Earnings Call Transcript - TMUS Q2 2022

Jud Henry, Senior Vice President and Head of Investor Relations

Good morning. I would now like to turn the conference over to Mr. Jud Henry, Senior Vice President and Head of Investor Relations for T-Mobile US. Please go ahead, sir.

Mike Sievert, President and CEO

Okay. Thanks, Jud. Good morning, everybody. Well, you can see, if you are watching us live on the web stream, we have got most of our senior team here in New York City today and we are here to share our Q2 results and I am extremely proud of our team for delivering another quarter of great results while completing major integration milestones. Q2 was another strong quarter of industry-leading growth for us in customers, postpaid service revenues and EBITDA, and based on our momentum, we are raising our full year guidance across the board again. This just shows that the Un-carrier playbook, putting customers first and providing them with the best value and the best network, continues to work in a competitive climate and in the changing macroeconomic environment. Before I go into our results, I do want to take a moment to acknowledge this challenging economic climate for consumers and businesses and what T-Mobile is doing to help customers stay connected. Inflation has been dominating headlines and dinner table conversations. It’s a reality that millions of American families are facing as prices every day for essentials are skyrocketing all around them. That’s why we did what the Un-carrier does best with three big moves last quarter to help customers when they need it most. Prioritizing customers’ needs is exactly what continues to fuel our growth. Others in the industry notified their customers that their already overpriced bills are going up when they could least afford it. Naturally, some have asked when will T-Mobile raise its rates. Well, building on our proud history as the Un-carrier, our answer is that we are not. Instead, we introduced price lock. We are standing by our commitment to customers and those who switched to T-Mobile that we won’t raise the price of their rate plans. We are here to help broadband customers across the country as well with our recent launch of Internet Freedom. Broadband customers are some of the least satisfied in America, the fees, the contracts, the price hikes, the terrible customer service, it’s all ridiculous and it looks a lot like the wireless industry a decade ago. But it’s all changing because we are making it easy for customers to break up with big Internet, lock in their price and finally feel appreciated. And we made T-Mobile Business Internet available nationwide, which makes T-Mobile the first and only nationwide Internet provider for business. And third, we saw another opportunity to help customers as travel is on the rebound. But like everything else, travel has become more expensive and more complicated. So T-Mobile launched Coverage Beyond to help people get back out there and save money while doing it. We have customers covered across the U.S., on their airline flights, on the road and in more than 210 countries and destinations. This is what the Un-carrier is all about, chasing down customer pain points and smashing them, and right now, with this economy, there are a lot of pain points out there. And you know what? This strategy works again and again. We delivered another industry-leading quarter of both customer and financial growth. In fact, we posted a record 380,000 postpaid account net adds, the highest in company history and the highest reported in the industry yet again. As I have said before, this measure of total billing relationships is a strong barometer that we are winning the switching decisions in this industry. I know the competitive market trends are top of mind and here’s what we saw in Q2. Postpaid switching activity increased year-over-year and we benefited from more than our fair share of those switching decisions. Importantly, our network and brand are consistently attracting the industry’s best customers, driving the prime mix of our customer base to an all-time high. And we delivered our highest ever Q2 postpaid net additions with an industry best 1.7 million, more than AT&T and Verizon combined again. This includes 723,000 postpaid phone net adds. Our postpaid phone churn dropped 13 basis points sequentially to 0.80 and we were the only wireless service provider to improve year-over-year. In fact, delivering lower churn than Verizon for the first time ever on a combined basis including Sprint. The fact that our all-in churn, including Sprint, is trending so strongly just two years out from our merger shows our team’s fantastic progress and it is exactly what we told you would happen. Okay, let’s talk about high-speed Internet, where our team delivered 560,000 net additions. I am pretty confident that we will see T-Mobile as the fastest growing broadband provider in the industry for the third consecutive quarter and most likely by a wide margin. Demand continues to build from dissatisfied suburban cable customers to underserved customers in smaller markets and rural areas. I am so excited to see our broadband business hit this pace, which puts us right on track to meet the multiyear ambitions we shared with you last year. We continue to see great customer adoption of Magenta MAX, which is helping drive our strong ARPU and ARPA trends. With the trends we are seeing, we now expect postpaid ARPA to be up roughly 3% in 2022. These results reflect our differentiated strategy to unlock growth across smaller markets and rural areas, T-Mobile for Business, network seekers in the top 100 markets who hadn’t previously considered us and in new product categories like 5G broadband. They also reflect the strength of our network leadership, as supported by nearly every third party. Recent reports from Ookla and PC Magazine not only recognize T-Mobile for the fastest and most available 5G network, but for the best overall network experience. And OpenSignal recently reported that not only did our average speeds increase yet again, the gap over the competition widened even further despite their C-band deployments. We are winning this race, and as I have been telling you, we plan to stay ahead. And speaking of network, we just hit some major integration milestones. Just over two years since we closed the merger, we have successfully shutdown most of the Sprint network. As of the end of the quarter, we had cumulatively decommissioned nearly two-thirds of the 35,000 targeted sites and can now report that we will be substantially complete by the end of Q3 this current quarter, remarkable work by the team to deliver these milestones ahead even of our recent year-end target and more than one year earlier than our original merger plan. Before I wrap up, I want to touch on cybersecurity, following the criminal attack we experienced roughly a year ago. Protecting our customers’ data is a top priority for the company, which is why following the attack we immediately took additional steps to protect our customers. We created a cyber transformation office and engaged some of the world’s top experts to help. We are investing hundreds of millions of dollars to enhance our data security tools and capabilities to transform our cybersecurity program. We always knew that there would unfortunately be financial consequences from this attack and we were pleased to recently reach settlements that will resolve the class actions and most of the consumer claims. Together, we believe these settlements will represent the biggest component of those impacts. These costs were contemplated in our financial guidance and the amounts are consistent with precedents we have seen in other similar agreements. We are now focused on moving forward as we continue to invest in and enhance our company’s cybersecurity. Okay, let me give a quick recap before I hand things over to Peter. I am very pleased with our company’s performance and progress against our ambitious multiyear goals. Again, this quarter, we outperformed against our plans, and again, led the industry in net additions of postpaid customers and growth in postpaid service revenue, core adjusted EBITDA and cash flows, and as a result, we raised our guidance across the board again. The Un-carrier value proposition resonates, and it’s so well tuned to the tax. People want the best network and now more than ever they want it at the best value from a team that’s obsessed with their satisfaction. Our strategy is so simple, but maybe that’s why it works quarter-after-quarter, year-after-year. Okay, Peter, over to you to talk about our key financial highlights from Q2 and our increased guidance for 2022 in more detail.

Peter Osvaldik, CFO

Thanks, Mike. We had another strong quarter with our Q2 results, achieving leading growth in postpaid accounts and postpaid ARPA, resulting in the highest postpaid service revenue growth in the industry at over 9% year-over-year. This significant service revenue growth, along with our effective execution of merger synergies, led to a year-over-year core adjusted EBITDA growth of 10% for the second consecutive quarter. This underscores our profitable growth strategy, especially when compared to the year-over-year declines in EBITDA margins seen from others in our industry. Increased profitability drove higher operating cash flow and allowed us to achieve industry-leading free cash flow growth while boosting our CapEx investments in the network. I also want to point out a few special items that impacted our earnings this quarter. As we indicated last quarter with the Sprint network shutdown, some wireline assets from the merger will no longer support the wireless business, resulting in a non-cash impairment charge of $477 million on a pretax basis in Q2. Additionally, we recorded a $400 million pretax charge related to the $350 million class action settlement and expenses from last year's data breach, which fell within our guidance expectations for the year. Now, let’s discuss our improved guidance for 2022. We now anticipate total postpaid net customer additions to be between 6 million and 6.3 million, an increase of 600,000 at the midpoint, reflecting our effective differentiated growth strategy and our efforts to reduce Sprint churn. We still expect nearly half of postpaid net additions to be from phones for the full year. As highlighted last quarter, the net adds guidance does not include customers we do not expect to migrate during our network shutdowns, which were treated as a base adjustment. As we started the planned network shutdowns at the end of Q2, we made an adjustment of 284,000 postpaid phones, consistent with our guidance, as well as 946,000 postpaid other devices that couldn't be upgraded. Regarding core adjusted EBITDA, we now project full year 2022 to be between $26 billion and $26.3 billion, more than a 10% year-over-year increase at the midpoint and $150 million higher than our previous guidance, driven by profitable service revenue growth and merger synergies. This figure excludes leasing revenues, which we estimate to be between $1.2 billion and $1.4 billion, as we continue transitioning Sprint customers off device leasing. We now expect merger synergies to be between $5.4 billion and $5.6 billion, an increase of $200 million at the midpoint, as we realize more network savings from accelerated site decommissioning. Merger-related costs, which are not included in core adjusted EBITDA, are expected to range between $4.7 billion and $5.0 billion before taxes, primarily encompassing network activities. With Q2 being the peak quarter, we expect Q3 to be closer to Q1 levels, tapering off in Q4. Net cash provided by operating activities, including payments for merger-related costs, is now expected to fall between $16 billion and $16.3 billion, a more than 10% year-over-year increase at the midpoint and an improvement of $250 million from prior guidance. For cash CapEx, we now anticipate it to be between $13.5 billion and $13.7 billion, an increase of $250 million at the midpoint, driven by our strong pace of 5G deployment and success in high-speed Internet where we capitalize the routers. Consequently, we now expect free cash flow, including payments for merger-related costs, to be between $7.3 billion and $7.6 billion, raised by $50 million at the midpoint, reflecting an increase of more than 30% over last year, despite higher investment levels, and does not account for any significant net cash inflows from securitization. We're still expecting our full year effective tax rate to be between 24% and 26%. Lastly, as we execute our strategy to deepen our customer relationships, we now anticipate full year postpaid ARPA to rise by 3%, and we expect postpaid phone ARPU to increase approximately 2% for the year, driven by continued adoption of value-added services, including Magenta MAX. Before I conclude, I want to celebrate the significant milestone of achieving an investment grade corporate family rating for the first time in our company's history. Following Moody's upgrade last week, alongside our existing investment-grade rating from Fitch, T-Mobile now has investment grade ratings from two of the three leading ratings agencies. This demonstrates the investment community's confidence in our Un-carrier strategy, our progress on merger integration and synergies, our differentiated growth approach, and our ability to generate unprecedented free cash flow. Now, I will turn the call back to Jud to start the Q&A.

Jud Henry, Senior Vice President and Head of Investor Relations

Thanks, Peter. Let’s get to your questions. Operator, please bring in the first question.

Operator, Operator

We will go first to David Barden with Bank of America.

David Barden, Analyst

Hey, guys. Thanks so much for taking the…

Mike Sievert, President and CEO

Hi, David.

David Barden, Analyst

Hey. Good morning, guys. Thanks so much for taking the questions. So, obviously, Peter, congratulations on the IG rating. Obviously, everyone’s going to want to know how that informs your plans to begin executing on the stock buyback program and kind of your maybe updated thoughts around that in light of the recent actions? And I guess, second, if I could, just on the guidance increase in core adjusted EBITDA of $150 million. With the merger synergies now going up to $200 million, Q2 results kind of being, I think, ahead of where street expectations were and in light of the new wholesale agreement that you struck with DISH, which likely means that the kind of pressure on the wholesale business is not going to be nearly as much as was feared. I guess, it sounds to me like that $150 million could be larger and if you could talk a little bit about maybe some of the reasons why it might not be larger given some of the inflation and the other pressures in the market? Thanks.

Mike Sievert, President and CEO

I will start with the first and then, like, get Peter wound up to answer the second one. First of all, I just want to congratulate this whole team and our finance department and Peter, first and foremost, for achieving this major milestone. We have sought to be an investment-grade issuer for many years. It’s been a goal of ours and now we have two of the three rating agencies. I certainly hope to see S&P soon. And that’s just an exciting moment for us and particularly with what has happened this year in the high yield market, it’s particularly important. As we have said all along about the share buybacks, there was no preset designated things that needed to be accomplished before our Board would deliberate on this. But with where high yield markets are right now, clearly, this is a very important milestone. Unfortunately, we don’t have an update for you other than to reiterate what we told you in the past, looking at all of our momentum, our financial performance, we continue to see upwards of $60 billion in share buybacks in 2023, 2024 and 2025 in total with the possibility of beginning sooner, and absolutely, nothing has changed on that front, but we have accomplished some very important milestones toward that end.

Peter Osvaldik, CFO

Absolutely. All right, Dave. And on your other question of core adjusted EBITDA and what are we seeing from inflation, what are we seeing from DISH and with synergies up $200 million and core adjusted EBITDA of $150 million, what are some of the delta items in there? So, first, just with regards to DISH, I think we are very pleased to have reached agreement, gone through all of the settlements of the disputes, as well as the CDMA shutdown and we are looking forward to being great partners with DISH in the future. The agreement, as of the struck, gives us tremendous visibility into what revenues will be in the coming years. And while that’s down over Analyst Day expectations, it’s about three quarters of what we anticipated at Analyst Day through the duration of the plan period, so very pleased with that. The other thing I will say from an inflation perspective, as we have talked before, there’s been great, great work by Neville and his team to early on lock in a lot of our significant cost into long-term contracts, whether that was on the CapEx side, with the OEM vendors as the network rollout happened, whether it was with tower operators, whether that was with backhaul. So we have been able to get a lot of those costs fixed. Of course, we are seeing some pressure, as everybody else is, particularly in the labor space, but that’s all contemplated into the guide itself. Synergy is up $200 million is just, again, speaks to Neville and his team and how quickly they are moving on decommissioning in a very efficient and customer-friendly manner. And the other thing I will point to is, we just raised net adds guidance by 600,000 at the midpoint. So, obviously, the S part of SG&A will be the thing that we are investing in to drive that growth, as well as that quicker acceleration of the network allows Neville to continue building quicker and you have some earlier costs associated with that, which of course, pays off in the ability to acquire customers with this value prop. So those are all the components as I think about them.

Mike Sievert, President and CEO

David, that last point is particularly important to me. As you have seen something from this report, you have seen that we have incredible momentum right now on growth. I mean more postpaid net additions than AT&T and Verizon combined, plus or including 560,000, by and large, high-speed Internet connections and those things cost us money to generate that growth on an in-period basis. So we are anticipating, as you saw in the guide, continued success there. Also, our accounting approach, as Peter has explained in the past, is a little different than our competitors. We take the preponderance of those costs in period rather than racking up millions of dollars on our balance sheet that would come in the form of negative revenue charges later. So those are some of the key things that explain the difference between the increase in synergies and the increase in EBITDA.

David Barden, Analyst

Super helpful guys. Thanks.

Mike Sievert, President and CEO

You bet. Let’s come back to the phones.

Operator, Operator

We will go next to Simon Flannery with Morgan Stanley.

Simon Flannery, Analyst

Good morning. Thank you. I have a couple of questions about fixed wireless. First, could you provide an update? You mentioned that account growth is being driven by fixed wireless. Can you discuss how many new customers are coming to T-Mobile, and what effect this has on phone additions and churn reduction? What kind of impact are you observing as this segment becomes increasingly significant each month? Additionally, for Neville, I see you had 560, which annualizes to over $2 million. It appears to be accelerating consistently. If this trend continues, it could reach the top end of $7 million to $8 million by 2025. Do you have the network capacity to support more than 500,000 or 600,000 additions per quarter, or will this be the pace needed to reach your guidance by 2025? Thank you.

Mike Sievert, President and CEO

Great. Well, I will jump in first and then turn it to Neville. I am so delighted with what’s happening here. I mean, 560,000 net adds is a run rate that, if you just do the math, it gets us to the goals that we have established. And so this is really now a run rate business that we are very excited to be seeing success around. And not a lot has changed in that it remains the case that the majority of our net additions are coming from existing T-Mobile customers. And that’s terrific to see and we not only like that trend, but we doubled down on it with offers during the quarter. As you saw, Internet Freedom put in an exciting offer for Magenta MAX customers to create a bundle and we have seen the uptake of that has been really terrific. So, for example, loading of the new high-speed Internet product late in the quarter and early in this quarter has been coming in a little above $45, as compared to $49 to $50 in the base. So you see that you are getting the benefit of that bundle blended in now and most of the sales continue to be to our existing customers. That being said, it also is a terrific front door for the company and you can see that it’s driving new relationships. But increasingly, those new relationships are not just stopping at high speed Internet. So they are coming in buying high speed Internet and then going ahead and switching, including Magenta MAX. So that’s starting to work as a very successful cycle. Anything to add to that, Mike or Jon?

Mike Katz, CRO

The only other point I would like to mention is that we are observing an increasing number of customers choosing both options at the point of sale. This trend is driven by the strong bundling we have achieved with Magenta MAX. We continue to see growth in the two areas mentioned by Mike at the beginning, with about two-thirds coming from suburban and urban regions where customers are transitioning from cable, and one-third from rural areas, where we are the only high-speed option available. This has been an exciting segment of growth that we plan to expand as our network develops. A little over half of those switching are moving from cable, and an interesting finding from the recent Ookla study shows that for the first time, T-Mobile 5G has surpassed cable providers in nationwide speeds. In comparisons between Comcast and Charter on cable connections and T-Mobile users on 5G smartphones, the median speeds for T-Mobile customers on 5G were higher, which adds another data point highlighting the competitiveness of our network in serving high-speed Internet customers. Now, onto the second question.

Neville Ray, CTO

Yeah. Thanks. Thanks, Simon. You have opened the door for me to talk about 5G network, lots to talk about.

Mike Sievert, President and CEO

That’s all the time we have.

Neville Ray, CTO

I will be brief. The in-home broadband initiative is a strong demonstration of the rapid advancements we've made in expanding our 5G network. We have established a solid leadership position in 5G, which is vital and robust. We aim to maintain our leadership role in the 5G narrative for many years to come. Today, we announced that our low-band network now covers 320 million people, or 97% of all Americans. Our mid-band ultra-capacity 5G coverage, where the 5G experience truly excels, reaches 235 million people, and we expect to extend that to 260 million by the end of the year, serving 87% of T-Mobile customers. We've seen remarkable progress, achieving some of the highest rollout production rates in our two-year history for mid-band services, with over 1,000 site upgrades weekly during July, reflecting real momentum. Regarding in-home broadband, this offering underscores our 5G network's growth. According to the Ookla report Mike mentioned, median speeds in the fixed broadband sector are lower than those recorded for T-Mobile. This isn’t just about reach but also about capacity and spectrum. We currently have an average of over 110 megahertz of dedicated mid-band spectrum across our footprint and over 30 megahertz of extended range 5G spectrum, totaling 140 megahertz of dedicated 5G spectrum. This blend of coverage, depth, and spectrum empowers us to expand our 5G broadband offerings and drive growth. We are just a year into this business, and we feel very confident about our projections and capabilities moving forward. Our network is gaining traction. The integration with Sprint is mostly complete, with two-thirds of the sites decommissioned and less than 1% of Sprint customer traffic remaining on the old network. We are confident we will finalize this as we finish this quarter, which will provide significant benefits, as we can leverage spectrum and enhance coverage with a powerful, unified network just over two years since we started this journey. We've made great strides, are confident in our results, and are pleased with the speeds we are providing through in-home broadband. We believe we are introducing what many have been searching for: a genuine 5G use case. In-home broadband and fixed wireless are now a reality and are here to stay.

Mike Sievert, President and CEO

Simon, one of the things that Neville said, I think, has been under discussed, which is how much spectrum we have against this leading mid-band 5G footprint. There’s a lot of discussion about fact that we have 235 million people covered with mid-band ultra capacity 5G as compared to 70 for AT&T, 135 for Verizon, as they begin their C-band deployments. But what’s really interesting is what Neville said about the depths of spectrum across that 235 on average. He said 110 megahertz of mid-band, plus 30 of low band, 140 dedicated to that 5G layer, and that’s unique and it will be unique for some time to come. And it really allows for the kinds of capacity throughput and performance that we have been talking about on this call. It opens up not just high speed Internet opportunities but really exciting opportunities in the business space that our competitors can issue press releases around, but where we are ready to execute and support businesses right now with advanced network 5G services. So we will talk more about that later. But thanks for your question about that.

Simon Flannery, Analyst

Thank you.

Mike Sievert, President and CEO

Okay. Next caller.

Operator, Operator

We will go next to John Hodulik with UBS.

Mike Sievert, President and CEO

Hey, John.

John Hodulik, Analyst

Thanks. Good morning, guys. Two issues or two areas I’d like to explore. First, on the macro side, Mike, you said the consumer is feeling some pressure. I mean any impact so far in terms of slower payment or on bad debt? And are you seeing any evidence that your value proposition is actually driving some flow share versus your competitors? That’s number one. And then I thought the highlight of the quarter was the phone churn 80 bps. Any color you can give in terms of the disaggregating, what you are seeing on the Magenta side or on the Sprint side, and how close are we to getting that Sprint churn down to where we are with Magenta and further improvement in that metric? Thanks.

Mike Sievert, President and CEO

Yeah. Absolutely, John. Well, first, let me just take the first question on what we are seeing. You saw that our bad debt returned to more historic levels this quarter and we are very comfortable with it at this level. One of the things that makes us different than our competitors in this space is we have a long history and a deep confidence at dealing with customers who have variable economic circumstances. And so it’s not new for us that some customers are stressed up financially. We know how to work with them on that front and you have seen our bad debt levels return to more historic rates. There have been other things driving that debt as well. One of the things you see is that our EIT balances continue to rise. And in EIT balances, when those go bad, it hits that bad debt metric as opposed to leasing, which we have been rapidly moving customers off does not. So there’s an artifact there. There’s also some accounting artifacts that cause us to be more forward looking in our bad debt charges now than before, plus the return to more historic norms. Long way of saying, we are very comfortable with where it is and we know how to execute in this environment. But to your point, it’s very interesting. There is a flight to value that I believe is beginning to happen. You see it in our suppressed churn rates as people are comfortable where they are, our progress across both T-Mobile and Sprint to the premise of your question, our net add performance, our overall account growth performance was the highest ever in our history for any quarter in any season was this quarter, 380,000 new account additions. And so there is a flight to value that is beginning to happen and T-Mobile is famous for value in our category. At a time when this product category is becoming more and more indispensable, we are famous for value while showing you that we are second to none on the quality of the product and so that’s something that I think positions us very, very well for the times. On that 0.80, look, I am just so proud of the team. We told you two years ago that we would execute our worst to first playbook and a lot of people looked at us and said, yeah, but you have got Sprint now. And here we are with 0.80 in combined churn and possibly some room to run. We will see where we go. There’s obviously offsetting pressures here on the involve side that all of the carriers are seeing. But we look at Q3 and it looks to us like we will be 2021 churn by a similar margin in Q3 as we beat it in Q2, mid-to-high single-digit bps improvement versus last year, and of course, there’s seasonal effects in the second half of the year as switching tends to be higher due to phone launches. So we are very comfortable with what we are seeing and we believe that as we continue to get more and more Sprint customers settled with the right rate plans, which is the last component of our integration that potentially there’s some more momentum to see in the quarters ahead. Anything to add to that, Peter?

Peter Osvaldik, CFO

No. I think you hit it all really well.

Mike Sievert, President and CEO

Thanks, John. Thanks, John. Okay, Operator?

Operator, Operator

Yeah. We will go next to Craig Moffett with MoffettNathanson.

Craig Moffett, Analyst

Yeah. Hi, guys. It seem we have been hitting with everybody sort of I wonder if you could reflect on the new revenue opportunities aside from fixed wireless that come from 5G, whether it’s mobile edge compute, private networks, IoT? And talk about how your thinking has evolved about the size of those revenue opportunities and how it is that you think T-Mobile can most effectively compete to get what’s there?

Mike Sievert, President and CEO

You bet, Craig. Let me first start by saying, we are a lot further along in this space and in thinking around it and execution around it, then you would probably surmise from our press releases. And I will have Kelly talk about some of what’s going on out there. But we are hesitant to take an early business like this and forecast it forward for you when it’s in its infancy. Our competitors haven’t had much choice about that, and so they have gone ahead and given some big aspirations in this area. But our view is it’s an emerging market and we can achieve what we set out to achieve, generally speaking, in the core business. But that being said, there are exciting things happening, and what’s interesting is this 5G network leadership is getting us conversations with CIOs, CEOs, the coroner office that our company never earned before. We were talking about smartphone plans with the procurement office two years ago and that’s the big difference. And Callie, maybe you can share a little bit of what you are seeing and the kinds of conversations you and your team are having.

Callie Field, EVP of Retail Sales

Yeah. Thanks, Mike. So it’s been an exciting time to spend time with CIOs and CTOs as they are looking at their own digital transformation. They are looking at their own ways to manage costs, be efficient and effective, and get connectivity that is on not only the largest and fastest, most reliable 5G network, but the only provider that has a 5G standalone port, which CIOs understand that matters to solutions like Advanced Network Services. We talked about how we launched Business Internet as a part of our Internet Freedom Un-carrier move this past quarter. But for business, this was significant because we are the only provider that truly has nationwide 5G Internet for businesses, which allows us a really great frontdoor to sit down and talk about, yes, we can connect your retail locations, working with places like Tractor Supply and Circle K and AutoZone, but we also are sitting down and talking about, hey, how can we use edge compute solutions and IoT connectivity in order to really help you solve the business problems that you are facing as leaders. We also launched or announced our relationship, our new customer, Cell GP. You don’t know Cell GP, that’s the world’s most extreme sailing competition and we saw in the last rate 240,000 data points transferred from 6,400 sensors, and we were able to deliver up to a 50% reduction in latency. That gives athletes a competitive advantage and fans of really in view of the race, so broadcasting retail. We are also doing a lot of work with this advanced network solutions in the automotive industry. And because of our relationship with DT and our TIoT platform that we launched and told you about last quarter, we are able to provide seamless global connectivity for their B2B2C solutions, as well as for employees who are traveling internationally as a part of our last and most recent Un-carrier moves. So we have seen a lot of action. And we don’t want to discount full line here. I mean we like to have the phone lines and we are seeing the lowest levels of business phone churn in our history and I think we just heard that Verizon reported some of their highest. And so we are growing in business. We are growing in enterprise in SMB and in the public sector as well and we are very interested in where we are headed with these Advanced Network Solutions.

Mike Sievert, President and CEO

I am glad you mentioned coverage beyond and all that, too, because not only are there incredible opportunities for us to do deep services for enterprises as they look to create network-as-a-service and outsource some of that thinking to advanced networks like ours, but we are still interested in the core. And coverage beyond was an investment in something that originally put map with enterprises in the first place. Our simple global move in 2013 was our introduction to enterprise. And today, we have launched coverage beyond, which not just doubles down, it multiplies the power of that move by many times so that now business customers and consumers can travel the world and have high speed data, the highest on offer in that country completely included in our most popular plan, not low speed data and it is a breakthrough. So we are very excited about what that portends for our business customers and consumers. Neville, I will give you the last word on this question.

Neville Ray, CTO

I believe we are the best positioned company in the U.S. for all the 5G opportunities that Callie mentioned. There’s no doubt about it. This 5G initiative is very real at T-Mobile, with more than 50% of our entire network traffic now on 5G, actually over 55%, and that percentage continues to rise as we see strong engagement and meaningful discussions with various business leaders and our consumer base. We are actively advancing our 5G architecture. We are the only company, as Callie pointed out, with a standalone network core. We are also the only company in the U.S. to transition voice services over a new radio onto that 5G layer. This is significant because we are a 5G-focused business. While we are not currently retiring LTE, it is something we are planning for in the coming years. Our 5G network is advancing rapidly in terms of pace, coverage, spectrum, and architecture. We have a competitive edge in every aspect of this conversation, positioning us exceptionally well for future growth across all segments. We are pleased with our progress, and the 5G journey is well underway at T-Mobile, with growth opportunities emerging around us very favorably.

Mike Sievert, President and CEO

Beautiful. Okay. And before we go back to the phones, I know we have some coming in on Twitter. I see a few upfront. Janice, did you find some what we should be tackling here?

Janice Kapner, EVP of Corporate Communications

Yeah. We have a couple. Let’s start with Bill Ho. He’s asking for some notable examples of enterprise or medium company wins from T-Mobile for Business. I know Callie may have some good things to talk about there. And to your point earlier on our coverage announcement, curious how that’s impacting the business broadly both consumer and B2B?

Mike Sievert, President and CEO

Anything to double down, I know you just kind of answered some of that.

Callie Field, EVP of Retail Sales

We achieved significant progress with AutoZone and General Mills, where we implemented an innovative solution that combined ANS, edge computing, and smart warehousing, creating both a private and a public network. Additionally, we have been collaborating with several global automakers, leveraging our TIoT capabilities alongside edge solutions for vehicle-to-vehicle communication. In the small and medium business sector, we have also seen substantial growth. Recently, we partnered with Apple to introduce a unique wireless plan that comes with Apple Business Essentials, which is especially beneficial for small businesses looking to optimize costs and manage their devices effectively. This plan includes an iPhone 13 at an attractive rate, marking it as a significant announcement.

Mike Sievert, President and CEO

So lots of exciting new logos, only some of which we say because of agreements with customers. But the other thing that’s happening that’s really interesting is that we are deepening relationships with enterprise customers across the board. Remember, a couple of years ago, we were kind of winning some accounts along the lines of, hey, if I throw you a few of my lines kind of unofficially, will you help me re-price my AT&T business, and you will get some of my. That’s never really spoken, but you can see the RFPs were sort of designed for that. And what happens now is some years later, customers are coming back and saying, actually, I’d like you to bid for the whole kit and caboodle now. And so this potential to deepen with customers is really happening and that’s a dynamic that’s driving our sales. So, hopefully, Roger and Bill that answer some of your questions about TFP. So, Jess, get ready for the next one. I will go back to the phone while we do that. So, Operator?

Operator, Operator

Yeah. We will go next to Jonathan Chaplin with New Street.

Jonathan Chaplin, Analyst

Thank you, everyone. I have two follow-up questions regarding previous inquiries. Neville, I appreciated the context you provided about fixed wireless broadband and the network's capabilities. However, I'm curious about the capacity you can actually serve in terms of the total number of subscribers you could accommodate on the network. I remember you mentioned in the past that the expected range of 7 million to 8 million subscribers by 2025 is not a ceiling. I would like to know what the actual limit is. Additionally, sticking with the enterprise theme, could you update us on your progress toward achieving a 20% market share? Mike, you indicated that it's too early to estimate the potential market size for mobile edge compute and private network opportunities. Does this imply that none of these opportunities are included in your long-term strategy? Thank you.

Peter Osvaldik, CFO

Yes, Jonathan. As you know, due to the reasons Mike just outlined regarding an emerging business, while we are well-positioned to seize this opportunity, we didn’t include it in our plans when we set our Analyst Day targets because it was too early. We wanted to avoid making plans based on something we didn’t fully understand or have a clear strategy for achieving growth, but we are beginning to see the potential for that. So this represents additional opportunities beyond our current plan, and we are very enthusiastic about it. Regarding our progress in the enterprise sector, you heard Callie mention that we are seeing growth across the entire T-Mobile for Business segment. It’s not limited to enterprise; we’re also seeing growth in government and SMB, which we are very pleased about in terms of our goals.

Jonathan Chaplin, Analyst

Great. And then how many millions and millions of customers can we support? We are not really going to be able to answer that because we don’t halt?

Mike Sievert, President and CEO

It kind of depends. One of the things that we have disclosed in the past that our model, which is an excess capacity model is based on our anticipated share gains in mobile. And the usage of our base in mobile, which we expect to continue to rise at a rapid pace arriving in this planning period at around 80 gigs per mobile customer. And maybe that will be higher, maybe that will be lower and that’s obviously a very important input to this. And obviously, so is the availability of spectrum, our ability to refarm spectrum, to deploy it, et cetera. But I don’t know, do you want to take a stab at answering this question or are we just going to say we don’t know, Neville?

Neville Ray, CTO

Well, I am not sure that we want to announce revised numbers today. So, I mean, Jonathan, you know our story well. You know the $7 million to $8 million that we put out into the marketplace some time back. But to Mike’s comments just now, if you look at where we are, we are ahead on our coverage rollout on 5G, we are ahead on our spectrum transition, we are ahead on our integration goals that we established when we put that plan together. There are many factors coming in, but we see great consumer adoption on the 5G side and our capacity generation for this business is ahead of schedule. We always said that, if you compare where this business would be as a combined T-Mobile and Sprint in 2024, 2025 against the standalone T-Mobile, that multiple was about a 14x, 1-4 on capacity. We are about halfway through that already in terms of the capacity we are generating. So we are in the business of creating a lot of headroom for growth for the company. And can we bend that curve some more? I am sure we can, but we are still early into this business. As we said, we are a year in driving great numbers, and we will see, I think, as we exit this year with continued strong growth in the space, we will be in a position to look forward into 2023 and 2024 with great momentum and hopefully some stronger numbers.

Mike Sievert, President and CEO

We have been an early adopter of so many techniques and technologies that have allowed us to unlock capabilities for our customers in the network space. And Neville and Ulf and Doel and their teams are constantly chasing new ideas and capacity is one of the centerpieces of our conversations now because of the premise of your question. So it’s a topic we are very interested in. I will tell you that we won’t load customers beyond where we can give them a great experience. And right now, our Net Promoter Scores continue to rise. They are 30 points higher than the competition. They are triple what they are from a provider that our customers are switching from. We just won a major nationwide survey of all ISPs that are scaled, named us the second highest in customer satisfaction in the country and number one was a fiber provider. And so our customers love this product and it’s really important for us and for our brand that we continue to load customers where we know we can serve them well. And but, hopefully, that gives you some color on where we stand.

Jonathan Chaplin, Analyst

Fair enough. Thanks guys.

Mike Sievert, President and CEO

You bet. We want to go on to Twitter for another one.

Janice Kapner, EVP of Corporate Communications

This is a great question about churn. You're experiencing significant growth with often free connected devices. How will you avoid facing the same churn issues that others have encountered when they increased their connected device numbers? This connects to the question about churn from some of the smaller competitors as well.

Mike Sievert, President and CEO

Yeah. Maybe we start with Mike on this one. I will say, what’s going on in the market is very different from what you saw from our competitors some years ago. There aren’t, by and large, we are not, by and large, driving this through free devices or free connections. What’s happening is we live in a 5G world now and people are getting real utility and value out of tablets, watches and other devices, because of the strength of our network and because of the changing lifestyles of connected lives. But, Mike, maybe you can give a little more on what we are seeing.

Mike Katz, CRO

Yeah. Hey. Roger, thanks for the question. I do think in a world where people only differentiate off of giving free phones, the risk that you point out is a real one. And in our model, we recognize that a lot of the competition has moved to free devices and we feel like we have done a really good job figuring out how to deliver on free devices but not make that our big point of differentiation. Our big point of differentiation is what you have heard from several of us today, it’s this value proposition that gives customers the best value without having to make any trade-offs on network and that proposition, I think, is more important now than it ever has been before, because with the macroeconomic environment, customers are looking for ways to save money and not have to make trade-offs and experience and really only T-Mobile is the one that provides that. Right now, T-Mobile customers, T-Mobile families can save $225 on T-Mobile, not just through their core wireless services, but with all the value that we pack into a plan like Magenta MAX and the included benefits that we give in things like streaming services and everything else. So I think what you are seeing is and what you will continue to see is customers picking us because we have the best overall value position, because we can save them in expenses across their entire lives and that’s translating into things like you saw this quarter with sequential and big year-over-year churn decreases. And as it relates to connected devices, we are also watching usage and it’s very important that those devices are actively used and paid for and they are. And so that’s something that’s very important so we don’t get question. Okay. Let’s go back to the phones.

Operator, Operator

We will go next to Phil Cusick with J.P. Morgan.

Phil Cusick, Analyst

Yeah, guys. Thanks. Mike, you said that the prime mix is at an all-time high. What is the mix of the base, as well as in first incoming accounts or if you can give us something sort of relative? And then you talked about bad debt, and we noticed that DSO stretched out a couple of days. What changes have you seen lately in customer activity, anything you can tell us around traffic levels, lower payments or traffic and increased charge-offs? Thank you.

Mike Sievert, President and CEO

Sounds good, Phil. So, well, let’s go to Peter Osvaldik to say what we are seeing.

Peter Osvaldik, CFO

Yeah. Definitely. We are not giving the prime mix of the base. Obviously, very recent, but it is up significantly. In terms of what we are seeing from a payment pattern perspective, on a year-over-year basis involve churn is up, and remember, last year was tremendously muted. There was still a lot of stimulus money. There was still not really the switching activity happening. So we are seeing what we anticipated is that you would see an increase involve churn still below pre-pandemic levels for us. And we talked about bad debt a little bit, and of course, what we did in Q2 as well is, remember, the accounting standard changed a couple of years ago and now forces us rightfully so to look forward as well. And so we did a macroeconomic loss overlay in Q2 that was significant, whereas last year, that wasn’t happening. In fact, we had some releases happen as we saw involve churn way down. So I do believe Q2, of course, we are watching the macroeconomic trends very carefully and customer payment patterns and behavior, but I believe Q2, based on everything we are seeing now, was the high watermark in terms of bad debt expense for us in 2022. Again, it goes back to that tremendous core competency that we have that we actually built on even further when we saw some of the FCC holds happen, we created even further differentiated tools to help our customers and we are seeing that pay off in dividends now.

Mike Sievert, President and CEO

And like I said in my opening remarks, we are comfortable here and increasing our EBITDA, feel confident with how we are handling the macroeconomic picture. There are places in our P&L where there are pressure points, but there’s also a lot of opportunity for us to stand up and serve customers at a time when they need a company to provide them with a fantastic value. Great. Let’s go back to the phone.

Operator, Operator

We will go next to Brett Feldman with Goldman Sachs.

Mike Sievert, President and CEO

Hi, Brett.

Brett Feldman, Analyst

Thanks. And I have sort of two follow-ups. So you talked about migrating Sprint customers to the right rate plans. I was hoping you can maybe just give us an update, where are you in terms of migrating the legacy Sprint subs fully over to T-Mobile, when do you think that will be done and are you continuing to see the churn improvement in that cohort as that unfolds? And then the second question is, you seem comfortable with this kind of 500,000 or so fixed wireless net add quarterly run rate. What’s going to be the driver of that, particularly as we think out the next few quarters? I am specifically interested in the extent to which you may be expanding distribution. I think it’s available to over 40 million potential customers today. I don’t know where that might go. And what are you seeing or what are you expecting in terms of fixed wireless churn? Thanks.

Mike Katz, CRO

Yeah. Absolutely. I can take the questions on Sprint migration. So first of all, it’s going well. I would say that we are in the very late stages of the Sprint migration. We have already migrated a good number of sub accounts to the T-Mobile plans up to this point and continue to, as we do so, we are seeing improvements in churn in that cohort. I would say we’ve still got work to do, but we are very pleased with the trajectory there. As to the number on fixed wireless, I would just reiterate that the 500,000 we’re seeing as a run rate. The factors that are driving that is the customer experience and the performance, which you’ve heard some of the guys talk about. We expect to see a continued uptick there primarily through our distribution expansion into new markets. We are encouraged by what we’ve seen in the current quarter so far, and we expect to keep that momentum going as we move through the back half of the year.

Mike Sievert, President and CEO

Yeah. Just to put a lid on that sentiment, I would say that ultimately, we are also very focused on continuing to drive the bundled sales that so amplify both our core services as well as the fixed wireless benefits. And that’s been great for us.

Operator, Operator

We will go next to David Barden with Bank of America.