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

All right. Good afternoon, everybody. It's my great pleasure to welcome back Neville Ray, President of Technology at T-Mobile. We're delighted to have you here, but we're also sad because you've announced your retirement, and we'll get into that. But thank you for making the trip here. Let me just read out my disclosures, and I'll let you do the same. For important disclosures, please see Morgan Stanley disclosure reps website at www.morganstanley.com/researchdisclosures. If you have any questions, reach out to your Morgan Stanley representative. Neville?

Before we jump in, I just want you to know that today, we may make some forward-looking statements that involve risks and uncertainties, and I encourage you to review the risk factors set forth in our SEC filings. In addition, we may discuss non-GAAP financial metrics. Reconciliations of these non-GAAP metrics to our GAAP financial metrics are on our Investor Relations website.

Let's start off with your plans. Why now? What was the decision for you to step back?

On retirement, yes. Well, it's a great time for the T-Mobile network. I mean so many things have come together over the last 3 years. And I leave the network in a tremendous shape, the best shape it's been in. It's been an incredible journey for me, Simon. I started my U.S. wireless career about 30 miles away from here with what was then Pacific Bell Wireless in Pleasanton. That was 1995. And after that, I joined -- about 5 years later, joined VoiceStream, became T-Mobile when DT acquired the business. And shortly after that, we purchased the network I've been building in California. So one way or another, I've been working on this network for -- it's almost 30 years. So it's been almost a lifetime journey. We built this network site by site, I think, megahertz by megahertz, generation at a time, 2G to 3G to 4G to 5G. So it's been an incredible journey. But the last 3 years, as we've combined Sprint and T-Mobile together, has been the most rewarding period in my career and certainly the most formative change in both the T-Mobile and Sprint businesses. And we've executed against that plan remarkably well. We fought really hard for 2 years to get this deal approved with the various state and federal entities. We made a lot of commitments and promises in terms of what we would deliver in the subsequent period. And here we are almost 3 years to the day and we've delivered on pretty much everything we said we'd go do. And so for me, it's kind of -- that's a great way to wrap up almost a lifetime of a career building this network. And so not sure what comes next, nothing for a little while. That's the main thing for me. I need to relax and decompress from the years of building out this network at a phenomenal pace. But I think I leave the place in a way better condition than when I started, which is always what you want to do in a job and a career. And the T-Mobile network is something that we can be very proud of as a company. And I think, across the U.S., I think we have today the leading global 5G network in the U.S. and you could argue one of, if not the leading, 5G networks on earth, globally.

That's a great summary. And we see all the test results coming out and validating that. I think T-Mobile is probably best known for its Un-carrier, it's marketing as being the secret sauce, but you're hitting on something that's really important. You took a small regional or subscale carrier and built it into this best network. So what is it in the DNA of the technology organization that allows you? MetroPCS was a heavy lift. This was a heavy lift. And kept the -- you had COVID thrown at you, just as you were targeting that integration. So what are the things that led to the success? And really talk about Oath and the team that you're leaving behind. And what gives you confidence that they'll be able to continue your legacy?

Yes. It's been -- it's always been fun to be the scrappy underdog. And when you come from those roots, you push every day to -- against big competitors. And for us, I mean, it's super interesting, just back to the deal quickly, Simon. I wish we've been able to get that deal done earlier. I think that was almost an inevitability about Sprint and T-Mobile coming together at some point in time. And that deal allowed us to -- that was a 2 to 3 deal. I mean we had a very tough duopoly with 2 of the largest scaled global telcos on earth to fight against in the U.S. So we had to be scrappy. We had to differentiate. We had to stand for something different. But the opportunity with the deal was to go from 2 subscale players, who would have fought really, really tough battles to stay alive, to combine them to a very viable third player that could drive new competition in the U.S. And that's been really the most exciting piece, to start leveling the playing field, to start leading and driving ahead on network performance, which has been so critical to the brands of Verizon and AT&T, and to drive that Un-carrier value that we're famous for now coupled with the best network proposition, which -- this is going to sound terribly arrogant, but I mean I think we've changed the U.S. wireless industry for the foreseeable future. That combination of Sprint and T-Mobile has leveled the playing field on many, many fronts and will allow us to bring that scrappy underdog mentality of delighting our customers with everything that we do to drive new levels of competition in the U.S. And I'm super [ comfortable with the team ] that is -- has been with me for many years. It's a very powerful team. Ulf Ewaldsson, who will succeed me in my role, is a multi-decade veteran of Ericsson. He knows this business incredibly well. He knows the T-Mobile business incredibly well after -- most of his career, he's worked with us, but the last 4 years, he's been in the company. And Ulf executed on the plan of site modernization for us, which was unheard of, I think, in the industry. There may be an example in China, where the pace of execution and delivery on a modernization program was marginally higher. So Ulf done a tremendous job driving that combination and all of the benefits of the 2 networks coming together. So delighted with him stepping into the role. We're in very, very safe hands. And we have a great team, too. Abdul Saad who's been with me since the California days, John Saw who was the CTO from Sprint. John is on the team. So we've got a lot of bench and a lot of strength, and the team is tightly glued together. And I mean I'm going to really enjoy watching what they do next with this powerful network that we have. And there's a lot of opportunity ahead of the business.

Great. You were just in Barcelona last week at Mobile World Congress. So what's the report from the show floor? I know you've had some announcements yourself that you might want to share with us.

Yes. Yes. I mean it's interesting. I mean MWC is kind of back, I suppose. I mean, right? There's a lot of people there, a lot of energy. I think for me, the two major takeaways, and I know we'll talk about this later, but fixed wireless access is clearly -- it's arrived. And it's the most formative declarative 5G use case. And I think many folks are looking at us and to a slightly lesser extent, Verizon with how we've driven 5G network capability into new business. And a lot of operators globally, I think, are trying to figure out what's that fixed wireless access formula. And depending on their competitive situations, et cetera, et cetera, I think they're all trying to figure out where can we go play and drive this 5G technology. So there was a lot of that to see, which I was super enthused about. We can come back to it. So that's now becoming -- that's a global use case story. That's not just T-Mobile and Verizon driving stuff. A lot of discussion on ORAN and maturity in the ORAN space saw a lot of that activity. But my primary goal in going to MWC is to drive our vendors on our journey to continue to improve this network. And I see healthy signs. We're far from done on this 5G story. We have many dimensions of growth and opportunity to come. And we did make some announcements, not heavy announcements, but we talked about how we are advancing the network in terms of our ability to drive all of our traffic on to 5G.. And that was primarily around voice services in the 5G space, another acronym for everybody to digest VoNR, Voice over New Radio, easily forgettable, but 5G voice. So that continues to -- that march continues for T-Mobile at real pace. We're the only player in the U.S., DISH is working on this, that's really driving that. And it's kind of -- the question then is, why is that important? And it allows us -- why is it important? It's because it allows us to drive all of our traffic onto this 5G network. Today, for voice services, you have to step down off of 5G [ freeway ] and down to the LTE services. That's inefficient. It's not as reliable as you'd like it to be, and you want to keep all of that traffic, especially for voice, video-type services on that 5G lane.

And you're going to refarm the LTE spectrum?

That's right. And you can refarm LTE. I mean, there are kind of quick [indiscernible], Simon. There's like 3 dimensions to this network story on 5G and overall performance and coverage. And the first one is about breadth. And so we continue to advance -- no updates for you or the team today on where we are with our footprint. But 325 million people covered with our 5G low band, 265 million covered with our mid-band footprint. And they're great numbers, but you have to understand the competitive dynamic. That 325 million, you convert that to square miles, raw coverage. That's 5x the Verizon footprint in the U.S. today. That's kind of hard to really believe that we would have something -- our footprint on 5G would be that big and scaled. So that's one. We've built massive breadth. And then you come to this depth of capability and performance and capacity, which is really spectrum driven. And I can update you today, we're at 150 megahertz now of committed mid-band spectrum on 5G. That number will be 200 megahertz by the end of the year. And so that's a very powerful spectrum story. And what we're doing now is it's not just 2.5 gigahertz spectrum. We're now adding PCS spectrum. And by the end of the year, we'll also be adding AWS spectrum. And so one of the announcements -- to get back to your question eventually, I promise, was about announcements we made at MWC. And one of the announcements was our ability to aggregate all their spectrum layers together. And so we've talked about this layer cake, low, mid, high band. But what you really want is a slice all the way through the cake. And so then you have the ultimate pipe. And we are way out in front. We announced 4 carrier combination. And so now we can combine TDD and FDD spectrum assets in low and mid-band, which, quite honestly, 5, 6 years ago, was a bit of a pipe dream. And now the technology is in place, and we are driving industry adoption on those pieces. And that's really the third dimension. If you think about breadth, depth and that the next dimension to round [ out ] to make that cube is how advanced and feature-rich is the 5G capabilities that you're bringing with that spectrum. And so there's all those dimensions of leadership and capability for us that we continue to push on. That cube is getting bigger and bigger and bigger. And we outgun our competition on even the simple breadth, competitive access today, let alone the spectrum depth. And then the richness of the feature set that we bring is second to none. So it's a great position to be in. And again, I couldn't be prouder of the work the team has executed to get us to that point in a very short period of time.

Great. It looked like satellite was -- now that it's getting integrated into the 5G standard, to phones, was a big theme at the conference last week. And you had your announcement with Starlink a few months ago. So any updates there on how you're feeling about the implementation on that?

I'd come back -- I think there's been a bunch of questions, Simon, about kind of still the why. And I think there's a lot of focus for us on being -- we want to be the best wireless connectivity provider, hands down. I mean another stat for you, and this is fairly recent, but the breadth of our service area, where we can connect our customers today, pre-SpaceX, is bigger than Verizon's. Now that was not the case for the vast majority of my 23-year career with this company. We were way behind. So now we have this bigger footprint. But we don't want to stop there. We want to make sure that, that last 500,000 square miles of the U.S. that nobody covers that when you need connectivity, that rural connectivity is available to you. And so we've talked about going into beta and testing in the latter part of this year with the SpaceX team. Super excited about what that can bring. I think that's the first -- maybe the first down payment on what will be a relationship that will grow over time. But our intent is, and we're very loud about it, to really cover this massive country from end to end. That's the goal and mission of the team. And I think we have a highly efficient, capital-efficient, deployment-efficient model with partners like SpaceX to go make that happen.

Great. In the past, Mobile World Congress used to have a lot of product announcements and consumer products and so forth like CES. Anything that the vendors were talking about wearables, stuff that they were prototyping with you? Are we going to see -- everybody is looking for that next breakthrough product, the glasses or whatever it is. How do you feel about what's around the corner?

Well, I'm a huge fan of the kind of the AR eyewear wearable space.

Consumers or industrial?

Both. And I did not see anything specifically kind of new or groundbreaking in that space in MWC. But I think we are very aware of massive investments in that space. And I think some of the breakthrough stuff is starting to happen in industrials, where you can afford a much larger form factor of wearable. The real work that's ongoing is how do you -- into glasses like you're wearing today, how do you drive all of that technology, power, compute, all of those pieces, into what should be a lightweight set of AR wearables? And I think sometimes, we're trying to push the horizon too hard. I think there were really compelling use cases for very lightweight AR on lightweight product. I don't have data to share with this team. But I think over the next couple of years, that will be a formative emerging use case. It's going to happen, and it will drive a new form factor of 5G consumption and utilization. It will open up new innovation, and it will open up new use case and applications. So I think that's -- almost certainly, that is a guaranteed source of new innovation and output for this industry. You're going to need one or more of the big players to bring that to market and make sure it's really effective. And I think once those announcements come, then you'll see traction in that space. So that's one area I'm very bullish on. I see us, as T-Mobile, very well positioned to support that specific use case. There are many things that come into bear with a stand-alone network like we have, such as the latency capabilities that you can bring, keeping all of that traffic on a 5G lane, so you get all of those capabilities and benefits. That's a big leading advantage for us at this point in time. So I'd love to see those products come to market, and I'd love to see them come to market on the T-Mobile network first. And I think we're in a position where we can support that better than our major competitors here in the U.S.

You talked about fixed wireless a couple of times. Let's come back to that. It's -- you laid out the business plans for this model 4, 5 years ago in your pleadings with the DOJ and the FCC. And it's really played out very consistently with what you put out there. So put on your glasses again and project that in the next few years because there's a ton of pushback on the ability of fixed wireless to sustain the growth that we've seen with ongoing increases in traffic and congestion, fears and so forth. So you've obviously had these plans, and now you've really scaled it in the last 12 months. You've added millions of customers and presumably, you're getting some pretty high share in certain locations. So how do you feel about the next 5 years from here?

Yes. I mean I love the space. And I'm the network guy. So I think there's a lot of folks that worry about network capacity and what we're doing. But I think much of that is anchored in the old world of LTE. And this 5G network and capability we're bringing is just -- it's so different than anything we've ever done, Simon. There isn't -- haven't been a generational change that has created this massive volume of capacity and capability way beyond what can be consumed on existing or even some of the future wireless devices that we just talked about. We talked in all of those DOJ, FCC pleadings and presenting our case about how over a 5-year period, we could create a 14x, 1-4, 14x multiplier on the capacity of the T-Mobile network with the spectrum assets and all the capabilities that we would bring. And that comes from two primary places: megahertz to megahertz. Mid-band 5G compared to legacy mid-band LTE, that's a 2x to 3x multiple on efficiency. So I mean that's super compelling, same megahertz, 5G, 4G, up to 3x. And that's just where we are today with the technology. And then you add the volumes of spectrum that we're bringing and deploying on these modernized radios today, the cumulative compounding effect is just enormous. And so what we're seeing, I look at our numbers, we've said 7 million to 8 million households served by 2025, very comfortable with that projection, with 2.6 million in as of last quarterly results reported. And the fun piece is that we're seeing, there's so much demand for this service because we're Un-carriering cable. I mean we've come in with that same competitive playbook into an industry space, which is just, hands down, it's not competitive. It's often monopolistic in its geography, it's turf, it's business practices. And so there are many, many customers who are super excited about a T-Mobile offering coming in, which is simple, clean, may not be -- it's not a fiber story. We're not saying we can deliver gig speeds. I know what people do with gig speeds. I wish I got gig speeds from my cable guy. I don't. I think I pay for it, but I get something very different. And so for us, I mean, that 7 million to 8 million target is readily achievable. We're finding all sorts of places to go in and compete in this very nonmonolithic U.S. marketplace. I think we have this belief that everybody is going to have fiber or very high-end cable, and that is absolutely not the case. There's a very large population in the U.S. unserved or underserved. And we're only now starting to tap into that base, Simon, as we move into those more rural geographies with our mid-band footprint. So I'm very comfortable with our capacity story. We look forward to growing that base. I want to find new ways outside of the fallow spectrum model we have today to grow that business, maybe harnessing our millimeter wave assets, looking to go to new deployment models, which an investor audience and business audience and our Board will be super excited about taking forward. And that is something we were pursuing on the various discussions we had in MWC. Nothing to announce yet.

And you keep talking to the FCC about more spectrum? Continue to...

Yes. I mean I think, obviously, from a spectrum perspective, I talked you through our mid-band assets that we're deploying today. So 2.5 PCS and AWS. We also did secure great volumes of spectrum in both C-band and the legacy DoD spectrum. We'll start deploying those. That will be in our run rate capital. That's not like some big spike. That's in our run rate capital of $9 billion to $10 billion as we move into this year and on. And that spectrum is sitting there as a great reserve for us. We'll deploy it as and where we need to for capacity reasons. But we have this raft of millimeter wave spectrum, which we deploy in hotspots and venues today, but I'd love to bring that to the market in another aggressive, competitive play. And I think home broadband, we can make it happen. You need CPE, you need a receive antenna, which is external to the house, to make that really work. So there's more complexity in the solution. There's a truck roll and so on. But we're getting very confident now we can make those economics work and that model will be very accretive for the business, but more to come.

You talked about not offering a gig. I mean do you think in 5 years, we'll need a gig for the average, the median household or is 300 [ megahertz ]...

Well, I think we're a long way from -- I mean, goodness, I wish everybody could have gig Internet, I wish we could all fly first class everywhere, right? I think it's a great ambition to have. But if you look at your average home today, consumption levels are nowhere near a gig and certainly not a gig symmetrical. At some point in time, there's technology advanced to where that's the case, maybe that's 10, 15, 20 years out, where that becomes -- it's hard to envisage, Simon, and that becomes the minimum that you need. And the thing is never, guys, never write off wireless and what it can do. If anything, the last 10 years has taught us, especially recent 2, 3 years with what's happened with 5G, is never underestimate what this industry can do to drive much more efficient and capable use of spectrum. And there will be more spectrum to come.

And it's all fiber-fed as well.

It is. I mean, ultimately, for us, our deployment model on fixed wireless is we bring fiber to a neighborhood and then -- on the sell side, and then we distribute it wirelessly. And it's just a degree of how far you take the fiber, ultimately. It's way more efficient to deploy those households on a wireless basis than to run fiber with a 30% success rate on homes passed. That's difficult economics, still.

Another thing you projected at the time of the merger was the CapEx would come down. I guess, as it's come down into the $9 billion to $10 billion range, I know it's not your budget, going forward here. But how confident do you feel that this can be -- because I think the concern amongst investors is there's always some other G or there's always some other spectrum auction. But do you think we do get this digestion phase, where you can kind of reap the benefits of what you've built here for a few years?

Yes. And multiple reasons why, Simon, so very confident. I mean, part of my role in exiting is to make sure we've got a great plan going forward, right? . And that $9 billion to $10 billion run rate CapEx is a product of massive investment that we've made over the last 3 years. We pulled capital forward from outer years into '22 to take advantage of the momentum that we had in the marketplace, pandemic aside, right? I mean we worked through that and supply chain issues, but we were deploying at a furious rate, while our competition was still kind of pretty slow coming out of the blocks. And so we took full advantage of that. And we've built this very scalable network. The vast majority of the electronics have been placed. And now the job is to load those electronics, more 2.5, PCS AWS spectrum to load that spectrum onto those electronics that have been deployed. I can place that spectrum. I just have to repurpose it from LTE. I can do that at zero cost because the embedded capital has been deployed already. So that doesn't mean -- $9 billion to $10 billion is a great run rate CapEx for us because we have the footprint. I think your question has to go to really our competition to say, when you look at their announced incremental numbers, is it sufficient to get close to what T-Mobile has already deployed? And I think that's the challenge that we've laid down.

And presumably, $9 billion to $10 billion covers small cell densification and additional sites over time?

Yes. I mean I honestly don't think about densification, Simon, for several years in that -- I mean what we've done in the last year, 18 months is de-densification. I mean, we removed and decom-ed 30,000-plus sites out of this network. We did keep and add 10,000 plus Sprint sites to the T-Mobile network. And we have the most dense and larger-scaled macro network in the U.S. And we didn't decom sites lightly. We were looking forward multiple years into what we think we need. So we believe we have that footprint. But that densification, especially when you look at the spectrum assets that we're using, lower band mid-band, never thought I'd say that, but 2.5 gig, 1.9 AWS, in comparison to [ 3.x ], those physics are not compelling for our competition. And especially as they get into more rural environments, that's where the densification comes for them but not for us. We will do more small cells, where we need to hotspots, but that's a very local story and not a big macro story. We're going to give you a mic, I think.

It's good. Yes. Unfortunately, we're running out of time. But one last one we get a lot of questions on is fiber. And you do have a pilot in New York looking at fiber-to-the-home. And you've talked about the benefits of 5G and fixed wireless a lot. But help us understand why are you looking at FTTH? And what's your current perspective on that as a tool in the toolbox?

Yes, I think it's exactly that, Simon. It's another tool in the toolbox. We continue to evaluate. We're trying to figure out. The fun piece there is when you put the T-Mobile brand and distribution and what we stand for on a fiber opportunity, that's the piece we're really trialing and testing to understand how powerful could that be for our business. That said, I mean it's really still mainly at the investigation phase. We're very comfortable with our wireless model. Fixed wireless is a ton of growth for us. And I think it just behooves us to make sure that we explore the fiber alternatives and see where and when do they make sense. And there will be places, I'm sure, where that model does make sense. But the predominant model for us is a wireless, these wonderful smartphones that we have and now driving into a whole new business segment for us with fixed wireless.

Great. Well, great discussion, Neville, thank you so much for joining us, and all the best for your future endeavors.

Thanks so much, Simon. Thank you.