Earnings Call Transcript - TMUS Q3 2025

Cathy Yao, Senior Vice President of Investor Relations

Good morning. You may submit questions via X by sending a post to @TMobileIR, @MikeSievert or @SriniGopalan using hashtag #TMUS. I would now like to turn the conference over to Cathy Yao, Senior Vice President of Investor Relations for T-Mobile US. Please go ahead.

Quan Yao, Senior Vice President of Investor Relations

Good morning. Welcome to T-Mobile's Third Quarter 2025 Earnings Call. Joining me on our call today are Mike Sievert, our President and CEO; Srini Gopalan, our COO and incoming CEO; Peter Osvaldik, our CFO; as well as other members of the senior leadership team. During this call, we will make forward-looking statements, which involve risks and uncertainties that may cause actual results to differ materially. We encourage you to review the risk factors set forth in our SEC filings. 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 on our Investor Relations website. With that, let me now turn it over to Mike.

G. Sievert, President and CEO

Thanks, Cathy. Great job. Good morning, everybody. Well, as you can see, Srini and I are here in New York with the senior team ready to discuss another truly extraordinary quarter for T-Mobile. But first, let me do a couple of welcomes. I want to first start by welcoming André Almeida to the team and to the table. André is a deep industry expert and a long-time colleague of Srini's. And he has also been a strategic adviser to me on many topics for many years. And I am so happy that he is here leading such a big part of our team. And also, you all know Dr. John Saw, now serving as our President of Technology, and resident genius. John, thanks for stepping into this expanded role for us as President of Technology. John and I go way back to 2009 at Clearwire. So together and separately, we've been stewards of this centerpiece of T-Mobile's 5G spectrum strategy for a long time. It's great to have you here as our President of Technology. All right. Well, let me just start by saying this. This call is an especially meaningful one for me as it actually marks the 50th quarterly earnings report for T-Mobile. And that means it's also my 50th report here. I've been here for every single one to offer my perspective and to help shape our narrative about the future, and I have had a blast. Leading this company over the past 13 years has been the honor of a lifetime. Together, we've transformed T-Mobile from a distant #4 player in crisis and decline into the world's most successful and customer-centric telecommunications company. I've seen T-Mobile go from last to first with the best network, the best value, the best customer experience in the market. And today, that margin of our differentiation is only widening, and the growth and financial momentum that flows from this, in many ways, only just beginning. I'm excited to continue to support this team right here and the strategies that enable this success in my new role as Vice Chairman. Just a few weeks ago, I talked about what it means to get CEO succession right, that you do it when three things are true. First, when the company has never been more successful; second, when the opportunity ahead has never been more exciting; and third and most importantly, when the leader to take us into the future is fully ready. Q3 is living proof that all three are true for T-Mobile right now. Now Srini is going to cover the results here in a minute with you, but I just want to say, wow, what another spectacular quarter. This team once again delivered the thoughtful, profitable and durable growth for which we are known.

Srinivasan Gopalan, COO and Incoming CEO

Thank you, Mike. Hi, everyone, and thanks for joining in. I can't wait to start talking about Q3, but I'll take a minute. I just want to start by saying it's an incredible privilege to be here with this fantastic team, the best in the industry. And in the last 13 years, Mike, you have truly turned around this business and you've made the Un-carrier into this force for good, this disruptive, innovative, the most admired telco in the world. The network has gone from last to first like you've talked about, and we've delivered on industry-leading customer and financial growth. You and the team have created more value than any other CEO in the history of this industry, not just in the U.S. but globally. Thank you. Look, I've been involved in this team for some time now. And the one truly amazing thing the Un-carrier has done, and this is rare in this industry, differentiation. It's the one truly rare commodity in this industry. For a large part of this journey, that differentiation has come from outstanding customer value and experience. And as I look forward now, the foundation for the next big leap has already been laid. We have the opportunity to widen this differentiation even further with network leadership and digital transformation. I can talk about this all day, but I'll come back to it in our continuing strategy. But first off, to Q3 and the phenomenal quarter we've delivered. Starting with wireless. We had our all-time best postpaid customer account growth, and that's saying something when it comes from the Un-carrier. We achieved our best-ever total postpaid net additions and delivered over 1 million postpaid phone net additions, our best Q3 in over a decade. And that coming from T-Mobile is something. What I like is how broad-based this growth is. It's in the Top 100 markets, it's in smaller markets and rural areas. Even within the Top 100, our postpaid share of households is up where we're #1, #2 and #3 in market share. So it's truly broad-based growth. And it's not just gross additions momentum. In Q3, we led the industry in postpaid phone churn. So across the board, tremendous customer momentum. And it's not just volume, it's also in value. We saw postpaid ARPA grow by 3.8% on an organic basis when you exclude the dilutive impact of UScellular, Metronet and Lumos. We're also delighted to have welcomed UScellular customers to the T-Mobile family and provided them with immediate benefits from an improved network experience to great thankings like T-Mobile Tuesdays. Integration is off to the races. We're using everything from the T-Mobile playbook that we learned and perfected with Sprint, and we're simultaneously deepening our relationships. Let me turn to broadband, another huge growth opportunity for us. Again, we led the industry with over 500,000 customer additions on 5G broadband and over 50,000 on the newest addition to our family fiber, and that includes the contribution from Metronet following our close on 24th July. This is an amazing business. And here's an often underrated fact. Our 5G broadband ARPUs and customer lifetime values are very similar to our postpaid phone business, and that just drives great value creation. Now our customer results and industry-leading customer results flow through to industry-leading financial growth. Our postpaid service revenue grew by 12% year-over-year. Now that's obviously industry-leading. Our service revenue, as a whole, 9%. Core adjusted EBITDA, 6%. And another incredible quarter of service revenue to free cash flow conversion at 26%. So there's great customer momentum. And importantly, that's translating into that one key metric, cash conversion. So overall, an amazing quarter. Let me come back to what I was saying earlier about my strategic priorities and spend a moment on that. Let me start by saying I have enormous conviction in what the team outlined during Capital Markets Day, and even more so now that we're a year into that journey. Everything we've seen in the last year makes us double down on our convictions and convinces us that we're heading in the right direction. I expect continued profitable growth in our core wireless and broadband businesses. And this is the big deal, which is that momentum we are seeing right now is being driven by widening differentiation, which means it's truly sustainable.

Peter Osvaldik, CFO

All right. Thanks, Srini. As you can see, we had a fabulous Q3, which underpins the confidence in our increased guidance. So starting with customers, we are raising our expectation for total postpaid net additions to now be between 7.2 million to 7.4 million, an increase of just over 1 million at the midpoint. As part of that total, we are also increasing our expectation for postpaid phone net additions, now expected to be 3.3 million, highlighting the tremendous momentum we're seeing in the business. And on the strength of our T-Fiber rollout, we are also raising our fiber customer net additions guidance to be approximately 103,000 this year, up from approximately 100,000 previously. We now expect postpaid ARPA growth of at least 3.5% for the full year, including the dilutive impacts of UScellular, Metronet and Lumos. Excluding the impacts of UScellular and the fiber JVs, our underlying ARPA growth is now expected to be up approximately 4% for the full year. We now expect core adjusted EBITDA to be between $33.7 billion and $33.9 billion for the full year, an increase of $300 million at the midpoint, reflecting our ongoing core operating strength and the inclusion of UScellular into our full year guidance.

Cathy Yao, Senior Vice President of Investor Relations

Thanks, Peter. Let’s move on to your questions. We will begin with a question from the phone and finish a few minutes earlier than usual for closing comments today. Operator, please go ahead with the first question.

Benjamin Swinburne, Analyst

One question for Srini and one for Peter. Srini, you mentioned the network perception gap and your commitment to narrowing it. Can you elaborate on your strategy and tactics to quickly close this gap? The sooner you can convince customers that you have the best network nationwide, the faster the business can grow. Your intentions are clear, but I would like to hear how you plan to achieve this beyond simply increasing marketing spending.

Srinivasan Gopalan, COO and Incoming CEO

Thank you, Mike, and thanks for your question, Ben. I'll begin with an update on our network perception. One of the reasons for our significant delivery this quarter is the progress we've made in closing the gap. This quarter showed an increase in switching behavior, which can be attributed to several factors. We introduced a new device and experienced some normalization in churn, partly because some competitors had longer contracts. This overall led to more switching, and during this time, we noticed an improvement in our network perception, which is now at an all-time high among those considering switching. This has significantly influenced our volume. To address the perception issue, we plan to implement a comprehensive strategy across multiple approaches. Marketing will certainly be a key aspect, but it’s also important to recognize that network perception is highly localized—it’s about individual customer feelings. We aim to engage our channels and digital efforts to connect with customers on a personal level. Our digital transformation and network perception initiatives align closely here. By utilizing digital tools and enhancing our local presence, we're focusing on how to effectively convey our message about network perception. Additionally, we aim to simplify the process for customers to choose us, as network perception can create barriers and inertia. Our digital transformation is designed to reduce such barriers. Currently, a substantial portion of our upgrades and increasing acquisitions come through digital channels, which alleviates some of the effort required for customers to switch. The primary challenge for many isn’t that they don’t recognize T-Mobile has the best network, but whether they are willing to invest the time to make the switch. Therefore, our approach includes a variety of initiatives, particularly at the intersection of our digital transformation and network perception strategies.

G. Sievert, President and CEO

That's good. We'll start with the first question with Srini, and I want to pile in on that one too, and then pivot over.

Michael Katz, Analyst

Yes. The other two points I'd like to mention are our commitment to maintaining the best network. Our network is two years ahead of competitors, and we aim to keep widening that gap. We've discussed our strategies, such as focusing on customer-driven coverage to invest our network resources in areas that truly benefit customers, enhancing their experience. Additionally, during significant switching periods like this quarter, when we welcomed nearly 400,000 new accounts, it greatly impacts network perception. People typically learn about network quality from friends, family, and neighbors. The more customers we have who join T-Mobile and share their experiences, the more effective we are at altering perceptions. Therefore, consistently achieving strong performance in quarters like this one plays a crucial role in changing those views.

G. Sievert, President and CEO

Love the question, Ben. Hopefully, what you're hearing from us is lots of confidence because we're in this kind of sweet spot on this one where the data tells us two things simultaneously. It tells us, one, what we're doing is working. And it was a big factor, as Srini said, in fueling all-time record customer results this quarter. So that's great. And at the second time, the data also tells us there is lots of room to run here. So a lot of people still have yet to make a decision either on the vector of it being worth it or on the vector of it being better. And that just shows us a strategy that's working, has lots of potential tailwind to fuel our business into the future. So we're feeling good.

Peter Osvaldik, CFO

All right. UScellular, I couldn't be more excited about how we've hit the ground running, both with Jon Freier and his team from a customer perspective and Dr. Saw running to the races on network. So you're going to see this kind of go exactly, except quicker than Sprint. And what that really means from a modeling perspective, I won't get into the dollars, we'll incorporate that into our '26 and '27 guide. But you're going to see us invest in those costs to achieve early on. So I'd expect the vast majority of those to come in 2026 and then achieve the full run rate of those synergies. Remember, it was $950 million of OpEx synergies and $250 million of CapEx synergies, and we'll achieve those inside of 2 years. So as I model it out kind of by the end of '27, you're going to have those full synergies already coming to bear.

John Hodulik, Analyst

Can we dig into the broadband business? I guess, first on the fiber, you guys had some new disclosures. But I guess for Srini, how big of an opportunity do you think the sort of fiber business is? I know you have targets out there for homes passed. But can you talk about how many sort of homes passed you have now at fiber, how you expect that to grow? Any targets for penetration? And then maybe comment on the sort of environment for more deals to potentially back up the JVs you already have out there. And then on the fixed wireless business, obviously, a big quarter. What's the opportunity there? And sort of what drove those sort of big lift in net adds this quarter? And sort of how do you see that playing out as we look into '26?

Srinivasan Gopalan, COO and Incoming CEO

Thanks for that question, John. So look, I'll talk about the big picture in terms of how we see broadband as an opportunity first and then spend a few minutes on FWA as well as fiber. We're really excited by the broadband opportunity. This plays to the heart of the Un-carrier, because what we've got here is customers in a place where they have an inferior product quite often, where they're paying a huge premium. It's classic Un-carrier territory, going in and attacking incumbents who have not invested in their networks and who are charging a large premium for a product that isn't living up to expectations. Now we'll go after that with both FWA as well as fiber. We see those as complementary. And the way we think about both those businesses is setting them up in a way that the economics allow us to pursue the Un-carrier strategy. What I love about FWA is the heart of it is the fallow capacity model. And what we're benefiting from is the ultra capacity network, but also the rapid evolution you're seeing in mobile technology, which is moving far quicker than a lot of other technologies, which is giving us more and more runway and also making the product incredibly sustainable. We see FWA as not a temporary category, but something that's here to stay as mobile technology gets better and better and taps into a customer need, which a lot of people trapped in old relationships with incumbents are suffering from. Fiber, again, we've been very thoughtful about setting up the economics in a way that we can scale and sustain this business. The way we thought about fiber is go after specific places where we're confident that the economics will work for us to create a win-win situation for customers. That's been the heart of the areas that we've picked fiber, places where we're either first to fiber, near first to fiber, places where we believe we can set up these JVs that allows us to be capital-light.

André Almeida, Executive

Thank you, Srini. So as you said, and I'll just double-click on a couple of the topics. One, I think we're very, very happy with our FWA results. I think as Srini mentioned in his opening comments, we did more than 500,000 net adds. That's an impressive 22% year-on-year growth. So we see a lot of strength and a lot of runway. And what I think has been outstanding about our FWA product is it's not just industry-leading, something we introduced into the U.S. in 2021 is the product keeps getting better. In 2 years, the speeds that we're giving our customers have gone up 50%, while we almost doubled the base of customers we have. So this is clearly, as Srini mentioned, a very sustainable product that we see is here for the long run. On fiber, I think we've been very consistent. We see this as a great complement to our FWA nationwide offer. And we love the business under the right parameters, as Srini said.

Srinivasan Gopalan, COO and Incoming CEO

So John, hopefully, what you're hearing is lots of confidence in the numbers that we've put out. We've said 12 million fixed wireless access. We've said 12 million to 15 million homes passed on fiber. Are we looking at new assets? Yes, as long as they fit the criteria that André just laid out. But you know what this theme is like. We put a set of numbers out there. You can see the confidence we have in hitting those numbers, and then we strive to exceed them. That's exactly what you should expect in broadband as well.

Operator, Operator

All right. Great. Let's move on to our next question, please.

Samuel McHugh, Analyst

A couple of quick questions. First, just running the numbers on cost of acquisition. It doesn't look like you're spending a ton more on a per subs basis to acquire these customers versus recent quarters, which I think is quite encouraging. But can you just tell me what you're seeing in terms of SAC and SRC as well and the competitive environment?

G. Sievert, President and CEO

Well, let's start with Peter on the first question and then maybe turn to Srini on the second question.

Peter Osvaldik, CFO

Absolutely. You're right that we continue to see extremely strong customer lifetime values. From a customer acquisition cost perspective, we are seeing a strong linkage between our top-tier promotions and our highest tier ARPU plans. In fact, for the full year, we now anticipate an ARPU increase of approximately 2%, up from the 1.5% we previously guided to. That's really strong, and yes, we are still seeing very strong customer lifetime values.

Srinivasan Gopalan, COO and Incoming CEO

Yes. Regarding digital acquisition, we're not going to share detailed plans, but you can expect a similar approach to what we did with upgrades. As we mentioned, 75% of our upgrades are now on T-Life. The key to achieving this was simplifying the upgrade process, reducing it from around 36 steps to something that feels more like a modern transaction rather than an outdated one. Digital acquisition and transitioning our customers to digital focus on addressing customer pain points and fundamentally changing the traditional practices in our industry, making it simpler to do the one thing that's not easy to do with wireless: purchase wireless services.

G. Sievert, President and CEO

AI is playing a big role in this. And we talked a year ago about our intention to co-invent IntentCX with OpenAI. And in these breakthrough results you're seeing on the upgrade path, that's starting to come together.

Quan Yao, Senior Vice President of Investor Relations

Great. Thanks, Mike. Thanks, Sam. Let's move on to our next question on the phone, please.

David Barden, Analyst

It's really great to be here again. Srini, congratulations on the new seat. Mike, while I have you, I wanted to follow up on a couple of things. One was, last quarter, you were joking with Craig about how new the satellite product was, and you didn't have any real color on what it meant for T-Mobile to be partnered with Starlink. I would love to get an update on kind of your learnings there and what that partnership means for you and how that partnership might be different than, say, AT&T and Verizon who have invested in AST SpaceMobile?

G. Sievert, President and CEO

Yes, I’ll share a few thoughts and then hand it over to Srini. One key aspect of T-Mobile’s success is our ability to anticipate future trends. When we pioneered the fixed wireless industry, few believed we could achieve what we have, and now many are attempting to follow our lead, only questioning the longevity of our success. We envisioned that future and are now at the forefront of that industry. When I appeared on stage with Elon to announce our collaboration on satellite connectivity directly to mobile devices, many doubted that it could become a reality.

Srinivasan Gopalan, COO and Incoming CEO

Yes. So I think there's this one remarkable thing about us as a company, right, which is this ability to have a clear vision, deliver stuff today and then build for tomorrow.

John Saw, President of Technology

Absolutely. First of all, I'm glad that there's actually not that many questions on the network because I think the network speaks for itself. It is our product. And you can see its impact on customer acquisition and customer retention. So absolutely pleased with where we are. A couple of words on our network leadership. And Srini, you're right that it's more than spectrum. It starts with our cell sites. We have more sites than the competition. We're the first to roll out 5G stand-alone network, and our competition is just now getting started on it. We were also the first to roll out a 5G advanced network earlier this year. And with that, we have actually unlocked new capabilities ahead of our competition, like slicing that is actually powering new services like T-Priority for first responders and SuperMobile.

G. Sievert, President and CEO

And what we're doing in the labs together with OpenAI about how we can totally transform the customer experience is blowing our minds. So we are really excited about that.

Srinivasan Gopalan, COO and Incoming CEO

Thanks, Kannan. Look, we're delighted we have the strength in the balance sheet. And the way we think about it is strength in balance sheet does not take away our responsibility to be incredibly thoughtful stewards of your capital.

G. Sievert, President and CEO

We see a lot of supply coming. Prices right now in the market are a function of low supply and a function of a once-in-a-generation sort of existential threat faced by our benchmark competitors at the time of the C-band auction created by T-Mobile that pushed prices to unprecedented levels, and that's where they stay.

Cathy Yao, Senior Vice President of Investor Relations

All right. That's all the time we have today for questions. Mike, before I turn the call back over to you, I'm first going to hand the mic over to Srini for just a couple of brief comments.

G. Sievert, President and CEO

And I just love your point that then like now, we will be thoughtful and we will be great stewards of your capital. So hopefully, that helps.

Srinivasan Gopalan, COO and Incoming CEO

Mike, look, I just wanted to say thank you so much. You've shown us what the Un-carrier spirit truly is like. You've shown us what it is to make bold bets. You've shown us the kind of grit that turns kind of ambitious goals into everyday wins.

G. Sievert, President and CEO

All right. Thanks, man. Thank you, guys. Hopefully, over the last hour, what you saw is what I told you a month ago that this company is in great hands. We heard mostly from Srini today, that wasn't accidental. We wanted you to hear his voice and his vision for the future. You are going to be an exceptional leader for us and for this company. And of course, you're going to have the benefit of being backed by the best management team in American business. So you guys, it's been an honor and a privilege of a lifetime to be the CEO, and I look forward to continuing to support this team in my new role. I promise we don't plan to spend the day running your company day drinking. Thanks for joining the call, everybody. Cheers.

André Almeida, Executive

Cheers.

Operator, Operator

Ladies and gentlemen, this concludes the T-Mobile's Third Quarter 2025 Earnings Call. Thank you for your participation. You may now disconnect, and have a pleasant day.