T-Mobile US, Inc. (NASDAQ:TMUS) UBS 50th Annual Global TMT Conference December 6, 2022 3:50 PM ET
Company Participants
Mike Sievert – President & Chief Executive Officer
Conference Call Participants
John Hodulik – UBS
John Hodulik
Good afternoon, everybody. I’m John Hodulik, the media and telecom analyst here at UBS. And I’m very pleased to announce, our next speaker is Mike Sievert, the President and CEO of T-Mobile. Mike, thanks for being here.
Mike Sievert
Thanks, John.
Question-and-Answer Session
Q – John Hodulik
So, Mike, you just celebrated your 10th anniversary at T-Mobile. And, I got to say, over the last 10 years, we’ve seen a transformation of the company that, unlike any other company that we’ve seen, certainly, that’s been presented here.
Can you just talk to us a little bit about what you thought, maybe aside from the Sprint acquisition, the sort of important milestones and sort of decisions that you and your management have made to sort of get you so far so soon?
Mike Sievert
Well, okay, starting with a wide lens question. Well, first of all, John, we call them Magentaversaries, and they’re a very important part of our culture. It’s a little weird for me to be answering a question about a 10-year Magentaversary, because I spend a lot of my day signing cards for people with 20- and 30- and 40-year Magentaversaries. Those are the real heroes.
But it is kind of — I guess, it is kind of, needs to stop and think for a minute about where we are. And maybe more importantly, how we got here and how it informs the future. I mean, if you think about the fall of 2012, we had just finished the year or we’re finishing a year in 2012 where we lost 2.2 million postpaid customers. We were shrinking in customers, negative revenues, negative EBITDA growth. Just coming out of a failed merger.
John Legere came in, I came in, just right on the heels of that, and we really just plotted what we could do. We had assets from the failed merger. We had a potential merger with Metro PCS. We had a commitment to go after LTE. We had new leadership.
And I think the first time we used the word Un-carrier as a company was in the press release announcing that I would join as CMO. And John and I and the rest of the team got right to work at how could we change it.
Looking back 10 years, there’s a few things that I think kind of strike me as themes, and they’re sort of obvious and they kind of sound like talking my book here, but one is, one leap of faith is what happens when you invest in customers, when you love customers and you watch while they invest back in you? And that was something this industry hadn’t really been practicing. It’s getting better. This industry has gotten a lot better, and we take some credit for that as the Un-carrier.
Another is, looking around corners. I think one thing this management team, throughout the entire day the era, has been good about looking around corners. You mentioned Sprint in your question.
This company understood that 5G would unfold in mid-band. And it understood that, that was the future when others didn’t. And it focused on being the best mobile pure-play company with the best assets in this space and winning the 5G race, because we were the last guys to 4G.
We were the most motivated to win the 5G race, and we saw where it was going to unfold. We’ve also seen the major consumer trends in this industry, I think, faster than most around what would happen if you love and invest in customers around things like vanishing contracts, or getting rid of hidden fees or buying out their contracts at other companies so they can have freedom, or giving them global roaming for free, including with their plan, or things like getting rid of data plans altogether and going unlimited.
All those things that we did and all the rest that have informed the big Un-carrier moves, we’re big investments in customers, big. Some of them like, people were side-eyed us, how is that going to pencil. And it’s penciled. Look at where we are now, one of the largest and most valuable companies in the history of our space.
So we’re focused on customers. But one thing that has sort of permeated it all and sort of informs us going forward is this value — we have five values in our company that we talk about all the time. One of them was called, we won’t stop. And what that means and much to the consternation of my team, we come in to work every morning unsatisfied. You know, we’re outgrowing everybody. We have a valuable company that is satisfying customers, is leading in growth, is translating that growth into financial leadership and we’re completely unsatisfied. That’s what we won’t stop means constantly challenging the status quo. It’s cultural for us.
After all these years, it’s who we hire, it’s what we recognize, it’s who we promote, it’s a value that’s very hard to replicate this relentlessness, this unsatisfaction with the status quo. And that informs us as we go forward because we look at everything going on in this company and ask, why can’t it be better?
John Hodulik
Right. Makes sense. Pivoting from, sort of, looking backwards to looking forward. As you guys look out into 2023, what would you say are the big opportunities or big priorities of you? And you mentioned some of the customer pain points and changes you’ve made to the industry. Do we still have fertile hunting ground as we look forward to make changes that can, sort of, keep T-Mobile ahead?
Mike Sievert
Absolutely. One of the things that, I think, we’ve been very consistent on are the basic parameters of our five-year plan. Next year is year three of our five-year plan. We’re way ahead of schedule, obviously, on the things we committed to. But the basic theses are all completely intact. And it’s one of the things that distinguishes us. We’re executing a basic business model that we started talking about in 2018 when we pitch this merger and that we doubled down on after the merger with in great detail.
And for us, we have big, underpenetrated logical, segment-driven growth strategies that are really differentiated versus our competitors, things like tackling smaller markets in rural areas where our market share is in the teens. Enterprises, where our market share is just breaking into the double-digits. 90% of the customers are with AT&T and Verizon.
In the top 100 markets, where we’ve always been strong, where we’re leading in the top 50, we got here out convincing tens of millions of people. We have the best network. Every single one of them came wondering whether they were making a trade-off, and tens of millions of others has never seriously considered at us. So we’re the market leader in top markets, while not winning the game, something we can now do, and we’re being broadly recognized for.
Home Internet, you know, huge tailwind for us, something that we’re very excited about and continue to execute on very strongly. And Sprint churn. We’ve had great performance on churn. Now two quarters in a row, beating Verizon on churn, even with Sprint, Inc., and we’ve got some more room to run on our worst-to-first strategy that we’ve already proven we can do on the Magenta side.
So these things are clear articulate goal-driven, segment-driven growth strategies with lots of room to run in our core business, and it’s something that differentiates us, not only having these strategies, but consistently executing them over and over and over again, just like we promised.
John Hodulik
So let’s drill down into that, especially, on the growth strategy, which I sort of think of it as a, sort of, a bookend strategy. You talked about the rural opportunity. We’ll get to that. But you’ve also talked about extending the sort of leadership, I don’t know if I’d say dominance, but maybe you will, that you have in the top 25 markets to the top 100 markets, sort of, like — sort of expanding the franchise you’ve built in these large cities.
I mean how do you do that? I mean, what — is it distribution? You’ve already mentioned network. You obviously have a very attractive pricing. I mean how’s that sort of side of the growth strategy going?
Mike Sievert
Well, to the premise of your question, we are number one in the big cities all across the country, and those top — I’ll say, on average, top 50 cities. We’re number one on average across the top 50. And so the strategy isn’t just to defend that turf though.
As I said, we got here without winning the network story, and now we can win the network story. So, the strategy in top markets isn’t to defend that share, it’s to extend it by going after the tens of millions of people who never gave us a good look when we were coming from behind on network.
In the last three years, we have slashed the perceived leadership of Verizon in network leadership, what the average consumer perceives, which is much more important than the reality. People know the reality. We’re the 5G leader by far. But perception is what matters. And we have slashed that lead that Verizon has in half.
And so we are coming for them as being the company famous for the best network. Why? Because we have the 5G lead and 5G is becoming the network. We’ve now had three major product cycles that are 5G on phones, and now the majority of customer volume is on 5G. It’s a matter of time before 5G leadership is synonymous with network leadership. We’re catching them.
And so this market leadership that we had all these people came to us while kind of wondering if they were making a trade-off. And now we’re going to say, no, you can have both simultaneously the best network and the best value. Through that same time period, we slash Verizon’s lead on network perception. We have not only held, but extended our fame as the value for money leader. So, we’ve extended that thing.
Now, they gave us an assist with all their price increases this summer, but we’ve extended that fame. And so that’s really important because ultimately, our strategy is to convince people, you don’t have to make a trade-off. You can have both and the answer is T-Mobile.
So, that strategy sweeps across the top 100, while in smaller markets and rural areas, it’s to go establish ourselves, and we’re making incredible progress on that with share of switchers up several points from just a year ago.
John Hodulik
Yes, if we could go deeper into that. I mean — so I think you’ve laid out the strategy before. It’s a question of getting the network where it needs to be, then following with the distribution, and then the market share will follow. You guys have talked about sort of pushing that strategy in these rural markets, which represents a much bigger number than I would expected, 40% of POPs.
Mike Sievert
40%.
John Hodulik
Is there a way that you guys could characterize how far along you are with that strategy in terms of maybe what percentage of the POP has this — have the network? What percentage of them have the stores? Where do you think you are in terms of like — what inning are you in, in terms of going after this market?
Mike Sievert
If you think about a company that has proven it can be a leader in places that really matter to our competitors, like New York and Dallas, okay? And yet in 40% of the country, we’re teens — we’re in the teens. And so people have questions about whether or not this segment-driven room to run in our growth strategy. I mean the answer is, right? The question is, are we demonstrating we can do it.
And what’s happened in the last year alone is we’ve moved from 30% of the places to 50% of the places where we think all the factors of competition are there. So, let me back up. We actually take this 40% of the country, and we algorithmically break it into 775 markets and rate our relative competitiveness in all those markets on an ongoing basis.
And when we achieve a level that we call license to play or better, that’s when we pour in distribution and targeted marketing efforts and go after share gains. And we have moved from 30% of the market’s license to play or better to 50% of the market’s license to play or better and come within a hair’s breadth of Verizon’s share of gross ads, while only playing in half the markets.
And so we’ve gained four points of switching share just in the last year alone in smaller markets and rural areas. And in the places where we have license to play, everything is happening. Our share gains match our plan or better, which means — now we don’t think we’re that good at it yet. We’re still learning how to compete in more rural places. There’s lots of stuff — back to the unsatisfied. There’s lots of stuff we’re tackling. But even if we got no better at this, all I need to do is finish the job of getting more placings license to play or better, and we’ll achieve the aspirations that we put out in front of people last year.
John Hodulik
Later play is, you’ve got the network where it needs to be?
Mike Sievert
The network is competitive. It’s all the places people needed for them to seriously consider us and switch to us and be better than satisfied. And that, plus then do we have the capability to put distribution in? Are we of teams there? Are we ready to — and it’s just really exciting to see what’s happened. Our team has rallied around this. Right from the top, we’ve organized ourselves around this.
Our entire [ph] infrastructure is divided. Everybody knows that there are smaller markets and rural areas, person or a top 100% and their incented on those goals and they’re collaborating with their network people and they’re figuring out which stretch or which road do those guys have us, and we need to fix it in order to be licensed to play. It’s fantastic. And for us, it’s unprecedented. And we’ve never operated this way. So like I said, we’re getting better at it with each passing quarter.
John Hodulik
And I guess the next step is licensed to win, is that when you get the — is that when you have the distribution of the stores teams in these markets?
Mike Sievert
Yes.
John Hodulik
And then how quickly — first of all, in the licensed play, how quickly do you get the other 50%? I mean is that to get to the fourth?
Mike Sievert
Yes. We put that out there. We just said we have moved from 30 to 50, and that where we have the 50 where we really like what’s happening. But you can tell how focused we are. And as we look forward in 2023, on the consumer side, we’ll put a Home Internet for — aside for a minute. The strategy is really simple, win network seekers in the top 100 market and convince them that we have the best network now, and they should give us a serious look in order to save themselves a ton of money.
And go execute this strategy with absolute urgency in smaller markets in rural areas because it’s working. And those are our two strategies. But we haven’t put out specific targets within that other than to tell you that we see our way a within the planning period that ends end of 25 to better than 20% market share in those areas.
John Hodulik
And who is that market share now? Is it all Verizon? I mean, are they…
Mike Sievert
It’s Verizon and AT&T. They both have been in a lot of these places for a long time. Many towns, though, have one or the other choice. And so a lot of places, people have been watching our commercials on NFL all weekend and stuff like that for years, and there’s never been a store in their area. There’s never been a viable effort from us to go win them because we’ve known in the past as we were coming up the curve, our network wasn’t fully competitive there, and so it just wasn’t a great proposition. It just shows you how much upside there is for a business that’s performing like this, bigger than AT&T now, outgrowing AT&T and Verizon combined, that has all of this underpenetrated opportunity, where we are demonstrating what we’re doing is working.
John Hodulik
Right. People take advantage of the network test drive service you guys offer in these markets, whether it’s the rural markets or even in the urban markets? And does that sort of kick into sort of higher gear with sort of the new eSIM capabilities of the new phone?
Mike Sievert
All this stuff is in its early stages. And yes, we launched Easy Switch this summer. It was pretty exciting. And — but it’s growing in its scenario. So it works better for single line than families. It works better for bring your own device than if you’re going to do a trade in, in a complicated device transaction, et cetera. It works better if your phone is already unlocked, that means paid for and unlock. So it’s easier — that second SIM is also covered by your carrier lock. So don’t expect like an immediate wholesale. Everything has just changed from eSIM.
However, yes, everything that removes switching friction in this industry and eSIMs are one of them, it’s good for us because we’re the next share taker. And so last quarter was the biggest switching quarter ever in our history. You asked about 10 years of the Un-carrier and historic turnaround and success story. Last quarter, the most recent one reported was the biggest switching quarter in our history with more new accounts. And that’s what really matters, these billing relationships because those are the switchers. Our competitors can do a bunch of ad aligns and stuff like that, but what we’re doing is winning the switching story and the biggest quarter ever was last quarter.
John Hodulik
Got you. The other part of the growth strategy that we focus on is the business market. And we heard from AT&T and Verizon about it. Is that — how big of an opportunity is that? And maybe if you could size it versus the rural market? I would imagine it’s about 40% of the POPs. I mean it’s going to be smaller than the rural opportunity. But is that a…
Mike Sievert
Yes, and some of it’s duplicative to the POPs, because some large enterprise customers across both government and private sector carry more than one phone. We are seeing increased interest in company liable business in both government and enterprise, whether it’s security-driven, whether it’s hybrid work-driven. It’s a popular new benefit that people are offering. So we’re pleased with what we’re seeing there from a TAM standpoint, but more so from a share standpoint.
Last quarter was one of the two best quarters we’ve ever performed since bringing this company together on net adds in the business space. It was the second lowest churn quarter we’ve ever done. We outperformed Verizon on both growth and churn in the third quarter in the business sector. So it’s really working. But on the other hand, we have a lot of work to do.
And our strategy is to use 5G to win the corner office relationships. Because as we’ve come up the curve, it’s very much been a kind of a game of procurement. So what happens is companies they basically want to price cut their incumbent, and so they bring in another player and throw a little business to reprice the incumbent. And we’ve historically been the little player that gets it a little bit. We have a 10 share. That makes sense.
So — and what’s happening is our goal — we’ll keep — we’re happy to do that. We’re happy to take — be a part of them taking away our competitors’ margins. But what’s much more important for us is to use our 5G leadership and our leadership in standalone capabilities, private networks, mobile edge compute to win that corner office relationship. And when that happens, we’re winning entire companies, which is what’s happening in retail and airlines and federal government, in education and other sectors. So that’s the strategy.
John Hodulik
And lastly, in terms of the segments, from the wholesale market, I mean is that an opportunity for you guys? You have a new deal you guys reworked with DISH. I mean is there potential for growth, or is that something that you expect to sort of a slow decline there on that side?
Mike Sievert
Well, we have the highest capacity network in the sector, and it’s going to be the highest capacity network for the foreseeable future. And we should remind everybody of the stats of that, maybe as it relates to home internet, HSI.
John Hodulik
Right.
Mike Sievert
So yes, you know what, if we can do the – we can do arrangements that are accretive and smart and win-wins, we are all for it. And you saw that in our willingness to rethink comprehensively our approach with DISH. And both companies are very happy with how that looks. And yes, we’re in this business for real and very serious about it. We lost the track partnership a while back because of the Verizon transaction. So that frees up opportunity for us. So yes, no, wholesale is a very important part of our business.
John Hodulik
Maybe we’ll talk about pivotal competition. I mean, obviously, it’s a very competitive market as it is right now. I mean do you worry, given the success you’ve had and the growth that like you said you’re outgrowing both of those companies combined, I mean do worry about a competitive sort of reaction from these large sort of deep-pocketed competitors, especially now that we’ve seen a management change at the largest one?
Mike Sievert
All right. Well, you asked me about 10 years, so I’ll just give you — so that means I have handled for T-Mobile better than 40 quarterly earnings reports and probably better than 25 financial conferences. And I’ve been asked breathlessly what about the awful, awful competition every single time? Like, isn’t it — right now, the worst it’s ever been and isn’t it about the — isn’t this neighborhood about to go all bad?
And it’s just not what — how we see it. We’re very comfortable with this environment. And we also kind of helped to bring it about. We love competition. We love things that make this industry better for consumers. We have the speed and the cost structure to be able to compete in these environments.
But at the same time, one of the things you’ve seen from our actions, as opposed to our rhetoric sometimes, so judge me by our actions here, is that we understand that the best strategy for our company is to be thoughtful, growth-oriented, accretive, focused on accretive thoughtful growth strategies, and that’s what we do. And the results, I think, demonstrate that that’s a strategy that works for us to make sure that we continue to succeed in an environment that’s a good sector to succeed in.
Now that said, I’ll remind you, we generated more net additions last quarter than AT&T and Verizon combined, but we could have done more. And what we did was beat everybody’s expectations on the financials instead, and that’s the way we think about this business.
John Hodulik
I mean — sticking with competition, I mean, over the last really couple of years, we saw cable sort of come out of the woodwork and take a meaningful percentage of gross adds, right? Do you worry that that competition from that segment intensifies?
And then a little bit further out, DISH is expected to launch their service, their postpaid service. We don’t know enough about the strategy or pricing or positioning that kind of thing, but sometime in 2023, I mean, do you expect that to add incrementally to the sort of competitive environment?
Mike Sievert
Yes, of course. I mean it’s always been in our planning assumptions. We do expect and have always expected that DISH would be a viable player in the space. Cable is probably a more important factor. So far, what we’ve seen is that cable success hasn’t appeared to come disproportionately from us nor has it been a catalyst for wholesale changes and value propositions in the industry, which I think is an important thing. It’s been focused a little more on the lower end, a little more on one or two-unit households, a little more on BYOB, not exclusively on all those things, but a little more. And these are artifacts, I suspect of their agreement structure with Verizon.
And so — but by the way, I think — I mean, our — we do telemetry all through the quarter, here and so to you, I know, like we’re expecting Charter to have a fantastic quarter, maybe their best one ever. So there’s stuff happening that I think we have to really watch, but we watch it — we don’t really watch it with concern, because the underlying assumptions of the industry appear to be intact. And it looks to us, like there’s room for them. And now it might not look that way to an AT&T or a Verizon, I don’t know.
As for Verizon, who I know is under a lot of pressure in their consumer business, they’re monetizing these customers. And so it’s — I wouldn’t expect them to do some crazy or rational thing, even though their consumer business is a bit stressed, because they’re seeing monetization from it. And I think the big question on everybody’s mind isn’t as cable going to come? Is cable going to come? And is there going to be a resulting sort of round of craziness in the industry that runs the neighborhood? And I don’t foresee that.
John Hodulik
Got you. And you mentioned the churn that you guys have seen the results, which were very strong last quarter, despite the fact that I think it was your biggest quarter for decommissioning the Sprint network. And obviously, we’ve seen a number of acquisitions over the last 20 years. And there’s always – once you touch the network, there’s always churn issues. Now obviously, most of these customers have moved off the Sprint network and are on the T-Mobile, but it suggests to me that there’s still room to go, right? The network is still improving. I mean, is there a way to sort of characterize where churn could go – where it could bottom? I mean, obviously, coming out of the pandemic was probably artificially low churn, but how much more room do you think you have?
Mike Sievert
I don’t know. I mean, I’ll take you back to we won’t stop and never satisfied. I won’t be satisfied and my team won’t be satisfied until our churn is the lowest in the industry, and AT&T caught us the last couple of quarters and so that we weren’t the lowest. We want to be the lowest. And I think with the best network, we should be the lowest. If you have the best network and the best value, it should be the lowest churn. We’re not done. But these things aren’t – they’re not easy, and there’s – and some of them are longer burn things. It’s about getting customers under commitments and it’s about satisfying them.
Our Net Promoter Scores are rising, while AT&Ts and Verizons have fallen since this summer. So there’s lots of great signs. But – and yes, therefore, there’s room to run. But I wouldn’t make it so algorithmic as everybody is on the T-Mobile network now, so snap it to T-Mobile. There’s a long history of how customers were acquired and whether or not they’re on commitments, and are we doing a great job satisfying them? And – but look at our track record, and how we took the Magenta brand from worst to first. We know how to do this.
John Hodulik
The other thing that’s usually complicated and where we’ve seen companies sort of slip up in the past after acquisitions is billing conversion. Is the billing conversion – you guys have said, it’s de-risked and maybe you could sort of add some color to that, but is there a possibility we could see higher churn through that process, or maybe less sort of progress on the improvement in churn as we do the billing conversion?
Mike Sievert
I’m not expecting a customer impact from the billing conversion. The last step, as you said, in Q3, we substantially completed the shutdown and decommissioning of all of the synergy sites. And so that’s – the network portion is largely complete. On the billings side, we’re right on track. By right on track, I mean, we continue to be about a year ahead of schedule in our business line. And it’s really cool how we design this. It’s unprecedented.
So essentially, the billing conversion is designed to be essentially opaque to the customer. They shouldn’t really see it happening. What we did is looked at every feature in the Sprint biller that would make sense to replicate on the T-Mobile billers, and we’ve been busy replicating those. And the ones that we decided not to replicate, we’ve been busy migrating those customers with a move as support. And so – and we’re best about done. So now you basically just have an IT staff replicating all of these services.
Trickier ones that take longer are some of the complications around leases. T-Mobile didn’t do as many leases, so that’s why it trickles into 2023, but most of the big scenarios are already done. And when they’re done, we simply changed the bill in the background with a streaming conversion process, and they never really see it happening. And that – we’ve done millions so far.
So, I mean, it’s going fine. And our team is amazing the way they thought this through. So we’ll be substantially complete by the middle of the year on consumer. We’ll have trailing scenarios in the second half that are more focused on complicated B2B getting the Sprint T-Mobile for Business. And then – we’re back up – and then it will be completely done.
I do think that we will be in a position in the – in the first half of the year sometime, maybe at that three-year mark or somewhere to just kind of give an update on where we are, and I’m hoping the update will be that this is just by any measure, the most successful integration of scaled telecommunications companies ever done in the history of the world that’s our goal.
John Hodulik
That’s direction for sure. Maybe another value driver aside from churn is ARPU trends, and that’s been another brand. But for the industry and for you guys and a lot of it being driven by Magenta MAX. I mean I think right now, you’re getting 60% of new sales are on Magenta MAX plan. I mean how high — I mean is that where we should be thinking of in terms of the base? Do you think the base can eventually get there? And then given how high that take rate is, is there room to go even higher, super premium plan or something that can — I mean you probably never thought you’d get 60% of gross adds taking such a high-end plan. But just your outlook for sort of ARPU trends and how you segment the business?
Mike Sievert
I think it just says so much about the power of our brand. Back to what you asked me about on the 10-year question, I talked about a company that believes that when you love customers and invest in them in ways that might shock people they invest back. They invest back. And Magenta MAX is at the latest proof point of that story. A substantial minority of existing customers when they transact with us are moving up to MAX. That’s great execution by our customer loving team that knows how to show people how to get the best out of T-Mobile and get them on the best expression of our product. That’s just great execution.
But it also is about the love of our customer base and the satisfaction they want more from our brand. And that’s — and they’re asking to come into a better version of our product. That’s brand. That’s powerful. That’s hard to replicate. So we don’t exactly know where it goes. Nothing you asked is out of the question. We don’t do price increases. So our customers that are on MAX get to keep that product at that price. But is there an opportunity to find even further ways to relationship down the road? Of course. But I’m not looking for a solve on this strategy, I mean, it’s going great.
John Hodulik
Speaking of extending the relationship that brings us to fixed wireless. You guys have — first of all, did you guys expect it to scale this fast? I think you added 570, 580 in the quarter?
Mike Sievert
Yeah, no one else did. It’s funny. I mean we rolled out last year in March at our Analyst Day a target of getting to 7 million to 8 million customers by the end of 2025. And that means you got to do about 0.5 million.
John Hodulik
I mean it looks like you’re going to be…
Mike Sievert
Last quarter was — if you’d say, if you have a business model that says, you need a $0.5 million a quarter, give or take, well, the last quarter was good. It was — and so for us, we’ve got this thing designed to where it should produce about $0.5 million a quarter give or take, and we’ll be satisfied no matter how it lands around that because I think it’s really important that we jealously guard the Net Promoter Scores where we have absolute leadership. We’re higher than fiber or cable, and we also jealously guard the business model that’s predicated on not having too much CAC.
So you can’t overinvest in these customers and then charge them $50.00 a month, taxes and fees included. So you really have to rely on high Net Promoter Scores and great word of mouth and have a step-wise execution. And so you just run the math. We’ll get to that goal of $7 million to $8 million by the end of 2025, with a production of about $0.5 million a quarter. And there are tailwinds and headwinds. The headwinds are obvious. As you grow a base, we’re now well over 2 million customers, as you start to grow into that size, you start to deal with churn, you have to outrun that.
But on the other hand, this is a capacity-driven business. We tell a lot of people know because we can’t handle them in their neighborhood yet. And I will remind you on network, we are at 250 million people with ultra capacity 5G on the way to 300 million by the end of next year. But within that, and this is maybe even more important, right now, averagely, we have 120 megahertz of spectrum dedicated to mid-band 5G, that’s going 200 by the end of next year, 200 megahertz across 300 million POPs. So, that’s a huge tailwind on our ability to accept word of mouth-driven applications to be our home broadband customer. That will probably be offset by natural — that’s a huge tailwind, natural headwinds that come along by — it gets harder as you grow. And we see this business plan of getting to 7 million to 8 million customers by the end of ’25 being very much on track. So nobody thought we could do it last year, but everything that’s unfolding is just basically exactly what we planned.
John Hodulik
Right. So that — you’re in that 500,000 to 600,000 now. So that’s the rate we should think of going forward, which is delivery to that 7 million to 8 million. So the acceleration we’ve seen in net-net, is that…
Mike Sievert
500 would get you there. But some quarters will be better, some quarters will be worse, who knows.
John Hodulik
And is that just sort of gross add thing even, or is it more of a churn starting to scale as the base — like you said, the base is scaling up and churn?
Mike Sievert
To be the number one factor, we’re obsessed about is satisfaction. And so, like I said, our Net Promoter Scores are higher than any other single provider in the country, except one, and they’re higher than average cable or even average fiber, and that’s really — now we’re scaled. I mean we have well over 2 million customers. It’s not like the first few people that are jealous [ph]. And so we have to hold on to that. And if we hold on to that, this business will make sense for years to come.
John Hodulik
Got you. Are you seeing — we saw that commercial from Comcast. I mean are you seeing a competitive response from [indiscernible]? Are they trying to segment the market and savor plans and sort of new…
Mike Sievert
I remember the first — so there was a commercial that came out in about 2013 and that Verizon ran and it didn’t name us. It’s like attack AT&T and Sprint, and we were like, we didn’t make the commercial. And then they did when we made it, we were so happy because they were paying attention and we were somebody in the industry. And so I don’t know, it doesn’t — I mean we’re just like wired for competition. It doesn’t bother us a bit that we got like, we made it, like we’re kind of — we must be for real because they’re advertising about us. But it’s — yes, we have such a competitive team. We love how it’s going.
John Hodulik
Now right now, you guys are seeing all this growth. We’re just using sort of fallow spectrum. I mean, is there — we’ll get to another possible use of capital. But is there any thought of maybe building out specifically to add capacity to the network to grow beyond that 7 million to 8 million or to grow faster or even use the millimeter wave spectrum you guys have.
Mike Sievert
Yes, of course. We have a great portfolio of millimeter-wave spectrum. We also believe that there are great ways to use mid-band to be able to go after this, if you wanted to allocate capital. But all those things would be potential incremental growth. And so, our business plan gets to 7 million to 8 million on the fallow capacity model, and we’re very much on track for that for all the reasons I already summarized. But yes, what you pay us to do as a management team is constantly look at opportunities. And whether there’s an investment model here that smartly makes sense to go after neighborhoods with dedicated effort and extra capital and for that return, we can reach people, I think way more cost effectively than digging ditches with fiber. We can give a competitive service. We can get their years earlier than some fiber providers who are thinking about neighborhoods. And of course, we’re open to that. But we wouldn’t do it without deeply examining and understanding the returns and understanding the competitiveness of the offer and so forth.
John Hodulik
Speaking of digging, there’s also been some press release — press stories that you guys may evaluate of fiber-to-the-home in certain markets where it makes sense. And I imagine that’s given the success you’ve seen competing with cable in the fixed wireless market. I mean, is that a potential use of excess cash to as you sort of go through that study?
Mike Sievert
Well, we’ve just — it’s been a fascinating couple of years for us to become a serious player in broadband and learn the things we’re good at and the things we still need to improve around. And one of the things we’ve learned is that, we have — or at least relearned again, is we have a fantastic brand that resonates in the space.
We have an incredible team. We have 110 million customer connections that love our brand, by and large. And these are great. And we have a proven ability to execute and fantastic data and the ability to get after things in an algorithmic way. So we have a lot going for us.
On the other hand, this is an area that’s expensive, it’s crowded. And — so what I said at the earnings still stands. We’re open to it. We’re interested in it. We’re always interested in ways to thoughtfully and accretively grow our business in a way that makes sense with the basic thesis people already have about T-Mobile. And if we can find the right answer, we’d be open to it.
John Hodulik
Can we talk about the margin potential for the company? The — you guys have always had at a big gap versus AT&T and sort of Verizon. And now with the Sprint transaction, we’ve always looked at it as an opportunity for you to close that gap given the scale you have and all the synergies you take out.
I mean, how close can you get to sort of where AT&T is? And as you guys scale up with these growth initiatives and become larger than some of your competitors, I mean, is there a possibility that margins could ultimately be higher?
Mike Sievert
Well, we’re closer than people think right now when you growth adjust it. Because …
John Hodulik
Yeah.
Mike Sievert
…we’re just by far the growth leader in the space.
But what’s interesting is, for us, what we’re focused on — and next year, we’re focused on this. Next year, is another year of important cash production for us. It’s aside — putting aside all the geography differences in this industry, because AT&T and Verizon have much more capital-intensive businesses.
They own fiber that serves towers, we lease it. There’s, all kinds of differences in our businesses. We’re growing at different rates. We believe we should produce ultimately with our assets, the best cash production per revenue dollar. And we don’t think. We’re that far off from achieving that kind of leadership.
And run rate, it could be late next year. So this model is very powerful. And it’s predicated on having a much more capital-efficient business. Why we have the best portfolio of assets. We have a fantastic team. We have a fantastic customer base. We’re also a pure-play business, by and large.
And so next year, I think we guided in our Analyst Day, it was $9 billion to $10 billion, because the network is largely complete. We’re never satisfied. We won’t stop. So we have to constantly $9 billion or $10 billion is not, nothing.
I mean you’re perfecting the network around the edges and taking that leadership from AT&T and Verizon, but it’s not under construction anymore next year. It’s largely complete. And that’s so powerful. And so that just opens up great cash production. And yeah, this is the superior business model.
John Hodulik
So with that — I got two things. One, I guess, with that, I guess you remain on track in terms of the CapEx coming down over the next couple of years. There’s obviously a lot of talk of sort of fixed and wireless conversion.
I mean, you guys — I guess you said is a pure-play company. Do you think, given what we’ve seen in other parts of the world, that’s longer term, you need to — you need a fixed infrastructure?
Or do you need to sort of potentially partner, or even like you said over like we talked about you build out some of your own fixed infrastructure, or does this pure-play model sort of stand on its, own longer term?
Mike Sievert
Well, it would depend on whether there’s any catalyst that fundamentally changed the thesis. Some people look at convergence and say, ‘Well, that’s just discounting by another form. I mean those are just very different businesses, and it’s just discounting by another form.
Other thesis, say, ‘No, actually, together, you might be able to build something better for the customer that’s hard to replicate. There’s also big questions about whether fiber is the ultimate winner or whether DOCSIS-based technologies will continue to be competitive beyond the kind of the initial five years, where they’re clearly competitive. There’s schools of thought on all this stuff.
And so look, we’re interested in the space. We’re watching, but the broad thesis of being a mobile leader, the mobile leader, the best in the world at connecting customers to their world with a mobile leadership, that thesis is the place to be. We’re — the broad trends continue to be true. All content and communications and eyeball time are leaving. They’ve left their linear forms and have landed on the Internet, and the Internet is going mobile. And COVID put a temporary kind of reshaping of that curve, but the broad trend of eyeball time landing on the Internet and the Internet landing on mobile, that trend is intact. And so the place you want to be is mobile.
Now if you want to surround mobile with things, if it’s smart to do offensively, or defensively, or if you can create a better experience for customers in a way that makes sense financially. Well, yes, I mean be open to that. But I think you’d want to enter that discussion as a mobile — from the mobile side.
John Hodulik
Perfect. Mike, I think it’s a great place to leave it. Thank you for your time again.
Mike Sievert
Great, John. It’s great to be here. Cheers.
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