T-Mobile US, Inc. (NASDAQ:TMUS) Morgan Stanley European Technology, Media & Telecom Conference November 16, 2022 3:45 AM ET
Company Participants
Neville Ray – President, Technology
Peter Osvaldik – EVP & CFO
Conference Call Participants
Simon Flannery – Morgan Stanley
Simon Flannery
Okay. Good morning, again, everybody. It’s my great pleasure to welcome the T-Mobile team. We’ve got Neville Ray and Peter Osvaldik, Welcome. Thanks for coming to Barcelona. I’m delighted to have you back in person.
Peter Osvaldik
Great to be here.
Neville Ray
Great to be here.
Simon Flannery
So before we get started, please note, you can find disclosures on morganstanley.com/researchdisclosures. So it’s been quite a year, quite three years really for T-Mobile. It would be great to start with a little bit of a look forward here. So both Peter and Neville, can you talk about your priorities into year-end and into ’23?
Peter Osvaldik
Sure. And let me begin with the CYA, right? But of course, Neville and I may make forward-looking statements and reference non-GAAP figures. Please I refer you to our SEC filings on that. But as we look into the balance of ’22 and ’23 and beyond, it’s really just continuing to execute on the Un-carrier strategy that’s been so consistent in delivering for now 2.5 years, to your point, since the merger. And that is really bringing never before seen a combination of the best customer value along with the best experiences and a network that is rapidly becoming second to none.
On that network case, it’s really taking the durable lead that we have in the 5G era and translating it into overall network lead. And you’re seeing multiple third parties come to that same conclusion and consumer sentiment start to shift as Neville and his team continue the build out of this just amazing network that we’ve got. On the back of that, of course, it’s continuing on our growth strategies. The consistent ones that we’ve been delivering on smaller markets and rural areas, which is 40% of the U.S. population, following on the network build and getting growth into those areas.
Top 100, where we continue to grow and saw success again in Q3. Of course, T-Mobile for business, which is just another phenomenal growth area for us on the back of this product and high speed Internet. That’s been just a tremendous advent of 5G on the fallow capacity model, and you saw what we delivered again in Q3 on that front. And then last but not least, it’s just continuing to finalize this tremendously successful integration. And we’ll talk a little bit about what we’ve done from the network side, which has basically passed us. And now we’re into the last stages as we look to unlock the full synergies in 2024.
Simon Flannery
That’s really it, right.
Neville Ray
Yeah. I mean, obviously, we’re just tremendously excited about the progress. This was an incredible year in 2022 in all dimensions for the company. But on the network side, I think we even surprised ourselves, Simon. We came a long, long way. This network plan that we put in place some time ago to combine the legacy Sprint and T-Mobile networks that work is effectively done, well ahead of schedule.
And so that’s resulted in a 5G network, which is second to none in the U.S. We’ll talk more about that later. But in terms of the breadth of the 5G experience, but also the depth and the spectrum assets that we’ve committed to 5G. But delivering a truly outstanding 5G experience. More to come, we’ll talk about ’23 later. So really excited with the progress there.
I think on top of that, as Peter referenced, a big, big part of combining these two companies together and the two networks together was to remove those redundant assets at the end of that network integration and customer migration period. And we announced the our 3Q earnings that we’ve effectively completed all of that, almost a full year ahead of schedule, driving huge benefits to the company in terms of synergy generation and — so always right on just a banner year and super excited with the progress we’ve made. And of course, it’s a tremendous foundation for where we go from here.
Simon Flannery
Right. So maybe you can just talk about the wireless industry broadly, another good quarter, good year for the industry overall. And obviously, you’ve returned to the leadership now in the phone adds as you sort of predicted your churn would come down once the Sprint migration had integrated. So how do you think about the ability for this industry to continue to grow well above population growth over the medium term?
Peter Osvaldik
Yeah. We’ve said and we continue to believe that we’ll see the industry normalize. There’s a lot of factors that came into play in terms of why we saw the net adds that we did in the postpaid space, not the least of which being the prepaid industry, but we do expect it to normalize. And we saw a little bit of that in Q3. On a year-over-year basis, we saw the net adds coming down. Despite that, we continue to believe we’re best positioned in this industry. And the proof point continues to be in the results.
And when you look at Q3, the true measure of switching activity, bringing on profitable customers is what did you do from a net account additions? And with 394,000 postpaid net accounts delivered in Q3, that was the highest in company history and that was spread evenly across all of the growth trajectories that we’ve talked about. I’m sure we’ll get into a little bit more.
So we’re capturing the switching decisions, which when you combine again the best customer value that we’ve been famous for since the dawn of the Un-carrier and continue in this time, when others are raising prices, we continue to deliver the best customer value rapidly coupled with the best product. That’s the runway for us.
And when you take that and look at the underpenetrated segments that we traditionally had and have started to grow in — that’s why we believe we’re well positioned to capture the growth despite the fact that we believe the industry will start to normalize more.
Simon Flannery
And do you think we see a more intense competitive environment if we do get that normalization? We’ve certainly seen some of these cable bundles getting a lot of attention.
Peter Osvaldik
Yeah. Well, we always laugh because it’s every single conference and every single quarter of the question is the competitive intensity. And frankly, we’re the ones that brought it so many years ago, we brought competition into this industry, and it continues to be competitive. Of course, it is. How that manifests itself can change from time to time. I think right now, we’re seeing devices are kind of the vehicle of competitiveness in the industry.
But that’s okay because anytime you have competitiveness that’s what stimulates switching decisions among consumers. And we can see what we delivered in Q3, that’s when we win. So we’re very pleased with the competitive nature of the industry. We love that, that generates the switching moments and consideration points for consumers and I continue to see it play out like it has been.
Simon Flannery
All right. Well, let’s talk about the macro a little bit. And maybe now I’ll just start with supply chain. So you obviously hit your targets and exceeded them in some cases. But what are you seeing both in terms of shortages, but also inflation in the supply chain? And how does that impact you?
Neville Ray
Yeah. Well, I think we — one of the key benefits for us, Simon, is that we started this big funky well announced early and obviously ahead of our competition. Now that said, it wasn’t easy. I mean we were navigating building a 5G engine and factory during a pandemic. And so getting that machine moving wasn’t without its challenges and supply chain was one of them. But we have clearly benefited from starting early and building a commitment level from our key vendors and resources in the marketplace that have really carried us through the last 2.5 years.
And so a big part of our ’22 plan, as Peter and Mike supported, the momentum in the network was to pull forward capital into ’22. So we could leverage the momentum and the pace of activity that we had on the back of great vendor deals and arrangements, which in many ways, protected us from a lot of those supply chain challenges. And obviously, supply chain issues are still abundant, there’s much out there. I know I’d rather be in the position I am having completed the majority of our mid-band build rather than just getting started.
We also protected ourselves from much of the inflationary environment. I mean, when we were building our deals in our arrangements two years ago, 2.5 years ago, obviously, interest rates were in a very different place. The inflationary environment wasn’t there. And we leveraged a whole host of capabilities and benefits from this deal. I mean, with our tower companies, we secure deals that have protected the business on just great cost performance structures that allow us to continue to upgrade our network with a lot of liberal freedom to be quite honest.
And we structured those deals at a time that very different from trying to structure those today or inside the last six months to nine months. So that’s put a lot of goodness into the cost structure of the company going forward. We did the same on backhaul, of course, and of course, we did the same with our major OEM suppliers. So if I look at ’22, we’ve — as I said at the beginning, we’ve executed out at a phenomenal pace, the highest pace of radio and network modernization I’ve never seen in my career, and I’ve been at it a long time, time, as you know.
So tremendous that we’ve got that done, the for many of these headwinds came about in ’22. So we’re in a good spot. That said, I mean, I think supply chain challenges will continue. I’m hopeful that ’23 won’t be as bleak as many folks predict and expect. But for us, I mean, we’re pretty well protected.
Simon Flannery
All right. And Peter, there’s concerns the low-end consumer is squeezed by inflation. There’s talk of businesses delaying decision making. What are you seeing on the ground?
Peter Osvaldik
We haven’t seen that yet. I mean certainly, year-over-year, you’ve seen involuntary churn in the industry uptick from what were record low levels during the COVID suppress periods. And so you have higher bad debt coming with that. But when you think about during this time when consumers are feeling the inflationary and macroeconomic pressures, and you have your two main competitors raise prices unilaterally on them to the tune of a couple billion dollars in total on an annual run rate, and what a stark contrast to the Un-carrier strategy, if that’s the time we capitalized on that and said, let’s do price lock, right?
We continue to believe that profitable share taking, given the position where we are with the network and underpenetrated markets is the right way to create the most value for this company. And to think about in this time of pressure, to guarantee not only the best customer value in the product, but also this price lock construct, we think there could be a potential even more of a tailwind for us as consumers see any sort of pressure. The category in of itself is extremely durable.
We saw that during COVID honestly, the — while my phone is not here, [indiscernible] has it. Neville has his. It’s way more important to consumers than it was five years ago. It’s way more priority of wallet. So when you are start to feel stresses in other aspects of your life, of course, you’re going to look to where the value could be generated. And again, that’s where we’re positioned so well. We’re very excited about that opportunity.
Simon Flannery
All right. Neville, you had some more breaking news this week on stand-alone 5G. Perhaps tell us why you think that’s important and how you’re going to leverage that?
Neville Ray
Yeah. Well, maybe I just start with some broader network stats, Simon, and then explain the stand-alone piece. So obviously, the T-Mobile 5G story has — it’s just been enormous. And we’ve really led the industry on 5G deployment in the U.S. We now reach 97% of all Americans, the low-band footprint, the extended range. 5G is up to 321 million people covered now. But where the 5G story really comes to life science in the mid-band.
Obviously, we’ve seen that in other parts of the world as well as the U.S. That mid-band footprint, ultra-capacity, 5G for us branded that way that reach is now 250 million people on the way to 260 million for the end of the year. And it’s not just about building footprint, it’s about adding spectrum. And we’re well over 100 megahertz on the 2.5 gigahertz spectrum band.
We’ve also started to add PCS spectrum in the 1,900 megahertz. This is where 5G coverage is a huge benefit and capability for us, both in 2.5 gigahertz and PCS compared to 3.x spectrum coverage propagation is much stronger in the bands that we’re deploying. But the real piece that’s super important and exciting is when you can start to aggregate and combine all of those bands and put them on a true 5G lane.
So we’ve been talking about 5G radio for a long period of time, but stand-alone architecture, which basically means a full 5G lane experience, 5G radio, 5G core, putting those two things together. That’s new in mid-band. It’s been there in low band for us for some time. So we’ve had a 5G stand-alone core. But to couple that mid-band layer with a stand-alone 5G core, that’s new. And we announced that this early part of this week. So that’s nationwide for us.
And why is that important? Well, it creates a level of performance and capacity on the network, which we couldn’t achieve in a non-stand-alone environment. We can aggregate combinations of spectrum now that we couldn’t before. And so speed performances and capacity will certainly improve in a stand-alone world. The other piece that’s really exciting is latency. So we’ve always talked about latency benefits in 5G, but you have to have a full 5G architecture to realize those benefits.
Simon Flannery
Can you put some numbers around the latency?
Neville Ray
Too early, Simon.
Simon Flannery
Okay.
Neville Ray
But I mean, we are going to see material improvement. We’re not going to talk single-digit millisecond latencies, but over time, those are the 5G objectives and you can only achieve those in a stand-alone 5G architecture and 5G world. So really pleased that we are — obviously, our accolades around 5G. We call ourselves the most awarded network these days.
But it’s the largest, it’s the fastest, it’s the most reliable. And it is clearly, it’s the most advanced 5G network, one of the most advanced on a global basis right now. And that stand-alone capability is going to light up a whole host of new applications and services that our competition, quite frankly, can’t get to at this stage. Network slicing, for example, is something we’ve talked about many, many times.
That opens up the opportunity for businesses and consumer applications alike to deliver a level of quality of service or commitment or SLA that may be latency or speed bound. All of those things are possible in 5G, but only in a stand-alone true 5G world. And so for us now with our low-band and mid-band combination in stand-alone, which really leading.
Simon Flannery
You like to discuss the layer cake of spectrum, and we’ve left off the top piece of the cake. So can you just talk to millimeter wave to 12 gigahertz and other bands that might be of interest to you?
Neville Ray
Yeah. So we continue to deploy millimeter wave, but primarily in venues and areas where there’s real spikes or requirements kind of hotspot like deployment. Our model is very different from — we’ve never gone on a small cell street architecture model on millimeter wave as one of our competitors, did never been our belief that, that really made economic sense. And so for us, we’ve leveraged massive, I mean we have the largest macro network in the U.S. now, Simon. We’ve decommissioned well north of 30,000 sites from the combination of Sprint and T-Mobile together.
But the result in network is enormous. It’s the most dense. It’s the largest and so having that loading those macro sites with lots of 5G spectrum, that’s how you win. And so that piece is just great progress on that front. I think when you look at additional spectrum down the road, there’s a lot of talk about lower 3 gigahertz. I think that’s probably the next band that’s being targeted by industry and federal agencies alike, but it’s some years away, Simon. And it’s going to take a lot of work with Department of Defense, who currently leverage that band pretty heavily to navigate a path through there.
And then I think the industry is talking about other bands, 12 gigahertz , 8 gigahertz, something in 4 gig, but you’re really starting to talk towards the end of the decade almost for some of those opportunities to really light up. So we’re in a good position. We have a very strong set of spectrum assets in mid and low band and millimeter wave that we’re just tapping into. And we continue to combine those assets in ways that is way ahead of our competition at this point in time.
Simon Flannery
Great. Well, certainly, in three years since we were last year and even in a year, fixed wireless has really exploded, particularly in North America. But maybe I’ll start with a business question, Peter. How do you feel comfortable it may be a $25, $30 ARPU, if it’s in a bundle with selling a lot of capacity at that sort of price on a per gig basis.
Peter Osvaldik
Yeah. Well, if you think about the model for us and the beauty of how we’re approaching fixed wireless is that it’s an excess capacity model, right? Because of the strong spectrum assets and the deployment of those that Neville and team are doing, what we’re effectively doing is not even on a site basis, but on a sector-by-sector basis. What we’re looking at is what is the mobile phone and other connected device traffic on that sector?
How do we expect that to grow over the period of this plan, as we expect, there will be more usage on a per user basis. Where do we expect in that sector further growth in terms of subscriber acquisition, right? And then you layer all that up, and this is your expected usage. And then to the extent that, that sector has more capacity because of the spectrum assets that team — Neville and team are deploying that’s where we qualify fixed wireless to come on board.
So to put your address in there, you’re in the available sector, that qualifies you. So effectively, it’s tremendously low marginal cost, right, to bring on a very profitable consumer, whether that’s in a bundled plan and you get all the benefits from an ARPU perspective and customer CLVs with 10-year extension and the like, or just stand-alone. We’ve seen tremendous success, particularly coming into these smaller markets and rural areas where historically, the network just wasn’t there to the strength.
And now it’s just — you are bringing something that actually the competition isn’t in the form of 5G mid-band to these smaller markets and rural areas, again, covering 40% of the U.S. population. And this has just been a fabulous way to change sentiments because you come in, you provide a fixed wireless product at great speed and great customer satisfaction stats, we can get into the MPS relative to cable or even fiber a little bit later because it’s a tremendous story.
And you can change customer sentiment and perception around the network because consumer perception is stubborn. It takes a while to catch up to where the network actually is, but this is one way to bring it in because on a relative basis, it’s a tremendous product. And so I couldn’t be happier with from a business perspective, how to effectively capitalize on the excess capacity and generate a tremendous amount of value for the company.
Simon Flannery
And where are the sweet spots and who’s really signing up for it? Is this students? Is this mobile businesses? What are the areas where you’re seeing the best interest?
Peter Osvaldik
It’s actually across the board. We’ve seen it in T-Mobile for Business. We’ve seen it in consumer. You have about half coming from cable at this point in time. And it’s about two-thirds from our top 100 markets and about a third from the smaller markets and rural areas. And again, that makes sense as the network continues to build until these smaller markets and rural areas through the pendency in the next year or two. So we’ve seen it across the board, be successful in uptake from consumers.
Simon Flannery
Great. And Neville, you have to handle all this traffic. This dates back three, four years in the merger planning and the regulatory filings that you laid all of this out and came up with this target of 7 million to 8 million. So how do you feel today? What are your learnings after loading it up with a couple of million subscribers doing their best to break your network?
Neville Ray
You’re bang on sudden. I mean, we created the opportunity, right? And so we’re excited about where this is. I mean, the most exciting thing for me is echoing some of Peter’s comments is we’re now competing creating competition in a space that, I mean, is just remarkable. The latent demand for this product is incredible. People are not enjoying, there’s so much fragmentation in the home broadband marketplace in the U.S. Many of these small towns, rural areas have very, very poor service, DSL or worse.
There’s a lot of variability in cable experience. So as we’re bringing fixed wireless, and it’s 5G. This is a 5G product let’s be honest, that’s what opens the doors here. We’re seeing huge receptivity to what we can bring. So from a capacity perspective, Peter outlined, I mean, this is a very robust model. We make sure that we are always protecting our mobile — our traditional mobile wireless business, be that today or in the future.
But the fact of it is that with spectral efficiency, the density, the robust spectrum assets that we have, we can create a network that can just create a volume of capacity, which is effectively unheard off some. I mean the difference in the step change from 4G to 5G is just so large. I mean we always said, you mentioned the deal that in our advocacy, we talked about how capacity for a combined T-Mobile and Sprint compared to a standalone T-Mobile by ’25.
There was a 14x multiple, one four. I mean that’s hard to get your head around. It’s an incredible volume of additional capacity that we’re bringing to the network. And we’re about halfway through that. So it’s not as if we’re 2 million customers we’re far from done. We’re very confident about the 7 million to 8 million target. We’re adding them more mid-band footprint, and where we’ve already deployed mid-band footprint, we’re adding more spectrum. We’re adding feature [indiscernible] spectrum with stand-alone capability way, way better on 5G for capacity.
So in all dimensions, we’re very excited about the progress we’re making. We’re seeing usage on fixed wireless kind of on a median basis, about the same scale of about 400 gigs per month, which tells you the product works. I mean that’s probably the best way to think about how consumers are reacting and enjoying the product. It’s very, very similar to what’s happening in cable.
If a product was inferior or as some will try and call out or didn’t work for customers, we wouldn’t see those types of usage or that type of usage, those types of numbers. So the product is moving. It’s a very repeating myself now, but a very robust model, and we have a strong path forward as we expand footprint and expand spectrum and combine all those assets together to create a bigger runway and confident on the 7 million to 8 million. Experience is good. Demand is very, very strong and the product is working well.
Peter Osvaldik
I think it’s important to note, Simon, the 7 million to 8 million target isn’t the available capacity target, right? The network with all the modeling can certainly support well north of 7 million to 8 million. The reason we came up with 7 million to 8 million, one, where a prudent management team, as always, and we always deliver on our commitments.
And two, remember, you’re marketing this on a sector-by-sector availability because it is that all capacity model. So there’s more than 7 million to 8 million of capacity. It’s just a matter of what are your assumptions going to be on effectively being able to penetrate in exactly the segments or sectors that you’re selling into? So there’s ways for us to mature this product and mature our marketing and understanding and perhaps even capture more because the capacity there.
Simon Flannery
And what are you learning that churn on the base as you start to see some aging?
Peter Osvaldik
Yeah. Well, it is, to your point, it’s still a relatively young base with a little over a year since commercial launch. But the things that make us most excited one, NPS scores because it’s always a game. We can talk about who has what and what are speeds and all of that, but what are customers saying?
And our customer Net Promoter Scores are 30 points above cable. And what was really interesting is in the latest Harris (ph) poll, they were actually 10 points above fiber. So that tells you something. Remember, we’re targeting the 7 million to 8 million customers is effectively targeting a mid-single digit penetration of the overall market on a very fragmented margin.
Simon Flannery
And a little bit over half of the U.S. households eventually that you’re marketing to or.
Peter Osvaldik
That we’re marketing to? Well, right now, it’s over 40 million households that if you put your name in, it works and your time — in the target, it really is going to be sector-by-sector where is the available capacity. It’s a very dynamic list. It’s updated continually. So we’ll see where that ultimate number comes out, but I think it’s going to be plenty sufficient to achieve our targets.
Simon Flannery
And what about coming back to Peter and saying, can I have some more money I’d like to densify to build need to add some more capacity to the network. Is that a conversation to — if this product really seems to hit this — the latent demand that’s there.
Neville Ray
Yeah. I don’t know if I use the words, densify Simon, because we have we have a very dense network, as I said earlier on, we have some small cell architecture in there. But I think about the opportunity of how can we leverage maybe different spectrum assets, so there’s a lot of work ongoing. Ultimately, this is a point to multipoint network. It’s not an arcing or dancing rich mobility network.
And so are there capabilities can we almost dumbed down the radio environment and leverage, for example, millimeter wave stretch the bounds of propagation there, work on CPE, the customer premise equipment and create a robust link for home broadband services there. And so maybe it’s an overlay architecture on elements of the macro network that we have today in the right places where it makes sense.
But obviously, that has to support the economics on the product. Today, we’re leveraging it — it’s a fallow capacity model. So the incremental cost of serving those customers, I mean, is de minimis. And why would you sit on your hands on all of that capacity that you have no utilization for or line of sight to use. So we’ve created a huge business in the space, which is just — it’s gone way better than we’d anticipated.
Are there going to be opportunities for us to expand that business in different ways? We’ll see. But I do think, I mean, folks having a third of the American population of T-Mobile customers today, our brand resonates incredibly well. Customers love us for service, our brand attitude, sometimes our humor. But this is a powerful brand, and we are finding that in the home broadband marketplace, that’s not the typical customer relationship or brand experience today. And so as we look and find ways to advance our capability, I think that’s going to be super exciting for us.
Peter Osvaldik
But let me be clear, I mean, to the extent that there would be, and you’d expect us as a management team to be looking at what alternatives are there? Would there be additional investment warranted if the economics work. But if there was it would have to be accretive to the plan we laid out at Analyst Day, right? That’s a litmus test that we always use.
Simon Flannery
And how does fiber to the home fit into that? And maybe a broader fiber question first is just you tend to lease your fiber for your site backhaul, et cetera, rather than own it. Is that still something that you feel is the right solution. But where are you today on fiber-to-the-home — you’ve got this plant pilot in New York that there’s obviously some customers that need what fiber has to offer, particularly as you get into the top end of the marketplace.
Peter Osvaldik
Neville, do you want to start with the backhaul and I can take the…
Neville Ray
Yeah. Sure. I mean I think, again, we’ve leveraged this combination and integration of the two networks in that space, too, Simon, touched on it briefly earlier. But we have secured multiyear deals that, in many cases, take us out very close to the end of this decade on tremendous rates on a lease model. And so the vast majority of the network now is contracted on multi-gig. I’m not going to get specific but multi-gig backhaul on fiber. And so we’re very well protected in that space. Now if the economics somehow become better for us to own more fiber, then obviously, we’d look at that.
But right now, the lease model is tremendous for us, and it affords us capital to continue to invest not just in 5G, but to really push our coverage footprint to establish that overall network leadership that Peter was talking about early on. And so I would still — and I have most of my career, while I can secure tremendous lease rates, low lease rates on fiber, I would rather commit scarce capital to building out our radio and reaching our customers with what we manage and really do well today in the radio environment.
Peter Osvaldik
Look, on fiber to the home, we’re open-minded. And really, the question becomes, with everything that Neville mentioned in terms of the power of the brand, the customer relationships, the distribution, would there be a way that the T-Mobile company brand, all of those assets could enhance a fiber proposition to your point, to the subset of consumers that are going to see that as the right toolkit for them. The jury is out for us. I mean you mentioned we do have a pilot going on, a couple of pilots going on to answer that question exactly for ourselves, right?
Can we enhance that value proposition? And if so, would it make sense for us to invest? We don’t know. But to the extent that it would, it would — again, once again, the litmus test of it has to be accretive to the plan that we lay out there from a mid and long-term perspective for Analyst Day. So that’s something we’re investigating. And you’d expect this as a management team to continue to investigate the other opportunities.
Simon Flannery
And would that be in a partnership model, a JV or would that be…
Peter Osvaldik
I mean, we’re, again, open-minded to all the potential structures out there. But first, we have to convince ourselves that we can enhance the value proposition of that and bring something more with the brand and the customer relationships.
Simon Flannery
How close are you to making a decision?
Peter Osvaldik
I don’t think we’re close.
Simon Flannery
Okay. All right. We talked about the integration a few times. Can you just go through the last kind of thesis billing system? What are the last boxes we need to take here and how you’re going?
Peter Osvaldik
Well, certainly, again, the network was by far the biggest portion and wildly successful. And at the same time, Neville and team were decommissioning literally tens of thousands of towers. We deliver the best postpaid film churn and year-over-year declines on the back of enhancements to the network and the Sprint customer base. So that was by far and away the biggest portion. What really remains the predominant thing that remains is billing migration. But remember, the way we designed this integration is we separated network migration from billing migration.
And we’re doing what we call streaming conversion on the biller, which is when the Sprint bill is ready and that customer has the target rate plan, which we already mapped the vast majority of and the capabilities are equalized on the two billers what happens is a seamless conversion overnight. And that it’s a welcome to T-Mobile, that’s it. You’re finally here, everything is ready. That will work itself through.
It started now at scale, but it will work through about mid to late 2023. And once you complete that, that really is the back of how you can then finalize all the decommissioning of IT systems, the back office systems, the systems that are still resident in certain stores. We have dual stacks in certain stores to serve us Sprint biller customers. So that’s the majority of it.
We still have, of course, a little bit of the Sprint leasing construct to get through, and that will again be through the end of 2023 or so to get those customers off of the leasing construct and on to the more customer-friendly Magenta constructs. But we’re tremendously pleased with the progress and continue to believe we’ll have very good line of sight to the $7.5 billion of full run rate in 2024.
Simon Flannery
Great. Neville, you hinted at some of the interesting use cases coming out with stand-alone. What are the things that get you most excited? Obviously, fixed wireless has taken an awful lot. But on the other hand, I think there’s been a frustration that maybe we haven’t seen more killer apps or use cases for 5G yet. What are you getting excited about?
Neville Ray
Well, it’s still fairly early, Simon, but I mean on Magenta MAX, which is our kind of our killer 5G rate plan product that’s really driving 5G utilization. So on MAX, we’re seeing just tremendous 5G engagement. And I think the industry kind of misses this. So if you look at average usage per month on that plan 5G form, 5G network, it’s now kind of in the 40 gigabyte per month range.
And so if you looked at average LTE numbers in the U.S., that’s kind of a 2.5x to 3x multiple. And customers are really enjoying these 5G networks. I mean social networking communications stuff is up 2.5x, videos up 2x. Gaming is starting to move. It’s almost 5x now. And that’s going to change and shift with stand-alone capabilities coming into the mid-band space.
So I mean customers are really enjoying 5G. It’s hard to think — I can’t think of a product category where I’m consuming 2x, 3x as much inside the inside the last couple, I don’t know, last two to three years. Maybe it was pizza for me in the pandemic, I don’t know. But either way, I mean, the growth is tremendous and the engagement and stickiness of that our customers, they’re using our network by more than WiFi, for example.
Absolutely, right? So we’re starting to see a much more sticky capable product. Why is that happening is because the product just works better, right? I mean speeds are better, performance is better, coverage is now better on that 5G lane. So all of those things are coming together as we thought they would. I think about the simple examples. I’ve got my iPad here, but I carry a 5G connected laptop with me in the U.S., kind of seems to be still a fairly new category. I can’t figure out why. But it works wherever I go. I don’t use WiFi.
I don’t have to worry about WiFi and security and all those things. I have 5G capability in my laptop. I opened the thing up is connected. So we’re starting to see growth factors like that. And then I think in the consumer space, clearly, wearables is going to be an exciting space over the coming years. I think it will be lightweight augmented reality wearables in the early running. That might be stand-alone. It might be a slave to the phone in your pocket.
But that category is going to happen. There will be millions of customers leveraging products like that as we go into second half of the decade, for sure. So consumer applications are coming. And why are they coming now? It’s because we have 5G coverage that’s almost ubiquitous from T-Mobile, and you can now bring these mid-band capabilities in slicing and stand-alone and true 5G, real 5G experience all the way through that can support those use cases.
And then last but not least, just 2 minutes on the enterprise space. For me, one of the big unlocks in enterprise is license. I don’t know have business customers come to T-Mobile and drove today because they want to future-proof their decisions, maybe more so than consumers do. They know we have a 5G leadership position. We have an incredibly strong underlying network across the country. And they want to understand what 5G can bring, can they drive greater efficiency in their businesses.
Is there a network slice or capability that can guarantee a level of service performance, speed, latency that can help make a way more productive workforce. There’s so many dimensions there, Simon. And we’re in the leadership position. I mean, I haven’t heard anything from my competition about when they will try and even match us on our footprint over a multiyear arc, when will they have true stand-alone capability, all of those things are going to take years of catch-up for our major competitors, which is bringing a lot of new business opportunity to the company.
Simon Flannery
So maybe show until next year, you can bring some of your favorite.
Neville Ray
I hope so.
Simon Flannery
Peter, let’s wrap up with capital allocation, if we could. Can you update us on the kind of $60 billion type free cash flow expectation over the next several years? How do you feel about that CapEx coming down next year, et cetera. And you’ve got the $14 billion or up to $14 billion over the next 12 months. I think some — we’re hoping for a $20 billion number. Now obviously, you’re ramping into that free cash flow, perhaps square all of that for us.
Peter Osvaldik
Yes. You’re exactly right. In the course of this plan, much like we laid out at Analyst Day, we continue to see a path to $65 billion of free cash flow. And that’s really what unlocks all the potential for capital allocation. The capital allocation methodology hasn’t changed since what we’ve presented. First and foremost, it was build the network, the product, get the network leadership position that unlocks all of this growth opportunity, particularly when coupled with the customer value proposition.
Second was integration, right, formalized, finalized integration, fund the merger-related cost to unlock all of the synergies and goodness from that perspective. Second is always look at other opportunities, right? What are other potential value creation opportunities over and above things that are already in the plan that could be accretive. We haven’t identified those yet to any meaningful degree at this point in time, but that’s something we continue to assess.
And then third was return of capital to shareholders. And right now, we continue to see a path up to $60 billion over the course of the plan. And you’re exactly right, right? The plan always had expansion of core EBITDA and free cash flow, which is part of the funding mechanism for this. We also said from a leverage perspective, we were going to target that mid-2 perspective from both mid and long term, that’s a very healthy level of leverage. We want to maintain flexibility as we continue to grow there.
So that’s another aspect that plays into it. We want to make sure we’re delevering and staying in that zone. And then the $14 billion was phenomenal start. And again, up to $3 billion in 2022, ahead of the original Analyst Day expectations. So I couldn’t be more pleased with that. Our job is to execute against this plan to leave us the flexibility to deliver on those commitments and everything is intact.
Simon Flannery
And you already completed about half of this year’s allocation by the time of earnings, right?
Peter Osvaldik
Right, yes.
Simon Flannery
In a good start. Yes. Great. Well, unfortunately, we’re out of time. Great conversation. Thank you so much for coming to Barcelona.
Neville Ray
Thank you so much, Simon. Always a pleasure.
Question-and-Answer Session
End of Q&A
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