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

Great. Wonderful. Well, good morning, everybody. Welcome to the T-Mobile session at the Goldman Sachs Communacopia and Technology Conference. My name is Mike Ng. I cover T-Mobile and media cable telecom here at the firm and have the wonderful privilege of introducing Srini Gopalan, who is the CEO of T-Mobile, first and foremost, thank you so much for being here, Srini.

It's great to be here. Thanks for having me.

Great. So Srini, you're a couple of months away from completing your first full year as CEO. What has surprised you the most how has it shaped how you think about the company's longer-term strategy. And I was wondering if you could also just talk a bit about some of the recent news as it relates to your CFO and whether or not that changes anything in your mind?

Great. Just before I get started, I need to draw your attention to the safe harbor statement. We just pull that up or -- it was just on. It was just on, okay, -- just to make sure that I'm covered on that because I will talk a bit about the future and use some non-GAAP measures. So let me start with your question of has anything surprised me kind of almost a year in. Not really because I've been associated with the company for nearly 10 years now. I must say, though, what has impressed me is the depth and width of our strategic moats. Because I tend to think of most businesses and industries is what makes them sustainable is the quality of the moat that you have around you. And I think about our moat kind of in 2 is the first is the growth portfolio and what growth it enables and the second is culture, because in a company like us, the two of them are kind of inextricably linked. Let's talk growth first. So when I look at what we have, and I'll start with Consumer Wireless, our biggest business. Consumer wireless we're unique because we're the only carrier who can genuinely say we offer the best network, best value and best experience. Let me spend a minute on Best Network first. And in many ways, when we talk about best network, where we at this point in time uniquely feels a bit like being back in 2020, where you have some players talking about how network doesn't differentiate which shocks me a bit because that's your core product. Others deploying capital into other businesses, right? And we are kind of ruthlessly single-minded focus on building the best network and enhancing it. We're already the best network. Now we're really working hard at how we enhance it. And let's put some facts behind that. We rolled out our 5G stand-alone back in late 2020. It's almost 5 years ahead of the rest of the industry. And we're continuing to double down on our network, and we're seeing big payoff from that. I mean quarter 2, our potents had 20% higher ARPU than our port outs. Our premium loading plan ratios is in the 60s against the base, which is in the 35 mid-30s, right? And we're seeing that consequent doubling down on best network, really, really paying off in terms of quality of customers we're attracting. The second leg of this, which is best value. Now that's something we've historically been really famous for. And we define best value, not just as best price but the best value to breakthrough customer pain points. And we just launched our -- nothing plan, which addresses a significant pain point. And the way I think about value is, again, this is partly what you offer the customer partly what your economic sets you up to do. I mean again, we're unique in that our front book is -- or our new customers are actually higher priced than our base, which gives us enormous flexibility in terms of how we price -- but although means we're probably the only player in this industry where when you see growth in net adds, it also means growth in revenue, because the math of it is ridiculously simple, right? If you're losing customers at much higher value than what you're gaining, then you need more than positive net adds to dig yourself out of the revenue hole. We're in the very fortunate place where -- and we will zealously guard that where our best value position is not just about what we offer the customer, but also a fundamental flywheel in terms of how it drives our economics. Best experience, great people, and I'll talk a bit about that when I double down on culture -- now fueled by life, more than 30 million monthly actives. And I know we'll come back to talk about AI, but now fueled by AI and the huge strides we're making on that. So all of that really covered off why I'm super excited by growth in Consumer wireless. Now the big thing is it's not just consumer wireless because you look beyond consumer wireless. You look at our broadband business, we've created the FWA category and we just upped our guidance a little while ago from 12 million to 15 million customers by 2030. You add on 3 million to 4 million fiber customers, and we're talking about doubling a business in the next 4 years, right? And that business came from a standing start in '23. So when you're thinking growth, huge upside there. And then you look at T-Mobile for Business. More and more businesses are going wireless -- more and more businesses are recognizing that if your business depends on it, there's really only one wire network you can count on. And we have 10%, 12% share when you look at the bigger businesses, lots of upside there. And what's even more exciting than that is physical NAJI. And you just had Enson on stage, and he and I have spent a lot of time talking about when AI becomes kinetic or mobile, when objects with AI are more than kind of places you write poetry, but things that move hang a low-latency 5G assay going on to 6G network is absolutely critical. And then the latest addition in our growth portfolio, financial services. We launched credit cards back in November, and Capital One is already calling it one of the most successful co-branded launches. So I look at that portfolio and it's hugely exciting. When -- I've kind of seen the business from the Board, but I think the thing that has surprised me to some extent that has impressed to me, is the depth and the width of the moat, because these are not individual pricing strategies or tactics. These are real, sustainable, dependable positions. And the number that captures a lot of it from me is an NPS of 46, which is the highest among the big 3 ever. We are a big bit of the secret sauce that I think is totally unreplicable is culture, right? And that's a big part of what T-Mobile has been -- the way we -- and that culture plays very closely to customer experience, right? And that is all about being completely obsessed about that. The way we articulate it is frontline first and the customer is why. And we've doubled down on that. I've doubled down that over the last 3 to 4 months. We kind of got 3 big programs going. One of them is the Magenta AI Institute, which is we're spending more than $100 million over the next few years really -- and this is a bold claim to be the best in the world at preparing our people for the future because we believe that is critical to who we are. Second bit of it is pretty unique. It's online Connect, make you off because I mean lots of companies have these things where you have senior management to go spend a day or 2 in the field in stores or on the network side, et cetera, et cetera. Frontline Connect is unique, 750 managers, every 1 Director Plus will spend 2 days. And here's where the rubber hits the room. You don't get your annual stock bonus unless you make a commitment on how you will improve the life of the frontline and the store manager or the frontline person signs off that, that commitment will make a difference to their life. And that includes me, right? And last but not least, there's value share, which is as we look at all this growth, we will create enormous value. And we're committed to sharing that with our employees. So we've announced a $12,000 multiyear grant based on performance to all our employees, every one of them. So that's close to $1 billion investment in doubling down on our culture. So I put those two things together, and that's really what the moat looks like. A big part of culture is also a leadership team. And we've been very thoughtful as a company in how we planned transitions. You saw the Mike we transition, there was no kind of surprise. And we -- I've now got a management team and a leadership team that I feel balances the depth of experience at T-Mobile. So you've got people like John Saw, John Fryer, Diane King, Mark Nelson, together more than 100 years of experience at T-Mobile. And then you've got Chris Summer -- very excited about that, especially given our enterprise plan and our physical and edge AI plans. So Chris will run all of our enterprise businesses. You've got Andrea Meda. Andre has kind of worked in 14 different markets. And he will drive a lot of our marketing brand, a lot of our thinking there and strategy. And I'll come to Peter, my good friend who's here. right? So Peter and I have known each other for a long time. And in fact, about the time that he became CFO. And when Mike and I started talking about the transition, -- it was already clear at that point in time as I think September 24 was the first 8-K that Peter wanted to put a seat up and kind of go do a bunch of other intros, he has, including philantrophihe rest. And the planned timing then was mid-26 -- and one of the first things I did when the transition plan between Mike and me was kind of laid out was sat down with Peter and had a conversation with him, which is I really needed him to stay through the CEO transition. And I'm delighted and grateful that he has, which is then what led to the September '25 8-K, which looked like a planned transition that he'll make coming summer '27. And what we talked about at that point was we would do the transition at a point when we felt the business was in good shape, and we found the right person. And in Jessica, I'm delighted that we found the right person, a huge amount of experience, super bright, very consistent with our culture, humble, let's deep do the talking and somebody who's got experience that's extremely relevant for us because she's managed a complex at Shell. It was the most diverse portfolio, a complex retail business, which is probably amongst the biggest retailers in the world to kind of allocating capital to things like oil exploration. And so that's a wide portfolio. Delighted to have her on board and really excited about getting here to meet all of you. So that's how I think about those pieces. But I think the important thing is -- we -- I see those 3 components as the same thing, the growth portfolio, the culture and the leadership team, all of which contributes to a strategic moat.

Great. That's very clear and a fantastic overview. I'm sure we'll get into a lot of that. Maybe just to start out, I wanted to ask a couple of questions around consumer wireless, where a day away from the recently announced new iPhone. You've been very clear about wanting to pivot T-Mobile to have a more holistic value proposition relative to what's historically been for the industry one that is emphasized on device subsidies. So could you just expand a little bit on that. How does the switch to more flexible 36-month equipment installment plans fit into the broader strategy? What is the customer's reception to some of the changes been to date?

Sure. I think there's 2 cornerstones of how we think about value rather than purely pricing, right? Cornerstone 1 is what are the big customer pain points. Cornerstone 2 is CLV, right, which simplistically put is, will customers love it? Will we make money out of it, which are the fundamentals of running this business, right? When I think about customer pain points, one of the things that we heard a lot from customers, including well-qualified customers is, look, I'd love to get a new phone, but there's all those taxes and fees upfront. That means I have an out-of-pocket straight upfront. And that causes friction in the switching process. And as you know, we love switches, right? And so taking that friction out is a big part of the product we offer now, which is 0 down if you're well qualified, right? And we roll the taxes and fees into the broader EIP. Moving to 36 months is simply a reflection of the device life cycle being larger. And those two are obviously very CLV accretive. When we think about subsidies, we use the same lens, which is what does the customer want? Now there's going to be promotions at periods in time because you get different waves of switches. And the first little while tends to be the most sensitive switches. So there's lots of jump-all so you'll probably see more emotions there. But kind of from a medium-term perspective, -- we're very guided by CLVs. CLVs have been super strong. Quarter 2 was up double digit in terms of CLVs and we feel good about that. We also are very clear, and I've said this before, that when you look at the business model, as device prices go up, you're going to have more of that cost being paid by the customer. And that probably summarizes where we are.

Great. Very clear. On postpaid accounts, the company obviously has postpaid account net addition guidance for the third quarter, $250,000 and for the full year, $950,000 to 1.50. T-Mobile talked a little bit about some of the heightened churn going into the third quarter because of some of the changes on rate I was just wondering if you could talk a little bit about how the company is pacing against those guidance numbers, how would you describe the current churn and gross ad environment?

Firstly, not going to do an intra-quarter guidance on.

I was hoping for one.

Yes, I can send you the spreadsheet tomorrow. But no, look, where we are is we're feeling really good about both volume and value this year, right? We guided to $950 million to $1,050 million. Halfway point, we were at 500,000. We're feeling very good about this quarter. So it's -- there's nothing here that's different from what we were expecting. And when you look at churn, I just reflect on the fact that last quarter, we were 85 bps -- 5 bps down year-on-year. And I know we love obsessing about tactics and the immediate. What is the competitive environment? How is the -- there's a lot of focus on what was today's price versus yesterday's price. Honestly, you've got to pull back and look at this in terms of the direction which the water is flowing, right, which -- and that's what the moats do for us, which is there's a fundamental pool of demand that comes as a result of being best value, best network, best experience. And we're writing the portals of that, and we're doubling down on that. So I feel really good about not just the volume we're bringing in, but also the value. I talked about 20% higher ARPUs for port-ins than port outs, talked about CLVs being up double digit. You've seen what's happened in churn. So we're feeling really good about the mix we're bringing in.

Great. Turning to broadband, if we can, starting with fixed wireless. You mentioned some of the targets that you have through the end of the decade, cable and fiber are out in the market, launching very aggressive offers. Maybe you can talk a little bit about your outlook on T-Mobile's fixed wireless business. And whether the customer satisfaction scores, right, the capabilities that you've been able to deliver in terms of speed is what critical here?

Yes. So fixed wireless for me is just an incredible product. You talk about NPS. It is the highest NPS product we have. It's higher than fiber as a category and it's higher than FWA as a category. And there's a reason for it, which is this is not simply about price. It's great value, yes. And most importantly, it's a product that's incredibly easy to set up and gives you -- and this is what I love about our newest routers. It gives you higher speeds than fiber when used over a WiFi router, which is the way the vast majority of customers experience it, right? It certainly gives you kind of comparable speeds to fiber depending on the router that you'll end up using. Now I'm not here to claim that technically it is exactly the same product as fiber. But you've got to look at it in terms of what it does to the experience. Higher NPS comparable speeds to fiber. That's pretty awesome for a product, which was written off as cell phone Internet when it started, right? And it is now a premium product which is growing substantially, taking share. It's today, very focused on urban and semi-urban areas, driven by our fallow capacity model, which ensures that we have a lot of runway to go. And the capacity model is something we obsess about because we actually plan that at a Hexin level, which is 36 million of them, making sure that we have a capacity for wireless to then create the fallow capacity for fixed wireless. The remarkable thing, of course, is even as we've grown to close to 10 million customers, we're seeing speeds on wireless and on fixed wireless go only 1 way, and that's sharply up.

Great. And then pivoting to the other side of broadband fiber, I think T-Mobile recently mentioned that it's been approaching 20% penetration within the first 12 months of deploying fiber in a market. What's the ultimate penetration that T-Mobile is targeting for fiber? Where do the fiber customers come from? Does it funnel in from the FWA base? Or is it just taking share from competitors? And maybe you can just talk about your wireline strategy more broadly as well.

So when you look at fiber, right? Firstly, 20% year 1 for a greenfield build is phenomenal, right? And that's a lot of the thesis on how we got into fiber, which is the thesis that the brand, the distribution and our ability to execute, would count in fiber as well. And that's clearly coming through as you can see from this. The way we think about FWA and fiber is the overlap is pretty minimal, and they're fundamentally complementary. And where there is and where there is overlap, what lands up happening is of an FWA customer moves to fiber, that just frees up more seats on the FWA bus, right? And so we look at it as fundamentally complementary categories.

Great. Shifting gears this is a technology conference. I have to ask you something about AI, but I think there's two dimensions that I feel like a lot of people have been focusing on, which is what does AI mean from a customer demand perspective for you in terms of needing more network capacity? And then secondly, how is T-Mobile using AI internally to drive operational efficiencies. .