing that they can still, by the way, go reverse and use the Sprint network as well. So we're looking at that every day as to who we're going to transition on from a network traffic perspective or a full account perspective. And that's absolutely one of the main drivers for helping us reduce the churn.

And Craig, that banding support was there for the vast majority of those customers. It's not as if there's a huge cohort that didn't have access to T-Mobile low bands or -- and the mid-bands were very common as well. Our base have access to -- a lot of -- most of our funds have 2.5 in them as well. So...

I want to stay with this topic of the competitive environment for just another moment, Peter, because Comcast changed their pricing quite significantly and now have a pricing plan that is much more competitive with -- for family plans of 3 lines or more. Are you expecting that you'll now start to see them as a real part of the competitive cohort, even for customers that would otherwise be exclusively considering T-Mobile? And is there any concern that if they take -- if they and Charter, I guess, take more of the switcher pool, it just puts that much more pressure on Verizon and AT&T, particularly Verizon, I guess, to respond more aggressively to the market and sort of bring the market to a less healthy place?

Yes. Well -- and as we said, I think there is a good healthy level of competition even today. And cable has been playing in this space for a while. You've seen them do quite well. Now they have a couple of things happening. One of those, as we all know, net adds every period is really the difference between two very large numbers, right, gross adds and deactivations. And when you have a small base as cable does, what they don't need to worry about is that organic churn that you need to replace with gross adds. So that's a manifestation there, I think, of why they're able to show the net adds that they are. But they've been playing in this space with us for quite a bit of time. And again, we're very happy that they are because you drive consideration and switcher moments. And I'm not surprised that they're making pricing moves because, frankly, as you look to the future and what you just said, as 5G becomes more and more important in this twilight of the 4G LTE space, what do they have? They're going to be riding on an inferior 5G network, already are, and the difference is getting bigger, as Neville stated, every single day. And as that becomes a more important consideration for customers, again, we find ourselves with just a set of cards that we're extremely pleased to have as we continue to build this out. What Verizon specifically does, I don't know. What you've heard in Q1, it seemed to be that everybody is happy with the trends that they're seeing. We're happy with the trends that we're seeing, having industry-leading growth, again, balanced with the profitability aspect. So who's to know? But competition, very healthy. We're very happy to play in this space.

So I want to switch to some of the segments where you have some real opportunity, SMB and rural. Let's start with SMB. At your virtual Analyst Day back in March, you laid out a plan to double market share in enterprise. And more recently, Mike Katz wrote a blog post, where he said that you've got relationships with 80% of the Fortune 500 already and talked about the robustness of the pipeline. It is an interesting way to think about this as kind of winning share of wallet rather than winning share of market, that it's getting them to use you more robustly. Neville, can you talk about what the sales process is and how the network plays into winning SMB customers? Are they asking your team? Are they doing trials? And -- or they -- do they rely on third-party like RootMetrics and Ookla and that sort of thing? Or how is it that you're involved in the process of long sales cycle sales? And what are you seeing in that process?

Yes. I mean I'm not sure they're looking at Root, Craig. That's like reading a 6-month old newspaper, unfortunately, right? That's kind of historic data. But yes, I mean, I think the great news is, and we love this in all business sales and especially actually big enterprise, it's kind of a considered sale, right? For sure, they're looking at -- that customer base is going to see what's out there and being talked about in the market. But many of these companies, they take funds from us, and they go out and they aggressively test our network. And so they don't necessarily rely on third-party data. They're very excited, and they take this connectivity issue incredibly seriously, right, for their companies and their employees. And so they go out and do a lot of their own testing. And the great news is when they do that, we -- more often than not, we win. And as Peter mentioned, it's not just the 5G story. It's the fact that we have a killer LTE network underneath this thing. Craig, I don't know how many sales calls I've been on in my career with T-Mobile, many, many, right? In the early years, you couldn't get past, "Hello?" because we didn't have the nationwide coverage. We've had that with LTE. And now I think the piece that's really kind of stirring interest with business and enterprise folks is they want the best. They want to understand 5G. They want the best-performing equipment, devices, network in the hands of their employees. And they're starting to understand actually, it's T-Mobile's time. These are the guys with the 5G service that's most exciting and meaningful. And if you were an enterprise customer and you did a Verizon trial on their 5G on, goodness, on millimeter wave, and you saw it -- what's the latest stat, Craig? I think they doubled their availability from 0.4% to 0.8%.

0.8%, yes.

So that's a great take rate for us, right? But when they go out and they're testing our network, they're seeing 5G and very broad availability across the geography, and now they're starting to see this really exciting and powerful mid-band ultra capacity layer come in. So it's really changing. The discussion has changed. It continues to change and evolve. And business customers, small, medium, large, they're all starting to think about 5G and its capabilities because they want to future-proof their purchases, like we all do with equipment or whatever we're buying. They don't want to buy a point solution for today. And looking back over, "Yes, Verizon was great on LTE 3, 4 years ago. So let's make our buying choice for the next 3 to 4 years based on that." That's not a good call, right? The right call is who's better placed to service in this new era of connectivity that's called 5G. And right now, it's us. I mean it's us. It's pretty clear, whichever way you slice and dice the data.

Can you give us a few of the exciting use cases or verticals where 5G is really starting to matter the most?

Yes. Well, I mean, I think there's a ton of stuff on the enterprise side, private networks, cloud services. Slicing is going to be super interesting. I mean the one, Craig, that still personally most excites me is the wearable space. And I think outside of consumer, that is really starting to garner interest and momentum in the enterprise space.

And is that in the health care vertical? Or where is that showing up?

Health care, industrials. We've actually been using stuff -- you've got to eat your own dog food, right? And we actually have XR that -- primarily AR headsets that we're using with technician workforce. And the beautiful thing -- and I think about this simple use case, but you can have workforce in industrial, health care, whatever they might be. And the level of training and information that you can bring to them with -- in a hands-free environment with AR in just great settings, not with some massive helmet on their head now glasses. It's becoming very powerful. So that one is -- is that prime time yet, Craig? No. But over the next 12, 18 months, I think you're going to see a lot of activity in that space. And a lot of the big players in the tech space are very, very focused on that wearables arena.

And here's one thing -- yes, because this is prime time and what we're saying -- seeing out there is we -- when you think about the consumer space and what we did there, that hasn't happened in large enterprise. We kind of forget and step back sometimes, yes, we were the stalking horse from an RFP perspective in the past. Now the network speaks for itself, both LTE parity and, to Neville's point, future-proofing and what we're doing from a 5G perspective as these businesses are thinking beyond just phone into all of these other ancillary products, wearables, other ideas, network slicing. But you still have also a large phone base, and you have large enterprises that are stuck with the complexity of still having data pools to manage, right, whether that's through internal departments, third parties out there. And now you come with not only the best network proposition, but a value proposition, much like we brought to the consumer space years ago, to say, "Why am I doing this, right? Why can't I free up those resources to go add efficiency and value to me in my core value proposition instead of managing data pools?" So when we launched a little while back WFX, or work from anywhere, and the 3 components that it had was one of those was unlimited, right? Three large enterprises from data pools powered by this massive network build. The other one was home broadband, which was another very unique proposition around, "Yes, we're -- we've been stuck at home, all trying to use the same connection as our kids and others, and it doesn't work." Why not have a dedicated, secure network that you can provide your employees. And then of course, the third element of that was all the collaboration tools that are necessary. So very exciting time, and that funnel for us is healthier than it's ever been. You saw us deliver a great Q1. We spoke about it from a TFB perspective. But the funnel and the excitement that's building is, equally for us, I think, super exciting.

So your guidance presumably includes growth in the enterprise or the business wireless segment. You haven't said how much of it comes from that. Can you share with us kind of what your expectations are for what you said is single digits market share today to an index in the high 30s for the residential market?

Yes. I mean over time, what we've -- what underlies the plan that we shared and, again, the results on that massive unlock of free cash flow has been moving to about a 20% share over 5 years, right, by 2025. So to your point, there's opportunity there as we continue to be the predominant 5G network for the duration. And companies more and more want to future-proof and get the entire value proposition. But that's what underlies the plan that we put out there, Craig.

And the other big opportunity that we've talked about is rural. It's sort of the same thing where you significantly underindexed there, it's what, mid-teens, I guess, versus, again, a benchmark that is in the high 30s in urban. That is still -- I think people may forget just how new you are in those markets, with just having deployed the low-frequency spectrum, what, in 2017, I guess, it was and now coming in behind it with stores. Can you just talk about how much of that process you are through? How much of the -- I think of it is about 1/3 of the country. In that 1/3 of the country, where are you with respect to retail store presence? And how much is still left to come?

Yes. Well, it is a great opportunity for us, again, both with where we already are on the low-band 5G rollout of 295 million, but also, and I'll touch on this a little bit later, where we're going from a mid-band capacity perspective. But yes, when we think about that 50 million household opportunity, the first step was for us to build the network, right, and then infill behind it with distribution strategies. And you saw us speak about that a little bit at Analyst Day, and those investments are beginning in 2021. And we're doing it in a very efficient and thoughtful way. Certainly, there's company-owned retail, and we said that we'll do a couple hundred of those in a minimum this year, where we'll bring not only the power of T-Mobile postpaid but also Metro by T-Mobile prepaid in a very efficient distribution methodology. We're working with national retail, Walmart, and we plan to be in about 1,000 Walmart stores in the rural areas. And then also we announced the hometown agent program. So in many of these areas, it's not let's go build a store. Let's get the local knowledge, and let's do a hometown agent type of referral program, again, in a very unique and efficient distribution structure. And so very excited about that as we continue to build and penetrate the distribution, to follow behind the massively quick network build that Neville is doing. Equally on that is home broadband, right? So out of the 30 million eligible households that we announced, 10 million of those are in rural. And you're right, again, the underpinnings of what we shared at Analyst Day is moving from that low teens to about 20%. But what really gets me excited is when I think about the relative perspective, and let's look at by the end of 2023 where, to your -- again, the twilight of LTE, we'll fully be in 5G consideration mode. We're going to cover by the end of 2023, what is it, Neville, 285 million POPs in mid-band. I think AT&T was going to be near 100 million in early 2023.

Maybe.

And Verizon, in the mid-100 million range. So that's not touching these areas. We're going to be at 90% of the population with that game-changing mid-band spectrum as 5G opens up and becomes more and more of a consideration point. So I'm really excited about that intersection and rural opportunities, helping to close that digital divide by offering a massive mid-band layer where nobody else is going to be. Tremendously exciting.

I was going to say, just to wrap up on this rural question, presumably, a lot of your growth is already coming from rural. But as we think about that benchmark of what are you indexing to in urban, are you still growing share in urban? Or has your urban market share plateaued at this point?

Yes. Well, the urban market share, to your point, we're somewhere in the 35s, 40s, maybe even above, depending on certainly the geographic area. That's not where we think we're going to drive the significant growth on a postpaid phone basis, certainly not. But it's where, again, the value proposition, combined with the network, I still think, will give us opportunities, particularly in all the use cases beyond postpaid phones. So we're very much excited about core urban, dense environments where we do really tremendously well. And we see the opportunity beyond, again, just postpaid phone as more of these use cases, wearables, open up there. But the true, I think, significant subscriber growth opportunities and new account growth opportunities are going to be more focused in rural and enterprise to us. And rural, again, as we say, smaller markets in rural, that's 50 million households. So a tremendous opportunity.

If I could, Craig, just to paint that picture of what's happening in rural America with our network, I mean, we talked about that 600 megahertz layer. And let's just say 10 megahertz is a lane of freeway, you know me in freeway analogies. So we've been laying like this new freeway across America, 3 lanes wide, right, in rural America. And the other guys have got the same old LTE freeway, we've got one too, and they're trying to jam all their traffic onto that. We're building new free clear lanes. Then we come along with mid-band. And even this year, that's another 8- to 10-lane freeway, can't even say it, on top of what we have. So from a company that didn't really play in these markets, we're bringing an incredible network solution into these locations and these geographies. And so that allows us to really drive competition and stimulate with a great experience wireless switching, right? T-Mobile has come into town with something that's very, very different than what's out there today. And it also opens up these lanes, because it's so wide, for the in-home broadband opportunity that we're super excited about. And the radio technology allows us to build actually on mid-band much more than a 10-lane freeway for the same cost as a 1- or 2-lane freeway. So we have all of this capacity that we're piling into these geographies. And of course, we're going to monetize and sell it. It's a huge opportunity for us as a business. I mean we're building our presence, all those measures that Peter outlined to let folks know that we're in town. And that's not a tomorrow thing, Craig. That is happening today, I mean, that network and that breadth of coverage. We're not just building our mid-band in urban America today. That's where the primary growth is. But there's already rural hotspots and rural -- hotspots, hate that phrase, there's rural network already starting to grow and to expand into many, many parts of the U.S.

So it does set up the conversation about fixed wireless access. Neville, what gives you the confidence that you've got enough network capacity, even with the addition of the 2.5 gigahertz spectrum, to handle 7 million to 8 million customers by 2025? And what usage assumption underpins that? What growth? And then where do they come from? Is that primarily out in those rural areas that you were talking about? Is it more suburban? Or if you could just sort of help us understand where that network capacity gets used.

I mean the geography is a function of kind of network capacity, net math, if that makes sense, Craig, right? So as I mentioned, the radios, we're deploying in 2.5 gig can support huge bandwidths. We've got 160 megahertz of 2.5 alone. I mean our mid-band assets are just shy of 300 megahertz in total as we move through, on average, across the nation. So when we're deploying these radios, obviously, the cost of 10 to 100 to 150 megahertz, it's the same thing. So we're pouring in that capacity. Now in many areas of the country, we look at growth projections, usage projections on wireless, that's going to be enough. And maybe it's what we need to deliver a great wireless mobility customer experience. In many, many areas, it's hugely in excess of what wireless demand we will see. And so imagine the rural town, we go in with the capacity that could serve the middle of Brooklyn, and we have a fraction of the population living there, now we cannot just serve them with a tremendous 5G mobility service, they can have a tremendous 5G home broadband service, too. And can we compete with the quality and level of service in these geographies that we're going after? You bet you. I mean one of the things that we all know, Craig, right, broadband, in terms of its demand and requirements, is not, I'd like to say, not monolithic. And there is god-awful delivery, service and pricing available to customers in many, many parts of the U.S. today. I mean we call that -- I know the digital divide is more than just rural versus urban. But there's -- we all know that many, many parts of the country have been left behind. And so we can come in and deliver stunning service against what's available competitively today, speeds averaging 100 megabits per second. If you want to be in the heavy-usage household, the 500 gig to terabyte range, we're already seeing customers in what we did on LTE in the early running on 5G being supported on those types of parameters, Craig, 100 megabit average speeds and nearing to 600, 700, 800 gigs of data a month. Now is that going to be uniform across that? No, it's not. But we can go and attack this service where we have the capacity available, that's why we're not going across the entire country, and where it makes sense for us and the economics really work and we can deliver a very -- a highly competitive and new differentiating service.

And over half of U.S. households right now have no or just one broadband option. And so this is really meaningful. We sometimes forget, as we maybe sit in these offices now in core dense, urban areas where we have more options, but many people don't. So these are very compelling value propositions, especially when you combine it with T-Mobile and the level of service, versus what they're expecting and, in many cases, by the way, a lot more affordable than what they're already paying for an inferior speed. So great value proposition for us there.

Peter, if the stimulus plan -- or I should say, the infrastructure plan actually happens and we have something like the reverse auction for fixed wireless -- or for broadband, I mean, that we had for RDOF, would T-Mobile participate in that using fixed wireless access this time for rural markets?

Well, I think we need to wait for the details of what comes out, right, as part of the infrastructure plan. We're certainly always optimistic where we think we're very much aligned is, as we're trying to bridge and reach the digital divide issue in this country, to the extent that the infrastructure plan is focused in on those types of things, I think we're going to be very well aligned. But it's just too early, I think, for us to really say, Craig, because we don't have the details around it, what it will look like and how we'll participate, if at all.

I do think one thing that's important in all that regulation, Craig, is that folks get behind the fact that a fixed wireless solution compared to trying to run fiber around the country everywhere is an incredible alternative and should absolutely be part of those stimulus packages. As Peter said, there's a lot of details and things to work out how, where we could play. But goodness, just take the T-Mobile hat off for a while to exclude kind of wireless from a fixed service delivery, fixed wireless from those models doesn't make -- really doesn't make any sense. I was talking to somebody yesterday, and they were reminding me how they were paying $100 a month in their quasi-rural community, not far out of Seattle here, for a DSL line. A DSL line, $100 a month. So imagine what T-Mobile can do, bringing competition and service. I mean -- and if all dimensions, economics -- it's just -- it's a tremendous opportunity for the country. And it's a tremendous opportunity for our business.

So Peter, I want to talk about margins for a second because I think a lot of investors have already pivoted from the synergies as a total to just think about what the margins are. You guided at your Analyst Day to 2026 revenue of about $70 billion service revenue and, call it, $36 billion of EBITDA. So ballpark, 50% margins. That's meaningfully below the margins that Verizon gets. Now I understand that Verizon charges higher prices, which all else being equal, means higher margins, and they tend to own a lot more backhaul rather than lease it. But what are some of the differences that would keep you from closing that gap? And I think a lot of investors wonder, is there upside to those kind of margin expectations?

Yes. No, great question. And I guess I won't comment on whether they can maintain premium pricing above ours with a subpar relative network during the 5G era. But I can't help myself so I will. But there's a couple of other factors. As you know, right, there's structural differences. They tend to own a lot of their own fiber, which is going to manifest itself as CapEx build, and you see what their run rate CapEx is relative to what we anticipate or even currently spend. The other is it's not very transparent. I know we all assume it's maybe 60%, but we really don't know the way the segment reporting really works there to get a clear, true picture. But what we do know is there are a couple of structural differences. One is we intend to continue to be a high-growth company. And so with that comes a little bit more of the S costs, ultimately, creating much more enterprise value, but we anticipate continuing to be a growth company during that period. The other is, and this speaks to the product advantage, is that we will have a denser network, right? Our plan is to have a denser network. Now whether they choose to ultimately densify and overdensify to even match what we have on 2.5, I don't know. But that's one of the core thesis for us, is that we're going to deliver a better product via a denser network. But I think the most important thing is to take all this noise out, and one of the other things that we put out there in the 2026 guidance was a massive free cash flow delivery. And so put all the noise aside and look at how much free cash flow we're generating as a percentage of service revenue that the company is generating because that's ultimately what, I believe, creates value in the company, free cash flow. And what you buy with each of our respective stocks is our ability to provide and create free cash flow as a percentage of service revenue. And our guidance meaningfully blows them out of the water. So that's the way I would focus in on it and how we're able to translate that service revenue dollar into free cash flow generation and returns for investors. You're on mute...

I was going to say that's obviously a good segue into the cash return part of your story, which you talked about $60 billion of cash returns, which I think, at today's stock prices, would say, just on the cash return alone, is about a 12% annual yield just from returning cash. What -- you didn't say specifically that would necessarily be share repurchases. Can you talk about the trade-offs that you would make between potentially instituting a dividend at some point versus stock buybacks exclusively? Or does that depend on tax policy and that sort of thing?

Yes. And certainly, tax policy and whatever manifests itself there will be an important element. As you say, that $60 billion potential is only '23 to '25, a very conservative mid- to core leverage ratio. So it's a great problem to have, "My goodness, you have so much cash that you're throwing off this business vis-à-vis our previous discussion, how are you going to return it all to shareholders?" I think initially, we're certainly thinking about the preferred vehicle wouldn't be share repurchases, again, unknown tax considerations aside, if anything changes. And the reason being that we continue to want to be and aspire to continue growth, right? So you want to maintain at least initially that flexibility that a share repurchase brings you if there's another higher value creation opportunity potential for you there. Longer term -- because, again, that amount was just through 2025. Longer term, hard to know where we'll go. But it is a great problem to have with so much free cash flow to return.

So we're coming up to the end of our allotted time. So I thought I would just sort of ask you to make the case. For people that have looked at T-Mobile probably with some remorse, if they're not already owners, just given what the shares have done, what's the investment case from here, would you say, Peter, in owning T-Mobile shares?

Yes. Well, it starts and it's underpinned, of course, with the network, and we are going to have -- just like Verizon had during the dawn of the 4G era, we are way out ahead, and we have all the assets and the team necessary to maintain a durable lead, a significant durable lead where it matters across the country in the 5G era. Our plan is underpinned with continued growth. But as we did talk about today, there are opportunities that that growth accelerates beyond what was in that plan through ARPA growth, through quicker or deeper penetration in many of these adjacent growth areas for us, which should be enabled by the network. And then you have the massive synergy unlock, as we're getting through this integration, that leads, along with the growth, into the free cash flow returns for shareholders. So really, to sit in a position where not only have we delivered, like you noted at the top of the hour, share returns to date, but the trajectory that we're on, the unlock of free cash flow, the return to shareholders that's coming as well as the ability, and that's our job, is to deliver even more than what we've committed to out there, and we'll be in a position to do so. It's a great time to get in from my perspective.

Well, it is a really interesting and compelling time for you guys as we finally do get to the 5G era we've been waiting for, for a long time. So I thank you both for sharing the time with us today. Neville, it's great to have you back. Peter, I look forward to having you back in the future. And hopefully, next time, we are all able to do it in the same room. So -- but thank you very much for joining us today.

Thank you, Craig. Appreciate it.

Thanks, Craig.