T-Mobile US Senior Vice President Jud Henry welcomed listeners to the company's second quarter 2023 earnings call. Joining him on the call were Mike Sievert, the President and CEO, and Peter Osvaldik, the CFO, along with other members of the senior leadership team. The call discussed the company's strategy to build the best network, couple it with a leading un-carrier value proposition and customer experience, and grow its share in areas where it was underpenetrated. The Q2 results showed that this strategy was working better than ever, with T-Mobile delivering its highest Q2 postpaid phone net adds in eight years.

T-Mobile reported the lowest postpaid phone churn in the industry for the first time in its history, and also experienced industry-leading customer and financial growth. This success was driven by delivering the best product, value, and experiences, as well as running the business in a smart and sustainable manner. Additionally, T-Mobile extended its lead in overall and 5G performance according to third-party reports, with median download speeds more than double its closest competitor.

T-Mobile has a head start in 5G technology and dedicated spectrum assets, which allows them to stay ahead of competitors in terms of 5G reach and network performance. They offer Phone Freedom and Go 5G Plus rate plans, which have been popular with customers and have resulted in improved porting ratios against competitors. These catalysts, along with opportunities in underpenetrated markets, have enabled them to have a differentiated and profitable growth strategy, resulting in 299,000 postpaid account net adds in Q2.

T-Mobile had a record quarter with their highest ever phone net adds and their lowest ever phone churn. They are winning prime network seekers in the top 100 markets and capturing a win share of switchers in smaller markets and rural areas in the upper 30s. They have also continued to grow their high speed internet customers every quarter since launch.

In Q2, T-Mobile saw a sequential improvement in churn and high Net Promoter Scores compared to cable. The company also celebrated a major milestone in their Sprint merger integration with billing migration and retail rationalization being substantially complete ahead of their year-end target. T-Mobile's postpaid service revenue growth was up over 5% year-over-year, driven by increases in postpaid accounts and postpaid ARPA. This profitable growth has allowed them to update their guidance for 2023.

The company reported an 11% increase in core adjusted EBITDA and a 300 basis point increase in the core adjusted EBITDA margin. Free cash flow was up 64% year-over-year. The company repurchased 25.2 million shares for $3.5 billion in the second quarter. The company increased its guidance for 2023 with total postpaid net customer additions expected to be between 5.6 and 5.9 million and core adjusted EBITDA expected to be between $28.9 and $29.2 billion. Merger synergies are expected to be approximately $7.5 billion in 2023 and merger related costs are expected to be approximately $1 billion before taxes. Cash merger related costs are expected to be between $1.6 and $2 billion for 2023.

In this paragraph, the speaker discusses the company's expected cash flow and capital efficiency for the year. Net cash provided by operating activities is expected to be between $18 billion and $18.3 billion, cash CapEx between $9.5 billion and $9.7 billion, and free cash flow of $13.2 billion to $13.6 billion. The company also expects their full year effective tax rate to be between 24% and 26%, and their postpaid ARPA to increase slightly more than 1%. The speaker also mentions that the sale of their wireline assets to Cogent had a partial impact on their results in Q2, and the full run rate impact will begin in Q3.

Brett Feldman from Goldman Sachs asked Mike Sievert and Peter why the company decided to slow down their buyback program. Mike Sievert explained that they are buying at a steady pace through predesigned 10b5-1 programs in order to meet the authorization. He also said that there has been no underlying change to the thesis they have been communicating and that the second step of the program will depend on the free cash flow development of the company, which is on track.

Peter Osvaldik outlines that the company is expecting around $60 billion of shareholder remuneration and $65 billion of free cash flow to support it. Mike Sievert adds that any proceeds from DISH's spectrum option would be additional to the existing cash planning and that the company is still awaiting DISH's decision.

Mike Sievert states that the company has never met a spectrum they didn't like, and that they put it to work right away for the benefit of the consumer. He also mentions that they are in discussions with DISH about a potential win-win situation regarding the $3.6 billion spectrum purchase, and that they have agreed to not terminate the agreement before August 11. Craig Moffett then asks if the company has an appetite for more mid-band spectrum from DISH or any other source, and Mike Sievert hands the question to Mike Katz to discuss the pacing and trajectory of fixed wireless.

T-Mobile is actively working to acquire spectrum and build the best 5G network in history in order to grow their customer base and meet the needs of their customers. They are also focusing on fixed wireless access with the goal of achieving single-digit penetration. In the second quarter, they saw their highest gross adds and a decrease in churn, which shows that customers are enjoying the product.

Mike Sievert discussed the success of the company's broadband product, noting that the NPS scores are the highest amongst any broadband category in America. He also mentioned that the company had projected 7-8 million subscribers based on the excess capacity of their built mobile network, and that they are on track to reach this goal. He then discussed the expected evolution of upgrades in the second half of the year and the fixed broadband churn, which has decreased sequentially and is at a mature level for customers who have been with the company for a year or more.

Peter Osvaldik explains that customers are satisfied with the 5G devices on the network, and the two-year financing structures allow them to upgrade earlier than the competition. He states that the second half of the year usually has higher upgrade rates due to new product introductions and promotional constructs. Mike Katz adds that there is higher high-speed internet churn.

Peter Osvaldik and Mike Sievert discuss the churn curves of T-Mobile's broadband business, which have decreased to the expected rate. Mike then takes a question from John Hodulik about T-Mobile's margins, which are still lower than AT&T and Verizon's, and the competition between T-Mobile and cable companies.

Peter explains that the difference between T-Mobile and its competitors is not just an ARPU differential, but also structural differences such as the leased versus own backhaul strategy, higher switching and net add production, and a dense network. These differences create a CapEx OpEx differential, leading to a measure of value generation (free cash flow) that allows for further investment and returning capital to shareholders. Despite lower prices and superior growth, T-Mobile has the highest cash production per service revenue dollar in the industry and is on track to expand that ratio further.

Mike Sievert responded to a question about the strength of business growth in the quarter, noting that T-Mobile had the highest postpaid phone net additions in 8 years and the lowest churn in the industry. He also addressed questions from Roger Entner and Chetan Sharma about business growth and traction in the enterprise sector, discussing the strength of the VA and vertical industries using 5G and 5G advanced services.

Callie Field explains that the company has achieved the highest phone net adds and lowest phone churn ever, and has seen profitable growth in all three segments. They have taken Verizon share back in 2018 and have added roughly 20,000 phones year-to-date supporting more than 50% of the VA phones. They are also providing health care for veterans in rural areas because of their network. Lastly, they are seeing the most traction in certain verticals for 5G applications outside of pure connectivity.

T-Mobile is seeing success in retail, healthcare, education, and the federal sector due to their 5G network and stand-alone core solutions. These solutions provide customers with better costs, less truck rolls, and more programmable networks, as well as private networks for specific use cases. T-Mobile's advanced network capabilities have allowed them to provide solutions that have created a 180 degree turn from where they were a few years ago, leading to increased momentum.

T-Mobile is seeing improved porting ratios compared to other mobile network operators (MNOs) and mobile virtual network operators (MVNOs), indicating that customers are discovering the advantages of T-Mobile's network. Additionally, T-Mobile had the industry-leading postpaid phone net additions, suggesting that customers are choosing T-Mobile over its competitors. Mike Sievert also mentioned that T-Mobile's CapEx will be tapering in the second half of the year, with a lower level in 2024.

T-Mobile is seeing an increase in their port ratios and their account growth of 299,000. This increase is mostly driven by non-ports, such as people coming from prepaid and net new customers. T-Mobile is also expecting to keep their CapEx in the range of $9 billion to $10 billion for the next year.

Mike Sievert and Ulf Ewaldsson are discussing the incredibly capital-efficient profile that T-Mobile has achieved with its 5G network. They have now reached 285 million people with ultra-capacity 5G, which is two years ahead of their competitors. In the last quarter, they pulled ahead in their leadership. They have reached 300 mid-band POPs and 300 low-band POPs, and they have 255 megahertz of spectrum dedicated to 5G on their mid-band. All of their low-band spectrum is dedicated to 5G. This 5G network is capable of driving consumer usage as well as enterprise usage.

T-Mobile is deploying spectrum to grow their 5G network and increase the average speed of their network. Mike Sievert said that they have a two-year advantage and will continue to take share from their competitors. T-Mobile has 3.7 million high-speed internet customers and is aiming for 7-8 million. They are currently rolling out fixed wireless to a majority of the U.S. and will continue to expand their coverage. Ulf did not mention millimeter wave in his statement.

Mike Sievert and Ulf Ewaldsson discuss the use of millimeter wave and their fixed wireless access model. They use millimeter wave to enhance capacity, such as for HSI. Their model works by selling excess capacity sector by sector, and they currently approve applicants for home internet use in areas with excess capacity, totaling around 50 million homes.

The company is looking into ways to expand its business beyond its current single-digit penetration model, which is based on providing excess capacity without burdening capital. They are experimenting with millimeter wave, MDU strategies, non-standards-based solutions, and fiber to see if there is a way to expand the business. They have two more years to figure out how to crack the code and grow the business.

Peter Osvaldik explains that ARPU is generally stable year-to-year, but there may be sequential increases, and this is due to the mix of customers and the segmented approach to pricing. Mike Sievert adds that Go5GPlus has been successful and that it has benefits in terms of ARPU growth in the next couple of years.

T-Mobile has seen great success with their Go5GPlus strategy, which offers customers an attractive front book initiative. This has resulted in an increase in porting ratios and 60% of new customers subscribing to Go5GPlus. The main benefit of this plan is the ability to easily switch away from AT&T and Verizon and avoid their long three-year contracts.

Mike Sievert and Peter Osvaldik discuss the synergy run rate for the year and what is left to be done in order to reach the $7.5 billion and $8 billion goals. They explain that the major milestones have been completed, but the run rate is not quite there yet. They state that their philosophy to increase ARPU is to add value to customers' lives and let them upgrade their services.

T-Mobile is focused on providing customers with fast, transparent, and simple digital transactions, and is rapidly improving their digital capabilities and applying AI technologies and machine learning to speed up the self-service process. They are also looking at the role and mix of online distribution and the durability of customers wanting a physical retail location to purchase upgrades. The cost savings from the transition will be realized by the end of the year, with the shift to next year being primarily avoided site build costs.

Mike Sievert believes that customers want a strong signal everywhere they go, which 5G can provide. He does not care if customers give them credit for the 5G technology, as long as they are satisfied with the signal.

Verizon has the highest performing 5G network with the most coverage of high-performing parts than any other competitor. This is important because people are watching more video, and they want a powerful signal with no latency, buffering, or jitter. While it is unclear when 5G services will become bigger than a bread basket, Verizon is well-positioned to capture these services when they do.

Mike Sievert concluded the T-Mobile second quarter earnings call, thanking the participants for their participation. He then encouraged any further questions to be directed to either Investor Relations or the media relations department.

This summary was generated with AI and may contain some inaccuracies.