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

Good morning, everybody, and good morning, Seattle. And I hope you guys can hear me. Thank you all for joining us those of you in the room and joining by webcast for the ninth Annual MoffatNathanson Media & Communications Summit. Delighted to be joined by Peter Osvaldik and Mike Katz from T-Mobile joining us live from Seattle. So Mike and Peter, thank you. Good to see you guys.

Thank you so much, Craig. Great to be here.

Thanks, Craig.

So I want to start -- we're going to get into all the topics that everybody wants to talk about, including inflation and whether our entire economy is falling off a cliff and all that sort of stuff, and then all the share buybacks that are going to come over the next few years.

But I'm going to start -- because I'm a simple sort of PxQ guy. I want to start with the Q of PxQ as I think about your mobile business. And let's start at the industry level because I know I've been writing for a long time. I hear a lot of people saying that the growth rate in net subs is for phone subs, postpaid and prepaid combined is just unsustainably high. That it's been way, way, way above population growth rate. Depending on -- even if I ignore the 3G subs that you and AT&T sort of deactivated or saw deactivations of and didn't include in net adds, the growth rate of the industry did slow down some. If I put those subs back into the same equation, it actually slowed down quite a bit. So I guess first question for me is what's the right way to look at the growth rate of the market? Should those 3G subs be in or out? And are we seeing finally the sort of rationalization of growth that so many people have been expecting for so long?

Yes. Well, Craig, thank you. And first off, I have to do the obligatory statements. So Mike and I may make some forward-looking statements. Of course, those are subject to risks and uncertainties. Please look at the risk factors in our filings. And of course, we've entered the auction run away quiet period, so we can't speak about that. And I also want to let you know that today is my birthday, and the team asked me what did I want to do for my birthday? And I said, well, of course, speak at Craig's conference. So thank you for allowing that to happen. I appreciate it.

Happy Birthday. It used to be that we would -- that I would get to wear some pink-feathered boa or Braxton would bring a crazy hat or something like that. So your birthday is pretty tame by comparison.

Well, we'll make sure that changes next year then. All right. Well, the way we look at it, from an industry level, we don't see things having slowed down as of yet. But I think as we've said before, we do expect things to normalize over time from the accelerated ads that you've seen. And so the way I look at it is those twofold. So that's at an industry level. But of course, for us, a T-Mobile, we have a tremendously differentiated set of growth opportunities. And so when we think about our future cash growth and what underpin the guidance assumptions that we just raised across the board for 2022 is that, yes, the market will normalize. But our differentiated growth opportunities allow us to continue to take share. And we've talked about those. I'm sure we'll get into those a little bit deeper. It's smaller markets and rural areas. It's enterprise and government. And of course, it's high-speed Internet that you've seen tremendous success over. And when I think about how that developed in Q1, the best indicator to me of true switching activity is account net adds. And you saw us have tremendous results there. 348,000 account net adds in Q1, and that translated to 1.3 million total postpaid adds. And that's an important thing when we step back and think about the 5G era. It's not just phone. And our ability to grow beyond the phone with new use cases, whether that is in business, whether that is in the consumer space, including high-speed Internet, just allows us to grow ARPA and the relationships. And I think what's important at an industry level, when you step back and look at all of the growth, is who's translating that into profitable growth? Because ultimately, you have to have value creation from this activity. And when you look at the competitive set, both AT&T and Verizon grew service revenue year-over-year but went backwards on EBITDA growth year-over-year. And that, of course, contrasts dramatically with us, where we led in service revenue growth, almost 9% in postpaid service revenue growth and translated that into 10% core EBITDA and 25% free cash flow growth well on our way as we continue to unlock the synergies. So that's the most important thing to me, Craig, is we expect this thing to normalize. We have a differentiated set of opportunities that you continue to see us execute and prove out on, and we're actually translating that into value creation for shareholders.

Peter, one of the things that I hear from investors, though, is even -- and investors who are, frankly, quite bullish about T-Mobile specifically. But they worry that if the growth rate of the industry slows down as they expect it to, that AT&T is in this position where they can't lose subscribers. Verizon is already losing subscribers and therefore, feeling some pressure. And so I think the fear is if you take too much market share of too little market growth, it just makes a competitive industry even more competitive as your competitors sort of are forced to take increasingly aggressive measures. Is that a fair fear? And how do you respond if you start to see promotional activity get even crazier?

Yes. Well, I'd love the fact that we've got bullish investors and see the value proposition that T-Mobile is. But to your point, there's again a couple of things. One is the entire industry is growing here. It's beyond postpaid phone and the ability now with 5G and more bandwidth and more capacity and more technological developments to monetize other connections. Things that actually weren't in this industry before. You heard us talk a while ago about the success in the airline industry and our deal with Alaska Airlines. And that's just a great example where a lot of those non-phone connections as part of that deal were previously not wireless connections, right? There might have been WiFi connections, but they found with the power of 5G in our network specifically, they could replace at a much more reliable level, those WiFi connections with wireless. So that's an example of market expansion. High-speed Internet is another way to continue to drive adoption and drive very profitable relationships and help grow both the top and the bottom line. And then when you think about Verizon, specifically, yes, they've gone negative, but obviously, they have the relationship with Cable. And when you look at the 2 together, it seems, in some cases, they maybe they've outsourced their consumer growth to Cable and obviously, that generates a service revenue stream for them. So that's another kind of nuanced element where they may be comfortable with that dynamic in that relationship.

You -- there's a counter narrative to that escalating competitive intensity that I just described. And that's that -- the evidence suggests some people would say AT&T raised prices a couple of weeks ago. I'm not really sure that I saw it that way, but Verizon certainly did and signaled pretty clearly that they want to push through higher prices to offset rising costs associated with inflation. How do you -- do you read that as a sort of an Olive Branch saying that the industry as a whole has a way to try to recoup some inflationary costs? Or do you see that as an invitation to get -- to grow subscribers even faster because -- it just increases the size of the pricing umbrella and the spread between you and Verizon?

Yes. Craig, first of all, I'm still holding out hope that underneath the jacket, you have the Magenta bow on, we would be on this topic later. Isn't it ironic that in this time, when we've got the highest inflation in our adult lives that both of those companies have raised prices? And there's -- it certainly seems like there's signs that both AT&T and Verizon are trying to reconstruct elements of the way the industry was in 2013 when Un-carrier really got going and started disrupting positions and propositions that they built the customers hated. We've got a very different strategy. We, in 2015, launched a program called Price Lock, which promises our customers that we're not going to do what AT&T and Verizon just did to them, which is raise their price and not give them any additional benefit. And that doesn't mean that there's not opportunities for us to deepen relationships with customers. Our strategy is build the best plan in wireless, that's called Magenta MAX and give customers benefits that they're willing to pay more for. And what we're seeing with Magenta MAX is the majority of our loading mix is coming on to Magenta MAX. And we still have a lot more room to run because less than 15% of our base is on it. So we expect to still see ARPU growth, but do it through creating value with customers and giving them an exchange of value that they're willing to pay more for.

So do you expect, Mike, that given that the price umbrella you would think that a price increase at any competitor is going to shake loose at least some subscribers? Does that -- have your expectations for the rate at which you can grow the business, have they accelerated because of the price change?

Well, look, I mean, I think as we've proven over the last 9 years of Un-carrier, our mission is to find these pain points that get created by those guys and go smash them. And look, like when they introduce new pain points to the market, that probably creates opportunities for us. And it probably creates customers looking at their bill, deciding in a time when all their other prices are rising, is this now a category that they can go save money in?

What I hear you saying, and Peter, maybe this one is for you. It certainly sounds like you are saying, we're not really looking for opportunities to raise prices. We've got ability to grow ARPU without raising prices. And so we would rather have growth instead of price. Peter, does that suggest that you're comfortable with your ability to handle the -- what inevitably is inflationary pressure on input costs and still meet all of your guidance and expectations for the year?

Yes, absolutely. And of course, what's happening and the concern from an inflationary pressure at the macroeconomic level is real and important to address. One of the benefits of where we are currently is, as you look down the P&L and the big categories of cost, there's a significant amount of them that are effectively fixed for us, right? And so they become little bit of an inflation hedge when you think about our lease agreements with the tower companies that we've entered into long-term agreements with fixed rates, in some cases, deescalating increases. We have obviously backhaul agreements that are significant in duration and obviously also significantly increased in terms of throughput as we're moving a lot of the portfolio to 10-gig backhaul. A lot of our energy costs, we have power purchase agreements that effectively hedge a significant portion of that. We did see some inflationary pressure in labor, and I think we've talked about that before, and took some increases there with labor rates. But all of that is things that we've seen. It's fully baked into the guidance that yet again, we raised across the board, and we contemplated. And a lot of that is powered by the ability without effectuating price increases on our customers to actually have them self-select into our higher-tier rate plans. And that's driving this great organic growth in ARPU as well as ARPA that we guided up at the end of Q1 as well. Now expecting for the first time in a long, long time, ARPU to be up 1% year-over-year and ARPA to be up about 2% year-over-year. So that's how we're approaching it, and that's how Mike and team approach the value proposition. We can get service revenue growth, profitable service revenue growth their customers actually self-selecting the value that the network and the price provides.

Still it is an interesting setup though, right? Because the -- I think the simplest argument for T-Mobile for investors is that you have prices that are significantly lower than your competitors. Those prices were set years ago when your network wasn't as good as your competitors. And now you're entering a period where your network is better than competitors. It would seem like there's an opportunity to raise prices and not for that price gap to narrow at least to some degree because you're starting to pull away in network quality?

Yes. Well -- and I'll let Mike add a little bit on to this. When you think about the assumptions that we laid out an underpinned Analyst Day. When you think about the ARPU component of that and how that's driven through, that was that it would continue to decline at a 1% rate year-over-year until the end of 2023. And so we've changed that tide with this ability without increasing -- this is not the Un-carrier way to just go out and increase prices. We found a better way to actually increase ARPU and service revenue and that is to have customers select us. And to your point, a lot of that is driven by the fact that no longer is this trade-off exists that used to exist for consumers, where if we're honest with ourselves, many consumers came to T-Mobile in the early days for price, for price. And they were effectively in their minds, making a trade-off between the network and the price that they're paying, and that's absolutely changing now with the network that we're building, the 5G value proposition. And so why raise prices on consumers in a period of hyperinflation? I heard some of our competitors talk at your conference this morning and boy, why were they defensive, which means we're really getting to them. But the other thing they said is we're going to pass this along to consumers. Whereas for us, it's no. Because we have the value proposition and the best network, we're able to track those consumers to your earlier point, and those consumers are selecting our highest-tier rate plan, which is driving ARPU up. So that's how we're thinking about it. I don't know, Mike, if anything you'd like to add to that.

Yes, I think that's exactly right. I mean I think for a long time, the biggest remaining pain point has been this trade-off that you just said between do I get the best network or do I get the best price. And Peter, a second ago, mentioned these different growth vectors that we have with small town rural and broadband and with enterprise and government. Another growth vector for us is even though we are #1 on average share in the top 100 markets in America, we know that for many years, that the first 9 years of Un-carrier, we disproportionately won with customers that were choosing primarily on value. We think there's big cohorts of customers that primarily choose a network that were underrepresented. And in a world now where 5G becomes the network, we think there's a big opportunity for us to grow in that segment of customers across America, but also in the top 100 markets.

So I'm going to dig for a little negative information that I've always wondered about. If I think about the progression of your network parity or sort of network deficiency, I guess, in 3G to network parity in 4G or close to it and network superiority in 5G. Mike, can you give us a glimpse into how you think about the market share of your business in each of those? Is there -- is what, about 1/3 of the country on 5G handsets today, maybe a little less than that? What -- do you have higher market share in 5G as one might expect you to have, given the quality of the network?

Well, I mean, again, I think what 5G allows us to do is overcome one of the areas that historically has been the biggest -- as you just said, it's been the biggest deficit for T-Mobile is early on, the actuality. But in later years, the perception that there was a network gap between us and AT&T and Verizon. And there are big customer cohorts that pick on network and network quality first. And to the extent that we can leverage this multiyear lead that we have in 5G to radically change perceptions that consumers have about network, it really -- like I said a second ago, it opens up a big additional growth vector for us, including in the markets where we already are the share leader. So I think, yes, I think -- again, 5G at some point, is going to shift from an incremental network technology into the actual network, in which we have the lead. And that's -- we're already seeing that leadership position help us in our overall network perceptions. And as that gap continues to close between us and Verizon. I do think that will lead to opportunities for us to gain more share with those customers that have not considered us in the past.

So let's -- Mike, you've talked about a couple of times about small and rural. And so I want to think about that market opportunity because I think that's always been, at least for the last 4, 5 years, is such a big part of the growth story for you guys. I think you've said that you have "permission to win" in about 1/3 of the small and rural footprint, and that, in turn, is about 40% of the total market, I think, so call it 12% of the market. The first step there, I guess, is getting network coverage with low frequency and then coming in behind it with the denser parts of mid-band and then coming in behind that with retail stores, that's sort of methodical but still time-consuming process. Talk to us about where you are and how we think about that in a sort of mathematical way of -- so there's the rest of the 2/3 of that rural footprint that you are still somewhere along that progression? If I take the whole thing, I've got 15% market share, but it's still about half your market share nationally. How do I think about it, if I kind of break it down even more into the places where you have permission to win and the places where you don't and how quickly those come online?

Well, I mean, as we talked about in Q1, we're starting to see some real success in these markets where network exists. 40% of our new accounts came from small town rural, about 1/3 of our high-speed Internet accounts came from small town rural areas. And so we're really starting to see -- you kind of laid out the prerequisite of network and distribution. One of the things that's been happening in small town for years is they've been seeing T-Mobile advertising. And so the customers have been aware of us. They've understood the brand. They've understood the proposition of the brand. And so once we're connecting availability with those customers, we're going to see significant increases in SOGA, where we've got availability. So I think our success, kind of as you hinted that with your setup for the question, is going to pace with the network availability. And as we continue to deploy to more and more small-town markets, I would expect that to be a bigger and bigger contributor to our overall growth.

Yes. And I would just add, it's such an exciting area of growth for us for a number of reasons. I mean, to Mike's point, we got market share that started at about 13% when we did Analyst Day, and we took that to 15% by the end of 2021. And we got there through just national advertising and the network, and the distribution wasn't there. We consciously made the decision because of the traction that we've seen in there to pull forward some CapEx, and you saw us increase our CapEx envelope and also increase our target of where we're going to get to with Ultra Capacity. We were 225 million last time reported on our way to 260 million covered POPs by the end of 2022. And what's most exciting about that -- I think we've talked before about how we took smaller markets in rural areas, which is really just everything out of the top 100 markets, 40% of the population. Some of these are big, big areas, big cities. They're not just rule out in the middle of nowhere cities. We categorize that into 775 markets. And yes, reached about -- at the end of 2021, we are at about 30% of those where we had this categorization that gave us permission to win. And by the end of 2022, we think that will be over 50%. But the really exciting part is because we're on our way to 300 million covered POPs with Ultra Capacity by the end of 2023, and our competition has no stated plans to ever go that far with their mid-band layer. Now they're going to have to at some point in the future, but it speaks to what Mike said earlier, where -- we have a couple of year 5G network advantage, and that's durable because we're going to continue. So imagine these areas as we continue to bring Ultra Capacity, where you're going to be effectively left with either an LTE like experience with AT&T and Verizon or maybe in some areas in a few years they'll get their mid-band layer versus our 5G mid-band network and all the -- not just self-proclaimed. I wish Neville was here, he'd get all hyper about how great the network is because it truly is game-changing, but you look at the third-party reports. And that's going to be your experience differential in these smaller markets in rural areas. So not only are we going to come in there, but we're going to come in there with something completely game changing. And again, what underpin the Analyst Day guidance ranges that we gave is that we get to 20% market share by the end of 2025. We're already at 15% and this opportunity differential of experience of the network, combined with the value props that Mike is putting together, really cause us excitement around the next few years and the growth opportunity there.

Yes. So that -- if I say 5 points of additional market share in 40% of the country, so I'm adding 2 points of national share just from the smaller markets. I guess 2 questions. And as you say, I think that is a place where your network advantage will actually be the greatest interestingly enough because of the better propagation characteristics of your spectrum among other things. But what's happening in the rest of the country then? Because that would seem to account for essentially all of the growth that is forecast for you guys. And so it doesn't seem -- either there is very limited expectation of growth in more mature markets or urban markets, or the estimates are too low?

Yes. Well, Mike just eloquently spoke about how I think this network provides us opportunity in those top 100 markets. And in the top 50 markets, we have the overwhelming market share. And how do we continue to grow that? It's to attract the customers that even though we have the predominant market share in those markets weren't necessarily coming to us for network. And now with that -- and in those areas, our 5G network is very well built at this point in time, our Ultra Capacity later. So how do you continue to grow market share by getting the word out there and having consumers that pick on network continue to at an accelerated rate pick T-Mobile? I think to your inference, yes. And we've said this a few times, and everybody tries to catch us on well, how is that guidance? Is it conservative? Is it not conservative? How is it predicated on all these growth opportunities that you've shared with us, where our job is to put guidance out there, and we always have, and we approach it differently than others. We don't take our guidance down a month after issuing it. We give guidance out there that we're going to meet or exceed. And you're right, Craig, if we hit on all of these areas, if we continue to grow share in top 100 markets because of the network. If we perhaps outgrow our ambition of 20% in smaller markets and rural areas -- we have high-speed Internet and business, which we'll get into, I'm sure, a little bit shortly. If we hit on all of those and continue to grow ARPU versus the plan that predicated decreases, is there an opportunity? Yes, there's opportunity, right? So that's no doubt. And that's our job as a management team to try to go after and accelerate and get every one of these growth opportunities going -- and we'll see what that means in terms of guidance rates.

The other big opportunity besides small and rural is SMB and business wireless. And Mike, you wore that hat until very recently in your new role. So maybe you're the best one to speak. I guess we had Verizon on stage this morning. Verizon, I think, argues they have the largest market share in that, and they would argue they're still growing market share in business wireless. Tell us why that's wrong because it would seem like you're gaining a significant amount of share. So is -- why are -- or can you and Verizon both be right?

Yes, a couple of things. Well, one, I saw Tammy is retiring. And what a career she's had, 35 years, we wish her the best. I was surprised to see that announcement this week. Yes. Look, enterprise, as we've talked about and we talked about again in Q1 earnings, we are on -- we have a win rate right now and a velocity of growth that's occurring on a quarterly-by-quarterly basis. That gets us to the market share aspiration that we shared at Analyst Day at 220%. So we're really happy with the velocities that we're seeing. I also would remind that the vast majority of revenues in business, both in SMB but also in government and enterprise, still our what I call traditional connectivity, smartphones and tablets. And I would say that's where we're disproportionately competing. And frankly, with a lot of the things that we competed on in the consumer business with bringing CIOs simplicity. A lot of the pain points that we saw exist in consumer, like really complex plans that had bucketed not just data, but actually bucketed minutes. Those existed in the enterprise, but they were exacerbated by the fact that oftentimes enterprises have not just hundreds but thousands of lines and has become so complex in some cases that literally third parties are in there managing them. So we've been able to work with enterprises now at scale to come in with a much more simple proposition. But importantly, like we've been talking about throughout the morning so far with one that doesn't require them to make any trade-offs in network. And in fact, enterprises, I think, right now, disproportionately are understanding the potential of 5G in their operations. And these are companies and organizations that put us to the test. So it's -- they're not just seeing our commercials and believing us, they're actually taking oftentimes hundreds of devices and putting us through rigorous head-to-head testing against incumbents. So I think I'm very confident with the share expectations that we've set. And I'll say that there's a bunch of different torture tests out there that, to me, reinforce the confidence that we're going to continue to gain share even with the most discerning enterprise and government agencies. One of the things that we said at earnings was just in Q1, we had over 31st responder agencies that move their business over to T-Mobile. There's not organizations that are more discerning and more focused on network and network quality than first responder agencies because literally, it's life or death on whether it works. So I am -- I feel really good about our prospects. I feel really good about the way that Callie is deploying the team after the opportunity. And I think there's more and more opportunity as 5G proliferates and we start expanding into more and more categories like what we announced with TIoT last quarter.

You talked about first responders. It's an interesting category because while AT&T's FirstNet was, I think, very clearly originally designed to be the first responder network. You might argue that first responders are the single most 5G-centric segment or would likely be the most 5G-centric segment of the market. And that FirstNet may, therefore, be a real vulnerability for a set of customers that really want 5G capabilities. If I think about those kinds of niches, whether it's specific verticals, whether it's government and first responder, whether it's specific industries, how do you think about -- is there some framework similar to sort of permission to win framework that you use in, in small rural that you also use in SMB and enterprise to say, here's how we're moving through this opportunity sort of systematically to gain share?

Yes. That's a great question. I think the simple answer is yes. We do have our teams deployed, both the teams that interact directly with customers, but also our marketing organization deployed around those specific opportunities. So SMB and even subsegments within SMB because what we see are microsized small businesses and sole proprietors behave and buy this category very differently than larger small businesses that may have their own IT departments, et cetera. And so we have our team organized around these unique buying behaviors. And more and more in both government and enterprise, we are structuring ourselves around industries and verticals and particularly ones where we feel like we've got disproportionate permission to win, or we've already demonstrated that we've got outpaced success. Some of the examples and some Peter mentioned earlier, Alaska Airlines, transportation has been a really successful vertical for us. And if you think about it, it makes a lot of sense. Companies that have to move around a lot and aren't always stationary rely more on mobile. And airlines is a great example of a company with a use case where they need service to work across many, many, many locations. And that -- those have been a use case that we've done really well in. Financial services is another vertical that we've done really well and where they're looking for secure communications, many of which are happening through smartphones and tablets. So we've really organized the team around -- more and more around industries and verticals and particularly those ones where we think that we do have more permission to win, but both because of just the nature of the industry, but also because of our demonstrated success.

I want to get to fixed wireless because I think it's been one of the more exciting areas of growth for you. We published some data that shows the success that you just mentioned in rural markets. I think you said a 1/3 that was sort of similar to what we found. It was about 1/3 of your subs coming from pretty rural areas. But that's just one piece of a much more complicated story, I would guess. Where geographically and competitively, are you seeing the most success for your fixed wireless product?

Yes. I'd tell you the fixed wireless -- our high-speed Internet product is really, really exciting. I mean you saw we had nearly 340,000 net adds in Q1. We were the leader in broadband growth in the entire industry over the last 2 quarters. And really what we're seeing are 2 primary use cases for demand. One is kind of what you were getting to, Craig, which are more rural customers where there really isn't another high-speed alternative where customers are literally moving from either a satellite-based broadband connection or something like DSL. So that's one use case that we're seeing. But we're also seeing another use case, which is happening a little bit more in urban and suburban areas, which is customers who are only have one choice, and they're kind of fed up with it. And they're fed up with it because of all the pain points that we talked about when we announced our broadband's Un-carrier move a couple of weeks ago, exploding prices and all the things that we talked about and addressed during that Un-carrier move. So we're seeing the demand primarily from those 2 use cases. And we're really excited because not only are we a another alternative, we are a very, very competitive alternative certainly, but in price but also in performance. We're seeing our customers use 300 to 400 gigs a month, which is almost exactly what we see broad -- cable broadband users using on average. Our download speeds for 75% of our customers are almost exactly the same as what you see average download speeds with the cable broadband customers. So this isn't a trade-off alternative that we see customers having. This is a competitive product that's stacking up really well to the incumbents that is being switched from, which 40% of the time we're seeing is Big Cable.

So Mike, this is, I think, really an interesting case study that someday, there's going to be an case written about how you go about the challenge of where you've talked about trying to think about sectors of your -- of individual cells that have capacity and then matching that to demand. As a CMO, that's got to be an incredibly complicated but interesting and sort of stimulating challenge. Talk about that of like how you think about matching supply and demand based on sectors of cell sites?

Yes, it is. And just for a reminder for everybody, our high-speed business is a capacity-based business. And we use a real-time dynamic model to approve individual locations on a sector-by-sector basis. So we're looking at places where both today but also projected in the future based on our forecasted models for growth, but also the way that the network build plan is going, where we know we'll have capacity in the future. And we also can announce earlier in the year that now we've got about 40 million households that are -- our service is available. To answer your question, I think we -- because we have 40 million households, which is a big percentage of the overall U.S. households, we are able to use some broad-based demand gen tactics. But also because we know which locations have availability for service, we're also able to get really targeted lift with customers that we know are in areas where service would be available, and it would be a good option for them because they likely fall into 1 of those 2 use cases that I described before. So we've -- honestly, we haven't really seen it as a big challenge because we've had a lot of demand for it. And even in these circumstances, where customers apply where their location isn't ready yet, we're able to take down their information, and we've already had a process where we've been able to follow-up with those customers once network has been deployed into their areas. And we've seen some success in converting customers who had previously applied where service wasn't available, but service becomes available, and we're able to convert them into HSI customers.

Mike, how much is this -- we've been talking about convergence with a lot of the speakers over the last 2 days of fixed and wireless convergence being an important driver. I would think when you described the first of your use cases, which is for customers that are out at the edge of your network, conveniently, you have very low wireless market share for the reasons we were talking about a couple of minutes ago. And so you may actually be using fixed as a way to pull through a new relationship that also brings mobile with it. Is the future going to be that the combined offering is sort of critical, at least for a segment of the population? Or is it more that the network makes 2 services available on and so I'm going to sell both of them?

I think it's probably a little bit more of the latter, but opportunistically, there's places to bring the 2 services together. You saw when we announced our Un-carrier move, we did offer the option for customers who are on Magenta MAX -- families who Magenta MAX with 2 or more lines can add an additional line of broadband service at a discounted price. And we think that's a really interesting proposition for a couple of reasons. One is kind of exactly what you were getting at, which is we think we've got an opportunity to use broadband as the first relationship that we have with or with a household, allows them to test out the network in a pretty extreme use case, running their entire homes broadband and then convert them into wireless and convert them on to the best of what T-Mobile has to offer with Magenta MAX. So we do think it allows us to expand our total wireless relationship footprint. But also on the flip side, I do think our home Internet product allows us to deepen relationships with existing customers. And it was another reason why we announced that program because we do have -- we do have about under 15% of our base of customers on Magenta MAX. We do think the opportunity to add additional line of Magenta MAX on your plan, both allows us to add another service to customers plan, but also adds more value into the Magenta MAX plan itself to give customers another reason to pick Magenta MAX or existing customers another reason to pick Magenta MAX. So I think there's kind of multiple opportunities there in these situations where we can bring the 2 services together.

Peter, I'm going to go back to you for a more prosaic set of questions that I just -- I think I get all the time. And I want to hear from you. We're now pretty close to -- or closing in on half of the Sprint customers having been moved onto the T-Mobile network. I think it was 37% last quarter. And we've had that persistent issue of Sprint churn still high, but coming down as the mix changes. Should we think about -- I guess there's a half -- glass half empty or glass have full interpretation, right? The glass half full interpretation is if Magenta MAX or if the Magenta brand really does have the lowest churn in the industry, then you're trending toward the industry's lowest churn rate. The alternative is no, those customers are -- some of them have endemically higher churn because of characteristics of the customers themselves. And so they will -- as they blend in the churn rate will be a little bit higher. Which is the closer to the mark of those 2 ways to think about it?

Yes. And again, I'll go back to what underpinned the Analyst Day guidance was that we cut this churn differential between Magenta and Sprint customers by half. And you're seeing the tremendous progress. And to your point, the underlying Magenta brand is so strong from an attraction perspective, the highest SOGA, the highest GAs in the industry. We've kind of given that number of what net adds would have looked like had Sprint churn been Magenta churn levels, which was over 900,000 in Q1. And you see the progress that we're making on churn. Q1 at 0.93 was down 17 basis points sequentially and down year-over-year. And last year it was still a period of muted switching activity from the pandemic. So the progress is absolutely happening. And to your point, it was because we were able to disconnect certain elements of this migration to really make it much more painless and seamless for the customer. And the first was traffic to your point. There's a lot more than 37% of traffic on the Magenta network already. The vast majority of Sprint traffic is on the Magenta network. That's what's allowing us to turn down the sites. We're about 1/3 of the way through at the end of Q1 on our way to the 35,000-site decom number. The 37% that we gave in Q1 was really a cohort of customers that they're on the Magenta network, that could be because they migrated or it could be because they have a SIM replacement or we've just steered the traffic. They also have a compatible device, so where they needed it. They now have a low-band compatible device as an example, given the construct of our network, and they're off of the leasing construct and onto an EIP construct on the account. So moved away from the customer unfriendly leasing construct. And when you see that cohort, which was 37% at the end of Q1, they're churning at or below the equivalent Magenta cohorts. So that gives us a lot of hope for exactly what we're doing is the right thing to be doing as we near what is an accelerated process towards the LTE network shutdown beginning on 6/30. So we're very optimistic about that. There's still billing conversion to happen. That's a lot more seamless in the background to happen. And really, the thought there is that won't be as impactful to customer churn, but it will take through 2023 to get through that. So I expect the biggest step change and the biggest driver of churn is always network experience, and that's what we're focused on right now. And then you'll have the tail as we continue to work the billing migration as well as some rate plan migrations that are still yet to come. The vast majority have been done, still yet to come. But I couldn't be more -- just happy and excited with what the team's done and how it's manifested itself in churn reduction.

So I've got 2 questions left in our last 5 minutes that I think are the ones that everybody wants to hear about and we're going to talk about margins and we're going to talk about share buybacks. I want to start with margins. At your Analyst Day 1.25 year or whatever it was, you talked about a long-term trajectory of margins to the -- in the 50% range service margins. We'd actually thought higher than that. But as you said before, you were at the time thinking that ARPU is going to be negative one through that period and now it's a positive one. If your costs are not going to be all that different, that would suggest that there's upside to margins. You want to make some news for us and help us think about long-term margin opportunity?

Yes. Well, I'm not here to reguide Analyst Day long-term yet, Craig, I know you you'd like it. But the way we think about margin and often, we're asked against the comparative backdrop of AT&T and Verizon, although Verizon hasn't reported wireless margins for a year. So that's a hard one to get your head around, how are we doing? And in the short term, what you're seeing is us deliver margin expansion and higher EBITDA on our service revenue growth relative to the competition that again, as we spoke before, is down year-over-year. There are structural differences always, right? And that's why I think the most important way to look at this is how can we convert service revenue into free cash flow? Because you have this question of owned versus leased fiber. You have, obviously, us with longer-term agreements with the tower companies and because of the way the accounting rules work, while you have some straight-line lease noncash impact in there. So you have all of these things to normalize for, we are planning to have the densest network. And we're delivering the highest postpaid growth as well as high-speed Internet growth. So you have those selling costs in there as we continue to expand the base in a profitable manner. But when you look at conversion of service revenue into free cash flow, free cash flow being -- and it's so great to see now that actually, there's fundamentals are coming back, right? You actually have to convert and create value at some point as a company, and the market is definitely showing discipline around that to be very important. Our conversion of service revenue into free cash flow will be the highest in the industry beginning in 2023. CAGRs on free cash flow that we've seen 45% from '21 to '24, that is how you drive value creation. We are a company that's very unique in that we have highest growth in the industry from a service revenue perspective, and of course, core EBITDA but also driving the highest free cash flow conversion. So you have tremendous free cash flow and the stability that comes with that and the optionality that comes with that, which I know is your next question, but you also have the highest growth.

And that is the optionality that I think has so many people excited is a $60 billion share repurchase that you teased at last year's Analyst Day. And so I want to sort of end by talking about that topic because if I -- I think Deutsche Telekom has made it clear, they do not want to sell into any buybacks. They want to be anti-dilutive to a higher share. And so your buybacks would suggest as much as 2/3 of the non-Deutsche Telekom float, if you buy it all back. It's an extraordinary amount of firepower aimed at a relatively thin float. Put that into context for us, if you would. And also the obvious question is, would it not make sense to start even sooner? And given the dislocations in the capital markets to say that there's an opportunity to start buying back shares in 2022 even instead of waiting until next year?

Well, to your point, it is tremendously exciting to think about that number that we provided out there from '23 to '25 the ability to have $65 billion in free cash flow and potentially $60 billion in shareholder returns. And you just highlighted how much of the float that is. And that's only through the end of 2025. This machine keeps going beyond 2025, right? So you can think about all the optionality that it provides because of how we're delivering on the profitable growth and the synergy delivery through the integration that we're in our last phases of at the moment. So that's the exciting part. As -- in terms of will we start earlier, will we not start earlier? I really don't have anything to update on today, Craig. I'm sorry about that. I can't break any news here. But the opportunity and the excitement of the cash generation of this business is absolutely here.

Well, at that, I think we are out of time. I can't thank you guys enough for joining us from Seattle this morning. Next year, I hope we get to see you in-person when we have, hopefully, a fully live and instead of a hybrid conference. But thank you very much, and I always love to hear the story. So I appreciate you guys spending the time.

Thank you so much for your time.

Thanks, Craig.