Welcome to T-Mobile's First Quarter 2024 Earnings Call. Joining me on the call today are Mike Sievert, our President and CEO; Peter Osvaldik, our CFO; as well as other members of the senior leadership team. During this call, we'll make forward-looking statements, which involve risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. We provide a comprehensive list of risk factors in our SEC filings, which I encourage you to review. Our earnings release, investor fact book, and other documents related to our results as well as reconciliations between GAAP and non-GAAP results discussed on this call can be found in our Quarterly Results section of the Investor Relations website. And with that, let me turn it over to Mike.

Okay. Thanks, Jud. Good afternoon, everybody. Welcome. If you're watching online, you can see that I've got a good part of the senior team here. We're coming to you from Bellevue, Washington today, and we're looking forward to a great discussion. And as you can see from our Q1 results, we are off to a great start in 2024. The year is unfolding right in line with what we expected across the board, and in fact, better in some areas, and we're increasing our guidance for the year accordingly. I'll briefly touch on a few highlights and then we'll get right to your questions. First, a comment on growth. We continue to take share in Q1 just as expected with postpaid phone net adds that were right in line with Q1 last year, while industry net adds were lower by a double-digit percentage. Our best value, best network proposition continues to resonate in the market with our postpaid phone gross adds up year-over-year for the fourth consecutive quarter even while industry gross adds were down. And we matched our best ever Q1 postpaid phone churn, showing that customers love the Un-carrier value proposition and network. Second, a comment on those lowest ever postpaid upgrades for phones in Q1. I think this metric showcases our ongoing winning formula by demonstrating that customers choose to stay with T-Mobile for the best-in-class value and network they enjoy, which is the only retention strategy that drives profitable growth over the long term. The network is an increasingly powerful part of our customers' loyalty as three-quarters of our postpaid phone customers already have a 5G smartphone, and they're having a differentiated experience on the T-Mobile network. It also demonstrates how we put our investments where they can have the greatest customer impact, letting natural customer demand drive the pace of upgrades. Overall, from consumers in major metros to smaller markets and businesses from large enterprises to SMBs, T-Mobile's durable, differentiated growth momentum continues across the segments. And the most exciting part is that there are still many years of market-leading growth runway ahead for our core business. Okay. Let's talk broadband. Home broadband customers love a great value on a great network, too. That's been the formula that's made us the fastest-growing broadband provider for the past two years. And we did it again in Q1 as our 405,000 nets are expected to represent a higher share of industry broadband net adds than even a year ago and are expected to be more than half of all nets from the major providers once again. Our broadband strategy is unfolding exactly the way we said it would. And we now proudly serve over five million high-speed Internet customers. And as we previously announced, we're also growing the value of that customer base, successfully sunsetting our initial promotions and attracting customers at our nominal price points. In addition, our new rate plans for home mesh networks and for on-the-go usage are just the latest ways we intend to continue to enhance the value of this space and find new ways to serve customers better. Okay. Let me comment on fiber. I've been saying for a while that smart fiber partnerships would allow us to profitably serve even more broadband customers. And today, we announced a joint venture with EQT that will acquire Lumos. Consistent with everything we've said for the last year, this JV is the latest example of a capital-light model, and we're excited to have such great and experienced partners. EQT is one of the leading infrastructure investors across the U.S. and Europe and brings a wealth of knowledge to the table. The Lumos management team under Brian Stading is outstanding and has years of experience building fiber in an efficient, cost-effective and targeted build model. We're really excited to be able to accelerate what Lumos has already been doing to reach more and more households in the years ahead. Together, we target 3.5 million homes passed by 2028, and T-Mobile expects to invest about $950 million upon close, which we expect to be less than a year from now, and another $500 million between 2027 and '28 to get there. T-Mobile will be a 50% owner of Lumos and will own the customer relationships, including their existing fiber customers at close, as Lumos will convert to a wholesale model. This is exactly the type of value-creating investment that we had contemplated with our strategic envelope of funds that we set aside back when we shared the current stockholder return program with you last fall. And we expect to remain on track as it relates to our stockholder return ambitions. Lastly, I am so happy to report that we have received regulatory approval to acquire Mint and Ultra Mobile. And we therefore currently expect to close on May 1. We are really looking forward to welcoming them to the Un-carrier family. And I know they're going to fit in because they are hyper-focused on offering customers compelling products at a great value. We'll work to further fuel their success while also learning from their team who are absolute rock stars in the direct-to-consumer and value segments. Financially, in Q1, we again showed how T-Mobile translates profitable growth into market-leading consolidated service revenue growth and core adjusted EBITDA growth that was double the rate of our principal competitors. And T-Mobile again delivered the highest free cash flow margins in the industry. So to wrap up, our model is working. It's consistent. Our confidence in it only builds with each passing quarter of success. We remain focused on continuing to take share in wireless and broadband while delivering industry-leading growth in service revenue, profitability and cash flows. I couldn't be more excited about what's ahead for T-Mobile. And I want you to know that we plan to have a Capital Markets Day this fall, where we look forward to going deeper with you on topics like the big opportunities that we see coming, how we're seizing them and how that will translate into enormous value creation for our company in the years ahead. And I think you're going to see once again that in many ways, we're just getting started.

Well, thank you, Mike. All right. As you can see, we kicked off 2024 with great momentum. Mike already highlighted our best-in-class growth in both the top and bottom line and how our industry-leading conversion of service revenue to adjusted free cash flow continues to differentiate T-Mobile. So let me jump into our updated expectations for how that growth will continue in 2024. Starting with customers, we now expect total postpaid net customer additions to be between 5.2 million and 5.6 million, up 150,000 at the midpoint. We now expect full year postpaid ARPA to grow up to 3% in 2024, a further acceleration of the growth we saw in 2023 from both the continued execution of our strategy to win and expand account relationships and as we anticipate taking further rate plan optimization actions within the base. There is no change in our expectations for postpaid phone net adds from our original guidance last quarter with Q1's strong growth coming in as we expected and because we anticipate slight year-over-year headwinds to postpaid phone net adds in Q2 and Q3 related to those rate plan optimizations, which are accretive to the business on an all-in basis. Core adjusted EBITDA is now expected to be between $31.4 billion and $31.9 billion, up 9% year-over-year at the midpoint. And as I mentioned on the last earnings call, we expect our industry-leading service revenue growth to accelerate at a higher rate in 2024 than we delivered in 2023 even with the discontinuation of the Affordable Connectivity Program that appears imminent at this point in time and is contemplated within the increased guidance. We continue to expect cash CapEx to be between $8.6 billion and $9.4 billion as we deliver a capital efficiency unmatched in our industry on the back of our network integration and 5G leadership. Lastly, we now expect adjusted free cash flow, including payments for merger-related costs, to be in the range of $16.4 billion to $16.9 billion. This is up 23% over last year at the midpoint and five times the expected growth rate of our next closest competitor, thanks to our margin expansion and capital efficiency and does not assume any material net cash inflows from securitization. This also represents an adjusted free cash flow to service revenue margin, which is multiple percentage points higher than peers. So in closing, we continue to expect 2024 to be another year of differentiated profitable growth as we continue to extend our network leadership and further scale our unique growth opportunities. We expect this to continue to translate into industry-leading growth in service revenue, core adjusted EBITDA and free cash flow along with the highest adjusted free cash flow margin in the industry, unlocking shareholder value. I couldn't be more excited about the continued enormous value creation opportunity that we have in front of us for years to come. Okay. Before we open it up for Q&A, I just want to take a moment to announce a changing of the guard in our Investor Relations leadership. After 11 years and an unbelievable 44 earnings cycles in IR, I'm tremendously excited for Jud to take on a broader role within our finance organization. And I'm equally excited to introduce Cathy Yao as our new SVP of Investor Relations. Many of you may know Cathy from her time on the sell side at MoffettNathanson or on the corporate side at Altice USA among other roles on her fabulous resume. We look forward to Cathy continuing T-Mobile's strong tradition of Investor Relations excellence.

Thanks, Peter. Let's move on to your questions. We'll begin with a question from the phone. Operator, please proceed with the first question.

The first question comes from Michael Rollins with Citi.

Congrats, Jud, on the new role. Just a couple of questions, if I could. So first, you mentioned that you may be taking some pricing actions and that could affect some of the subscriber performance in 2Q, 3Q. Can you unpack the plan on how you're approaching those actions and how to think about the net benefit? And then just secondly, taking a step back, if you can give us an update on how you're seeing the competitive landscape, how you're seeing the switcher pool and how T-Mobile is navigating some of these changes with the industry seemingly having lower upgrades, lower churn.

Sure. I'll start by addressing the first question briefly and then pass it to Jon Freier for the second. We aren't going to announce any specific plans today. However, I can assure you that our long-standing strategy of being the value leader in this market remains unchanged. Over the years, what this entails has evolved. Costs have increased, and there have been shifts in the broader industry landscape. We will continue to protect our value leadership, and I believe customers will understand any marginal changes that occur infrequently, especially in a landscape where costs fluctuate. We have made some adjustments over the past six months and have a clear understanding of their implications. Additional changes may occur, particularly with older rate plans, but we are not making any announcements at this moment. All related outcomes for our customers, as well as projections for ARPA, EBITDA, and revenue, fall within the guidance Peter just provided. Would you like to add anything regarding the first question before we move on to the second?

I think you got it.

Okay. Competitive context on upgrades. What's driving that? What's happening with the competition, Jon?

Yes, you bet. So I'll tell you a little bit about what's happening competitively. It's been an intense competitive environment in the marketplace, but it's been generally consistent as you look at this overall competitive intensity. And for our business, we continue to have these differentiated growth opportunities, whether that be smaller markets and rural areas, whether that be within our high-speed Internet or in our overall enterprise and government space that Callie can talk about in just a few moments as well. And so during that overall competitive context, we have these unique growth vectors that we continue to be underpenetrated on, driving a lot of good success so far but continue to have a lot of runway in front of us. So while that competitive environment is intense, sometimes one competitor is leaning in. Sometimes one competitor is leaning out. We're always navigating that. Things are always changing. Sometimes it's a little bit more device oriented. Sometimes it might be more rate oriented in terms of how the competitive environment is unfolding. But we've navigated that for years and years now and continue to be very comfortable with how that overall competitive environment is playing out. With respect to upgrades, we continue to meet the natural demand of upgrades. As you can see, the upgrade rate is a low 2.4% at the same time when we're matching the best Q1 postpaid phone churn performance in the company's history. We've been more targeted than surgical with some of our upgrade offers, for sure. But the overall natural demand and the upgrade cycle is lengthening. It's really kind of the best of both worlds when you have customers that are staying at incredible rates, record low rates and not staying for free devices exclusively. They're staying for this differentiated value proposition, the network and the overall experience, something we're very, very pleased with how it's unfolding.

I'll just add one last thing. As I mentioned in my prepared remarks, 75% of our customers have 5G devices, and those customers are enjoying a unique experience thanks to T-Mobile's leadership in 5G. I hope we can discuss this more during the call. I'm very pleased with our progress. We are continuing to strengthen our advantage. Therefore, the motivation to switch phones prematurely, when users are having such a fantastic experience, simply isn't there. They are upgrading in a gradual manner. Our customers are keeping up with the pace we feel is appropriate, as evidenced by the fact that so many of them now have 5G phones, which meet or even exceed competitive standards.

The next question comes from John Hodulik with UBS.

First, regarding the Lumos transaction, should we anticipate similar agreements in other areas of the country? You mentioned that 3.5 million homes are passed, but that seems to be limited to just a small region. Will we see comparable outcomes as we assess the rest of the U.S.? Additionally, in today's release, there was a mention about not being able to fulfill all the broadband demand with your fixed wireless network. Can you elaborate on the remaining growth potential and whether you're encountering capacity constraints in specific regions?

What kind of partner ecosystem are you building to execute on your strategy?

Let's go straight to Callie.

Well, thanks, John, for the question. We saw very strong growth in Q1, outpacing our benchmark competitor again in postpaid phone nets. And to comment a little bit on the question that Jon was answering in the business category if we're seeing pressure in that category, I think it might be us. And one of the interesting things, I think, that's going on in our business right now is that not only are we delivering on top line growth but also on CLV growth across all segments. And in enterprise, we just delivered our strongest postpaid nets ever in the history of the company. We also delivered our lowest churn in enterprise. In SMB, we had our highest ever port ratios, and we're net positive for seven consecutive quarters. So we're really liking the pace of the business. We've really graduated from just being a price comp to really a solution-oriented sale for customers. And we see that with partnerships with Dialpad Ai with delivering mission-critical push-to-talk. And I know, John, you also asked who are some of the partners that we're working with in building our ecosystem. Obviously, we're partnering with the largest OEMs, working with Ericsson and Cisco as well as industry segment experts like OCS when it comes to serve our government customers. So really building out our ecosystem that allows us to really focus on enterprise solutions, enabling them to innovate and to love their customers at scale. I will mention just a couple of key wins in the Advanced Network Solution business. You might have read about our partnership agreement with Delta, where they named us as their preferred wireless provider. But we're also deploying a 5G hybrid network solution at their Atlanta headquarters, which we're really excited about. Also the U.S. Coast Guard is working with us to build out a private network to deliver seamless secure connectivity from ship to shore. And then with Ericsson, not only as a strategic partner, but we're also working with them to deploy our first network slice on a SIM-based SASE solution within a 5G connected laptop. So we're really excited about the kinds of solutions, the sort of enterprises that we're bringing on and the momentum in the business overall.

It's really interesting when you hear us talk about enterprise, how different it is from four or five years ago. I mean we were trying our best to sell SIMs to companies that would take meetings with us like the procurement department. And what's happened in this 5G strategy as it's unfolded is Callie and team have built solutions to some of the most pressing connectivity problems that enterprises of all kinds face. And suddenly, we're in strategic conversations because we have capabilities like network slicing, like SIM-based security and many other emerging 5G capabilities that are way out in front. And that's not just giving us revenues in those advanced 5G services, but it's also winning us all those smartphones that we used to struggle so hard and back then have to price so hard to win. So it's been this really nice evolution. And make no mistake, we love low prices, and we're going to be the value leader here. But today, we're solving some of the most complicated connectivity problems that enterprises and organizations face. And that is a great place to compete.

Yes. Thank you, Mike. Totally agree.

Okay. All right. Let's try this again. Operator, can we get a question?

The next question comes from John Hodulik with UBS.

Okay. Great. So I have a couple of questions on the Lumos transaction. So first of all, should we just think of this transaction as sort of a one-off? Or should we expect other deals similar to this in other regions? And then of the 3.5 million homes that you guys are talking about passing, how big could that get over the next five years? So that's first. And then second of all, in the release, you guys talked about not being able to fulfill the demand that you're seeing in broadband on the fixed wireless side. How much growth is still left in fixed wireless? And are you seeing areas today where you're running out of capacity?

Let's start with the second point. Our fixed wireless strategy has always focused on selling excess capacity that we anticipate typical smartphone usage won't fully utilize. This creates an opportunity for us to provide broadband services. Currently, we are serving millions of customers through this strategy. Initially, we estimated that this approach could lead to about 7 million to 8 million total customers. We don’t have any updates on that number. I've mentioned that we are exploring ways to potentially expand this, but we haven't reached any conclusions yet. It's important that any expansion is economically viable and provides a great experience for our customers. Additionally, fiber could enhance our strategy by alleviating some pressure on the 5G network and broadening our total addressable market. Customers in areas where we plan to offer fiber might transition to it, creating more opportunities for us to attract new 5G customers. Furthermore, in areas where Lumos currently operates, we have a substantial waitlist of individuals who have applied to become fixed wireless customers, but we haven't been able to accept them yet due to a lack of predicted excess capacity at their addresses. There are numerous opportunities in this space. Regarding your first question about whether this is the start of many similar initiatives, we don't have much to add. Our strategy focuses on finding capital-light opportunities that smartly position our brand in this space, and we believe this approach will result in millions of homes being served. We're committed to continuous learning, growth, and expansion while remaining open to new possibilities. However, we are not considering any major changes that would alter our identity. Currently, we are not evaluating large on-balance sheet acquisitions, as our investors appreciate our strategy of being fast, efficient, capital-efficient, and providing high returns. That said, if we can establish a long-term strategy in a capital-efficient manner, we are open to exploring it. We are excited about the partnership we've formed with EQT and Lumos, and we look forward to getting started, securing regulatory approvals, and beginning the build-out and acceleration of this project.

The next question is from Craig Moffett with MoffettNathanson.

First, Jud, congratulations. But thank you for all those 40-some-odd quarters of your able support and help. And congratulations to Cathy if she's on the call. A question about the ACP just because that's the obligatory topic this quarter. Can you just talk about what you expect with ACP, how you think that might affect your business, especially perhaps your prepaid business, but whether you think it will have an impact on your postpaid business as well? And you just introduced a plan where you no longer do credit checks, which I think was a head scratcher to me just coming right before the expiry of ACP. I wonder if you could just talk about how you plan to sort of ensure that ACP customers without government support won't upend that kind of an offer.

Yes, thanks, Craig. To address your first question about our expectations with the ACP, we anticipate that the program funding will come to an end, and this impact has been factored into the guidance that Peter provided earlier. It’s important to note how T-Mobile has engaged with the ACP program. Firstly, we have not engaged in any form of postpaid participation. There’s no presence of ACP in our postpaid business. In our owned prepaid portfolio, we do have a small number, around a couple of hundred thousand. Most of our involvement is through wholesale partnerships. With this context in mind, we are actively working with our wholesale partners to assist both the small number of customers in our prepaid business and those in wholesale partnerships with their transitions. We believe that wireless services are essential for these customers, and they will need alternatives. We are collaborating closely with partners and customers to explore other plans or programs such as Lifeline. We are committed to this effort. Furthermore, T-Mobile is dedicated to maintaining our value proposition and the brands under our portfolio, such as Metro and soon-to-be Mint, which focus on delivering value. This is a significant opportunity not only to support our wholesale partner customers during this transition but also to attract customers who may feel unsupported by competitors and to provide them with valuable wireless service options. I hope this answers your question.

Yes, let me elaborate a bit on your other questions, Craig. Mike highlighted our perspective on this very well. The situation is more relevant to us moving forward than it is about the past. As of February, there have been no new activations, but we anticipate it's fully accounted for in the guidance range we provided. Regarding your inquiry about the no credit check, I can share that we are observing very healthy levels of bad debt. We continue to outperform our peers in terms of bad debt as a percentage of total revenue, and we are pleased with that. We are always exploring and testing new approaches. For instance, we have a mechanism where prepaid customers who have maintained a certain number of on-time payments can transition to postpaid without an additional credit check. This is possible because we have data that informs us about how those customers behave over time and understand the credit risk associated with them. We will continue to experiment with different solutions that benefit consumers while being mindful of risk protection for our entity, which is reflected in our current bad debt rates.

And that's not new. We've had that program in place for many years.

Of course, yes. Absolutely. Absolutely.

Is there any risk, though, that ACP customers who've been essentially getting their bills paid by the government and therefore have good credit histories might be higher credit risk as ACP ends?

Yes, you're right, and that's an important point to consider. As Mike Katz mentioned, the number of ACP customers within our prepaid base and Metro is very small, so we have minimal exposure there.

And the amount in the postpaid base...

Zero. Postpaid is absolutely zero for us. And so it's really finding products. And you saw us probably launch out there some ways to help consumers and think about can you get into other programs like T-Mobile Connect or other low-cost opportunities or Lifeline type of construct. So look, we're going to be very thoughtful around making sure customers in this critical category stay connected while being, of course, very thoughtful around the risk profile to T-Mobile.

Yes. As Mike pointed out, it's not just our customers that are facing this, right? Everybody else is. But we've got this incredible portfolio of brands that are famous for value. And we're going to make sure that those brands are in front of people because we're going to stand up and serve them at a time when they might find that they need a new offer, and we will be there with incredible offers for them.

And the next question comes from Jonathan Chaplin with New Street Research.

Congratulations to Jud and Cathy. That's fantastic news. Since it's Jud's last call, I have nine questions to ask and will try to consolidate them. Mike, can you provide an update on the fiber strategies that you are gathering? You've announced the pilot and the Lumos deal, and there are also deals with Tillman, Intrepid, and SiFi. When you combine all of those, how many homes passed does it amount to? Specifically for the Lumos deal, how much cash is EQT investing? We are trying to understand the total capitalization here. Lastly, all the deals mentioned so far seem to focus on new infrastructure being built. How do you view those types of assets compared to partnering with companies that have existing copper infrastructure that they're upgrading?

You bet. We won't be able to give you too much on sort of broad strategy here other than the fact that we're opportunistic. The strategies we've employed so far, both across wholesale, which we got started on in a very small way already, as well as this new partnership, are about putting the T-Mobile brand and team to work, selling a fiber product that complements our wildly successful 5G product. And to us, that's a great strategy because we believe we have an opportunity to generate superior returns than a purely disinterested investor could do by virtue of our assets and our know-how. And we've proven that know-how to ourselves through our success with 5G Home Internet. You think about our incredible distribution, our leading brand, our tens of millions of customers, our incredible team. We have very insightful data that our customers give us permission to use to put relevant offers about their T-Mobile experience in front of them. These are all advantages that a purely financial or disinterested investor wouldn't have. And so when we look at this area and say, can we extract a return that's better than others could, we have some confidence. And so we think about it from that opportunistic standpoint, not from a convergence defensive standpoint. We believe that our T-Mobile offers stand tall and stand alone and don't need convergence. We just think that this is a place where we can make customers happy and generate a superior financial return and that it complements a leadership product that we already have out there. Beyond that, I can't say much more about the strategy other than what I said earlier. We like this partnership. We're very excited about where it could go.

Yes. I can't provide all the details because we have partners involved in this. It is a 50-50 joint venture that will not be consolidated on our end, making it an equity method investment for us. It's important to note that there will be a cash infusion from EQT, our partner in this venture. For example, the incremental $500 million would represent a similar cash infusion from EQT. Given that this involves infrastructure and has a strong anchor tenant like T-Mobile with retail customers, there is also an opportunity to leverage the entity. The general approach is to aim for a maximum debt-to-equity ratio of 2:1, but this will depend on the actual funding needs of the entity to reach the $3.5 million.

One quick follow-up, Peter, if I can. You mentioned at the beginning that you sort of set capital aside for things like this in 2024. You haven't used up that whole sort of reservoir of capital yet. If you look at what's left there, is it more directed towards fiber transactions like this or spectrum? Like how do you sort of balance between those two assets?

It really is looking at what the best return profile for T-Mobile is. And sometimes, as you know, spectrum opportunities may come up. They may not come up. We could have some of the 2.5-gig leased spectrum come up, and then we have rights of first refusal around those. So it's still a balance. We don't have line of sight to how we would use every dollar of what's still remaining in that bucket. But as opportunities come up, we're going to filter it through the normal capital allocation thought process that we have that we've described very many times, and that's exactly how you think we should think about it.

And nor should we, right? So I mean one of the reasons why we were this transparent, maybe unusually transparent with you, is that we wanted you to know that we could, in the normal course, pursue opportunities and yet still honor our stockholder return ambitions. And we wanted to make it clear that nothing has changed in that. And that's why we put an envelope out there at the beginning so that you would have confidence that whether it was spectrum, partnerships like this, or other things that we would see that we could use our know-how and embedded assets to be able to extract a superior financial return and delight customers that we would have the wherewithal to seize those things within that range. So we're really pleased to have been able to bring this one to fruition and can't wait to get started once we get approval.

And the next question is from Simon Flannery with Morgan Stanley.

Great. And best of luck, Jud. Thanks for all the help. And welcome, Cathy. Peter, I wanted to talk a little bit about margins, if I could. You had nice EBITDA growth of 8%, margins up nearly 200 basis points year-over-year. I think in the past, you sort of suggested the cadence would kind of ramp through the year. So perhaps just talk a little bit about margin trajectory, both this year and just longer term, the opportunity? I think, Mike, you said we're just getting started here. So talk about the cost side, if you could. And then maybe on spectrum, just any update you can give us on the status of the 800-megahertz spectrum. Given we passed the DISH April 1 deadline, what should we expect in coming months from you in terms of auctioning that off to third parties?

You take the first one, and I'll take the second.

Yes, absolutely. Thanks, Simon. It's a tremendously exciting story, actually. One of the reasons, as we've talked about before, is we've now achieved as of Q4 of last year, in this tremendously successful merger integration, the run-rate synergies, which we raised a couple of times during the pendency of the deal and execution itself. And so now, though, we continue with this guide to see run rates EBITDA increases that are significant, in fact, quite similar to what we had during those synergy unlock days. And there's a couple of things that create that. One is continued outsized profitable share taking, of course, taking those fixed costs and leveraging the fact that we're continuing to take outsized share and turning that into outsized service revenue growth. So when you have postpaid service revenue growth like we delivered this quarter of 6.5% year-over-year on a lot of fixed cost nature of the base, that obviously gives you leverage. Besides that, we're going to continue. And really, it's a culture. It's kind of a flow of thinking here that we have around continued optimization efficiencies, where can we extract efficiency out of the business so that we can plow it back into customer acquisition, margin expansion. And most importantly, and we've talked about this, we tend to think about it as service revenue to free cash flow conversion. That free cash flow is what unlocks all the ability for further value-creating investments, whether it's spectrum purchases, whether it's capital returns. And so we're hyper-focused on how do we make sure that we create efficiencies in the expense profiles and how do we make sure that in our CapEx profile, we're making every single dollar count and delivering the next best tranche of value for us. And I think we have some really bespoke unique ways that we approach that. But that's how we continue to see this expansion, particularly in that service revenue to free cash flow play out over a period of time.

I hope it doesn't sound like we're sort of flogging our book when we say we look at cash flow margins. We are. But also, I think cash is king, and a view that doesn't look at cash flow margins would miss the fact that we have, we think, a durably more capital-efficient strategy than our benchmark competitors. And therefore, from a geography standpoint, EBITDA margins don't tell the whole story, even though I'm pleased we're up 200 bps almost, and we're making great progress there. But the cash margins are the story because they are inclusive of what we think is a durably superior capital investment profile. And we'll talk a lot more about what we think our secret sauce is with you at some point when we have more time. But this is a strategy we have growing confidence in that it's going to be durable.

Okay. So the second question around 800. Well, first of all, I will just remind you what Peter, I know, has told people in the past, that we've chosen our business plan to be pretty conservative as it relates to how to think about the 800. And what I mean by that is we didn't include any proceeds from this auction in our financial plan so that they would be found money going into that reserve fund we were talking about a few minutes ago with Jonathan. But secondly, we also did not put the usage of that spectrum into our network planning and capacity plan. And so kind of no matter what happens here with this auction, which has begun. We either get found spectrum and capacity that we get to keep and figure out a way to use. And this is a great spectrum, nationwide, contiguous low band, lots of interesting things we can do with it, especially with emerging technologies. But also, this action may conclude successfully. And if it does, we'll have cash on hand that enhances our profile. So what's the update? We have commenced. We have interested parties. We have nonbinding indications of interest. There’s reason to believe that we will meet the reserve. So it's a little too soon. Everything is nonbinding, but we'll have more to say after we get past kind of the binding parts of this. So stay tuned. But again, whichever way it shakes out for us, it's a win because of our conservative planning.

The next question is from David Barden with Bank of America.

Congratulations to Jud and Cathy. My first question relates to the comments in the results about how targeting the business market has influenced the ARPU calculation, which has been on a downward trend for a few quarters. Can you elaborate on the evolving subscriber numbers and how they are divided between consumer and business? I also need to ask about how free lines and similar factors contribute to the reported postpaid number. For my second question, Mike, regarding the Lumos situation, you're indicating that you plan to invest about $1.45 billion between now and 2028 to acquire 50% of approximately 2.5% of the households in America. If you achieve that, you would end up with just under 1% to 1.5%. What is the rationale behind this investment? Why pursue a project that seems so insignificant in the larger context?

Thanks, David. Let me address the second point first and then pass it to Peter for the first one. I'm very enthusiastic about this, as I believe it positions the company for accelerated growth. With nearly $1.5 billion allocated over time, we're aiming for 3.5 million households. This capital investment equates to less than $500 per household. Addressing the essence of your question, T-Mobile will be the brand associated with all those households, and our responsibility is to keep it that way while ensuring our performance. Our strategy focuses on enhancing an already expansive broadband offering. This initiative is a smart approach to achieve that, and I mentioned that we are open to such opportunities. Ultimately, it may result in more than what we've projected, and 3.5 million households is likely just the beginning of this growth potential. We're not committed to a fixed outcome here. I really appreciate this strategy as it aims for a better ROI based on our existing assets while complementing a scalable product, which makes market efficiency increasingly attractive. We will serve as the marketing entity as Lumos shifts to a wholesale model. I hope this clarifies things.

Yes. Dave, our main focus continues to be on Average Revenue Per Account (ARPA), acquiring new accounts, and expanding those accounts. We recently updated our guidance regarding ARPA, considering our efforts in optimizing rate plans, and we expect to see more developments in the latter half of the year. It is indeed a metric influenced by a mix of factors. While we don’t distinguish between consumer and business segments, we are seeing significant opportunities in ARPA, both in accounts and growth. As Callie mentioned, we are particularly targeting the enterprise and government sectors, where the Average Revenue Per User (ARPU) tends to be lower. However, the value we create in terms of accounts and Customer Lifetime Value (CLV) in these segments remains strong. We also find success in the consumer sector with tailored offers, such as those for individuals aged 55 and over and for military members. We are willing to accept lower ARPUs in these cases due to the high CLVs associated with these customers for various reasons. We will persist with this strategic approach, and we now anticipate an increase of about 0.5% in ARPU. Regarding the ongoing debate about free lines, I understand the concerns due to industry changes. As you know, we do not offer first free lines. However, our rate plans are designed to encourage a larger number of lines per account, as this leads to greater stickiness, increased ARPA, and enhanced lifetime value. In fact, there was less contribution from this aspect in Q1 compared to the previous year. This reflects the structure of our rate plans, and again, we do not provide first free lines, so this isn't a factor in our year-over-year net additions relative to the industry.

And the next question comes from Eric Luebchow with Wells Fargo.

Great. I wanted to follow up on the fiber-to-the-home strategy at a high level. As you consider potential future opportunities, is the objective to focus on areas where you may be underpenetrated in either fixed wireless or traditional mobile to expand your addressable market? Or is it also aimed at providing an alternative for current FWA subscribers to transition to a higher capacity option? Any insights would be appreciated. Additionally, regarding today's network positioning, could you discuss how you are sequencing capital to utilize additional spectrum, including C-band, DoD spectrum, 2.5 gigahertz, and refarming AWS? Any information on how you're working to maintain your network advantage, especially as your two large competitors make further strides in building out mid-band spectrum, would be helpful.

Sounds good. Let's start with the second point regarding the network. I am really pleased with what Ulf and the team are accomplishing. We continue to extend our lead. If you look at the situation nationwide, rather than focusing on selective metrics, you'll see that we are actually pulling ahead in terms of customer experiences, and our average speeds are double those of our competitors. One of the reasons for this is that we are not only enhancing our 5G capabilities but also expanding its availability, which reaches many more locations and people. This comprehensive approach keeps our customers connected to 5G and results in an exceptional experience. Ulf, could you provide some insights on what's been happening, particularly regarding Auction 108 and our deployment of advanced technologies?

Well, thank you, Mike. And yes, we're very excited about the network and how it keeps advancing. And you mentioned C-band. So some of our competitors have launched C-band and put it out there. And in the areas where they launched it, we do see that the gap between us and them narrowed a little bit even though we are still way ahead. But as you said, we also noticed that the overall median downlink speeds, we are gaining another quarter again. The main reason for us doing that is really the unique way we've built and constructed the network. We are the only one in the country who has three completely dedicated bands towards 5G. We have 2.5. We have 1,900 now. And we have 600. And that gives us that big advantage together with the stand-alone network and the larger deployment in the footprint that we have. In fact, we have now 90% of our sites capable of 5G. We have, traffic-wise, about 85% of our traffic on these tri-band sites that are all working with stand-alone technology and working with carrier aggregation.

Let's discuss that further. Our team connects to a site with all three bands of 5G about 85% of the time. What impact does this have on the connection quality and reliability of the 5G service?

We have 93% of our traffic on mid-band, which eliminates the need for toggling and results in a much more consistent experience. Users remain on 5G without switching to LTE or fluctuating between low-band and mid-band. Additionally, T-Mobile has a unique grid designed around a mid-band experience from the outset. This allows for a consistent connection as we deploy 2.5, compared to competitors who use a low-band grid combined with a higher band on the C-band. The C-band operates at a higher frequency than 2.5, leading to a less stable and consistent experience.

That's why we are differentiated with somebody experiencing a cell edge condition of 5G, right? Because our grid is tighter and our spectrum reaches further. And the net effect of those two things is you're on 5G and a high-quality 5G link more of the time. And 85% of the time, you're seeing all three bands where a lot of the time, we use advanced carrier aggregation techniques so that you get the benefit of all those bands in terms of your signal strength like the uplink might be in the low band, the downlink might be in the mid-band, etc. And these are all advanced techniques that the rollout with our competitors is quite variable. But we're really focused on giving everybody a consistent experience.

That's very right, Mike. And it's recognized. I mean we saw in the Ookla measurements another quarter where we came in at the overall network leader. We were also recognized by Opensignal as having the most reliable experience. So I think those are remarkable facts showing.

And then you mentioned also our 108 auction and how quickly we deployed. It took us two weeks to get it all lit up in our entire network. Over a population of about 60 million, we were able to shoot up our 5G median linked speeds by about 20% or a little bit more even. So really a good result and very quickly and shows that we can deploy our spectrum very fast. Thank you all for joining our discussion about the network. I want to clarify a common misconception that everyone is catching up and the excitement is over. I have been stating for years that we are two years ahead in 5G, and our customers are experiencing a significantly different service, as evidenced by the data. I appreciate you bringing that up. There was also a question regarding our fiber targets. Unfortunately, I can't provide much detail since we aren't launching a comprehensive plan for a wide array of initiatives at this time. We are pleased with the initiative itself and how it complements 5G broadband, and we plan to focus our energy on it. However, I want to emphasize that 5G Home Internet isn't limited to specific regions; it requires an assessment of sectors and neighborhoods to determine where we have surplus capacity to provide the competitive experience we discussed. If mobile usage doesn't use up all the capacity, individual households can be approved for home broadband. If these neighborhoods are ones where we deploy fiber, we can potentially add those households to 5G that wouldn't typically qualify. We are currently concentrating on these efforts and are pleased to have this initiative underway, but there are no additional updates at this time.

That was great. I'm sorry, I didn't bring my popcorn for that one.

And the next question is from Sam McHugh with BNP Paribas.

Just on fiber to begin with, on the existing wholesale agreement you have, can you give us any color on what kind of penetration levels you're seeing kind of year 1, year 2, so we can think about the potential in the new JV? And then secondly, I think on FWA, I've seen some reports suggesting you might start selling notifications to people who move the products from the home address. Do you think that will have any impact on the kind of net adds going forward? And I guess more broadly, how should we think about that cadence of FWA through the rest of this year?

Yes. So first, on the fiber question. Remember, a lot of these wholesale markets that we've launched are brand new and haven't even been existing for a year. But when you heard Mike talking about the assets that T-Mobile has and how we think that those give us advantage relative to other investors, that is exactly what we're starting to see play out in these wholesale markets. Remember, at small scale, we're in parts of about 16 markets spread around the country. But what we're seeing is a pace that would get us over 20% in the first year inside those markets. So we're really pleased with the penetration that we're seeing there.

Regarding your question on FWA, earlier this week we introduced a few new products. To provide some context, Mike mentioned that we moved over five million customers in our home broadband division this quarter, which is a significant achievement for us. We now have access to millions of households equipped with essential technology, which we believe presents an opportunity. I’ve discussed in previous calls the potential for us to explore additional products and services within these homes, while gaining valuable insights from customer feedback about their needs. This week, we launched a program called Whole Home, allowing customers to enhance their service beyond the standard CPE and router included in our regular HSI package by adding a mesh system that integrates with our equipment. This expansion enables a broader WiFi coverage throughout their homes. Additionally, we offer support for all peripheral devices connected to the network, ensuring assistance for laptops, printers, and more as part of this program. And then secondly, we offered a new program called Away. And I'm really excited about this one because one of the things we've heard from customers is because this is a product that only requires power, we're not running a wire into your house or anything like that, it just requires power. And we see customers that want to use this on their boat or in their RV or while they're camping. And we created a couple of new plans specifically for those use cases that allow customers to move this as their life move along in their RV. The other thing I'm really excited about in combination with that is we struck a partnership with Camping World. And Camping World, if you're not familiar with them, is the largest camping and RV retailer in the country, and they're going to be partnering with us on these Away programs to sell to their customers and to integrate our HSI routers inside RVs that they sell.

And you can send your orders for our new Away product at mike.katz@...

You asked about the wholesale fiber penetration rates. It's still early since these are new projects, and our partners have just begun after establishing the wholesale partnerships. So far, we are seeing year 1 penetration rates at nearly 20%, which is above industry benchmarks. This is a promising indicator as we aim for even higher terminal penetration rates. The results from these small-scale initiatives in the wholesale sector have been very encouraging, enhancing our confidence in today's announcements. I hope this answers your question, Sam. Just the cadence on FWA. In terms of kind of net add development through the rest of the year. We've obviously seen some moves from T and others. Kind of how we should think about growth going forward. We don't guide on it. But one thing we did do when we made the changes around sunsetting our initial promotions is we indicated that this quarter would be more like 400,000 instead of the 500,000 we've seen in the past. And that's what happened. We delivered 405,000. We haven't guided on the rest of the year, but we've said we're well on track to the goal that we have always anticipated being by the end of 2025 in that 7 million to 8 million customers range. And what's interesting is that 400,000 and 500,000 net additions this quarter actually represented, as I said in my prepared remarks, a higher percentage of total broadband net adds than last year's 500-and-some thousand. And so we're sticking right in there with a very competitive more than half, that means more than all the others combined, number of net adds in the space. And so we're really happy with where it is because at the same time, we're seeing the value of this customer base start to appreciate, and that's also important, not just through pricing or promotion sunsets but through the kinds of value-added services that Mike just summarized.

Operator, let's squeeze in one question, please.

And that question comes from Kannan Venkateshwar with Barclays.

Congratulations, Jud and Cathy, once more. Mike, I'm trying to maybe nudge you along a little bit more on your prior response on broadband. You now have scale in broadband, and you're already one of the biggest operators in this market through fixed wireless. But you seem to be hedging your comments a little bit on fiber in terms of the scale or the kind of ambitions that you might have here long term. So could you maybe talk about what the ultimate scale ambitions here are? Are you viewing this as a cheap option at this point and you want to test out the market a little bit to see where it goes? Or is there a longer-term vision behind this in terms of how you see the company as a whole evolving in terms of its business mix?

Yes, I can share a few thoughts. I plan to provide a long-term perspective on this area at our upcoming Capital Markets Day this fall, as I recognize that people are seeking a multiyear outlook. That perspective will emphasize our intention to be patient and opportunistic, while also reinforcing that we have no plans to fundamentally alter our identity. We are a highly successful mobile-first company that generates exceptional cash flow returns in our industry due to our superior strategy. We are initiating a shareholder return program that we believe is sensible for this phase of our journey. We appreciate the opportunities in this sector for all the reasons I've discussed on this call. However, it is too early for us to present a detailed strategy for our future direction. Even when I provide that information, some aspects will require you to be patient with us, as we intend to move with caution and intelligence, leveraging our confidence in our core strategy.

Well, that's all the time we have for questions, and we definitely appreciate everyone joining us today. It's been an absolute privilege working with you. And if you have any additional questions, please reach out to either the Investor Relations or Media Relations departments. And with that, have a great day.

Thanks, everybody.

Ladies and gentlemen, this concludes the T-Mobile First Quarter Earnings Call. Thank you for your participation. You may now disconnect, and have a pleasant day.