T-Mobile US, Inc. ($TMUS)

All right. Good afternoon, everybody, and thank you for joining us for this afternoon session with T-Mobile. Thank you to those of you who are joining us on the web as well from MoffettNathanson's 13th Annual Media and Communications Conference. And I'm delighted to welcome Peter back to our conference. This is T-Mobile's 12th appearance in 13 years at our conference.

And if I think back on those years, it's really been an impressive journey, I think, from upstart challenger in those days to, in many ways, the industry's leader. So we've got a lot to talk about today, convergence, FWA, satellite. We're going to get to all of those. But just because it is so topical and with Deutsche Telecom having reported earnings and spoken this morning. I want to start with the reports in the news that over the last weeks about the possibility of corporate activity between you and T-Mobile. And -- between you and Deutsche Telecom. And make sure I understand the corporate governance aspects of that to protect the shareholders here in the U.S.

Awesome. By the way, thanks for having us again. It's always a pleasure. I know we had our safe harbor statement up there, so I always point you to that. I'll be making forward-looking statements and, of course, non-GAAP measures. So yes, let me start there. And really I just don't have a lot to add to what speculation and the hypothetical transaction out there. But -- there have been a lot of inbounds around, okay, if a hypothetical transaction happened, what's the governance around it. And as a result of those inbounds, our interpretation of Delaware law is that any such hypothetical transaction would require a -- what's termed the majority of the minorities, so the majority of disinterested shareholders. And because of the volume of inbounds on that, we have confirmed that, and DT has confirmed that to us as well as the independent directors on our Board have confirmed that to us. So that's really the governance structure, and that's obviously important for people. But as I said, it's a hypothetical speculative transaction. And honestly, we're spending all our time focused on the business and driving the differentiation and the growth there. So happy to get that out of the way, but there's just not much more for me to say on the speculation.

Understood. Okay. So now let's dig into the business. We upgraded your stock to buy again back in April after a couple of years actually on the sideline, in part because we had updated an analysis on geographic cohorts. And while we actually talked about that in the context of the rural cohorts. I think the most impressive part was that you're back to, at least by our numbers, seeing accelerating share gains in the urban top 100 markets where you were already the market share leader. Talk about that, if you would. Geography is only one way to slice it. There are all kinds of demographics or psychographics or that sort of thing. What are the market segments that are driving that reacceleration in the top 100? And what kind of legs have in your mind?

Yes. And you're right. And really, we're seeing growth across the board, whether that's in smaller markets and rural areas or the top 100. We tend to segment even within the top 100 we've long talked about. There's really three main cohorts that we look at just from geographies. And that is the ones where we are a market share leader, including sitting here in New York where we're over 50% market share and continuing to grow. And then more cohorts that behave actually similarly to our smaller markets and rural areas. But -- it's really -- whether you look at subsegments, demographics, geography, I mean, in reality, and we tend to distill this down to three simple things, but it's what people care about, and that is can I get what I deem as the best network or a very reliable network? Can I get the best value? And I want really great experiences. And as you know, you talked about the arc of -- we've been here for 12 years and the growth of T-Mobile. And it really started with focusing, of course, on the value side of the equation and the experience side of the equation. And with the merger with Sprint and our ability to then unlock the 2.5 gig spectrum, it's now taken us to a place where really any real objective third-party measure out there that's based on real customer use, real device use. I mean, it puts us as the best network. And that's a cohort of customers that in the past, we simply couldn't attract, right? So it was really growth based on value and experience. And what we saw, in fact, in Q1, we just had the highest ever share in terms of new accounts that came to T-Mobile, it was our highest ever share of those accounts that came in saying that they're choosing us for network. So the word of mouth and the ability for consumer perception to catch up with where the network actually is, is starting to happen, and that's certainly helping to drive a whole new set of opportunity for us. We talked about it as at a minimum 20 million families and businesses that we call network seekers. And while all elements of that equation are important to them, the most important to them is the network quality. And that's one that is certainly starting to drive more and more significant growth in the top 100. And that's how -- even in markets like New York, we can continue to grow. It's fabulous.

So are there others that come to mind about -- so that's psychographic segmentation, if you will, of the network seekers as you described it. But as I think about all -- whether it's demographics, whether it's income levels, whether it's ethnicity, whether it's -- are there other segments that you say, here's somewhere where we see a significant growth opportunity that we're just leaning into?

Well, a lot of them are intertwined, right? So to your point, network seekers tend to be higher prime customers. And so as we see flow, in fact, we had more in terms of additions and new accounts coming in to T-Mobile that were more prime than we had on an absolute basis than we did last year. And that comes part and parcel with network seekers, but it's growth across all the segments. And you see that in smaller markets and rural areas as well. There's plenty of customers who place value first. And many of them, by the way, when you go through analysis and your customer surveys, we in the industry use jargon, like, well, is it coverage? Is it reliability? Is it value? A lot of times customers put those all together and say, well, value is what I pay for what I get. And so it's really hard to discern every single demographic and saying, what is specifically motivating them. But we're seeing growth across all of it, whether it's social segments, whether it's age demographics. And by the way, you don't need any more fiber. I heard you might need more fiber today. You don't need any more fiber. Looking great -- or across geographies. So -- and then it's because, again, it does distill down, it's way more complex, of course, in how we approach it, but it distills down to you even jokingly said in the past, well, if you have the best product at the best price with the best experience, shouldn't your market share be 100. And I don't think we're quite that patios, but we certainly have a lot of ambition and there's a lot of room to run when that's the formula.

Well, in those -- so in the nonurban cohorts, I think I wrote my first piece about the rural opportunity for you guys 10 years ago now? What inning are we in? That's been a story that I think people understand pretty well, but it's not over yet.

Yes. It's -- to me, I feel it's still early innings. And while we're at 24% market share, that includes the acquisition of U.S. Cellular, I mean, we see continued growth and runway there. And it is because we're finally bringing this equation there. And there wasn't a lot of investment in many of those smaller markets and rural areas in terms of network, and there certainly wasn't that much investment in terms of customer value because that was a place where maybe only one of the two we're playing. And so there wouldn't be a great balance for consumers of what you get for what you pay and our ability to unlock that. And remember, we're doing it in a very, very smart way. We had about 4,000 greenfield site builds last year, a lot of them were in smaller markets and rural areas, but all driven by what we call our proprietary customer-driven coverage model, which is really looking at. Where do consumers really use and need the network. And that's not a POPS coverage-driven model. It is really where consumers going, points of interest, critical roads. And that becomes even more important in a smaller market or rural area, where it's something that maybe a lot of people don't live there, but it's an interconnecting road that's tremendously important. And you cover that and our really efficient capital approach, finds those areas covers them, does the build and the word of mouth is just growing. So I think there's a lot of opportunity because of the formula there.

Yes. And it's interesting to see you're really leaning into that now. If I think about your Billy Bob Thornton advertising, for example, which is sort of aimed at those low-density markets. Is that sort of same question I asked about urban. Is there something different that those customers are looking for versus urban customers? Is it more coverage rather than price value? Is it price value more than coverage? What are the attributes that drive success in those markets?

It's not dramatically different than the top 100 markets. You have a group of network seekers, you have value seekers. I think what consumers are really looking for that they were hungry for a long time. And it's -- again, if you go to an average consumer and do a survey, whether you ask about, well, is it reliability or coverage or speeds. They see their network experience as a network experience. And they may consider, well, if it works where I need it to work at the speeds I needed to, that's what I define as reliable. So we kind of take all of them with a grain of salt and focus on all of the network related consumer sentiments and driving those up. And so I think it absolutely is. I want this network to work for me where I need it. And I want to pay a fair price for it and great value and get great experience. So that's -- it's just -- I know it sounds really simple, but when you have competitors who don't focus on the equation...

Is that why you leaned into T-satellite and the satellite opportunity earlier than and more forcefully, I guess, than your competitors -- it was part and parcel of that coverage value proposition for rural customers? Or was it more urban customers just as likely to go traveling in semi and -- or how did was it part of that rural urban SKU in your mind?

No. What it really was is -- and this is part of the DNA of who we are, which is let's work together to codevelop something new for consumers and their benefit. And we co-developed this with SpaceX. We're very proud to put it out there. We always much like with a lot of other of the innovations that we bring to market. I always expect that ultimately those go to the broader consumer marketplace. We expect that our exclusivity will end. We always anticipated that. I think we spoke about in the Q1 earnings that really what we've seen as a part of T-satellite is that it's a great complementary service for consumers. But it is relatively low usage and concentrated around areas like national parks, as you might suspect. But it's probably a testament to just the strength of the terrestrial network that we have. And again, this customer-driven coverage model, which covers a lot of those places where it's important for consumers. So -- that wasn't really the thought process of we're targeting smaller markets and rural areas or top 100. It was let's drive another consumer innovation into the marketplace and others will ultimately follow. And now you're seeing Amazon and Globalstar and that announced transaction. And this is a perfect time to have more competition in this complementary important but very low usage and kind of geographically contained.

I was going to say, have there been any surprises in that? There was -- early on, I think there was a big debate about is this going to be a meaningful driver of brand choice. Is it instead going to be a separate subscription service? Is it instead going to be a way to uplift people into premium plans? It seems like it's coalescing into that last -- the last of those three primarily, is that right?

There's a tremendous amount of things that are embedded in our higher-tier plans that have consumer self-select up there. So this is just one of the elements of value. I think what we've ultimately found because, again, because of the usage characteristics, it's complementary, good and limited to primarily areas like national parks. And as a result, it really hasn't driven a lot of a la carte purchasing of the service themselves. I think of it as well, just another part of the value equation that consumers can see and maybe it helps on the margins with self-selection of the rate plans, but there's just so much other incredible value that drives consumers up those rate plan. So again, I think it's a great complementary product and we, as T-Mobile is, is on to the next thing.

So I want to close the book on this topic, but I imagine this is probably very top of mind for a lot of people in the room. And that is -- are the LEO satellite services competitors or are they complements? .

Yes. They are absolutely complements. And that's why we're excited that Amazon and Globalstar partnership is getting in there. You have AST getting in there. So I think it will be -- they'll have a great competitive set there for the complementary service. But when you step back and think about -- for example, what makes our network now the best network relative to a Verizon or AT&T and you think about, well, how does that compare to what a LEO satellite can do. And I know there's been a lot of talk about, well, in building characteristics and the inability of satellite to cover that. But just if you step back and think about, we have 400 megahertz of mid- and low-band spectrum deployed across 85,000 sites and like 57,000 at last count small cells, coupled with the Dr. Sam magic of continuing technology advancement. That's -- I mean that's a massive build and a massive terrestrial network. And just -- we don't see this as really a competitor, but more as a complement. .

So I'll put you on a spot. I got a very clear and decisive answer from your competitor this morning. Is there a scenario where you would give an MVNO agreement to a LEO satellite operator?

Yes. I think we -- I mean we've answered that before, and Srini has where -- we're just not seeing the pattern match between what makes us think about what could be a good MVNO partner, and that's usually attracting certain specific demographics or segments or some subsegment of the consumer base or business base that we don't have an advantaged ability to go get after them. You just don't see a pattern match between the satellite constellations and that. So generally, it doesn't seem to fit.

So if I was Jim Carry, I would say. So you're saying there's a chance.

That's not what I'm saying at all. I'd say the opposite.

The business opportunity has always gone hand in hand with the rural opportunity. So let me ask the same question about the business opportunity. What inning are we in, in the business opportunity?

We're in early innings of the business opportunity. Remember, we laid out at our Capital Markets Day update, we're expecting double-digit revenue growth from the business opportunity. I think we're well on our way. And it's really driven off the fact you mentioned innings, so I'll have to tout our automated ball strike system. But it's when you think about...

That's right, that's your [indiscernible]

Hopefully, you don't hate the automated system .

It's so much better. It's really good.

It's pretty cool. But what really drives the business opportunity more so than because it's not just let's go over phones and tell CIOs that we have a better network and you should replace all of the phones in your business base. It starts with and where we're heavily advantaged on this is, what is the problem we're trying to solve for you? And what's a real business problem that we can help you solve and then the other stuff comes, the phone business comes. So when you think about automated ball strike or what we just did with the PGA, they'd have to go out to a tournament extreme miles and miles of lines everywhere and then you have static locations based on those. Now you have 5G-enabled broadcast that can run around like it just enables a different solution for them, much more simple, but also enhances the experience. And then the other business come. We talked about under-weighing operations at airlines that we've been able to replace WiFi. So it's really the innovation where we're uniquely -- because of the technology advancement on the network uniquely qualified to solve, that is also driving then the other aspects of the business. And that's a larger enterprises and government, but also in like the midsized space where we just introduced super broadband. So taking away the complexity, especially at a midsize business that doesn't have massive IT departments to go manage ISPs and all that. What here it is a combined solution. It's a T-Mobile innovation, plug and play with to connections. You don't have to manage it. It's solving a real problem that they have. And then the phone business comes, too. .

I want to turn my attention to convergence. Your new financial reporting structure emphasizes convergence really clearly. It focuses exclusively -- almost exclusively on postpaid accounts, which include both fiber and FWA as well as wireless, rather than subscribers. Talk about that, is the new intent of the reporting structure to emphasize convergence? Or is it some dissatisfaction with the way the industry is reporting sub numbers to the point where sub numbers are just not viewed as meaningful anymore?

Well, it's not emphasis on convergence. By the way, we've long been reporting accounts and ARPA. It is really trying to align. And what we saw out there in the industry and what we saw even in Q1, which was so funny to me is you really see a misalignment, particularly when you have a hyperfocus on line. So you even noted this with one of our competitors on how do you gain so many lines and lose a bunch of accounts? What consumers don't think about their relationship with a T-Mobile or our competitive set as I have 7 different lines, for example. They think about the relationship on an account basis. That's how they choose to switch their entire relationship. That's where they choose to add and it's not just fiber and broadband. It's all sorts of other connected devices, of course, multiple phone lines where we've been so successful in family bundles in the U.S. and us, in particular. And so it really is not only the way consumers buy but then it's most directly translating to. Am I actually creating value instead of losing accounts growing lines. I mean, if you look -- I kind of had fun with this at our earnings call, but -- you saw what we delivered from a Q1 year-over-year perspective on service revenue, EBITDA, free cash flow margin, those are the value-creating things that everybody should be looking at. And when you focus on -- hyper focus on just lines and you're losing accounts, Well, suddenly, you had like a Verizon when you adjust Frontier out that was down service revenue year-over or you have AT&T, where you could take out that massive contract asset increase, you had EBITDA down year-over-year. You have the highest churn increase. So to us, it's -- let's focus on accounts ARPA directly translates the best into postpaid service revenue creation and value creation. It mirrors how customers buy, but it's not some sort of convergence thing. If anything, it's a bundling thing because that's how consumers thing.

Okay. So I'll take your argument that it's not about convergence. And that your focus is not by putting wireless and wireline and FWA together. It's not a convergence signal, if you will. But you've called Convergence a myth and yet you've also talked about the opportunity to pick up additional fiber assets if the opportunity arises. So how do I reconcile those 2 things? If there's really a benefit to by using the T-Mobile brand and attaching it to fiber, either because T-Mobile wireless help sell fire or vice versa, then isn't that convergence?

Yes. Well, I think we've long been clear on our position on convergence, which, by the way, has been in the run rate of the industry for like over 5 years now, and you can see our results is that it is, for us, not about while we need some sort of bundle because that's all it is, bundle of wireline and wireless to be able to effectively compete because -- and as we step back, you say, well, you as a consumer don't get any benefit, no functional benefit from merging wireline and wireless, used to be maybe long ago, you wouldn't have to write 2 checks. But the vast majority of consumers are on auto pay. They're not thinking about writing paper checks. You don't get a functional benefit from it. So what is it then? Well, it's a bundle and an ability, in many cases, to get a discount. And so for us, it isn't about, well, we have to have that to play effectively in the competitive dynamics because that's how consumers want to buy. Consumers aren't wanting to buy that way. They have considered purchases around both. Mobile is the much more considered. [Audio Gap] scale in this place. Well, we're going to have 18 million to 19 million customers between 5G broadband and fiber to the home, excluding the 2 deals we just recently announced, that's a lot of scale.

Yes. I'm going to come back to the 5G broadband in a second, but I'm going to just hit this topic one last time because I know it's a question that I get more than any other question probably about you, I suspect you do too. And that is, as emphatic as Srini was on the conference call about we are not interested in cable. I get the question constantly. And I suspect it comes from a place of saying, okay, but cable is the only scaled alternative to having a wireline footprint. And there are clearly investors out there who believe that there is a need for a wireline or at least there's a scenario where there's a need for a wireline footprint. Is FWA a fully sufficient alternative to that and indefinitely permanently a solution?

Well, we certainly see it that way. In fact, obviously, we have the confidence to just increase our guide with respect to 5G broadband up to 15 million subscribers. But what's most impressive -- remember, this is a technology set that's rapidly evolving. And we just do an arc of 2 years, we've increased our customers dramatically they've increased usage according to what we expected. And yet our speeds on fixed wireless have increased by 50%. By the way, they're also 50% faster than the next fixed wireless competitive that we have. And what's really cool is when you look at our latest generation routers, our latest gen CPE, which are obviously the best tech at the moment from a CPE perspective that rapidly evolves, be able to harness the best tech that we have in the network. You have actual lived over WiFi download speeds of near 400 megabits a second, that's over Wi-Fi. So take away the marketing spin of fiber, which is, okay, if I plug my Ethernet core directly. And when you look at what fiber lived experience over WiFi is, it's right there. And this is something that's increased by 50% in 2 years on a rapidly evolving technology. So to us, 5G broadband is a durable long-term technology, especially the way we approach it with capacity and it's a smart way to monetize all that excess capacity that you have. It's rapidly improving. And by the way, has the highest NPS scores of any category, even above fiber.

Why is AT&T is still reasonably new to that category, so I'll leave them out for a second. But Verizon is seeing, I think it's at least 10 straight quarters of decelerating growth, you haven't. You've actually started to reaccelerate a bit. What's driving the -- is it directly versus Verizon and that you're competing better against Verizon? Or is there something different that's making the reacceleration for you looks so different than what Verizon is experiencing?

In terms of where we're getting our share on 5G broadband, the majority is still cable. And when you step back and say, well, why is it different than Verizon, maybe my answer would be, well, it's the same as why is it different on mobile, where we're hyper focused on we're driving the best product. And I can't speak as how obviously they do their selections. But we have the best and most advanced network with the best spectrum. The densest grid, and we have Dr. Saw an team who are massively pushing technology forward and will lead into 6G as well. And you have a fallow capacity model that is very, very, very focused, mid-30 million expense, we call it, where we're modeling out at that Heckman level, what is capacity, what is utilization going to look like, and when we have excess capacity there, far into the future, that's where we approve somebody for 5G broadband. And that's why you can monetize the capacity while your network speeds are increasing, your 5G broadband speeds are increasing. I think it's the focus on how we approach the tech. Of course, how we approach value with respect to 5G broadband is similar to mobile. And experiences, and it's simple. It's a plug-and-play, a great via T life, onboarding experience, and the proof is in MPS. Everything we do all distills down to, well, what do customers think? Well, customers think this is a category and our product specifically that they appreciate more than fiber as a category.

Verizon said this morning, my math was wrong. I'll stick up for my math. But the...

I would too.

But I'll ask you the same question, which prompted that response, which was average usage of fixed customers and average usage of mobile customers would suggest that as much as 2/3 of all the traffic on your network today is coming from your FWA customers. That -- and maybe 6% of your revenues, and that was as of almost a year ago at this point. That doesn't give you pause to say, wait a second, is there a mismatch of network resources here relative revenue we're getting for?

No, not at all. Quite the opposite. So it's not near 70%, but it's up there. And I don't think your math is that far off on any of us. What this represents is because, again, because of how we approach it, which is, well, this is capacity because of where we are from a spectrum position and macro position and technology position, it's basically unutilized capacity. And so it would have been there, you would have been paying for all of it, vis-a-vis the spectrum, the site leases, all of that, the backhaul and not monetizing it at all. So what it actually represents is a brilliant way to monetize that capacity. And one other thing to, of course, note is 70% of traffic is a far cry from 70% of network capacity, obviously, as a percentage of total network capacity, it's massively lower. So to me, it should be, hey, why couldn't we do this earlier? There was reasons we couldn't do this earlier and why we invented this category of this is a smart way to create a multi-multi billion-dollar business with postpaid phone like ARPUs and CLVs, ARPA accretion, customer satisfaction, all by using more smartly the things that you had sitting there unutilized before.

So it's a related topic, but it sort of segues to AI, which I think is a really interesting topic for wireless. Part of the reason you have excess capacity, at least relative to what we would have predicted a couple of years ago is because the growth rate of mobile traffic consumption on traditional devices decelerated somewhat. There's an argument that it will radically reaccelerate, whether it's from delivery drones or driverless vehicles or robotics or meta glasses or all kinds of different applications. I know John Saw would say that's coming. Do you see that coming? Is that the sort of the house view that there is about to be this explosion in network demand?

We're not sure. The reality is we haven't seen it yet and a lot of the workloads from AI at the moment aren't all the way through to an end user device. And where search has gone, it's kind of just replaced traditional search. So it's been a substitute there. But the beauty of it is, this is a network where we're factoring in increased utilization. We have a lot more capacity. We have a lot more capacity with advancement coming, and so we're best positioned. If that really does materialize, then that's a great position to be in from a monetization perspective. But we're certainly and the network team is very cognizant to have we're protecting and creating a lot more capacity in the network that this would have to be something like, well, we've never seen ever, ever, ever before to really be problematic. And then there's ways to deal with it. And it, of course, brings up a lot of monetization...

Yes. Yes. And mobile edge compute and that sort of thing being one of the...

Mobile edge compute.

The AI version of mobile edge compute, which is using those facilities for inference and that sort of thing?

Well, it's so different. I mean, we were never -- we never put in our plan, mobile edge compute way back in the day, and we didn't have to take it down. We were kind of like, oh, we don't think this is going to potentially pan out because mobile edge compute, as it was originally thought of many, many years ago, kind of like a millimeter wave strategy that was also misplaced.

By the same company.

Perhaps, was really about, okay, well, I'm going to take 20, 30 milliseconds of latency away from some application that Well, I'll go faster than it can get to the cloud and back. But there was really no -- well, okay, what tangible benefit is that going to bring? There wasn't -- what physical AI brings is something totally different. It's not MEK and the advent of MAC. It's a completely different architecture, integrated with the network and doing things that actually can bring and solve real problems. So for example, if you really believe there's going to be a large physical AI workforce for drones, all the more critical that they have the ability to know where they are and when they are and where they are relative to other things. Space time, coherency, as Doctor saw calls it, I too have a physics degree, but I'm nobody compared to Dr. Saw. But it's -- like, listen, if you wanted a fleet of -- let's just take a robotics use case. If you wanted to have a fleet of robots out there, that would have all the on robot processing capability sensoring capability to know where they are in relation to everything they need and everybody else. It's just -- it's not feasible. Well, you can do all of that processing on the network that inherently, particularly where we at in 5G has a lot of space time coherency in a way that clouds can't provide. So now you can take compute off the robots, batteries off the robots, sensoring off the robots and enable it with -- at the edge physical AI. I think it's going to be very interesting. None of this is in our plan from a service revenue assumption or anything like that. But it's -- let's be the technology leaders. And let's build the network to be AI capable. We're not incrementally investing as a result of this. It's going to be a byproduct, fallow compute. So I think we're excited about it. Nothing is in the plan about it. We're going to be best positioned for it, but it's different than MEC.

Okay. Back to the gritty nuts and bolts of reality and where we are today. All three of you and both of your competitors have talked about getting away from the promotional handset model. Talk about that. it looks like what do you think is coming with the next iPhone cycle with foldables and that sort of thing. Is there any way to actually not just get sucked into this kind of perpetual treadmill handset subsidies? .

Yes. You've seen us make moves around this already in Q1 and Q2 optimizing. And by the way, this doesn't mean we're going away from device subsidies. We're just really optimizing it for what consumers really want instead of this broad-based rush to well, who's got the fries phone? I think you had the term of iPhones dropping from helicopters still couldn't get the accounts they needed as a result of that. But -- so be it -- and it really is, let's focus in on what makes T-Mobile special for consumers. And it's not the once every few years device upgrade cycle and how free it is. For some subset of customers, that's important. It's always going to be important. We don't want to subsidize anymore. We have no appetite for that. We have an appetite to focus and hone in on what are all those incremental value elements and experience elements and network elements that you get with T-Mobile, that is how you live with our service and our product every single day versus once every 3 years. And that's what resonates. That's what allowed us to have delivered 217,000 postpaid account net additions in Q1, do that, and this was important. Do that with inflow ARPUs actually 20% higher than outflow ARPUs in Q1. And -- so you're attracting really great consumers. And you can't do that just with here's a free phone. You have to demonstrate to them the product and the value that you're bringing. And so that's really going to be more of the focus point. We've trimmed an optimized already in Q2 on device offers, I can't read the future. I don't know what a foldable device is going to look like or cost or anything like that. But the focus from us, you'll see a lot more of. We don't want to subsidize more what we want to do is demonstrate to you why this is the best choice on a day-to-day basis and how you live with T-Mobile.

And how do you, as CFO, prioritize? On the one hand, your value proposition and best value positioning is absolutely central to who you are as a company. But on the other hand, you have commitments to your investors and you have guidance and that sort of thing. How do you prioritize I think especially in terms of back book versus front book of your customers because your front book is actually now not radically different than your peers, but your back book is still cheaper. How do you think about the -- that hitting that right balance?

Well, I think it's something that's inherent. That's how we've been focused all along. We're not interested in short-term cuts on, I don't know, CapEx to make free cash flow work. that doesn't create value for the company or shareholders in the long term. That's not what we're interested in. And I don't think there's a choice point to be made there. I think it's about how do you actually continue to deliver what customers want -- and of course, that's going to include up-tiering on the rate plans, more value they'll be. And we've said there might be continued rate plan optimizations on the margin. But what's really worked than what's differentiated us from a service revenue and profitability and free cash flow delivery is that our approach to the P&Q and value and experience I think optimizes value creation. And so to me, there isn't some sort of trade-off we're making every quarter on, well, if I just cut this, I can make guidance. It is about the ethos of how we operate as a company. We're going to make the right smart investments in customers, the network and the service revenue comes, the volume comes, the free cash flow comes, I think we've been able to demonstrate that. So there isn't -- to me, there isn't a trade-off. It's how you approach the business the right way, which is honed in on value creation.

Very quickly, I just want to touch on fiber. It's -- I know it's not that foundation of what you do, but you introduced new T fiber pricing a couple of weeks ago, April 30, I think it was. Drop your 5-year price guarantee, but also you dropped the requirement that it come with wireless the lower price. So you've got prices as low as $45 and that sort of thing. Can you make money at those kinds of price points? And where do you get the customers -- is that you bring them in and then price them up later? Or is that -- are you setting a new price point in the market?

No, I think what you're seeing from us there, and by the way, it's obviously -- we're new to this space. We're making a little bit of a splash. I'm not going to talk all the competitive nuances of how we plan to price in the future. We introduced tiered structures, which were so successful bringing customers in and then having self-select up the rate plan. So I think we're very excited about what we're seeing traction wise there, but call it, like there's promotionality. -- there's like, hey, we're here, new to the neighborhood, let's make a little bit of splash while letting customers self-select up that plan, which is so fabulously successful for us in mobile and 5G broadband.

So we've got time for one last question, probably everyone's favorite. You've got a $22 billion discretionary and flexible envelope. How do you weigh that versus further M&A for expanding your wired footprint for acquiring spectrum for delevering? Talk about your priorities. And for you, I think it's sort of a Moffett buffet of, right? There's a lot of attractive opportunities.

Well, there's a lot of opportunities. But for us, it's all about very consistent capital allocation framework, again, focused on value creation for the company. And so we always start with leverage. We do believe 2.5 is the right place for us. We just recently had a S&P upgrade, by the way. So it's a fabulous journey of where we're at from the debt capital markets perspective. And then we think about investing in the business because that drives tremendous returns. That includes areas like spectrum, we can make smart M&A decisions, provided that they have the right IRRs and value creation. So you saw us do that with things like smaller scale and as we scale the advertising platform and grow there. Could be things like fiber, but it has to fit within the ethos of exactly what we're looking for, for fiber or shareholder returns, which we just increased. And we've now repurchased, I think, a little over 240 million shares program inception. So we're just over 1 billion shares out there, total outstanding, which is a fabulous place. We've been able to enhance the dividend every single year. And so we think about it from all those perspectives and focus on value.

Well, I appreciate the time you spent with us this morning and -- or this afternoon, and I look forward to having you back for 13th visit next year.

Thank you so much for having us, Craig.

Thank you.