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

Okay. Good afternoon, everybody. It's my great pleasure to welcome Peter and Mike from T-Mobile. Thanks for joining us again. I think you have a safe harbor.

Yes, just keeping everybody happy on the legal side. But of course, we may make forward-looking statements, subject to risks and uncertainties and reference non-GAAP measures. And I would just reference everybody to our SEC filings.

Great. Thank you. And from our side, please see morganstanley.com/disclosures, or contact your Morgan Stanley sales representatives. So thanks for coming today. Before we get into the meat of it, DISH reported on -- or EchoStar report Friday and noted that the probability of exercising the option with you was now, I guess, 0, where they reduce the option value to 0. So can you just help us mechanically what happens from here? What are you obligated to do? And I guess you get to keep the $100 million in that context?

Well, yes. So from our perspective, again, DISH has until April 1 to exercise that option. And while what they inferred in their 10-K is that the likelihood is down, they still have that time. So what we're obligated to do, should they not exercise that option, is to take the spectrum to auction, with a floor price of just under $3.6 billion. We haven't commenced that auction yet. But should they choose not to exercise it, that will be the next step for us, Simon.

Good. And what's the deadline on you completing that.

It's in the fall.

And are there any restrictions on who you can sell that to? Or is that just subject to FCC approval?

Yes. It's going to be subject to FCC approval.

But nothing explicit upfront?

Nothing explicit.

Okay. Okay. Great. So perhaps, maybe from both of you, just maybe you can go through the '24 guidance and the key drivers of that, what you're assuming there. And then, Mike, from your side, what you're focused on for this year.

Yes. Well, 2024, really from a priority perspective, it is executing more of the same, and we generated the success in 2023. And I'm very sure it's to continue to take outsized profitable share from a customer perspective and translate that into industry-leading free cash flow generation. And the way we're going to do that is really exercise this unique set of assets that we have in terms of the best value and now having arrived at the best network, and we can speak about that more a little bit later, coupled with the very consistent underpenetrated market opportunities that we've been executing on since the merger, and we'll continue around those. Those being top 100 markets, smaller markets and rural areas and our foray into enterprise and government, all things unlock by this combination of the best network and the best value, and then delivering really outsized financial results as a result of it. If you look at 2023, we led the industry in terms of service revenue growth and all important postpaid service revenue growth metric. And then most importantly is how do you take that and translate it into value creation? And in this form, in the case of profitability on core EBITDA as well as free cash flow. So we'll just deliver more of the same expanding into 2024 and have certainly lots of room to run beyond there. And you saw that in the form of the guidance itself. So expecting 5 million to 5.5 million postpaid nets about half of that coming from phones is our expectation. And then core EBITDA sequential growth from '23 to '24 of about 9% at the midpoint and, again, low 20% growth in free cash flow expansion. Right, Mike?

Yes, I mean, that was a pretty good answer from Peter. Like Peter said, we're really focused on driving the strategy and execution of growth vis-a-vis share taking. And Peter mentioned several of the very specific growth vectors that we have with underpenetrated rural markets. Growth in the top 100 markets, which is something you've heard us talk about progressively over the last couple of years, which is really driven by these cohorts of customers who, in the past hadn't considered T-Mobile because they didn't believe that we could meet their network needs. There's a group of customers that buy actually fairly similar to the way the enterprise customers buy, network first and who they believe is going to have the best network. And T-Mobile has historically been underpenetrated in that group. And as our network perception catches up with the actual Leave Network experience, we see more and more opportunity in particularly the top 100 markets with those customer cohorts. Enterprise, obviously, another big one, and then continued growth in fixed wireless. We've had a really great last couple of years with fixed wireless with nearly 5 million customers at the end of last year. But even with what we've said with our 7 million to 8 million growth target, that still leaves room for us to run in ex FWA.

Great. Well, you put out press releases with all of these network tests from OpenSignal and on others, but you mentioned the perception. So it's one thing to have those awards as another to get that. So -- where are you today in terms of closing that perception gap versus some of your peers?

Yes. We've made a lot of progress. If you look back just a few years, the gap that existed particularly between us and who is perceived to have the best network, which is Verizon, has been cut in half. We're substantially the same as where AT&T is, which that was a big gap just a couple of years ago, and we've cut the Verizon 1.5. So that's the good news. The good progress has been made, but it also suggests that there's more opportunity in front of us and more work to do. And I think continuing to close that gap is a combination of things. First and foremost, it's making sure that we keep our lead as the best network. And you've heard us talk about in this 5G era that we do have a couple year lead relative to AT&T and Verizon, and that we intend to maintain that lead 2 years from now. And there's a lot of things that we're doing to ensure that the Leave experience on the T-Mobile network is best in the country hands down. And I think to change that perception, that it's first and foremost starts with that. And then I think there's a number of things, from a marketing perspective, that we can do. Net network perception very much is influenced by friends and family and neighbors and people that you know. So there are some things that we can do in communication, but I think more than anything, it's doing things like you saw us do with our network test application where we can allow people who may have -- who may be a little bit skeptical in the network to actually try it out side by side with who their incumbent network is so they can see it for themselves. So you'll see a number of things like expanding that, that we will do to really get after closing that network perception gap.

Great. So Peter, you referenced your subscriber target 5 to 5.5, which was the same as your initial target last year. We've had this concern in the industry about deceleration, about returning to pre-COVID levels. But you obviously have confidence, and I know you've prided yourself, I mean, conservative in your guidance. So what gives you the confidence that you can project that again this year? And how would you characterize the wireless industry environment right now?

Yes. Well, it starts with the industry overall. And our view is that certainly from the heightened very heightened net adds from a postpaid phone perspective that you saw at an industry level the last couple of years that you would see some moderation. I think consensus estimates seem to agree with that. So our expectation is that it will moderate into 2024 and beyond, but not to the levels of pre pandemic. There's still a lot of industry dynamics happening, whether it's prepaid to postpaid transference. And as you know, as a prepaid industry, we've seen significant declines. And that's fed a little bit of the postpaid phone. A little bit of a different story of T-Mobile in the prepaid space, but that's been the industry. You've seen demographic expansion, both on the age group, up and down, that feeds on the postpaid phone. You've seen businesses, and you see more and more second lines happening in the postpaid phone space. So we think some of that will moderate from the highs of 2023. But within there, we've obviously, given the best value, best network proposition and these unique underpenetrated segments that we've been executing against, that Mike just spoke about, that gives us a lot of catalysts to continue to be the share taker in the industry, and obviously, translating that into financial performance. The other thing is we get -- and rightly so, postpaid phone is the highest value-creating element in the industry, but there's a lot of other connected devices and the advent of 5G, not only will bring more in the future. But as an industry, we added, I think it was roughly $6 million postpaid other connected devices. And that includes fixed wireless, includes tablets, watches, other wearables. So while the right full focus is on postpaid phone, there's a lot of value creation in the other connected devices as an industry, and again, disproportionately for T-Mobile, given the value proposition and the network itself.

Great. And I think there's still a big opportunity in these 3 segments to continue to grow. Let's start with the more rural markets. Can you just remind us there of where your share is, where you think you can take that? And versus where you are in some of the core markets?

Yes, maybe start with where we are. I think last week publicly reported was 17.5%. On our way to what we said back -- all the way back in our Capital Markets Day of 20%. So we feel really good about the path to get to what we publicly said that we would do. We're seeing Soga that are the highest that we've seen in those areas. And again, the prerequisite for a lot of that has been this network build that's brought us to a bunch of cities in small towns that T-Mobile had been nationally advertising in for years, but never actually had any network there. And so as the network is deployed, we've -- in the markets that have the best possible network experience, and we've categorized the markets into several different categories. We've followed along with distribution build-outs and what it's yielded is Sogas that, for the last couple of quarters, have been best in industry across those markets. So we feel like we've got a really strong playbook there. And even at 17.5% or even 20% of aspiration, feel like there's likely room to run.

You are 50% share in some urban markets, right?

Yes, correct.

And so where are we on that distribution rollout? Because you've obviously hit $300 million with your mid-band footprint. But presumably, you're you still got some opportunity there to continue to roll that out into these markets.

Yes. I think opportunity, both on the network side and the distribution side. One of the things you've heard us talk a lot about is what we've been calling customer-driven coverage -- and really what customer-driven coverage is for us is shifting from the traditional model that us and probably all of us in our industry have had around building networks to optimize around PoPs -- around building networks where people live or building networks to cover the most possible square miles. That -- moving from that model, customer-driven coverage is going to a place where we are using the immense amount of data that we have about the actual Leave Network experience that our customers have to precisely build network in the places that are going to matter most to them. And when compared to the other models, some of those areas might not be as obvious because they might not be areas that give you lots more PoPs, but there are areas of the network where people try and consume network resources. And if they don't have them, they'll be disappointed. So we think that's going to be a big continued part of our unlock in small town rule is the preciseness of the customer-driven coverage network build. And then there's -- you do see continued distribution build-out, both organic distribution but also partner distribution. You saw we recently just had an expansion of distribution with Sam's Club, which does cover into a lot of the...

Great's. And I think 1 of the features of the industry in the last several quarters has been really low upgrade rates and people are keeping their phones longer. As you've advertised, some of your competitors require you to stay in a contract for a long period of time. But is that a disincentive to people moving quickly to T-Mobile? Or are the un-carrier offers able to address most of those concerns?

If you look at -- if you look -- like we think it's a pain point for customers. If you look at what our competitors have done, this 3-year upgrade cycle, we saw this as a pain point. And one of the things that has been a big part of our strategy throughout the decade plus of un-carrier is recognizing these pain points in the market and putting product innovation in place to address it. And that's what you saw us do last year with phone freedom. It was a real focused effort to get after customers who were feeling locked in for 3 years and give them an alternative. And that drove a lot of our success this last year. In terms of overall upgrade rate, we feel pretty comfortable with where the upgrade rate is right now. We don't foresee, as we look into '24, any major catalyst that's going to change where it's been. We've had a real focus on making sure upgrades are available to the customers that need them. And we think that's worked pretty well, especially when you look at 2023 in being the lowest churn that TMUS has ever had. So we feel like we're meeting customers where they are, meeting their demand. And we are going to stick to that strategy this year and don't see really anything material that would change that.

And part of the benefit that we see there when we think it's differentiated is this network experience. So once you're on the 5G network, given the breadth, the depth and the technological advancements vis-a-vis the competitive set, we now have 75%, slightly over 75% of the base is on a 5G device. And so that allows you to experience the true potential of what this network is -- and one of the reasons that we contemplate why our upgrade rate despite the fact that we make it available vis-a-vis a suite of plans, including up to every single year, you can upgrade is low in the industries that we're actually, to your point, meeting the demand of customers, not only from a promotional perspective in terms of the rate plan and what device promotion they get, but then the Leave Experience on a 5G network powered by a 5G device.

Right. So you referenced enterprise, the opportunity there earlier. They buy on a multiyear cycle, but also, they do a lot of network testing and detailed RFP. So help us understand where we are in that kind of phase of taking advantage of that opportunity. You've had some headline wins here, but I know it takes a long time to get that flywheel going.

It's absolutely right When you think about the trajectory of the arc of what's happened in enterprise and government, T-Mobile and what Kelly and team have been empowered with the network to do. It really also gives you a lot of hope for the consumer network side of the house because to your point, large enterprise and government take the time to test the network, and make sure that it works for them, how they need it and where they need it. And it's beyond just the phone device. That's one of the things that we've changed in terms of T-Mobile's interaction with large enterprise and government if we're honest with ourselves before the merger, before the full network build, T-Mobile was primarily a stocking horse. And the relationship was with the procurement department and the goal, I think, by the large enterprise was to just try to get $5 off the postpaid phone device. Well, fast forward to today, where we've deployed this network and the differentiated capabilities it has beyond just the breadth and the depth -- and we now are getting relationships into the CIO offices and not because we can save you $5 on a postpaid phone device. In fact, many times, we're not the leading on the price on the phone but it is about the fact that the capabilities of the network can solve problems that CIOs have. Now the CIOs aren't going to go spend a bunch of their time to just trade out SIM cards and get a new postpaid phone in there. It is about what capabilities can you provide for me that solve a real business need? And then yes, I'll also give you the postpaid phone business if you earn it. And on that front, 2023 was our best year ever, both from a gross adds perspective, from a net adds perspective, more so than the previous [ toll ] to work in this industry being Verizon, and it came on the back of multiple solutions, whether it's replacing WiFi-enabled solutions, whether it's creating things like private-public hybrid networks for Boston's Children's, whether it's our ability because of what the technology leadership exists in the network to do slicing. And F1 in Las Vegas was a great example of actually being to deliver a slice of the network to all the point-of-sale elements and beyond point of sale also to the teams, but it was something that just doesn't exist in a 4G world. And so you're solving real business problems, and that's what's so exciting about why the traction in enterprise and government is getting stronger. And why? Because they test the network and understand the differentiation, the tailwind on the consumer side also is exciting.

You never really relied on some of these B2B use cases in your long-term projections. But it sounds like you've got a little bit more visibility into that opportunity now. Is that fair?

Yes. What we said is our job is to build the best network in terms of both the breadth and the depth and the technology and go help solve problems. But it was still early at our Capital Markets Day. And frankly, it's still early in certain areas to say, and this is exactly how it's going to manifest itself, right? Our private network is going to be the multibillion-dollar thing? Or are they going to be a way to solve problems and take share on other connected devices. And the answer is probably a little bit of both, but it's still early in this regard, and it's still early in terms of connected solutions beyond postpaid phones that are going to solve industry vertical problems.

Mike, if we turn to FWA, I mean, you're one of the world leaders in deploying this. Tell us a little bit about the FWA customer. Where are they coming from? What's the usage, urban, rural? How can you bank picture for us?

Yes. I mean, I do think that's one of the interesting things about FWA is it's truly deployed nationally. So you see examples of it literally in every corner of the country, in every geography of the country, big cities, small towns. I would say you're seeing a little bit more than half coming still in what we would call the top 100 markets. Good growth in the small town rural areas. The destination, the biggest one is people switching from cable into this product. And we're really proud of the experience that the customers are getting. And we do think it's one of the big reasons why we've had such a successful growth story the last couple of years. The NPS on customers that use this product is, compared to every other broadband technology, best in the industry, including fiber as an overall category, and people are really using it. We're seeing 400, 500 megabits -- gigabits of usage on average per customer. So it's a great product that really works well for customers that are using it.

And how do you address the critique from some of your competitors that the network is going to hit congestion and it's not really going to be able to handle the usage over the next couple of years?

Yes. I think that's one of the things that you've heard us consistently talk about with this business that it is an excess capacity model. And we've been very specific from the beginning on exactly where we will sell it. And when I say where we'll sell, I mean, literally down to the household. And we've built models that are dynamic. They update real time, that tell us exactly where we can put this, where we can be confident that with any projected forward usage, both of mobile or FWA users plus network advancements that we're going to make exactly where in the network we can have FWA customers. So it's that precise. Like literally, in a neighborhood, we may approve 2 people. And as soon as you take the product, your neighbor would no longer get approved. So we've managed where we'll deploy it in a very, very disciplined manner so that we don't run into those issues. So we feel really good. And again, I think the experience that our customers have versus what you're seeing with other categories kind of speaks for itself.

You still have that $7 million to $8 million guidance out there. You're tracking very well towards that. Any updates on the work you've been doing to evaluate options for expanding capacity in a cost-effective manner.

Well, the first thing is, to your point, the demand is tremendously strong on this product. And because we've been very consistent in saying this is an excess capacity model, you've seen us shift a little bit towards how do we make sure that we're creating the most enterprise value. We now have a business that's almost, as of year-end, 5 million subscribers. You saw a sunset some of the promotional pricing. We took some other moves. And that was a conscious decision to say, "Hey, we're going to trade off on our way to 7 million to 8 million, we're likely and we guided to probably about 400,000 and as the quarterly run rate, we look like we're looking right at 400,000 for Q1, and that is in an effort to harness the strong demand but also recognize it's an excess capacity model. Now we are looking at alternative ways that perhaps would yield the right kind of return profile. We don't have anything to announce. We're certainly doing continued testing, whether that's more mid-band spectrum, whether that's millimeter wave solutions, external antenna solutions. The team is certainly exploring everything -- but for now, there's nothing that I think we're here to announce other than the continued strength on the way to 7 million to 8 million is the target.

And what about the pricing on the kind of postpaid phone with the go 5G plans so forth because I think you'd said the network is now industry-leading. You'd always have this value discounted price. So I know ARPU is diluted by enterprise and third line, fourth line, et cetera. But -- how are you -- how is that tracking in terms of apples-to-apples on pricing?

Well, and I'll let Mike add a little bit more color in terms of the strategy. But remember, as others do price increases, it's very important for us now that we've arrived at the best value and the best network to jealously guard that best value. That doesn't mean we necessarily want to erode and have that gap grow -- so we'll continue to do smart actions like we did in the second half of last year, guided by customer transparency and a need to make sure the customer understands all of this, and we're doing smaller actions. And when you look forward, it's -- what's so exciting is the power of the network and the power of the value that Mike team are putting in some of these top-tier rate plans is attracting consumers to self-select there, right? And we continue to see over 60% of new account additions on our top-tier rate plans, the set of top-tier rate plan offerings there because it is based on the power of the network -- but I don't know if there's anything to add, Mike?

No. No, I think that's exactly right. I think the strategy of giving customers the best value and maximizing every dollar that they pay us is causing a real win-win effect with customers where they feel like they're getting the best and the most value, and they're moving up into higher tier plans, both on acquisition, but it's also a dynamic that we see inside of our base. As our base customers switch these plans are also the most popular for internal migration of plans as well. That doesn't mean that there's not opportunities for us to do optimization on the edges. And you saw us do some of that in Q4, most notably with what we did with the debit card change that we made. And there could still be some opportunities for us to do that. But I think what Peter said is really important in the structure where T-Mobile is still -- will be and will protect our position best value because we think the best way to create value in this company is through a strong value proposition that allows us to disproportionately grow. And I think that's been demonstrated for us for now a long period of time.

And 1 of the things Mike Sievert's been very focused on is extending the brand, leveraging our capabilities. And fiber is one of those areas. So update us on the trials, the pilots that you've had with fiber? And what do you see as the opportunity that going forward?

Yes. I think with everything that we talked about with FWA and the success that we have had there, I mean essentially 5 million customers in about 2 years, I think we're like the fifth or sixth largest ISP in America right now. In addition to that, we have -- we are doing -- on a smaller scale, some markets in a wholesale partnership with fiber, we're really pleased with how those are going. And I think the combination of the success in FWA, combined with what we've seen in these markets with fiber has given us a lot of confidence that we could come into the fiber market and have a lot of success. And we've talked about -- well, what would that look like? And I think the way that, that looks is no different than we've described it before. If we did something in fiber, it would be in a more capital-light structure, probably in a partnership with somebody else. But that, I would say, is looking more and more likely that we would do something there.

Yes, a lot of appetite for convergence out there.

It's -- I wouldn't call it convergence in the sense of how you might think about it in the European sense. It really is for us, to your point, how do we create the right customer experience. And in the space of fiber, where you might have specialized infra companies, we're not the experts in digging ditches and getting fiber to the home, but we do have a set of tremendous brand assets, customer relationships, distributions that can allow us. One of the things we look at is can we get faster penetration, deeper penetration or different unit economics because your customer acquisition costs can be different than a pure fiber player. So those are the kind of things that really drive can we make this a business that creates incremental value to the core wireless business versus some defensive play.

Can we turn to prepaid and wholesale? And I think the big topic right now is ACP and the FCC had a public notice yesterday preparing for the wind down April, early May. So help us understand if that does end, how does that impact MetroPCS but also your wholesale business?

Yes, maybe I'll start. I don't know if there's a lot to report on this versus what we said at earnings. We -- the vast majority of our ACP business is inside wholesale and inside of Assurance wireless. They are -- none of these will be report out as subs. We don't participate in ACP on our postpaid business, and we do have a very, very small amount that sits inside Metro. All that being said, our participation in this business is on the mobile side. And we don't forecast that customers are going to completely forgo their mobile connection. It's to inter wound with their life. It's an important connection to their communities. And we are looking for opportunities on how we can help both customers that are inside the programs I just described, but also customers that are going to get impacted outside of any kind of T-Mobile ACP program, where we can keep them connected on mobile. So I don't know that there's -- in terms of the situation changing really anything has differed from what we talked about in earnings. But we're preparing for the program to wind down and how we can help customers have a soft landing and continue their mobile services.

And that range of outcomes was, of course, contemplated in the core EBITDA guide that we gave.

And any updates from your public policy folks on the kind of likely outcome are you going to get 11th hour?

We're certainly connected in there, and there's a lot of energy behind this, but nothing that we can -- I mean it's not for our decision. It's really for us, to your point, is to make sure we serve the customers in whatever way they need.

And since we're on the topic of DC, bonus depreciation, how would that impact you if indeed we got we saw that past.

Yes. Well, for 2024 wouldn't -- we're not a material cash taxpayer. But certainly, if we saw that past that could have impacts on our year -- so that's something that we'll have to see if it passes, how it passes and we can update more in totality with the rest of the guide that we'll probably do later.

Okay. Great. And I guess, Deutsche Telekom has a Capital Markets Day later in the year, so that would be part of that, I guess.

Right.

Yes. You said at the outset, you guided to 9% EBITDA growth for this year. The last few years, I think investors have had a really good line of sight to the margin expansion through merger synergies, taking down towers and consolidating systems, shutting our retail stores. It's a little bit trickier now as you move past a lot of that here. So maybe help us just understand what gives you confidence that you can expand margins this year and beyond and some of the big buckets you see to exit.

Yes. Well, let me start, and then I'll pass it to Mike to talk about some of the AI initiatives and how we're putting them to life. The first -- it's across a few categories. One is just scale. I mean we put a lot of investment in the network. We put a lot of investment in distribution in smaller markets and rural areas. And yes, there's more to come, but a lot of it is embedded in there. So now as you continue to take share and grow you're fundamentally reaching scale benefits that go beyond just synergies themselves. The second is, of course, we're going to continue driving efficiencies, and we'll get to AI and other elements of it, but also just within our systems transformation. So we're undertaking a lot of internal system transformation to get a lot more lean, a lot more dynamic. And it's one of the reasons we talked about depreciation and amortization on a year-over-year basis as part of our guide -- and we're well on our path there. In fact, I think Q1 will probably be about $3.5 billion in depreciation as we continue to modernize the infrastructure, the IT infrastructure behind it. And then third is how do you, with a customer lens focus first, really transform the business using all of the latest technologies out there to drive further efficiency? And I know you have a few examples of where we've already implemented it and thinking about implementing it further.

Yes. And like Peter just suggested, some of these things, we're not starting from a standstill, AI and ML have been in use at T-Mobile for a while. A couple of examples of places where they've been used, and we see some expansion of them being used. Customer care is a good one. And when we think about the use of AI and customer care, the primary way we're using it is to improve customer experience to much more rapidly get to the reason why customers calling and solving their problem. And then I do think a tertiary benefit that we expect to see is that likely will have some cost reduction for us in customer care. Another place where we've been using it for a while, and we've seen some expansion is in our media buying. We're a big advertiser. We do use AI to help us both place and then optimize our media spend. And then there's lots of corners of T-Mobile we're exploring AI I do think we sit in an interesting place as a telecom in a company that has a lot of data as this world moves more into AI and generative AI use cases. we do think data becomes more of a currency, and telecom operators have a lot of data. And we think a lot of that can be put to work internally, but there may be external use cases for us to look at as well.

Hearing all about network optimization opportunities as well as this -- if you look at the retail store, the wireless industry is still looks a lot like it did 20 years ago. And a lot of other industries have moved much more digital, but there's still -- it seems like there's a lot of opportunity to continue to rational out the customer...

Rationalize and maybe evolve the kind of experience because a lot of people go to still go to the store to do pretty basic transactions. And we think the store experience maybe can involve into other things where these basic transactions can probably be more better addressed at some point through digital platforms and AI experiences than having to go to a physical store to do a lot of these.

Sure. Moving on to CapEx. I think the guidance was consistent, but even actually lower than, I think, at the low end than expected. And I guess the question for investors -- and for tower investors, is this the new normal? Do you feel comfortable you can stay here for a while don't look like this much spectrum to come do you put hundreds of megahertz to use in mid-band 5G across the whole country here. So -- how should we think about the sustainability of this level of capital intensity?

Yes. Well, we think over the next couple of years, the 9% to 10% guide that we gave is the right level. And it's really -- first off, we're -- once again, we've arrived at the best network, not just as said by us, but if you look at really third-party reports being OpenSignal, we swept in 2023 across many of those categories on overall best network after our long-standing lead in 5G. And so we're not going to give that up. As we said, we're a couple of years ahead in terms of network capabilities, and we intend stay there. And that's enabled by a few things, of which CapEx is fundamentally the driver. One is just the breadth. Now we have spectrum assets that have superior propagation characteristics the form of 600 and 2.5 in the mid-band space, which gives you a CapEx efficiency that you can't get if you want to match it from a C-band perspective. The second is just how broadly we've deployed it. So we pulled forward a lot of CapEx went through a massive modernization effort, rebuild on mid-band and low-band the vast majority of our sites are there, covering 5G, covering 98% of Americans and mid-band covering 300 million PoPs, which geographically is a long way from 200 million covered PoPs. And then the advanced network technologies that really created -- we're the first ones that came to have a stand-alone 5G core. We're certainly the first ones with a nationwide tri-band stand-alone core. It creates incremental capabilities. We talked about that on the enterprise space, but consumers live it every day as well, lower latency, voice over new radio characteristics. Carrier aggregation. We have 4 carrier aggregation broadly deployed, and that allows you to take multiple different spectrum bands, focus it in there and get a tremendous speed boost. We have 6 carrier ag already happening in test environments our competitors on non-stand-alone 5G cores are limited to 2 carrier aggregations. So while they'll catch up there, we'll continue to be ahead. And that the set of assets, how we've already broadly deployed them, plus the way we're using data to make sure that the next dollar of investment is in the best place for a customer experience is the fundamental belief that 9% to 10% is the right thing. In 2024 and the reason it's a little bit lower is we have some things that we did earlier that are paying dividends in a onetime fashion. One of those being Auction 108, for example, right? We finally received those licenses. They're being rolled out. that's all on the back of CapEx that was already deployed. Similarly, as we do more 4G to 5G spectrum refarming, that's already on radios that are deployed. So that's a little bit of the reason for why 2024 was slightly lower. But also, we think that 9% to 10% is the right range.

Okay. Great. Mike, one of the kind of more difference you had press conferences was in Boca Chika last year in front of all those Starlink, SpaceX rockets. So -- are we still on track for a beta rollout of the service this year? And how do you plan to market that? Is that going to be something that you think can be a differentiator for T-Mobile?

Yes, absolutely. Yes. To answer your first question, yes, we are on track. And if you've seen some of the things that have happened in the beginning of this year, the first big milestone was actually getting the first satellites up to space, which happened at the beginning of this year. We then started with SpaceX doing a lot of testing. You saw the first SMS messages and picture messages being sent. I think this -- it was just this last weekend, there was some posts about we actually made post on X and did some video calls and some data downloads via satellite. So we're really excited about the potential of this technology. The better part of the first half of this year is going to be about creating more densification of the constellation. And we still are planning by the end of this year to be doing a public beta and a fast follow full commercial launch. And I do think there's a kind of back to where we started some of our discussion in terms of network perception and gaps between us and competitors, we see satellite as a contributor to helping our position there because -- the reality is there's still a lot of this country that's not covered by anybody. And it's in those moments of truth when people really need their wireless service and it doesn't work, then I think satellite is going to be really well equipped to handle -- so I think it will be a part of our tool set to really getting after those network perception change.

And primarily messaging initially.

Primarily messaging, but with a vision to get beyond messaging. And the early indications are there. There could be some real possibility.

I hope you can demo first next year. One last one, Peter, capital allocation. Just go through the priorities. You're now a dividend growth stock. You've got the buyback program, the leverage, the M&A, how do you think about the priorities?

Yes. Well, it's a great question because as I said, with the ongoing expansion of core EBITDA and free cash flow of this business is already generating so much cash and so much more yet to come that it affords a range of opportunities. The first one being always investment into the business to make sure that we continue to grow, outgrow the industry profitably and drive those underpenetrated segments and growth into there. The second will always be looking at potential accretive M&A opportunities. And whether that's in the spectrum space, whether it's things like very capital-light JVs in the fiber area or other capabilities to continue to grow beyond that is another thing. And the third will be, of course, capital returns. To your point, we have initiated a small dividend with aspirations to grow that on a 10% per share basis. We have a share buyback program that's ongoing, all fueled by this tremendous free cash flow. So it's an exciting time to be at T-Mobile, and there's a lot of opportunity ahead.

Great. Well, we really appreciate your time today. Thanks so much.

Thank you so much.