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

Welcome back to Citi's 2025 Global TMT Conference. For those of you I haven't met, I'm Mike Rollins, and I cover communication services and infrastructure for Citi. Disclosures are available at the back of the room. And if you don't have access or would like another copy, please e-mail me at [email protected]. We're also pleased to welcome Srini Gopalan, Chief Operating Officer of T-Mobile. Srini, thank you so much for joining us today.

Thank you for having me.

So It's great to have you here. And just maybe thinking back since you've joined the executive management team from the Board, can you give us a sense of what you've been focused on for T-Mobile?

Sure. Look, I've known this team for years now, right? And it's incredible what we as a company have built. And the center of this is kind of this totally restless hunger to smash through customer problems, which is the heart of the Un-carrier story. And it's been spectacular over the last 12, 13 years, right? But as we stand here right now, right, there's even more opportunity. And the future, as I look at it, is even brighter than the storied history of the Un-carrier. And that's a strange thing to say, given everything we've achieved, right? The heart of my belief in that comes from the fact that over the storied history of the Un-carrier, if we're honest about it, we've kind of played this game with 1, maybe 2 hands tied behind our back, right? For most of this journey, we've been #4 or 4 as a network. Our IT and digital capabilities, well, you should talk to our frontline about them, right? We've delivered everything we have despite those 2 things. And here we are today as the best network in the U.S. That opens out all kinds of possibilities. And similarly, on the digital front, we've made enormous progress. 75 million customers have downloaded T-Life, right? So we're at a place where I look at this and go, we've got an incredible culture, this whole DNA of working back from how we smash customer problems. We've got a history of not just saying it, but making it happen. And now we've got the best network and incredible digital skills. So bringing all of that together and driving forward is what gets me really excited about the future.

And so you're touching on this that there's more growth opportunity in front of you. What do you think the market is underappreciating about the opportunities of what T-Mobile can pursue to extend that momentum of revenue growth, expanding margins and the free cash flow conversion?

The heart of it for me is the gap between network reality and network perception, right? We're clearly by any of the tests, any of the metrics, the best network in the country today. But millions of Americans in the 4G era made a choice to choose based on the best network, and we weren't the best network then, right? We think something like 70 million AT&T and Verizon customers made a choice to pay a premium for having the best network, right? Now that we have the best network, the reality is we've destroyed that false trade-off, right, which is the heart of being an Un-carrier, right? Those trade-offs shouldn't exist. You shouldn't have to choose between network and value and now you don't. And even as we've gotten here, right, and we've seen the results of that, our SMRA shares have gone from 13% to 20%, but that's still 20%. There's a lot of runway still left. We look at the switcher pool and only 20% of switchers think we have the best network, right? The gap between perception and reality is huge. And what we've seen is that gap has closed for our existing customers, which is great because word of mouth, they're beginning to talk to friends and family about who the best network is, but still hasn't changed meaningfully enough for prospects. And it's not just kind of consumer prospects. When we look at enterprise and government, 10%, 20% share that at most depending on the subsegment we look at, huge opportunity for growth there. The good news there is these folks take their network seriously. So it's not just about perception. It's also them going out and testing it. And when they go test it like New York City did, they chose us for their first responders, which is kind of the most critical force. So that, to me, I could talk for a while about this, but that's the thing that gets me most excited, right? The difference between where we are from a reality and perception perspective. That, of course, means commitment to market here and focus on the network, but it also means making the broader switching process easier because the reality is a lot of people kind of probably already know that, that trade-off between value and network is something they don't need to make any longer. But there's inertia. And so we're looking at this through multiple lenses. How do we get the entire company motivated around this being the best network. It's -- and when you talk to people in the front line, right, they'll tell you stories of how 15 years ago, when we weren't the best network, they love selling the brand, but they'd always be worried. Now they're not. Now they know when they recommend that brand, we deliver on it. So this is kind of a multipronged focus on bridging that gap because that's where I see the payoff being highest.

And it feels like that this is something that as a company, T-Mobile has been thinking about for some time. Is there kind of a timing or steps that investors should be mindful of when they might see the next incremental legs of progress for T-Mobile on this?

So we launched our first big network campaign, and we made our big announcement once the results came in of the largest crowd source test, right? Now one of the reasons we've been thoughtful about timing about this is, one, we wanted to be absolutely sure that, that was a claim that we could stand by partly with consumers, but also with our frontline, right? And the second piece is we wanted to be in a place where we could say this not just today, but for the next 2 years. And in 2 years from now, we can say we're still 2 years ahead. Why do we think we're at that point? Because ultimately, a mobile network is fairly straightforward, right? It's -- how many towers do you have? What spectrum do you have? And how good is your core network? We have more towers. We have more and better quality spectrum because we have the lowest spectrum in each band. And core network, we rolled out our 5G stand-alone in 2020. I mean our competitors are talking about completing their rollout in 2025. So you put all of that together, and we felt really good that we are the sustainable network leader. And it's time we screened about it. It's time we were proud about it. And it's time, most importantly, that we liberated consumers from this false trade-off that they were having to deal with.

Now maybe a couple more on strategy. So T-Mobile has a different philosophy, it seems on converged services, different from your competitors that are pushing the narrative on convergence and bundling. How does T-Mobile look at this differently?

Okay. So where do I start here? All right. So I've spent the last 8 years working in so-called converged markets prior to coming here, right? Now first off, I think convergence is just a fancy name for bundling. It just sounds better, right? Now ultimately, what you're talking about is bundling wireless along with wireline services. The reality is 85% of Americas had that option for the last 5 years, right? Let's look at what's happened over the last 5 years. There's clearly been one brand, which has been the lead in share taking and by any metric you measure growth. Right? Now why do we think that's so? And often the question I get asked is, why is bundling, most people call it -- still call it convergence. Why is what's happened in Europe not going to happen in the U.S., right? So 3 perspectives on that. Number one, it hasn't happened in Europe. It's happened in some markets, but let's take 2 of the largest markets, Germany and the U.K. The level of bundling of wireless along with wireline is not very different from what we're seeing here, right? We're not saying this is a 0, 1. We're saying at the margin, some segments will do this. Secondly, when you think of it as bundling, the United States is the most bundled wireless market in the world because of family plans. I mean each of our accounts has an average of 3 phone lines, right? That creates stickiness by itself. It is the most bundled market in the world, right? Will some people choose to bundle wireline along with it? Yes, sure. Is that structurally going to change this market? We're not compelled by that argument. And probably lastly, a lot of the economic strength of bundling wireless with wireline in Europe came from the differential in churn. So wireline churn, Europe, 70, 80 basis points. Wireless churn, 100, right? The U.S. is actually the other way around, right? Wireless churn, 90 bps; wireline, 130 even on fiber, right? So this idea of somehow we're going to get this disproportional churn benefit is unclear to me and therefore, the economic firepower. I get why some of our competitors will talk about convergence. Look, I've been in an incumbent. If you're overbuilding copper with fiber and it costs a lot of CapEx and what you get is the incremental ARPU, you've got to find another angle.

So when you look at the fiber footprint today, it's approaching maybe 10% of the U.S. in terms of passings opportunities. I think that's like by 2030. What are the circumstances under which you try to make that significantly larger, whether you do it on a direct basis, build or own assets, partner or resell. Do you look to try to find a resell partner to try to get more access to it?

So let's pull back for a minute, right? I don't feel the need to be in broadband to defend my wireless base, right? I really like the U.S. broadband market because it plays to our DNA. Our DNA is pick big consumer pain points, ideally have an incumbent who's overpriced, trying to defend their back book and go in and smash through that. That's -- I could have described the broadband market in many ways, right, given cable and DSL is the heart of that market. So we like that market structurally. We're going to go at it, and we have been going at it hard through 2 routes: FWA and fiber, right? FWA, we've talked about 12 million customers. Just to be clear, if I was talking in fiber terms, I'd probably triple that number, right? Because that would be -- I could claim 35 million to 40 million homes fast, right? Fiber separately, we see as an equity and value-accretive opportunity, especially when we can get a few things right, right? When we're first to fiber or near first to fiber, when we can use our brand and distribution to drive higher penetration. And we're also incredibly humble when we enter these new businesses. We're not going to be the world's expert at kind of trenching and laying out fiber. We found great partners like Metronet and Lumos, who are the best builders in this business. Metronet is the largest scale pure-play fiber builder and partners like EQT and KKR, who understand this business incredibly well, right? That's why we've gone into the JV structure with these folks. It also helps from a capital efficiency perspective, right? Now will be wholesale? We're actually already reselling. The core of our business will scale using the JVs. Do I have a target number in mind in terms of homes passed? That's not how we think about this business. Right? Do I believe we're already at substantial scale, 12 million to 15 million plus the 12 million FWA customers. Are we looking at other opportunities? Yes, if they kind of pass through this whole lens of first to fiber, near first to fiber, a business where we can put our brand and distribution to use and good partners.

Very helpful. Maybe digging into the mobility business. You put out a release earlier today. You maintained the postpaid phone net add guidance, but you're absorbing a business that's losing phone subs. Can you talk us through what's happening in this business and helping the organic side of the outlook?

So let me paint the big picture first, right? Look, I think there's a secular trend, which is we're winning switches. Why do we have that secular trend? Because I've worked in a few telco markets. In many ways, we're a unicorn, right? We -- combining best network and best value is something I have never seen at the scale, right? And what we're seeing is a secular movement of switchers towards us. Our win share in switching has gone up through time. Now in that context, we're seeing some of those same trends play out as we think about Q3. You saw our Q2, Q3 has been strong. And we're in a place where we're really positive about the overall secular trend, but also our immediate performance, which is what gives us the confidence to kind of reiterate our guidance despite absorbing a business, which I think last quarter had 112 bps churn, lost 40,000 to 50,000. So that tells you that our underlying business is performing really, really strongly.

And within that context, last quarter, you delivered a very efficient quarter with better phone net adds on lower churn than what was expected. When you look at the performance this quarter, what are you seeing from the switcher pool? And does the upside more of a function of gross adds or churn? Just maybe a little context of what you're seeing out of the marketplace.

A couple of things, right? I think, one, we have seen over the year a very active switcher pool. We love that, right, because there are more jump balls. And when you've got the best network at best value, you like more switching behavior happening. I still say despite all of that, 99% of Americans don't switch in a month. Right? And you've got -- there's a question of what is your fair share, right? If you've got best network and best value, what is your fair share, right? So we like the switching activity. We've done really well from the switching activity. And as I said, on nets, we're really happy with progress so much so that we've reiterated our guidance after having absorbed the impact of U.S. Cellular.

Maybe turning to ARPU. ARPU was also strong in the second quarter and first half of the year. What are you seeing in terms of the drivers to the ARPU? And how do you look at the sustainability of expanding the ARPU?

So can I just start with, I dislike ARPU generally as -- I can see the users, but it's not my favorite KPI because it's kind of -- it does weird stuff, right? So if I add a line, right, which is CLV accretive, but at lower than the first-line ARPU, I have ARPU dilution, right? The way we think about this business is ARPA because our fundamental metric is account growth, right? Everything else lands up being a derivative of it. That's true quality growth that you're seeing, right? And so I'll try and answer the ARPA question rather than the ARPU question, right? So from an ARPA perspective, how do we think about this philosophically, right? You think of 3 drivers and therefore, sustainability wise, Think of 3 drivers to ARPA growth. Number one, kind of selling up the rate cut. And we talked about this in our Q2 call. Right? We're seeing really real strength in that. We're seeing kind of twice the number or twice the percentage of kind of premium plans on our new acquisitions as we do in our base when we kind of add our top 2 tiers, experience more and experience beyond. That is, therefore, going to drive accretion to ARPU, right -- sorry, to ARPA. Second, as we expand our relationship beyond the smartphone, as we add FWA, as we add things like watches, things like tablets, et cetera, et cetera, that relationship grows. And obviously, as we penetrate deeper into the household with more lines, that relationship becomes more valuable. The third piece, which is kind of rate plan optimization. Now we did that last year at points in time. We're extremely careful about doing that. We kind of test our way into it. We'll do it for selected legacy plans, and it will be a portion of our ARPA growth. But we'd like 1 and 2 to be greater than 3. And that's kind of why we think our growth is sustainable, right? And part of kind of that is also the zeal with which we want to guard our best value position because best value and best network is unbeatable as a combination, right? And thankfully, we don't have some of the incumbent issues you have with front book and back book, right? Because if you're an incumbent, you have this issue of your front book being cheaper than your back book, you need to fund that acquisition cost. So you jack up back book prices, then it becomes even worse because churn starts kicking in, right? We don't have that issue, right? And therefore, we can think about pricing much more from a what is consistent with creating a win-win with customers, right, and therefore, sustainable.

And when we think about just the third piece, the pricing. So of course, focus, as you mentioned, is #1, #2 in terms of that list of 3. But on the repricing side, what was interesting is over the last few months, you have these new premium plans that add the taxes and fees to that. There's other value that you put into the plans. How are those resonating? And is that a tailwind that might be underappreciated as a contributor to service revenue growth over the next 12 months?

Look, as we think about kind of moving people or people selecting up the rate card, obviously, the way we think of this is the bundle as a whole more compelling. I've shared some of those numbers. It clearly is. Right? And that is working. And it's always interesting to me that different people find different things interesting. So I mean people who are like, I love the WiFi on planes, right? My daughter loves having Netflix on us, right? The -- and some people love the international roaming. T-satellite with our work with Starlink is now a big part of that. So we're -- so all of those come together, right? It's difficult to kind of pass it out. All of that come together to create a compelling package. And we make decisions on things like taxes inclusive versus not when we look at the package as a whole. And in terms of is that working, you can see the results. It clearly is.

What are you expecting in terms of upgrades as we're going to the seasonal device upgrade cycle?

So look, and I'm not being glib. We like upgrades up and we like upgrades down. Right? Upgrades up just means more jump balls. Upgrades up means there's more switching behavior. Upgrades down means it flows through to the bottom line and our already extremely strong cash conversion. And it allows us to reinvest elsewhere on growth, right? So we like it both ways.

And then in terms of the competitive landscape, anything else that you're seeing incrementally in terms of changes from the cable converged promos or some of the acquisition offers that are in the market.

Look, I think it's worth just zooming out for a minute, right? We can talk a lot about kind of it's competitive, it's dynamic, et cetera, et cetera. But let's look at this industry since 2022, right? In the last 3 years, we've seen a 50% growth in free cash flow. Customers have benefited from 3 to 4x more speed and 3 to 4x more data. What they're paying in real terms has come down. This is a fabulous neighborhood. We like winning in a fabulous neighborhood, right? There's always going to be kind of shifts in the shape of competition, sometimes rate plan focused, sometimes device focused. The key thing for us is CLV, right? And even as we've gotten more into device promos, our CLVs are really strong. So we're feeling good about this on the whole.

And is there another frontier for T-Mobile where you feel like you're underpenetrated and you have a real opportunity to win?

I think the next frontier, I think there are several other frontiers. But the next one and the next hill we're focused on taking is network. Right? And that's because of this whole gap between perception and reality, the spin-off benefit of what that means in terms of really winning share in the network-sensitive segments, not just in SMRA in business and enterprise, but also in cities like New York, where we have high shares. But again, we have a huge opportunity with network seekers.

And just maybe on the SMRA side of the equation, with the acquisition and integration of UScellular, can you talk about accelerating the timetable for synergies and opportunity and how that kind of fits into the overall SMRA strategy?

Yes. Look, UScellular has benefited enormously. Our integration with them has benefited enormously from the work we did with Sprint, right? We love the opportunity with UScellular because -- I mean, we're getting something like 47 megahertz of spectrum across 37 million POPs, plus thousands of incremental towers, right, which takes this whole best value and best network to a different place in communities. I mean, I was at Oklahoma City, right? And they are unbelievably excited by UScellular because for a long time, they've kind of competed on value, but they've been waiting for this day when they can stand up and say, in my city, T-Mobile is the best, right? And that is now going to become a reality, right? So as we talk about large parts of the country, right, in landmarks, where historically, we've been not the best network, and we're becoming the best network today, whether it's UScellular or without, that's just really exciting from an energy and momentum that it brings. On the specifics, like I said, we've learned a huge amount from Sprint, which is why we've been not just able to increase the synergy amount from $1 billion to $1.2 billion, but also excitingly change our time frame from 3 to 4 years to 2 years. So good news all around.

And just you mentioned the network leads me to think about spectrum. And just curious for your interest to acquire additional spectrum. And specifically, if you could share some perspectives on whether or not T-Mobile has taken a look at the EchoStar spectrum position recently and if it has bands that would benefit T-Mobile and your customers?

So start with kind of our overall capital allocation and how we think about spectrum. Capital allocation, we start with what our leverage ratio is. We're comfortable with it being at 2.5 right now. We then work back to say what are all the investments that we want to make in the business and then bottoms out and that includes spectrum and then bottoms out that into shareholder remuneration, right? Now specifically on spectrum, let's take a couple of examples on the EchoStar spectrum that was transacted recently, right? 345, clearly, we had no interest in. We've got the kind of Goldilocks spectrum in mid-band. We've got 184 megahertz of spectrum nationwide on 2.5. 2.5 gives you 70% more coverage than C-band, right, which other people have spent $85 billion for. Right? 345 is encumbered in certain areas. We sold our 345 spectrum. And we -- in the context of having 2.5, it's kind of didn't make sense for us. 600, now we're the natural home for 600 spectrum. But this gives -- but our view on the whole EchoStar transaction should give you a sense of how seriously, responsibly and rigorously we take this whole capital allocation thing because we went about approaching it exactly like the way we make most decisions on spectrum, right? Spectrum is useful for coverage or capacity. 600, most of the markets where EchoStar has spectrum, we have more than enough spectrum from a coverage perspective. More spectrum than adds to capacity. Right? Now the question then is there's 2 ways of adding capacity given multiplexing, right? You could just add more sites or you go pay for the spectrum. So we horse race what it would cost to build sites versus the cost of the spectrum. And it didn't make sense for us to pay the price, right? That's how -- that's the rigor with which we approach each of these decisions. And just to be clear, when we think about these things, we don't kind of add in things like FWA because we're committed to a fallow capacity model on FWA. And we've talked about that at length in the past.

So speaking of FWA, you've kept up momentum in terms of quarterly net adds in that business. What's been driving the momentum in terms of broadening coverage versus deepening penetration in existing markets?

Look, FWA is just a fabulous story. I just put this in perspective. 2 years ago, we had 3.7 million customers. Today, we have 7.3 million, right? Each of our customers uses 25% more data today than 2 years ago. And our speeds have gone up by 40% to 50%. Today, the average customer uses 561 gigs, right? Our speeds have gone up 40% to 50% and our mobile, our wireless business, the network has improved substantially as evidenced by all the stuff we've been winning. So we love that model. Now if you look at what's been driving our growth, it is a superior product. Our NPS is 30 points higher than cable, right -- where both products are available. It's just a fabulous product, easy to use. It's why we have -- we still have a wait list of greater than 1 million customers. And that again goes back to how rigorously we manage this process. When we say it's fallow capacity, it is fallow capacity, right? We've also seen strong growth in business, which we like because if you think of a mobile network runs 24 hours, it's pumping out gigs all the time, right? But you build that network from a wireless perspective really for your peak between 7 to 9. Business FWA has a very different peak from consumer wireless. So that's clearly utilization of fallow capacity. It's another kind of demonstration of our commitment to that model. So it's great product, new segments, all of the above. And there's still a lot of hunger out there for the product.

So momentum is still going?

Absolutely.

And on the fiber broadband side, so a newer business for you guys. You put out some goals, I think, for the second half of the year. How is that performing?

So we said 100,000 nets. We're well on track. We like that business. We like the fact that it's still like really early days, right? So outside of kind of sharing the latest daily sales spreadsheet, it's hard to kind of talk about any sustained trend on that. We feel very good about the 100,000. I think importantly for me, strategically, the direction of travel was we can bring some real value to this category. As I said, when we think about new businesses, it's smashing pain points, are we in a unique position? What I like about it is the brand, the distribution, a lot of the hypothesis behind that are continuing to -- we have even more conviction in those than when we started.

So as you look at the multiyear guidance that you have, are you identifying any incremental opportunities, whether it's for growth or for efficiencies and margin?

I'm not going to do an update on our multiyear guide, right? We laid out a story at Capital Markets Day in terms of the thesis, which was a combination of kind of network, the huge steps we're taking on digital, the big underserved segments, the big segments where we're underrepresented. What I can say is as we sit here today, I think our conviction and our kind of -- our sense of the doability of that plan and all of that has only grown, and you know this team, right? We've got a track record. We go out there, commit and then make sure we nail it, right? And that's what you should expect from us.

What I also remember about the analyst meeting is you talked about the T-Life application opportunity. And the opportunity to just create more of a digital healthy experience for customers. You now have -- you mentioned 75 million on the T-Life...

75 million customers downloaded.

Downloaded it. And so what's your progress towards this goal of reducing that inbound customer care calls by 75% and leveraging AI to improve the customer experience?

So I'm going to sound like a stuck record here, but look, we never started any of those conversations back from cost, right? We started those conversations with -- there's a fundamental pain point in this industry, yet another ridiculous trade-off. You can walk into a store and kind of get great service and empathy. But if you want to do it by yourself, right, there's a robotic press one to do this or there's a really clunky website, right, which just is a trade-off you don't need to have. You can have great service in store. We'd love you to have kind of an expert in your pocket wherever you go, right? And the experience you get is identical. We've made some really strong progress towards that because our approach hasn't been about taking out cost. It's been about that will come. That will naturally flow as a result of us taking out the pain points, restructuring our process, right, and doing things like helping our agents deal with these calls better. We're really happy with the progress we're making, and we've got clear milestones, getting capability ready, driving customer adoption. The changes started to happen. I think we shared the last time that one of our biggest transactions, which is upgrades in store, we're seeing now more than 2/3 of our upgrades are being done on T-Life. So the progress is really strong.

And the engagement -- so outside of the store, so after people leave and then just are they managing their service experience, how are you seeing engagement on the app? Of course, you've got T-Mobile Tuesdays on there.

So let me give you a reflection of how strong the engagement with T-Life is. When we ran the Wingstop offer, they ran out of chicken countrywide, right? The same thing happened with Domino's on Dough, right? So this -- the engagement on T-Life is incredibly strong. And there are some weeks where we're more downloaded than TikTok on the App Store, right? So the engagement is super strong. And when we talk about AI is now an integral part of the app, we're really pleased with our partnership with OpenAI and everything that we're doing together. And AI is now an intrinsic part of every part of our business. Our customer-driven coverage has strong elements of AI. Our app is infused with AI, right, with this thing we call IntentCX. When you call our service center, our experts actually get a whisper in their ear with something called Expert Assist, which says this customer is probably calling about this or they get a screen, right? And so that sort of stuff just means our ability to take pain away from the process and remove this contradiction or this false trade-off between in-person grade, everything else really hard and clunky. And we'll keep pushing you towards that everything else even if it's really hard and clunky. That's not customer-friendly.

So when you reflect back on your experience on the Board and now in the management team, how is your view of capital allocation evolving, including the mix of what you're doing with the dividend versus buybacks?

It's -- I outlined our broad principle of how we allocate capital, right? And within those broad principles, we're incredibly flexible. I think the difference between the Board and management is when I was part of the Board, I thought we had an incredibly rigorous discussion on capital allocation. As part of the management, I realize I'm scratching the surface of this because the quality and debate and how seriously we take our investors' money and the fact that we're making big capital allocation decisions on their behalf. And a good example of that is walking away when spectrum is too expensive, right? We take that stuff incredibly seriously and the level of passion and debate about that is unbelievable.

Is there anything else you want our group to just keep in mind as they think about T-Mobile?

Look, like I said, I've been in multiple telco markets. I have not come across a unicorn like T-Mobile, where we've got all of the ingredients, best network, best value, best experience and an incredible culture. All of that put together, to me means much as the last 10 to 12 years have been incredibly successful, right? The best awaits us.

Thank you for joining us today.

Thank you.