T-Mobile US, Inc. (NASDAQ:TMUS) Goldman Sachs 2022 Communacopia + Technology Conference September 14, 2022 6:00 PM ET
Company Participants
Brett Feldman – Goldman Sachs
Conference Call Participants
Mike Sievert – President & CEO
Brett Feldman
All right. Welcome everybody. It’s great to welcome back to our — now our Communacopia + Technology Conference. Mike Sievert, the President and CEO of T-Mobile. Mike, thank you so much for being here with us.
Mike Sievert
Yeah, thanks for having us and thanks for doing this in San Francisco. That’s awesome. It’s only an hour away for us. Usual stuff, I might make forward-looking statements and actual results could vary and please rely on our publicly filed statements, not just my commentary.
Question-and-Answer Session
Q – Brett Feldman
Good. Let’s jump into it. So had some news last week. The board authorized management to repurchase up to $14 billion of stock through September 30 of next year and that could include up to $3 billion through the remainder of this year. So that was great. I think the AKS said DT [ph], controlling shareholder has no present intention of selling stock into the program.
So the question I have is why was the board comfortable approving management to pursue a buyback program now instead of waiting into 2023, which was the timeline you kind of originally had targeted?
Mike Sievert
Thanks, Brett. This is just a great milestone for us. Our investors have been with us on a fantastically successful journey and our aspiration, as we expressed it last year was to begin a process of returning that value to them. And we indicated generally that it would start around the beginning of ’23, but that it could start earlier.
And I think what you see from us is a board that’s just very confident in how this plan is unfolding and just think about it. It’s just — it’s astonishing and we’re less than two and a half years into the completion of this merger. And as we sit here today, we have substantially decommissioned the entire Sprint network, a goal that was supposed to have been achieved more than a year from now and that we recently indicated we’d wrap up this quarter.
That’s substantially done as we speak today. We have delivered consistent, reliable growth, that’s profitable and accretive through the period, 13.2 million postpaid net additions since the creation of the merger, more than AT&T and Verizon combined.
We have substantially completed other aspects of our merger integration that allow for the line of site to significant post integration cash flow production from this business, just like we talked about when we laid out our five-year business plan and because of all that, we’ve achieved corporate family investment grade ratings from all three major ratings agencies, which gives us access to capital at competitive rates.
And so you look at all this coming together, consistent, reliable performance from a team that one of the things that I think differentiates us and certainly gives confidence to us as a board is that this is a team that puts careful, thoughtful, study the business plans in the marketplace and then delivers on them, consistently and reliably and now that we’ve got enough of those quarters behind us, consistent, reliable performance beat and raise, we decided it’s time to begin that return to shareholders.
Brett Feldman
I believe when you had talked about buyback potential at your analyst meeting, I think it was last year. You said you expected to be in the position to be able to buy back up to $60 billion of stock during that sort of three-year period of time. And you’d kind of indicated it was reasonably aligned with the five-year cash flow forecast that you put out for the company.
And so the question I have is, is it still appropriate to think about $60 billion as the buyback capacity of the company as we look out over the next, three years or so, and if that is the case, why does the board decide to authorize a smaller amount over a shorter period of time?
Mike Sievert
The second question first, it’s just a typical process. We’re following traditional norms of taking this in bite size chunks, but, I can say nothing has changed, but everything has changed and, there have been plenty of tailwinds and headwinds and changes versus what we thought, but generally speaking, that basic thesis is fully intact and so, yeah, you should continue to think about the potential being right there for that $60 billion target and we’re very pleased by that.
And so we thought we would just get started and get started early and get started in a magnitude that shows everyone that we — the confidence that we feel in the size and scale of this business plan as the post integration cash flows of this business begin to arrive. And always when we expressed this, if you looked closely at it, you could see that we had planned to slightly front run the share buyback to the production of cash flows.
And so this week we were able to complete consistent with that longstanding intention, a debt raise that was wonderfully successful using our new corporate family IG facility and was oversubscribed by 7.7 times and, really came in at a very competitive rate. So we’re just pleased with how everything’s executing against that big, bold aspiration that we put out there.
And you have to remember, we put that aspiration out there less than a year after forming this new company. At the height of a pandemic, we combine these two companies on April 01 of 2020, and then a year later, less than a year later, had the confidence to communicate a bold, audacious five-year plan that since then we’ve done nothing but outperform.
Brett Feldman
Right. And so just to wrap it up on the buyback topic, it sounds like as you work through the program, the board is going to look at it and they’ll decide how to think about supplemental authorizations, but that’s $60 billion concept is still a great guideline for investors.
Mike Sievert
It is.
Brett Feldman
Okay. You got to the point I was going to ask you about, it sounds like you were very much on track to meet your goal, to have substantially shut down all the redundant Sprint sites early by the end of this month. And so the question I have is in terms of integration, what’s left to do?
Mike Sievert
The next phase is billing and it’s really the last substantial phase and it’s been significantly de-risked, by the way, we executed this. Prior mergers, you had to move customers all at once their brand, their billing relationship, their network, their device, all those things had to happen at once. And what we’ve been able to do is separate this out at the convenience of our business model and at the convenience of the customer and it’s fantastic.
So the main thing that’s left now is billing and our intention is to make that opaque to the customer. Ideally they don’t even really see it happening. So we eventually what we call streaming conversion, we move Sprint customer billing over to the T-Mobile systems, their rate plan doesn’t change, the look and feel of their bill doesn’t really change and then we shut down the Sprint biller, and that’s the last piece, and we’ve already streaming converted, proving our software effective hundreds of thousands of customers, and we’ve manually converted millions and so we’re well on our way on the billing piece as well.
Brett Feldman
All right, so you you’ll get that done and that’ll basically mean you’ll have spent three years very heavily focused on a significant integration. It sounds like it’s gone as well, if not better than you would’ve hoped. So then the question is what’s next? What are the key priorities for T-Mobile if do you look beyond that?
Mike Sievert
Profitable growth; one of the things that I think we expect of ourselves and investors expect from us is consistent, reliable, outperforming growth. We need to do it smartly, and hopefully you give us credit that we’ve done it very smartly. We know we’re stewards of this industry now at our scale and it’s our house. We’re not going to burn it down, but consistent, reliable, outperforming growth.
And what differentiates us there is that we have I think really significant credible strategies that are vectors for our growth, that most people, if they stop and think about, really understand. Despite our market share and position in the overall market in vast swats of this country, in rural and smaller markets, not real small markets, I’m talking about like 40% of the country, our market share is in the teens, not 40% like in the big cities, but in the teens.
And, so executing our small markets in rural areas, strategy is a huge tailwind for our business and it’s going beautifully. We can come back to that if you like.
Enterprise and government, another 10 share or low, just into the low double digits. Fantastic opportunity for us and the 5G lead that we were able to create for ourselves has changed the relationship that we have with enterprises significantly. So now we’ve got corner office relationships that are emerging, and they’re very interested in whether or not 5G advanced network services could change their business and as a part of that, we’re able to win market share in the core.
And the core is a really profitable, important business to be in. It’s exciting to talk about 5G advanced network services. Our competitors talk about it ad nauseam, but the core that we’re all in is an important, viable, profitable business and we are taking share there and that’s a big one.
Home broadband and business broadband 5G broadband. When we set out that aspiration last year, and we told people without a lot of evidence that we could do seven million to eight million homes, a lot of them didn’t take us seriously because they thought those claims were kind of like what they’ve gotten used to, executives throwing out spitballing aspirations, but when we put that goal out there, we did it after a studied effort to understand how our excess capacity would open up opportunities and in a studied effort at segmentation, remember home broadband, broadband customers are not a homogeneous group that all have the same needs. There are millions and millions of people, who, for what we offer our product, will serve their needs for years to come and so now, of course, we’re well on our way and next year’s a big year on that front.
Churn; another big tailwind to our business in ’21, our competitors were feeding on elevated Sprint churn. In fact, they’ve been feeding on elevated Sprint churn for years. And last quarter, we delivered 0.80 in churn, postpaid phone churn, including Sprint, lower than Verizon, including Sprint for the first time in company history. And so we talked last year about a worse to first playbook that had already resulted in Magenta becoming the lowest churning business. Now, our aspiration is for the combined company to be the lowest churning business in this industry. And that’s a tailwind we’re seriously focused on.
And then there’s one more, you asked what we’re focused on for our whole year. So the fifth — the fifth growth tailwind is what I call network seekers in the top 100 markets. We’re already the leader in the top markets in this country, certainly in the top 50, the top 100 we’re buying for leadership. And yet tens of millions of people never gave us a serious look on that run to number one, because what they care about most is the network. And back then, we didn’t have it.
Now we have a chance to open up that switching decision for tens of millions of people in the network, in the cities where we are already strong. So we’re not defending a castle in the markets where we’re number one. We’re interested in extending it.
Brett Feldman
So we have a lot we can follow up on. And before we do, I do want to ask you a little bit about the economic backdrop that you’re going to have to try to do some of this in at least over the near term because you’re a very large company, you touch a lot of consumers, a lot of SMBs, a lot of larger businesses and I guess the real question be like, what are you seeing in terms of how the current economic climate is impacting your customers and subsequently your business?
Mike Sievert
What we’re seeing is different than what we’re looking at and watching for. Obviously, we have our eyes open to this space, but what you asked, what we’re seeing, what we’re seeing is not a lot of change. What we’re seeing is vital demand for our category. Active switching that’s up year over year, last quarter, and looks like again this quarter. We see interest in high end phones, like the new introductions from Apple, not just the basic phones that are very exciting.
We see sales of our highest end products, not our lowest end products being our most popular Magenta Max and continuing to be the case. So, so far you asked what we’re seeing? What we’re seeing is there are no signs of concern. Now, obviously the macroeconomic picture for many are, is concerning, and we have our eyes on it too.
There are plenty of potential issues around costs, but there are also opportunities. For us, remember among the big scale providers, we have lasting fame as a brand for being the best value. That’s tough to take from us and we’ve earned it over years and years and years. In fact, twice as many customers give us credit for being the best value than any of our competitors; twice as many.
Look at network equities where Verizon still edges out the other two on network reputation fame, but it’s like real close, but in value, it’s nowhere near close. We have undisputed fame there. And look, we may be entering a period where there’s a flight to value. And if there is a period where there’s a flight to value, I’m making sure our company is ready to stand up and serve the American consumer when they need us with a great value and a great product.
And so, there may be pressures that are coming bad debt, for example, is on the rise, not quite to pre-pandemic levels, but up from year ago, doesn’t look concerning to us, but we have our eye on it.
Other inflationary pressures in our business are actually pretty muted because of our long term agreements; tower costs, back haul costs, equipment contracts are multiyear in nature, our debt structure is entirely fixed and the towers are nicely spread out. So like systemic inflationary pressures on our business are not that big of a concern. We have laborish questions like everybody else, but what I’m focused on is we’ll go through all that and we’ll manage it carefully.
I’m focused on whether or not there may be an opportunity for us to serve the American consumer in a bigger way through all this and if there is, we will be ready.
Brett Feldman
So really one of the primary ways, or one of the initial ways, I guess, that you earned that reputation for delivering great value is through your uncarrier initiative and you haven’t stopped. The two most recent is the inclusion of Apple TV Plus with Magenta Max and a partnership with SpaceX.
And, I think I’m going to start with the SpaceX one, because that was probably the most interesting and surprising, how does that partnership that you’ve announced factor into some of these underpenetrated market segments that you’ve been talking about particularly with rural and particularly with business.
Mike Sievert
I’m so excited about this. We’ve been working on this for a long time and it could really change things. This is a vast country and it has, millions of places, hundreds of thousands of square miles, where there’s no signal from any cellular company. And, that’s important to people. What people want is signal everywhere they might need it, whenever they might need it. And then of course they want a signal that has fantastic scale and capacity.
We’ve won the scale and capacity game. We are the clear demonstrated 5G leader. But what people may ask about us is whether or not we have signal everywhere, they need it. We’ve arrived at the station parody on that front, but this is a chance to leap out in front and this could save people’s lives. This is reaching emergency services. It’s reaching friends and family.
We’re going to be starting if everything goes to plan, late next year with a beta centered around a messaging service, not just texting, but messaging apps as well with real time back and forth ability to send messages, send pictures that kind of thing, but our aspiration is that the technology should eventually work for voice and data as well at obviously lower data rates, and then what a 4G or 5G network can provide.
Brett Feldman
Any sense for how long it might take to go through the FCC process on this?
Mike Sievert
Not really what gives me confidence here is that the FCC has been very clear that one of the priorities that they have is making sure that reliable connections are available everywhere. Disaster recovery, post-disaster connectivity, covering up empty holes, so people can reach public safety.
These are things that they’ve said are important. And what this essentially is doing is creating a cellular service where the cell tower is in the sky instead of on a tower, but otherwise, it doesn’t really walk and talk from a technology standpoint, much different than the rest of our technology, is just a lot more advanced that we’re, most of the technology’s being put in the satellite itself and with antenna technology that should be able to seek and find an ordinary cell phone and, that’s cool stuff, but, I don’t think it should raise a lot of questions from a regulatory standpoint.
Brett Feldman
All right. And then on the Apple TV Plus the offer, how do you think about assessing whether this is an accretive decision to put something else into your plan, whether it’s Apple TV Plus or something else, because it’s an obvious incentive for someone to up tier meaning that if you pay more, you’ll get more, but it’s also costing you more. So how do you — how do you view determine that these things make sense for T-Mobile?
Mike Sievert
We’ve gotten nearly a decade of experience with this. To your premise of your question, we started making these uncarrier moves in the spring of 2013 and with our first, our first big move, and we’ve done many, many moves since then, all with a really studied effort at understanding what will the cost be and what will the benefits?
One of the benefits is people moving up to our most popular planned Magenta Max, but there’s share taking benefits, there’s churn benefits. So there across there’s reputational benefits and tangibles and then there’s the cost and, we struck a great win-win deal with Apple that they’re happy with, and we’re happy with. It’s not retail pricing. We’ll pay only when someone’s a happy active user and when they’re a happy active user, that means they appreciate this. And so those benefits I talked about become real.
A typical Magenta Max account has between two and three lines and so you’re only paying that once across multiple lines and so we’ve done a lot of these things. We’re experienced at it, and the uncarrier movement has resulted in this company we’re now talking about. So it’s a success strategy that we’re confident in.
Brett Feldman
Well, the momentum in the postpaid phone business has just continued to be excellent. You added over 1.3 million postpaid phone subs just in the first half of the year. You increased your guidance. Your guidance implies that you’ll probably be as good if not better than the 2.9 million that you added last year. You said earlier that it sounds like activity levels still sound quite strong in the industry. So the question is how are things tracking as you’re in the second half of the year?
Mike Sievert
Well switching in the industry continues to be up year-over-year this quarter, like it was last quarter. And for us as a net share taker, that’s an opportunity. And, we feel like we’re in a really good spot. We’re trying to be really smart. One of the things that’s different about us is that we have a differentiated story that goes beyond just slashing the price of a smartphone that you can get from anybody. And that’s — it’s tough to hang your hook on that as differentiation because it’s lit by definition, not differentiating.
So we have competitive device offers. Our customers are delighted with the offers. We just launched on the new iPhones. But what we do is come out with things that solve pain points that people feel in the industry and claim fame for that.
You mentioned our uncarrier moves. One of them we did in June was called Coverage Beyond, and this was the ability for us to be the first one ever to provide high speed data, worldwide 220 countries around the world, 210. I think it is around the world with nothing to sign up for. Automatically, built into our most popular plan at 4G and 5G speeds if that local network can handle it.
No one’s ever done anything like that before. And by the way, while you’re flying across the US to start that trip it, your Wi-Fi connectivity on all the major airlines is on us, not as a promotion, but an uncarrier move, that’s here to stay. And so these things people hear about these things, I still meet people. It’s been nearly 10 years since carrier 3 in October of 2013, when we first launched our global move, it was low speed data back then, I still meet people that say, I found out about T-Mobile and switched to T-Mobile because of your global differentiation.
And so we’ve done dozen, a couple dozen of these now. It’s not the only piece of differentiation, but it’s a strategy and it’s a strategy that’s meant to drive fame on value and fame on value is emote around our business that is hard to take from us.
Brett Feldman
You mentioned earlier, the last thing you have to finish up here is the billing migration, although that really should be transparent to the legacy Sprint customers. You had talked in the past as Sprint customers really fully transitioned into T-Mobile customers. You were just seeing the churn in those cohorts coming down. They’re pretty fully blended in now. Is there still any excess churn and headwind of the customers who came into the merger through Sprint, or has that mostly been whittled down?
Mike Sievert
Well, I don’t think we will be in a position to fully declare success until overall T-Mobile churn is the lowest in the industry and that’s certainly our goal. Overall Magenta churn got there, and I’m hoping to get overall T-Mobile blended churn to the best in the industry.
We offer the best value and the best network. I know we have some additional work to do to make sure everybody understands that best network part, but it’s true, and not just best 5G network. That’s hard. That’s hard because people at 5G, they’re not sure what it means. Everybody’s screaming, 5G. My competitors are all saying they have the best 5G, but overall, what people want is coverage and capacity that will power their smartphone and all their devices the best and be everywhere they need it to be and we are arriving at the station where our superior assets have us as the best network overall, not just the best 5G.
And when you combine that with the best value and our uncarrier movement, we should arrive at the station of having the lowest churn. So I’ll declare success when we get there. We got some room to run.
Brett Feldman
All right. But just to sum up industry switching up, usually good for you, usually a good leading indicator for your gross ads, churn has already shown improvement and there’s more room to run on that. That all sounds pretty good for the net ad trajectory of the company.
Mike Sievert
Yeah. And it takes time. It takes time. But I like the broad trend lines.
Brett Feldman
All right. Investors constantly ask about the competitive environment in wireless and one of the ways they frame the question is we’ve had 20 consecutive quarters where industrywide postpaid phone subs have grown faster than the population.
I think we’re just below record levels, which you saw last year in terms of net ads. And so the question is how is T-Mobile going to perform when we inevitably see industry wide growth accelerate? How do you think about your positioning? And do you think you’d have to change the way you go to market, if the underlying industry tailwind were not as great?
Mike Sievert
I keep referring to the entirety of the uncarrier movement. I’m starting to make myself sound like an old man, but I have been doing these financial conferences for T-Mobile for a decade now. And I’ve been asked this isn’t competition too much question every single time, the entire journey, starting when we were a distant number four rapidly shrinking to right now.
And, I would say the same thing I’ve been saying, which is, part of this intense competition comes from us and we’re comfortable with it. We are the creators of it. We do it smartly. I hope you give us a little credit for how we do this because, this is a house that we are very interested is a healthy place, a healthy category because we know that’s to the benefit of us and our customers ultimately, but it works for us and you can see that in our results.
One of the things that gives me comfort is all those growth strategies and tailwinds that I outlined for you a little while ago, that allow us to put our heads down and execute with a differentiated story and customers they’re noticing, and they continue to notice.
Brett Feldman
We talk a lot about competition and yet your two biggest competitors raise price this year. You’re not allowed to raise price, at least not until we get past the consent decree period. And yet your ARPU is still growing. What’s the tailwind that’s driving ARPU higher. And how do you think about the ARPU potential for this company going forward?
Mike Sievert
On the consent decree, we actually have more flexibility than your question implies. But that being said, we don’t raise prices because it’s not our strategy and our strategy is something that we’re confident in and comfortable, profitable, accretive growth over the long haul, driven by a differentiated value. And so for us, maintaining a price envelope, superiority versus our principle competitors has been a key ingredient of that all along.
We have a more efficient capital structure. We have a superior spectrum portfolio. We have structural reasons why we can over the long haul, sustained lower prices. And we intend to defend that position. We don’t intend to exacerbate it. We intend to defend it. It’s a position that we have fame for, and that we’ve very smartly navigated towards in an environment where the overall category is really healthy.
We have to sort of step back again against all these questions about isn’t it crazy town, competitive? You have scaled competitors across the board that are highly successful, very cash flow positive, healthy margins. And at the same time, you have customers benefiting from a category that has low prices and vast capacity, far reaching networks that have changed their lives. And so it’s a win-win for shareholders and for customers that’s really working.
And so you can get down in the weeds and say, yeah, but those iPhone promotions are value destroying. I don’t know. It’s working for the category and it’s gotten a little more expensive, but as you said, ARPUs have risen to compensate.
Brett Feldman
Well, let’s get into some of these I guess, newer growth categories for T-Mobile. And I want to start off with fixed wireless. You have, as of the second quarter, you had one and a half million fixed wireless customers, most of what you added this year. And I think that was a lot better than a lot of investors had expected. This is a room full of people who I’m guessing obsessively look at sensor tower data. And if they do, they know it looks pretty good so far. Can you give us an update on how your fixed wire…
Mike Sievert
I don’t know what that data is. What’s the…
Brett Feldman
A hundred people are about to send it to you. Yeah. Okay. Download data.
Mike Sievert
All right. Yeah. If you’re talking about the app download data, it’s, remember we have trial programs out there now, and it’s going to be hard to — it’s going to be hard to use that, but it’s going really well. It’s a strategy we’re competent in and we’re taking share. And what’s interesting about it is as you saw in last quarter’s numbers, it’s coming from sort of across the board; T-Mobile customers and new to T-Mobile customers; suburbanites on cable, but also Greenfield kind of rural areas.
And so it’s because what an awful lot of people want is a great connection at a fair price from a company that’ll treat them right. And that doesn’t mean they need a race car that goes 200 miles an hour. They want to know, will my Netflix run without interrupting at high death? Yes or no? Will I be able to do my zooms with my grandkids? Yes or no? Will I be able to do my social media and upload and download pictures with no delays? And is it $50 and $0.00 with no taxes and fees, I’m in.
There are millions of people that will look at that value proposition of an offer that’s not burdened by capital because of its excess capacity business plan and say that’s for me. And as I said, we put that business plan out there after studying this carefully and said, we think we could do $7 million to $8 million as you saw from Q2 results. We’re well on track.
Brett Feldman
And there is still pushback on that number where people will concede, okay, they’re doing better now than I would’ve thought, but it just means the network is going to get jammed sooner than I would’ve thought. How can an investor get confidence that T-Mobile actually has the capacity to grow into this service because we don’t approve any home broadband applicants in places where that can come true?
Mike Sievert
So in other words, the only approvals that we grant when somebody puts their address in are addresses where our forecasts say, no normative amount of share taking and success like I just laid out that you should expect and growth in mobile per phone, mobile usage will ever soak up the capacity of this network we’ve built in any reasonable timeframe and that’s where we give a yes.
And every place else we give a no. And we carefully studied all the places we would give yeses in the five years and then assumed we wouldn’t win them all, obviously, because we’re not that good. And then we pick the $7 million to $8 million.
And, so it’s — and by the way, if there are places where the capacity is giving a no today, it might give a yes tomorrow because remember our 5G network, as we sit here is — we’ve deployed about 110 megahertz against 235 million pops. We’re going to 200 megahertz from 110 against 300 million pops end of next year. And so it’s not just about how many people you reach, how many pops with your alter capacity network. It’s about the size of the spectrum that you’re putting behind it. As we mind spectrum from 4G and from the decommissioned Sprint network, we will be able to add it to 5G and that obviously just continues to expand the capacity.
Brett Feldman
I want to talk a bit about another growth opportunity, the business segment. Last year you said a target of roughly doubling your enterprise market share over the next five years from what was less than 10% of the time. So I think nearly 20%. The first question is how are you tracking versus this target? And why do you believe you’re better positioned in this segment than you had been previously?
Mike Sievert
It’s all about network. And what’s different about the enterprise customer than the consumer is that they don’t go purely on reputation. Like I said, if you look at the TV commercial, it’s kind of hard to figure out who has the best network, because everybody runs ads that says we do, but what’s different about an enterprise customer is they check out a hundred phones and say, see you in two months. And then they grant an RFP winner and we’re winning.
Our competitors are reporting elevated churn. We’re reporting big new logos. And so it’s just they want a great value and they want a great network. And in a lot of places when they have a studied head-to-head comparison, they realize that we don’t just have the best 5G network, which most have understood for a while. We have the best network and that’s not true everywhere, but it’s true in a lot of places and it will soon be true across the board.
Brett Feldman
Verizon and AT&T would appear to have the largest market share in the business sector from a wireless standpoint, if not surprising, they are the two biggest or two of the biggest providers of wireline telecom. They have very large sales Salesforce selling into that enterprise customer base. Do you need to scale up in a certain way or find new partnerships or even make acquisitions in order to really gain scale in that market?
Mike Sievert
Well, one piece of scale, I don’t think we need to serve the enterprise is to be their corporate campus fiber provider. These are discrete decisions, but there are solutions that center around 5G and wireless that we’re building and that our CIO customers demand not just around mobile device management, around billing solutions, around managing their portfolio, but we think at 5G advanced network services are not just a potential new business that I know our competitors breathlessly talk about and hope our multi-billion dollar businesses, maybe they are.
But they are also door openers for us to win share in the core. And remember the core wireless connections of your tens of thousands of employees with your tablets and your smartphones, that’s also a profitable business. And it’s one that where when we win the corner office relationship by being the most advanced in 5G and helping them with mobile edge compute solutions or network slicing solutions with our only in first in the market, only in the market standalone 5G core, we are able to build a potential new business, but we’re also able to win the core, meaning win the smartphone and the tablet and that’s where so far all the money in this category has been made.
Brett Feldman
Let’s pivot and talk about the rural opportunity. Another area where you alluded before, you’re very under penetrated. What response are you seeing from consumers when you enter a rural market for the first time? How long does it really take to build up brand equity around the T-Mobile brand?
Mike Sievert
I’m not exaggerating that there are — there have been store openings in some towns where the mayor and the high school marching band come out. So it’s like, we’ve been warmly welcomed. American consumers, love competition, and many rural customers have simply never been the beneficiaries of competition and they’ve seen our ads on TV for years on all this stuff they can’t get. And so it it’s — we’ve been warmly welcomed.
That doesn’t mean it’s hard work. It’s not hard work. It is. We have to have great distribution. We have to have clever marketing. But the team’s performing really well. And one of the ways that we measure this is we look at — we’ve sliced and diced all of this 40% of the country where we have the lower share into 775 markets and we’ve evaluated everyone as to our network competitiveness and our distribution competitiveness.
And as of the last time we updated you a quarter or two ago, about 30% of those markets of the pops in those markets, did we think we were, we had a license to play or license to win. That’s where we’re focused. And what’s interesting is when we have those conditions, network and distribution readiness, we’re already winning the switching decisions at the rate that will get us to the goal we publicly articulated to you.
So it’s just a really a matter of, hopefully we can continue to get better. We don’t need to. But it’s a matter of getting that license, more of those markets to fully competitive as we continue, building out this alter capacity, 5G network, a network that we’re two years ahead of our competitors.
Brett Feldman
And that target is a 20% share in the broader rural market by 2025. Even if you hit that, you’ll still have a much lower share in those markets than you do in most of your other markets. So just based on what you’ve been seeing so far, how much competency do you have that you can ultimately scale up to something that’s more historical for you?
Mike Sievert
Well, I assume someday we’ll do an Analyst Day that covers years beyond 2025. I don’t have an aspiration to articulate for you today, but we’re not a company that is sort of genetically engineered to be happy about 20% market shares.
Brett Feldman
Got it. And one of the ways — one of the ways you positioned yourselves in those markets is with Walmart. I think it was almost exactly a year ago you announced distribution with them. How critical is that to meeting that rural penetration target you’ve talked about? And then what have you learned about other distribution opportunities you might have outside of your traditional markets?
Mike Sievert
Well, when I said it’s hard work, that’s part of it. What you have to do in rural and any place else is meet the customer where they are. And Walmart’s one of the places where they are. By the way, digital and online is one of the places where they are. It’s a little — it might sound counterintuitive to urbanites. We tend to be a little bit myopic, but urban customers are very advanced digital shoppers, for what might seem obvious reasons once it’s pointed out.
And then having our own distribution and partner distribution, like I said, we plant T-Mobile flags in these towns and still today, that’s an important part of our formula as well. So it takes all that working together and like I said, the math is showing us that all that stuff working together is already producing so-go’s and switching decisions at a rate that will get us to where we need to go.
Brett Feldman
You had an early mover advantage with your network in 5G the first time T-Mobile really ever had an early mover advantage on a generational cycle really racing ahead of AT&T and Verizon in 5G coverage, 5G mid band coverage. They both have had opportunities over the last year or so to pick up more mid band spectrum and they’re furiously trying to catch up.
What gives you confidence that you can not only kind of maintain the improved brand perception that you’ve achieved, but maybe get ahead of them in a way that’s per se, where the perception of it is actually finally aligning with what you know is the performance of it.
Mike Sievert
Yeah, because it’s going better than I would’ve guessed and brands are powerful, but eventually the truth wins out. And so one of the things I said two years ago is that we’re two years ahead of them in the 5G race. and two years from now will be two years ahead of them in the 5G race and that’s panning out to be true.
Yes, they’re scrambling to catch up, but we’re moving at pace as well, even faster. So look at our goals for next year. And by the way, we’re a company that has over and over again, shown that goals are thoughtful. We expect to have deployed 300 million people with alter capacity 5G against 200 megahertz dedicated to alter capacity to 5 5G.
That’s something that is, neither of our competitors has even expressed a long term goal of achieving that. And so, yes, they’ve scrambled to catch up to where we were back then and look for me, what it should translate into overtime is our ability to have a stronger, better signal at the moment of truth when you’re comparing signals with your friends and it kind of comes out, geez, T-Mobile keeps on having the best signal, whether we’re at the beach or the national park trail head, or inside a big building in an urban area or out on the highway, and those moments of truth start getting around.
And at first you arrive in the station and we’ve definitely arrived where people say, you know what, they’re all pretty good these days. T-Mobile’s faster, but maybe there’s some farms where Verizon has better coverage, etcetera. They’re all really good. And that’s where our not even close lead on value and customer centricity wins the day.
And that we — last quarter as a demonstration of our switching decisions, we brought in 338,000 new net postpaid accounts. And that was the highest postpaid account quarter ever in our history. And it shows that what’s happening is people are starting to rethink this network question because network is the number one purchase driver in our category.
Brett Feldman
Mike, we were out of time. Thanks so much for being here.
Mike Sievert
Thank you. Appreciate it.
Be the first to comment