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

Okay. Thanks, everyone, for coming to our final keynote of the day and of the conference this year. It's my pleasure to introduce Peter Osvaldik, the Chief Financial Officer of T-Mobile. Welcome, Peter.

Thank you. Great to be here.

To start off, maybe high level, you've given guidance for a number of 2022 financial and operational metrics, giving the market a pretty good sense for your outlook this year. Perhaps you could spend a couple of minutes talking about some of the key initiatives and areas of focus for the management team this year that's going to help you to deliver on that 2022 guidance and also the longer-term outlook that you've laid out.

Yes, absolutely. Well -- and let me start with all the legalese that we always do. But of course, I may make a number of forward-looking statements subject to significant uncertainties and estimates and just refer you to our filings. And it's great to be here and especially this late in the day. Thank you for setting me up between people's cocktail hours and this meeting. So that would explain this. What we're focused on in 2022 is delivering just like we did in '21. '21 was a record year for T-Mobile, 5.5 million postpaid net adds, a record net account addition quarter, and that translated into record service revenue. And of course, you saw record core EBITDA for us as well as free cash flow expansion. And so '22 is really continuing on with the momentum that we saw in '21, and primarily focused on 3 main priority areas. Of course, one, the network and continuing to build this rapid pace, unrivaled 5G network that really becomes the basis for a lot of the competitive advantage that we have and the differentiated growth opportunities. And we'll talk a little bit more about that later. The second is Sprint churn and integration, really getting through the brunt of network integration activities in 2022, seeing that customer goodness flow through. That's a big focus point for us this year. And the third is to continue on -- again, we have 3 primary differentiated growth opportunities we have. The first being what we call smaller markets and rural areas or SMRA. Now it's getting out there that we have another acronym. That's about 40% of the U.S. population. And for us, historically, that's been very underpenetrated, low teens. And by the end of 2021, we had already grown that to 15% penetration. And so further focus on SMRA, which I know you have some questions later on about. The second is enterprise and government, another area of strength for us, where we exited 2021 with a win rate that will get us to our aspiration, even if we don't change it, to get us to our aspiration of 20% market share by the end of 2025 in enterprise and government. And the third is high-speed Internet, fixed wireless access, where Q4 just saw tremendous growth. The third quarter since commercial launch, we were the #1 broadband net add in the industry and continuing the momentum there. We've seen great reception from customers on that front. So those are going to be the main priority focus points for us in '22.

Okay. Great. And what will the pacing of the synergies and the merger integration costs look like this year? What are some of the key factors at play as we think about these 2 areas?

Yes. Well, the biggest piece of synergies is certainly network synergies. And as we think about the shape of 2022, initially, we're going to be heavy into decommissioning in Q1 and Q2. Our target is still 35,000 decommissioned cell sites. We ended 2021 with about 8,000 decommissioned cell sites. And so Q1 and Q2 will be the biggest timing for that. And that's what generates a lot of the merger-related costs. So when we cease use on the related cell sites, that's what triggers the merger-related cost and then the synergy comes after that. So the merger-related costs, the cost to achieve really predate the synergy realization. So as we think about shaping for the year, we gave a guided earnings of about 1/3 of our merger-related costs anticipated in Q1, about 1/3 in Q2, and that's on a range of about $4.5 billion to $5 billion in merger-related costs, and that's what we're on pace to do. And as we see those merger-related costs and that decommissioning come out, then we'll see the synergy expansion particularly in the second half of the year related to all of that goodness and savings from the decommissioned towers.

Okay. You recently made some senior management changes in customer care, marketing and sales. Can you talk about what precipitated these changes and talk about what kind of improvements you expect the leadership changes to result in?

Yes. I'm tremendously excited. And it's really a lot of people actually coming home to their roots. If I just start and think about Callie Field, who was a pioneer of our team of experts model that really revolutionized customer care in our industry and led to J.D. Power awards and continuation of those. She is a sales leader by heart and was a tremendous sales leader before she took on that task and reenergized consumer care. And so now moving into T-Mobile for Business is just a tremendous opportunity for her to take all of that customer care initiative and bring it into the business group just at a critical time. And we'll talk a little bit more about how that drives a lot of goodness for enterprises who are still stuck in an era of almost what the consumer side was before the Un-carrier came to be, lack of customer service, data buckets, solutions that don't meet their needs. And so Callie coming in and bringing all of that sales knowledge that you had before, all of that customer care energy that she brings and then bring it into the T-Mobile business group is just tremendously exciting for us and her. For Jon Freier, it was really finally consolidating. It was the right time to consolidate all of our consumer-facing front lines, so both retail and customer care there. And Jon is just a fabulous leader of the front line, very strategic, very operational, and I'm excited for what he's going to do in that combined set there. And then that leaves Mike Katz, which -- Mike started in our marketing group, did a lot of time and strategy before he took on the T-Mobile business group. And so this was the right time to reintroduce the chief marketing officers. We're thinking about all of these growth areas as well as continuing the brand differentiation as a result of the 5G network differentiation. So again, fabulous leaders there. And of course, it made sense as now we just talked about the success just in the third quarter of commercial -- since commercial launch of high-speed Internet to combine that into the channels. And that was part of these moves, so fabulous time to T-Mobile for these leaders.

And on the integration, with the Sprint network shutdown being such an important initiative this year, can you provide an update? Is the CDMA shutdown still on track for the end of this month? How are you tracking toward completion of the customer migration onto the T-Mobile network? And are you still on track to -- you mentioned the decommissioning. It sounds like you're on track to decommission those by the end of the year.

Yes. Boy, you say it like that. It's the end of this month already, just time flies. It's hard to think we're almost at the 2-year anniversary since the merger. But we're absolutely on track for CDMA decommissioning, March 31. And still what we anticipated before, what I said at earnings, probably a couple, 200,000, 300,000 phone customers at the end will be a base adjustment, primarily related now to customers that have stopped using the device or ultimately won't make the transition. And of course, there'll be some other kind of low-value, non-phone devices as well but very well on track, exactly as we said it would come. LTE shutdown is slated for the end of Q2. So we've got another milestone coming. And of course, that will allow us to continue on the decommissioning of the sites, which we still anticipate to hit all 35,000 by the end of this year, so fabulous progress there. And as we said, this is really the year to break the back of network decommissioning and definitely on track.

Okay. Great. Let's maybe move on to talk about top line KPIs a little bit. Prior to your fourth quarter earnings report, you had observed elevated Sprint churn associated with the migration. Any update on this issue? Has it gotten any better or worse so far this quarter? Is there anything we should be baking into our models in the first half of the year?

Yes. Well, as you think about the base that we acquired, the Sprint churn was over 2% just the quarter before we acquired them as they reported externally. And we knew that during this period of decommissioning of the network towers changing experiences, this was the time where, of course, you'd see some elevated churn. And effectively, what we disclosed at the Analyst Day, what underpin the mid- and long-term guidance is that we would be able to cut the Sprint churn gap to Magenta, which is now, for the second year in a row, the best churning phone base in the industry, that we'd be able to cut it in half. And what we saw in Q4 and why we had confidence in calling that is probably the height of phone churn, and we still believe now more than even at the time of earnings that we're on track to see that Q4 at 1.1% churn was the height of our churn. And what really gives us confidence there -- remember, the way simplistically to think about the integration process is build the anchor network, move over the traffic and decommission the towers. And that's what generates the majority of the synergy and the goodness. Of course, it's a little bit more complicated than that. You have to think about a number of aspects from a customer perspective. One is, do they have a compatible device? For example, when we completed the merger, there was still about 15% of the Sprint customer base that didn't have a compatible device. So for example, non-600 compatible device, a CDMA-only type of device, which, of course, we've been heavily focused on. And so the things that we've been focused on, on a customer-by-customer basis, as we think about the tower decommissioning happening, what is the traffic on those towers that we're seeing? Is it one of the top 3 traffic sites? Is it one of the top 10? And we look at it on a by-customer basis. And then what is the plan to achieve coverage for that customer? Is it the new build site that's coming on board that will take that traffic offline? Is it the fact that they need a compatible device so that they can benefit from the macro network, particularly our low band network that is so differentiated already from a 5G perspective? And so what we are focused on and what continues to be a focus for this team is how do we get all of the Magenta value proposition, as we call it, on to the Sprint customer base; how do we get them onto the T-Mobile network from a traffic migration perspective; how do we get the right devices into their hands; and also, how do we get them out of the legacy Sprint lease device financing constructs, which had their time and place for Sprint but definitely weren't very customer-friendly as you think about customers that could be leasing their device into a significant length of time. And as we see all those factors combined, when we see the cohort of customers that is on the T-Mobile network, has a T-Mobile EIP device financing construct, is out of the lease financing construct, has a compatible device, they're churning at or below Magenta. And again, Magenta is the lowest churning base in the industry for the second year in a row. So that's what gives us the confidence that we're getting through this exactly as planned and why Q4 is going to be historically the highest churn.

So given that, I mean after you complete the migration, should we expect year-over-year churn improvements in the second half, driven by that lower Sprint churn? Or do you think that could be obfuscated by a pickup in industry switching activity? So maybe it's there but we don't see it?

Yes. Well, of course, there's seasonality that comes into play. Q4 for us tends to be the highest churning period as you see holiday promotional activity in that. But since I just kind of called the ball for you again and reiterated that Q4 was the height of our churn, then I do anticipate on a year-over-year basis as we get into the second half of the year, we'll see that goodness come through and you will see a year-over-year reduction in churn. We won't go all the way down to Magenta levels yet. There's more to be done from the value proposition, getting it into the Sprint customers' hands. And again, that's not what the plan was predicated on. So the closer we can get it there, that's potential upside to the targets that we gave you. But I am anticipating certainly, as we get into Q3 and then Q4, to be down year-over-year.

Okay. And on ARPU, you've guided to flat to slightly positive postpaid phone ARPU growth this year and growth in ARPA. What are the different components, the good guys and the bad guys, so to speak, that are driving the net growth in ARPU? If you could talk about that a little bit.

Yes. Well, this is just another fabulous area. Again, what underpinned what we gave you at Analyst Day for our mid- and long-term was that we continue to see 1% sequential declines in phone ARPU. And if you look at 2021, we actually changed and reversed course. We were flat, actually up $0.01 versus 2020. But what really underpinned that was the strength of the network and the self-selection of consumers into what are premium and limited plans to really experience the power of that network. We call it our Magenta MAX plan. But what we're seeing is new customers coming into T-Mobile are taking that plan at over 55% of the time, so significant upside opportunity there, self-selection into that highest rate plan as well as the base. There's more opportunity certainly with us and the base to continue to have people self-select up into the highest rate plans. But that's been a big part of what underpinned not only 2021 but then our confidence in the guide to say that it will be flat to slightly up in 2022, so a complete reversal of what underpin the assumptions at Analyst Day.

How do you think about sustainability of ARPU once we get beyond 2022?

Yes. Well, I'm not here to give ARPU guidance yet for 2023 and beyond but good question. But certainly, a lot of these same factors, I think, are going to be opportunities into the future. Our base is -- certainly, it's still significantly under 20% penetrated from this highest rate plan perspective. We see new acquisition coming in at over 55%. So there's opportunity with the base there from a phone ARPU perspective. But the other thing to keep in mind is what we had always said, we're focused on ARPA because there's a lot of things, to your earlier question, that could potentially dilute ARPU slightly yet are very accretive to enterprise value in totality. So a couple of examples there would be like family plans, right? The more penetration you get from a family plan perspective, that third, fourth line is generally cheaper from an ARPU perspective but you get churn reduction and hence create higher CLV for the account. The other thing is the proliferation of non-phone devices. We saw it with tablets. We saw it with smartwatches. The next evolution of 5G wearables will be upon us. And the more you sell into the account, those types of actions beyond postpaid phone, that drives ARPA accretion. And of course, you're already servicing that account anyway. So that's very accretive to margin. And then the third one, as we've talked about, is high-speed Internet. Another way to sell more into that account, deepen that relationship and continue to drive more value from an ARPA perspective. So that's a lot of what we're focused on in the future.

Okay. One of the key market share opportunities you've identified is smaller markets outside of the core T-Mobile traditional urban strongholds. You've indicated that T-Mobile grew share in these markets from 13% to 15% in '21. Could you remind us why this is an opportunity for you now? Give us a sense for what the company needs to do from here in order to achieve your 20% market share goal by 2025.

Well, it's such an exciting area for us. Again, it's -- as we categorize it, these smaller markets and rural areas are 40% of the population, where historically, we've been very lightly penetrated. And that's because the distribution wasn't there and the network wasn't there in the way to be competitive both from a coverage perspective as well as a depth perspective. Well, as we started rolling out this 5G network, that is completely changing. And the way we look at SMRA, to subcategorize the 40% -- and see I'm already using the acronym too, SMRA. I can't help it. It's what we call it internally, is we categorize it into 775 distinct markets and we're looking at each of those markets. And as the network build -- as Neville and his team continue on this unprecedented pace of network deployment, a lot of those markets are coming to the point where they're very competitive or even differentiated from a network perspective relative to the competition. Because you have to think about the experience in a lot of these places has been very light competition. In some cases, only one of the incumbent carriers has the dominant share. And they certainly don't come with the customer service mindset that T-Mobile does. So now we're coming into these areas with a completely differentiated 5G network as well as the value proposition that we bring, and we're just seeing such tremendous traction there. That success, we've already said in Q4, we saw about 1/3 of our new net postpaid accounts coming from SMRA, yet only about 1/3 of these markets are to the point where we consider them competitive. We brought the network in. We've done the distribution, whether that's our own distribution or you've seen us announce and partner with both Walmart and Best Buy to drive distribution through their channels. So this is a very exciting proposition for us as we continue to bring the network out. And part of the reason why we brought forth incremental CapEx investment into '22 is to drive coverage and the mid-band 5G network expansion into these areas because the traction that we're seeing and the complete differentiation versus what the competitors have said -- their stated plans are externally with the network, just give us tremendous confidence to continue in this area.

Okay. Great. In public service -- excuse me, business services and public sector are another market share growth opportunity that you're focused on. You mentioned this past quarter that your win rate was particularly strong, and that's put T-Mobile on track for your long-term target market share goals. What in particular is resonating with business customers? How are you planning to further increase your competitiveness in these segments?

Yes. Well, it starts with -- I know I keep saying this over and over again, but it's the product that we sell, and it's the network and the differentiated experience that we can provide. Now you combine that with everything else that we as Un-carrier bring, and that's something new for enterprises and government. Again, there are -- still many enterprises are still trapped with data-bucketed data pools. They have departments or third parties that manage their wireless services because they're worried about overages and shifting and when do I put in international calling, when do I not. And we've seen a lot of traction with the simplicity that the Un-carrier is bringing. And this is another one of those reasons. I'm so excited about Callie bringing customer service together with the sales teams and showing the value proposition. But enterprises, as I've said, buy a lot differently than consumers do. They don't go on perception. They check out a couple of hundred devices from everybody in their RFP and they go figure out whether these devices work for them, where they need them, how they need them, and then they make a buying decision. And this is why we've seen such great traction there. We exited 2021 with a win rate that will get us to our goal of 20% by the end of 2025. That's if we don't increase that win rate, and we certainly anticipate that we will. And one of the examples I gave you is like Alaska Airlines that recently announced that we will be their sole source wireless provider. And we're very deeply respected and have a tremendous share in the airline industry because of exactly this differentiated opportunity that we have on the network. Think about the mobility needs beyond just phone, not just phone devices that airlines need for their pilots and their flight attendants. They need all the underwing activities to happen, and that's an area where we've seen -- you have the enterprise value creation with just a phone relationship, but what's even more accretive to customer values in enterprises is actually all these non-phone connections. In the case of Alaska and other travel industries, it was the underwing and the other solutions that we're able to bring that help them service planes quicker, help them do it more reliably than handoffs between WiFi networks and things like that. And so you think about the mobility needs, ubiquitous coverage needs for phone and all of these other services that are starting to expand, and that's why enterprises like Alaska have chosen us, so very excited about the opportunity there.

Your competitors in business services have larger enterprise wireline businesses. Is that an advantage for them? Or is wireless a separate purchasing decision for these customers?

Well, I think you may be alluding to these wireline enterprise services that are in a constant state of decline. So I don't know if that's really an advantage for them. But again, enterprises are really thinking about it. And it's an exciting, actually, aspect for the entire industry because it's not just a finite set of phone connections that you're after but it's all of these incremental services that are coming about because of the 5G revolution. We've -- you've talked about mobile edge compute. You talked about private network, slicing. All of these things that are going to bring use cases for enterprise, government as well as consumers that haven't existed before, that actually increase the potential share of this industry, and we're best positioned to go after it, so yes.

Where is T-Mobile in building out the capabilities for 5G enterprise services such as mobile edge compute and private networks? Is this a significant focus for the company? And do you see it as a large long-term growth opportunity for you?

Yes. Absolutely, it is. And again, what's most exciting here is none of this was assumed in the guidance that we gave for the mid- and long term at our Analyst Day, right? All of this, we knew it was coming. We knew this revolution is going to bring more use cases and more opportunity, but it wasn't included and underpinned the guidance that we gave because we didn't know exactly what format it would take or when. And one of the things we don't do -- and maybe this is to our fault, is we're not out there every week with a press release of, "Here's a trial, here's a trial, here's a trial." We have actual commercial -- not just pilot but commercial relationships out there with what we call 5G advanced network services. And we have a couple of differentiating factors. First is we have the most distributed network. So from some of the use cases that you need around MEC, mobile edge compute, we have a distinct advantage there because our data centers are the most distributed, creating the lowest latency for those type of particular applications. The other is going to be the fact that we're the only ones with a 5G stand-alone core and you really need a 5G stand-alone core to enable a lot of these use cases that you're hearing about, network slicing, creating private networks, things like that. So that's why enterprises are tremendously excited to work with us because they know we have the network capabilities before you even talk about the actual coverage differentiation that we have on the mid-band layer and the low-band layer of the network. But we have the distinct technological distinctions around this network that allow them to test and deploy these use cases. So yes, we're very focused on this and think it's a very exciting area for both the industry and then us in particular.

Okay. Maybe just to ask about competition a little bit. One of the major concerns in the market obviously is increasing competition, not just promotional intensity among the 3 large MNOs but also with cable launching more competitively priced, low to mid-tier unlimited plans. DISH threatened to be more aggressive with its retail offerings and the potential for DISH to enable big tech to enter the business once they finish their network. Can you talk about the competitive environment today as you see it, how you think these competitive risks that investors are worried about will actually play out? How are you thinking about them?

Yes. Well, we love competition. We created competition with the Un-carrier and we thrive in it because competition creates consideration moments for consumers and enterprises, and we tend to win those consideration moments. So if we talk about, to kind of dissect your question, cable, I mean cable has been in the run rate now for almost 5 years. And they're running at about the same pace every single quarter, roughly about 10% SOGA, sometimes a little bit less. Sometimes it will be into the low teens. But that's the environment we've been playing in for the last 5 years, and it certainly hasn't hindered our ability to deliver. Same with DISH. We took DISH at their word and assumed that they would become a true player in postpaid. And that's what underpinned our assumptions of industry dynamics and again what underpinned our Analyst Day guidance for mid- and long term. So we absolutely believe DISH will become a viable competitor in here, and that's what underpins the assessment. But what we have is the distinct growth opportunities that others don't, again enabled by the network differentiation that we're building and focusing in on these 3 primary areas. Of course, we're very strong in the top 100 markets. And we continue because of the growth that we have embedded in the plan here is -- we're going to continue to win share in our top 100 markets. We have the best 5G network. Our mid-band layer is fully deployed in these top 100 markets, and that gives us differentiation, along with the entirety of the value prop. But we have these 3 growth areas that are distinct to us. The smaller market, rural area opportunity is tremendous for us; enterprise and government, where we went from under 10% share and our anticipated growth into 20% by the end of 2025, that leaves a lot of room to run; as well as high-speed Internet and the ability to use this fallow capacity from this massive network bill and monetize it in a way that not everybody has. So I'm very excited about our prospects. And we do believe the industry relative to 2021 will normalize a little bit from a total postpaid phone perspective, but we have the distinct growth opportunities to deliver.

Okay. Maybe a couple on the network. You were able to establish an early lead in 5G by deploying your mid-band before your competitors. C-band airwaves were cleared and made available to them. Have we seen the full benefit yet of your first-mover advantage there? And now that competitors have begun to deploy their C-band, will you be able to sustain that differentiation that you're enjoying as a result of this lead today?

Yes. I mean what an amazing story for T-Mobile with the combination of Sprint and the ability to take these spectrum assets and deploy it and just absolutely change the game for us from a network perspective. You're right. We're 2 years ahead from a 5G network deployment perspective now. And in 2 years, we're going to be 2 years ahead because our stated plans are quite significantly different. And yes, you talked about C-band and some of the DoD spectrum, the 3.45 auction. That's a portion of which cleared and a portion of which will clear by the end of 2023. But it's not just what spectrum you have but how you deploy it for the benefit of customers, right? And that's where we're completely differentiated. We ended the year with 310 million covered POPs on our low-band 5G network, which is already distinct from the competition because our low-band 5G network with a dedicated SA core, stand-alone core, is delivering twice the speed of LTE already. And that's available and completely differentiated from, say, Verizon. It's about 5x the geographic coverage on our low-band footprint to Verizon. And then you layer on mid-band, which is really the game-changing area, 5G. And what we had said all along was going to be the way 5G plays out. It's not going to be with millimeter wave on small cells. That's not a way you can generate ubiquitous coverage. The way we approached it is a macro-tower-focused network. And we had 210 million covered POPs with our mid-band layer by the end of 2021, on our way to 260 million by the end of this year and ultimately 300 million covered POPs by the end of 2023, completely differentiated from any external announcement of Verizon and AT&T. And it just so happens, what's most exciting about -- maybe to give some context of what they have ahead of them. To get from 100 million covered POPs to 200 million covered POPs on mid-band for us was 3x the number of towers. That's what they have ahead of them to get from 100 million to 200 million, and it's going to take them a while to get to 200 million. Now when you think about 200 million to 300 million covered POPs, that's 5x the geographic coverage to get from 200 million to 300 million. So 100 million to 200 million is 3x the number of cell sites, and 200 million to 300 million -- I know I'm giving you apples and oranges here, is 5x the geographic coverage. And it happens to coincide that, that 200 million to 300 million delta is where our opportunity for smaller markets and rural areas are. So you think about a mid-band experience tremendously different than an LTE experience, and that's what we're coming into these small towns with. And we're going to give you a T-Mobile value proposition, a mid-band blazing fast speed proposition versus some higher-priced plan with inferior customer service on an LTE-like experience. So this is one of those things that really gets us excited because the pace of our deployments and what Neville and his team are doing and how it enables these growth opportunities for us are just fabulous.

All right. Why don't we jump to fixed wireless for a moment?

All right.

Your fixed wireless net adds have accelerated quite a bit over the past few quarters with 224,000 in the fourth quarter. So I think you're up to about 550,000 now or as of the end of the year. I think you've guided to 7 million to 8 million by the end of 2025. The most common questions we hear, I guess, are first, how well does it perform relative to fixed-line broadband? Maybe just start with that.

Yes. Well, I'd say the true test of how things perform or how customers are satisfied with them, right? And where we're seeing customers come from cable, which is a portion of the net add flow, we're seeing 3x the NPS scores. I mean the satisfaction is quite out there. When you think about cable -- and the customers are frustrated, right? You hear and you get this advertised, "I'm going to get a 1 gig speed tier." Well, that's the advertised speed. Go out there and tell me what you're actually really getting, right? So customers are very satisfied with the product. And again, we're not here to serve 100% of the broadband fixed-line base. Our target, as you said, is 7 million to 8 million customers. So single-digit penetration of households is what underpins the plan in our mid- and long-term service revenue, core EBITDA and free cash flow aspirations. So it's very, very much a fabulous product from a customer sentiment perspective. NPS scores, as I said, are significantly increased from previous consumers. Usage patterns are exactly what customers need, hundreds of gigabytes a month on average. Of course, we have some terabyte plus users, but the vast majority of customers are in that 300 to 400 gigabytes a month range at speeds that are working for them, a couple of hundred megabit, on average, speed. So it's a difference in how we approach advertising, first of all, right? We don't give you some tier that you never actually achieve on average, but we really approach it from a customer-centric perspective. And it's been fabulous to date. As you said, 3 quarters in, we were the #1 in nets in the broadband industry.

Any other color on where the customers are coming from? I know you mentioned cable. It sounds like a lot are coming from there but any additional color?

Yes. Absolutely. We see customers coming from across the spectrum. Some are cable territory. Some are DSL territories. Some are areas where you can't get a broadband connection. And there's a significant portion of this country still where true broadband speeds are just not available. And as we build out this network -- again, we are at 210 million covered POPs with mid-band. That's on our way to 260 million. So we'll start seeing more of these smaller markets and rural areas have the capacity created with this rollout that will allow us to serve them even more. So we'll see more of the customers come from that demographic. But we're here to serve all customers across the spectrum. The network can absolutely handle it. Of course, we sell this very smartly from a network perspective so that it doesn't create any hindrance to phone traffic and the phone experience. That's our primary use case. And guns blazing, we're going.

I mean -- and you touched -- just touched upon one of the other key questions with it, which is, is it really the best use of your network capacity just given how much higher home broadband usage is? So maybe if you could talk about that a bit.

Yes. Well, part of it is. I think it's hard sometimes for people to wrap their mind around the scale of this network that we're building. And one of the things that helps a little bit is if we were to think about T-Mobile and what we could have done with the spectrum assets that we had versus the combined company, combined with 5G spectral efficiencies, we're creating a network with 14x the capacity. So just think about a 1-lane highway or a 14-lane highway. That's the delta between what T-Mobile could have done on a stand-alone basis and what we're deploying now with this mid-band layer because we're going to get to the end of 2023 with 300 million covered POPs and 200 megahertz of mid-band depth, which is way beyond what the competitive set is doing both from a breadth and a depth perspective. So you have this tremendous capacity advantage that you've created. And of course, as you said, we prioritize mobile phone traffic. That's still our #1 value-creating activity. But in many, many places, you just are not going to have any reasonable amount of phone traffic even at the growth projections that we anticipate that are going to take the -- all the bandwidth that this network is creating. And so why not use -- you've built it. You've deployed the radio. You've deployed the spectrum debt. You have the backhaul. Why not use this capacity, excess capacity, to create very highly margin-accretive products? And that's what we're doing with high-speed Internet. It's being sold very smartly. We're looking at it on a by-sector basis, prioritizing mobile traffic and then what's the excess capacity because the network is engineered to peak capacity, right? There's a little bit of a delta, of course. And when you see peak capacity for mobile phone traffic and when you see peak capacity traditionally from high-speed Internet or fixed wireless home broadband, those 2 times are a little bit different, but we engineered a peak capacity. And every time we know there's going to be peak capacity excess delta, that's where we go sell. And as that rollout continues this year, the amount of homes where we're going to be able to do that is only going to expand. So it's absolutely within the capacity of this network being sold and controlled very smartly. We're not going to degrade mobile phone user experiences. That's our #1 priority, but there is just so much excess capacity to build.

Yes. Wow. Okay. I want to make sure we hit on capital allocation. So the potential $60 billion buyback and its timing are understandably one of the topics a lot of investors are interested in. Can you talk about what needs to take place in terms of the merger integration, the network investment cycle and leverage ratio before you begin buying back shares? And as part of that, is there any consideration being given to pulling forward the share repurchases to take advantage of the stock price weakness that you're seeing now?

Yes. Well, it's such an exciting time when you think about, in the course of 2023 to 2025, the potential with the free cash flow generation of the business to be talking about a $60 billion potential return to shareholders. And that -- of course, one of the things we don't talk about often, but time flies quickly, is that continues beyond '25, '26, '27. I mean the free cash flow ramp of this business with the full synergy and the profitable growth from a top line perspective is fabulous. And so as we think about what is the right time to potentially start a share buyback or other shareholder returns, we'll look at a number of factors. Certainly, the priority for the business has been network, right? Build the network because that creates the competitive advantage that's going to be durable during this era and allows for all of the profitable growth opportunities we talked about. The second is other opportunities like spectrum, right? So always thinking about what are other opportunities for higher value-accretive options for cash. Leverage to me -- we've said our leverage target in the midterm is to hit that mid-2x core EBITDA, right? And our commitment is to get to Corp Family investment-grade rating on our debt and have access to the liquid markets there. And you saw fabulous work that the team has done from refinancing and really driving down our cost of debt and our tenure. And so we're committed to achieving Corp Family IG ratings there. And so that's -- those are all of the factors that are coming to play. How are we doing against our plan? Are we achieving, are we exceeding the plan that we set out for you for '22 guidance? How are we doing against integration? What are the other opportunities coming from a spectrum or other opportunity set perspective? And that's all the calculus that will help us decide, do we start earlier or is it '23 to '25?

Okay. Maybe we'll -- I'll sneak one last one in just on wholesale. You mentioned on the fourth quarter call that you had signed Google as an exclusive wholesale customer and were in discussions with additional opportunities. I assume one of those is Altice. Can you talk a bit more about the types of use cases that you're enabling for new potential wholesale customers?

Yes. Well, it comes back to the network. And what we're focused on from a wholesale perspective is again with the excess capacity that you're creating with this network and the differentiated network find the right partners that will be complementary, whether it's distribution, customer cohorts' perspective. We're not here to bring wholesale partners on board that are -- will just going to cannibalize each other's business. But how do we create good, complementary businesses and can monetize in a smart way from a value creation perspective the excess capacity on the network? So yes, the new multiyear deal with Google -- you heard DISH speak at their earnings call that we do have an agreement that we've reached that is sitting in front of the DOJ. And if the DOJ approves it, it becomes binding, resolves a lot of the disputes that we have and creates a path for us to have a great partnership in the future. Altice is another one of those. I think you've heard Altice speak about a potential deal coming our way. So yes, we're always looking at what's the right value-accretive way to bring on incremental wholesale partners, but it's another exciting area of the business.

Any additional color on the Google agreement or no, not today?

No, not today.

All right. We'll wrap up there. Thanks, Peter. Thanks, everyone.

Thank you so much.