T-Mobile US, Inc. Q2 FY2025 earnings call

• Customer Growth: Led industry in customer growth, with best Q2 postpaid phone nets, total postpaid net additions, and gross additions; postpaid account nets accelerated, and postpaid share of households grew in all cohorts. • Network Leadership: America's best network, with 20% of switchers perceiving T-Mobile as best network, but massive runway; ongoing greenfield builds, nationwide 5G Advanced, automated slicing, and higher order carrier aggregation; plan to close UScellular transaction on August 1, expanding capacity and site coverage; launched T-Satellite service. • Digital Transformation: T-Life app has over 75 million installs, with ~2/3 of consumer phone upgrades occurring digitally; ongoing AI-enabled sales and services experience transformation. • Financials: Best-in-class customer results drove industry-leading financial growth; postpaid service revenues grew 9% YOY, total service revenues grew 6%, core adjusted EBITDA grew 6% YOY, and adjusted free cash flow was $4.6 billion.

Postpaid service revenues grew 9% year-over-year, an acceleration from Q1, and total service revenues grew 6%, a rate well over double that of competitors. Core adjusted EBITDA growth was 6% year-over-year. Adjusted free cash flow was $4.6 billion, a new Q2 record, translating to industry-leading adjusted free cash flow conversion from service revenues of 26%. In product segments, 5G broadband led the overall broadband industry in net additions for the 14th straight quarter, T-Mobile for Business led in business 5G broadband net additions, and fiber launch with JV acquisitions of Lumos and Metronet positions the company to deliver 100,000 or more fiber nets this year. Revenue contribution details: Postpaid service revenues contribute significantly to overall growth, with 5G broadband and business segments also showing strong growth.

• Total postpaid net additions expected between 6.1 million to 6.4 million, an increase of 500,000 at midpoint, with ~100,000 fiber net additions. • Postpaid phone net additions expected between 2.95 million and 3.1 million. • Service revenue growth expected at least 6% for the full year. • Core adjusted EBITDA expected between $33.3 billion and $33.7 billion for the full year. • Cash CapEx expected to be approximately $9.5 billion for the full year. • Adjusted free cash flow expected in the range of $17.6 billion to $18 billion. • Benefits from tax legislation: ~$1.5 billion benefit to cash taxes in 2026. • Sale of 800MHz licenses: Agreement with Grain Management to divest licenses, generating ~$850 million in incremental income taxes, expected to close in Q4 2025 or Q1 2026.

• Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially. • Competition in the wireless industry is intense, which could impact market share and growth. • Integration risks related to the UScellular transaction and other potential acquisitions or partnerships.

Q: Good afternoon. First, you guys saw strong sub growth in the quarter despite slightly higher churn. Could you just give us an idea, Mike, what we're seeing in the market today? How do you expect churn to sort of trend in the second half and what you're seeing just from a competitive standpoint? And then #2, thanks for the disclosure on the fiber side, 100,000 for the year. Can you give us a little more color on that? Is that sort of a 50,000-run rate for the next few quarters? Or is that -- does that include some that we saw here in the second quarter? And just any other color you can give us on the sort of growth of that business either today or over time? And do you anticipate other opportunities to -- for some inorganic growth in that business?

A: Srinivasan Gopalan talked about the competitive environment being dynamic, with T-Mobile's unique proposition of best network, best value, and best experience driving wins. Peter Osvaldik mentioned Q2 churn was up due to rate plan optimizations, anticipating Q3 churn to be down sequentially and flat to slightly up year-over-year. Michael Katz discussed fiber growth, with 100,000 fiber net additions coming from JVs and wholesale markets, and the Metronet deal closing tomorrow, with commercial launch of T-Fiber in those markets later this year. He also mentioned keeping an open mind about inorganic growth.

Q: Thank you. Good afternoon. Just reflecting back on your Capital Markets Day last September to now. One metric that really jumps out is the ARPA growth. I think you talked about 2% growth, the 2% plus last year over the kind of the 3-year planning period, you're up almost 5% year-to-date. Could you guys unpack a little bit of the drivers there and whether you're more optimistic about growth in that line and service revenue over the course of the next couple of years, just given the strength that you've seen? And then like, I didn't think of you having -- doing a deal with the cable operators as a possible outcome on this call. I wanted to ask you if you could spend a little more time on your strategy there and why you think it makes sense for T-Mobile and what the opportunity is long term around partnering with that industry going forward?

A: Peter Osvaldik discussed ARPA growth being driven by rate plan optimizations and customer self-selection up the rate card. Mike Sievert talked about the cable partnership, noting it's a multiyear deal focusing on small and mid-market businesses, which is incremental and win-win for T-Mobile. He emphasized the deal is not stepping into consumer segments and is almost entirely incremental.

Q: You talked about only 20% of switches perceiving team is having the best network. And I guess that's increased over time. But what do you think you need to do to improve that? Is that leaning on advertising? What can shift that up even further? And then secondly, on the cable, just to clarify, so are they restricted from selling to certain subsets of the enterprise community then, they can't sell to a super large enterprise? Is that the right reason?

A: Michael Katz mentioned advertising, experience, and third-party endorsements from large enterprises and government organizations as ways to improve network perception. Callie Field discussed T-Priority and endorsements from cities and first responders. Mike Sievert clarified the cable deal restricts partners to small and mid-market businesses (below 1,000 lines).

Q: Mike, you just talked about a moment ago, T-Satellite. I wonder if you could just dig into that a little bit and the contribution that it had to your ARPU growth and -- but also how it sort of changes the way you think about serving rural markets and customer segments? It sounds like it surprised even you with the kind of impact that it had on the market.

A: Mike Sievert discussed T-Satellite's potential impact on ARPU growth, with customers selecting higher-end rate plans anticipating the launch. He mentioned T-Satellite has the potential to create a virtuous circle with deeper customer relationships. Ulf Ewaldsson talked about network build plans, including 1,000 greenfield sites on air and a plan to bring on nearly 4,000 sites this year, driven by customer-driven coverage algorithms.

Q: Thank you. So Mike, I'm wondering if you can give us an update on how many locations you pass in the Metronet and Lumos markets at the moment? And what penetration is on those assets? And then one tiny housekeeping question. I don't think you told us in the past what the cash tax expectation for '26 was. So I'm wondering what it is now that you get the $1.5 billion benefit in '26?

A: Michael Katz discussed Metronet and Lumos, noting they are best in building greenfield fiber and outperformed deal expectations. Peter Osvaldik resisted giving a pinpoint cash tax estimate for 2026, citing other factors like UScellular closing and 800MHz transaction timing, but mentioned the $1.5 billion benefit from tax legislation.

Q: First one is on your rural market share. A few years back on your Analyst Day, you noted a goal of reaching 20%, I believe, of the smaller markets. I think it was right around by 2025. Here we are in 2025, I'm curious what your market share is now and if it's reached that 20% where it could go and if UScellular changes that calculus as well? Second question is just on the $1.5 billion benefit from the tax relief bill. You said you deploy the capital thoughtfully, so I was wondering if you can add more color to those words thoughtfully whether we think about M&A buybacks or network investment?

A: Jon Freier discussed rural market share, stating T-Mobile has surpassed 20% share in smaller markets and rural areas, with more opportunity with UScellular. Peter Osvaldik discussed the $1.5 billion benefit, noting capital allocation will be guided by thoughtful methodology, including potential acceleration of 800MHz transaction benefits and UScellular synergies assessment.

Q: A couple of questions on 5G broadband and FWA. First, just curious what you're seeing that's driving the ongoing momentum in that volume. How much of that quarterly volume may be benefiting from greater breadth of coverage versus deeper penetration in some of the existing markets? And then secondly, are you seeing evidence that FWA may move from a fallow-capacity model to one which you can invest in specific capacity enhancements for additional growth and returns over time?

A: Mike Sievert discussed 5G broadband momentum driven by word of mouth and customer satisfaction. Srinivasan Gopalan talked about FWA being in a fallow-capacity model, with focus on extracting more from existing spectrum and fallow capacity through innovations like L4S, with teams working on dual strategies of maximizing fallow capacity and exploring capital allocation for returns.

Q: I have one high-level question. Going back to the 2021 Analyst Day and for maybe a few years afterwards. Part of the narrative was that you were increasingly mindful of T-Mobile's role evolving from being an insurgent to more of a steward of the industry. And while you'd continue to push for competitive pressure and execute as un-carrier, perhaps there would be a greater consideration of not only your leadership position in the space but also the merits of helping to ensure it remains a profitable and an attractive one. Maybe fast forward to today, competition isn't new, but the offers in the marketplace keep getting more and more aggressive and some of your peers are perhaps acting more and more un-carrier-like. So with all that context, can you update us on where you view T-Mobile as being on the insurgent versus steward spectrum? And I guess, ultimately, how much more runway is there to be as disruptive without the tilt in competitive postures disrupting the balance for the broader industry?

A: Mike Sievert discussed T-Mobile's strategy as continuing to be an insurgent with a focus on durable advantages, delivering best network, value, and experiences. He emphasized the strategy has runway due to long-term durable advantages and the ability to deliver superior returns while challenging the industry for customer good. He noted the industry's financial metrics support the strategy and there's room to run.

Q: Thank you. Mike, maybe just one question on the scale ambitions for broadband. When you think about fixed wireless, obviously, all your peers offer it. But when you think about the wireline side of it, your peers have between 40 million to 70 million kind of build ambitions or existing scale if you think about the cable companies in that mix. So when you think about your goals of 15-ish million in wireline, why is that enough? And I know you want to look at more fiber opportunities. But given your -- the scale of your peers, would this call for maybe consideration of some bigger transactions or bigger opportunities to scale up your network faster than you would otherwise.

A: Mike Sievert discussed T-Mobile's focus on fixed wireless and fiber as superior products with customer sentiment, emphasizing delivering fantastic products and superior returns. Srinivasan Gopalan added the focus on great returns and challenging the industry for customer good, noting T-Mobile's plans get them to significant wireline reach and ongoing appetite for fair value opportunities.