Earnings Call Transcript - TMUS Q3 2020

Operator, Operator

Good afternoon. Welcome to the T-Mobile Third Quarter 2020 Earnings Call. 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.

Jud Henry, SVP, Investor Relations

Thanks for joining us for T-Mobile's third quarter 2020 earnings call. With me today are Mike Sievert, our President and CEO; Neville Ray, our President of Technology; Matt Staneff, our Chief Marketing Officer; and of course, Peter Osvaldik, our CFO, as well as other members of the senior leadership team. During this call, we will make forward-looking statements that may include projections and statements about our future financial and operating results, our plans, the benefits we expect to receive from our merger with Sprint, our business operations in light of COVID-19 and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of our management and are subject to significant risks and uncertainties outside of our control that could cause actual results to differ materially, including the risk factors set forth in our filings with the SEC. Reconciliations between GAAP and the non-GAAP results we discuss on this call can be found on the Quarterly Results section of the Investor Relations webpage. I also want to remind everyone that the results prior to the second quarter of 2020 in our earnings materials represent the historical results of standalone T-Mobile prior to our merger. I would also like to note that we are currently in a quiet period for Auction 107 and we'll, therefore, be very limited in any comments that we can make related to that. With that, let me turn the call over to Mike.

Mike Sievert, President and CEO

Thanks, Jud. Great job. Hi, everybody. Well, for obvious reasons, and hopefully, you can tell by now, we are so excited to share our Q3 results with you today. Today's report shows that T-Mobile's momentum has continued to accelerate quarter after quarter as we profitably take share and outpace the competition. We surprised the skeptics and the optimists yet again, with strong results across the board and increased our financial guidance across every metric for the balance of the year. I'm proud to say that this quarter, we delivered the biggest subscriber growth in our history, with over 2 million total net additions. This is our 23rd consecutive quarter leading the industry and this quarter, we delivered more than AT&T and Verizon combined. We've now surpassed 100 million total customers, and we're pulling further ahead of AT&T as the nation's number two wireless provider. We did all of that and delivered the strongest financials in our history. ARPU and ARPA went up from last quarter. Churn went down with the best year-over-year churn performance in our industry for postpaid phones when you look at estimated pro forma combined from last year. Our $7 billion of adjusted EBITDA beat expectations by a lot. We delivered over $14 billion in service revenue, also beating estimates handily. Importantly, we also accelerated CapEx spending, as Neville and the team are running full speed ahead on our synergy-driven network build. Even with all of this outsized growth and accelerated network investment, we're actually increasing guidance today on operating cash flow and free cash flow for the balance of the year. Big steps forward in growth and profitability at the same time. All that is possible because these results begin to reflect the benefits of operating in a synergy-backed model, allowing us to pursue both simultaneously versus the age-old trade-off of choosing growth versus preserving margins in a given period. Our operating momentum didn't just deliver growth and profitability, it delivered amazing progress on our network. I will share more with you in a moment about all that, but the country has never seen anything like this network build, which is tracking well ahead of schedule and is clearly beginning to differentiate T-Mobile as the bona fide network leader of the 5G era. I'm just so proud of the team for being able to execute at such an incredible level in a highly competitive marketplace while simultaneously driving integration faster and better than expected to capture our merger synergies and deliver value for both shareholders and customers. We're working hard to go big and go fast, and we expect to realize over $1.2 billion of synergies in 2020, way ahead of our plans and we're only a few months in. Breaking it down, we expect to achieve more than $600 million in network synergies, primarily from avoided site builds and early decommissioning. At the same time, we expect to realize about $500 million from streamlined marketing efforts under one flagship brand and with expedited retail rationalization. We’ve now completed the initial process to evolve our organizational structure to become one team that's organized to deliver results for the business, which is expected to enable about $100 million of back office synergies this year alone. Last quarter, I told you I was even more confident in our synergy plans than I was before the merger, and that continues to hold true. These early results in 2020 demonstrate our focus on lightning-fast execution. I'd also like to announce we plan to host an Analyst Day in the first quarter shortly after we report our year-end results, where we're going to share more details on synergies and our outlook for the business in the next few years. And just to leave you with a little teaser, we expect synergies in 2021, including cost-avoidance synergies, to be more than double what they were in 2020. So stay tuned for more. Coming back to our strong customer results for the quarter. I also want to add some important context to what we delivered. First, the industry continued to feel the impact of COVID-19 in Q3, with a much slower switching environment than a year ago. As a share-taker, that is a clear headwind to growth, and yet, we still lead the industry in postpaid gross adds for phones and net adds. This is particularly exciting when you consider that we also essentially retired the Sprint brand for new customers at the beginning of August, which immediately shut off a certain flow of gross adds. So, our Q3 results reinforce this team's execution and the growing strength of the T-Mobile brand to capture what we did in the market during what I would describe as a transition quarter. We continued to see very strong growth in postpaid other devices, including continued traction in T-Mobile for Business this quarter. This reflects how we were the most responsive carrier to the needs of school districts nationwide as they've increased the availability of digital learning solutions due to the greater demand for remote learning this fall. We also saw particularly strong growth in enterprise and government and recognition of our amazing customer service just continues to roll in. For four years in a row now, businesses of all sizes have ranked the Un-carrier number one in wireless satisfaction in the annual J.D. Power US Business Wireless Satisfaction Study. We think we have about an eight or nine share in this market among enterprises, large enterprises and governments, so that's a lot of share-taking potential. It's going well and like the saying goes, we're just getting started. Next, I want to touch on our investments to expand our 5G network leadership. As you know, we are miles ahead of the competition at the dawn of the 5G era, and we're well-positioned to stay ahead. There are really two things that matter when it comes to unlocking the potential of 5G, and I'll tell you now, T-Mobile is far and away the clear leader on VoLTE. The first one is coverage. Having reliable 5G service where you live, work, and play, coverage is king. We have America's largest 5G network that covers 270 million people across 1.4 million square miles. Did you know we provide more geographic coverage right now than AT&T and Verizon combined on 5G? To be more precise, our 5G coverage is double AT&T and 3.5 times Verizon's. They claim to be nationwide, but they really only cover a fraction of the geography that T-Mobile does. Verizon is showing up late to the party by using dynamic spectrum sharing to avoid being the only carrier without nationwide 5G coverage when the iPhone 12 launched. But because they're sharing spectrum between LTE and 5G, their 5G median speeds and availability overall are the lowest of the big three and not much better than LTE. Our 5G speeds on low-band extended range 5G are twice as fast as LTE, thanks to our dedicated 600-megahertz spectrum. The second element that matters is the high-capacity, high-speed capabilities enabled by bigger channels of spectrum found in mid-band and high-band. This ultra-high-capacity 5G is where exciting things can happen. That's why our 2.5 gigahertz mid-band spectrum is the real Goldilocks band for 5G because it has both massive capacity and reach, measured in miles from our towers, not meters like the other guys. We now have 2.5 gigahertz deployed in over 400 cities and towns, covering over 30 million Americans. We're targeting more than 1,000 cities and towns, covering 100 million people with our mid-band high-capacity 5G coverage by year-end. That's just two months away, with plans to have nationwide 5G on 2.5 gigahertz by the end of next year. This high-capacity 5G is delivering average download speeds of around 300 megabits per second and gigabit peak speeds, and that will continue to grow. For all the crowing that Verizon has done around their high-capacity solution, Ultra Wideband, one analyst recently estimated that it only covers an estimated 2 million people. This aligns with the recent Ookla report which shows that Verizon customers connect to the Ultra Wideband 5G less than 1% of the time. Simply put, our fast 5G reaches 15 times more people than Verizon's today and could reach 50 times more people by the end of this year. Our 5G network is well ahead of the competition and just keeps getting better. Lastly, as you know, we're expanding our Un-carrier strategy to leverage our leading 5G network and brand and scale to capture new market opportunities without losing sight of our core focus. We are continuing to expand our home Internet pilot, delivering broadband service at better prices to households across the US, with a special focus on small towns and rural America. We just expanded our pilot to parts of 450 cities and towns that were somewhat abandoned by AT&T, and we continue to lay the groundwork for our wider launch of 5G wireless broadband service for homes and businesses very soon. Lastly, we had some exciting and long-awaited news with the nationwide launch of TVision. We are all about solving pain points and serving customers, and this latest Un-carrier move showcases that yet again. While there are just so many pain points in the TV arena, customers are so tired of being forced into contracts with exploding bundles, massive unadvertised fees, and huge overpriced packages just to get live news and sports. We're providing customers with the content they want at an incredible value, which highlights the benefits of being with T-Mobile in the first place. This is all about driving our wireless business and serves as an important enabler for our emerging home Internet business that I just talked about, as satisfied customers rely on T-Mobile more and more for their connectivity services. So what should your main takeaways be? Just make sure you do a mute check. This was a stellar quarter, really buttressing the thesis that so many investors have about T-Mobile. We showed we can deliver incredible growth; in fact, the highest subscriber growth in our history, while simultaneously beating expectations on service revenue, EBITDA, and EPS, and increasing guidance across the board, including for cash flow. Simultaneous growth and profitability, fueled by the rapid and faster-than-expected unlocking of synergies, a gift which will keep giving for years to come. Far from being distracted by the merger, we're already putting the results of our integration to work as a source of strength. We did it all while pulling away from the pack on what really matters: network and customer experience, setting the stage for T-Mobile's growth leadership in this market for the duration of the 5G era. Only one company will be positioned to provide the best network and the best value in the 5G era, and that's T-Mobile. The benefits of all of that to our stakeholders is just an exciting story that's rapidly unfolding. Okay. Now, I'm going to ask Peter Osvaldik to take us through the financials and our guidance. So Peter, take it away.

Peter Osvaldik, CFO

Thanks, Mike. As you can clearly see from our results, we delivered a quarter with record-setting customer growth while simultaneously posting strong financial results. This profitable growth sets us up for an even stronger second half than we originally expected. So, as Mike mentioned, we're raising guidance across the board as we continue to execute on our proven playbook of delivering growth and profitability. All right. Let's go ahead and jump right into the financial details for the quarter. Total service revenue grew to $14.1 billion on continued growth in postpaid and an increase in wholesale revenues as a result of the MVNO Agreement with DISH following the sale of the Sprint prepaid customers on July 1. Recall that the revenue attributable to the Sprint prepaid customers was reflected in discontinued operations in our Q2 results and, therefore, you see a sequential increase in reported wholesale service revenue in Q3. Cost of services of $3.3 billion increased sequentially, driven by higher site cost due to the volume of upgrades we have completed, and higher merger-related costs, partially offset by additional synergies captured. Looking into Q4, we expect the full quarter impact of increased non-cash lease expense from a tower agreement signed in September, which will impact cost of services by approximately $150 million sequentially. Again, this is non-cash and is partially offset by continued synergy realization. SG&A expenses of $4.9 billion were down sequentially, primarily due to lower merger-related costs as much of those costs were severance and transaction-related in Q2. Additionally, we also had lower bad debt and sales expenses along with additional synergies captured in Q3. We expect seasonally higher sales costs in the fourth quarter related to the iPhone launch and holiday promotional environment. Q3 net income of $1.3 billion and diluted earnings per share of $1 were impacted by $208 million and $0.17 of merger-related costs, respectively. Adjusted EBITDA amounted to $7.1 billion, which increased sequentially, primarily due to higher postpaid service and equipment revenues, partially offset by higher cost of equipment sales and cost of services. Net cash provided by operating activities totaled $2.8 billion, which includes $379 million for merger-related costs. Cash purchases of property and equipment, including capitalized interest of $108 million, amounted to $3.2 billion as we accelerated the build-out of our nationwide 5G network and ramp network integration activities. Free cash flow was $352 million, already achieving the low end of our second half guidance even with higher capital spending. Postpaid ARPA, or average revenue per account, amounted to $133.03 and postpaid phone ARPU was $48.55. The sequential increase in postpaid phone ARPU was primarily driven by higher premium service revenues and we expect Q4 to trend closer to Q2 levels with promotional activities. I also have to mention the ongoing work done to significantly improve our capital structure and strengthen our balance sheet. Last month, we issued nearly $9 billion of secured notes with an average rate of 2.99% and an average tenure of 23.4 years. Collectively, since the merger closed, we have more than doubled the average maturity of our debt portfolio from 4.3 years to 9.2 years and lowered the average cost of debt from approximately 5.7% to approximately 5.1%, excluding the non-cash amortization of swaps. Let me come to our guidance, which we are raising across the board as both growth and profitability were much stronger than originally anticipated. Again, we wanted to provide this guidance and prioritize transparency even during these uncertain times. While ranges for Q4 can be inferred, we are updating our guidance in the context of our previously provided second half of 2020 outlook. We had originally guided to 1.7 million to 1.9 million postpaid net adds in the second half of 2020. We checked that off the list in Q3 alone. In Q4, we expect postpaid phone net customer additions between 600,000 and 700,000. Also for Q4, we expect a more balanced mix of postpaid phone and postpaid other net additions relative to the extended educational opportunities that we saw in Q3. Adjusted EBITDA is now expected to be in the range of $13.6 billion to $13.7 billion for the back half of 2020, up $1 billion from original second half guidance and includes leasing revenues of $2.5 billion to $2.6 billion. The implied Q4 guide reflects our expectations for seasonally higher costs related to the iPhone launch and holiday promotional environment, as well as the non-cash straight-line lease expense impact from our recent tower agreement. Cash purchases of property and equipment, including capitalized interest, are expected to be between $6.7 billion and $6.9 billion at the high end of our prior guidance, driven by strong momentum on our network deployment. For the second half of 2020, merger-related costs not included in adjusted EBITDA are unchanged from our prior guidance and are expected to be $800 million to $1 billion before taxes. This implies an increase from Q3 levels as we continue increasing momentum across operational integration activities. Net cash provided by operating activities, including payments for merger-related costs, is expected to be in the range of $5.9 billion to $6.1 billion, up from our original guidance of $5.3 billion to $5.7 billion. Free cash flow, including payments for merger-related costs, is now expected to be in the range of $700 million to $900 million, also increasing from our original guidance of $300 million to $500 million. Our effective tax rate for the second half of 2020 is now expected to be in the range of 20% to 23%. This is a lower rate than our previous guidance, primarily due to higher pre-tax book income. As Mike mentioned, we are looking forward to an Analyst Day in Q1 following year-end results to provide updated color around synergies and long-term guidance, as well as a strategic overview of the business. We know this is an update you've all been waiting for, and our entire team is excited to share with you all that we have going on. Okay. Now, let's get to your questions. You can ask your questions via phone or via Twitter.

Operator, Operator

Thank you. Our first question comes from Jonathan Chaplin with New Street.

Jonathan Chaplin, Analyst

Thanks, guys.

Mike Sievert, President and CEO

Hey, Jonathan.

Jonathan Chaplin, Analyst

Just a quick question on your. Hey.

Mike Sievert, President and CEO

If you didn't jump in there with a question after that operator said that four times, I was just going to thank everybody and end the call.

Jonathan Chaplin, Analyst

My question is about your 5G go-to-market strategy. I believe you have a significant advantage with 2.5 gigahertz, as you mentioned. I think everyone on the call recognizes this advantage, but I'm curious if the consumer market is aware of it as well, and how you plan to communicate this message as we transition into the 5G era following the iPhone launch.

Mike Sievert, President and CEO

Yes, they don't. This is a significant advantage for investors because perception often lags behind reality. This is an exciting aspect of our story. Over the past seven to eight years, we have successfully reinforced our value proposition with innovative Un-carrier moves. However, we haven't focused as much on communicating our network story. Now, we have an outstanding network story that is about to improve significantly. Currently, we have 30 million people experiencing our highest-capacity, highest-speed 5G and 270 million overall with 5G. That number will grow from 30 million to 100 million. The competition is barely advancing on their highest-capacity 5G, making it a clear difference that consumers will notice. Millions will have iPhone 12s with T-Mobile, where they will experience high-capacity 5G and enjoy speeds of hundreds of megabits per second. Their friends will be envious, and they will see our story unfold through advertisements. While synergies will reduce advertising and marketing expenses compared to pro forma combined, our CMO, Mark Staneff, is investing in the T-Mobile brand more than ever before. Overall, this will likely be beneficial for investors and presents opportunities for improvement. We are confident in our marketing capabilities, and there has already been some progress. Matt, would you like to share how the brand is performing?

Matt Staneff, Chief Marketing Officer

Yes, that's an excellent question. I appreciate your inquiry about how we will be recognized for our network. It's a remarkable situation to be in after years of being well-prepared for success in the marketplace. I want to emphasize that timing is crucial. We have just completed a quarter where we merged two brands into one in the postpaid market and achieved impressive results. We have been diligently working to ensure we get that right. Additionally, in the early stages of 5G messaging, we were not promoting something that was not yet available. Over the past year, we have been actively showcasing our nationwide 5G with extended coverage, and Neville is developing an outstanding network. It's on its way and will arrive very soon. As Mike mentioned, we are better positioned than ever to effectively convey our message in the marketplace, highlighting both our network and the incredible prices and value we offer to customers. We have experienced great success, and early indications are showing significant improvements in network perception. All the leading indicators are trending positively, and we have not even begun to share the full story that I know you are eager to hear. I won’t catch anyone off guard, and I'll also remind you that we have a long history of disrupting the marketplace and innovating with our marketing, so stay tuned.

Jonathan Chaplin, Analyst

Great. Thanks, guys.

Mike Sievert, President and CEO

Cool, Jonathan. Great to hear from you. Operator, why don't we go back to the phone for the next question?

Operator, Operator

Certainly. Our next question comes from Phil Cusick with J.P. Morgan.

Phil Cusick, Analyst

Thank you, Mike. I thought I might have missed my turn there for a moment. I appreciate the guidance you provided, as it reflects your perspective on competition in the fourth quarter. Could you elaborate on how you view the market, especially considering the more aggressive promotions this year compared to last? Are you concerned about the industry's rationality moving forward? Also, can you discuss the churn within the Sprint customer base? How does it compare to the T-Mobile base over the past few months, and how are you managing to retain those customers? Thank you.

Mike Sievert, President and CEO

You bet. It's great to hear from you, Phil. Yes. First of all, if you look at the promotions in the industry, actually to us, they look a lot like last year's. There are obviously some changes around the margins. Look, the phones underlying are a little bit more expensive from Apple, but generally speaking, we see a promotional environment a lot like last year's. It feels really intense, but that's because it's the fourth quarter and it's because there is a big iPhone here. So, generally speaking, I don't see a trend line there that's at all concerning. As it relates to churn, now there is a trend line I'd love to talk about. We believe we have the best year-over-year churn performance in the industry by far. When you look at pro forma combined, remember this is a blended 0.9% postpaid phone churn that we delivered. Last year we had 0.9% without Sprint and Sprint was churning at about 2%. So, we blended it all together and delivered that kind of performance; it shows you one thing, Sprint customers are starting to benefit very significantly from this combination. Of course, on the T-Mobile side, although we don’t disclose it separately, man, that's a great underlying performance there as well, really good. So, we're delighted. Even though we have the best year-over-year churn performance down to 0.9%, I also see churn as a tailwind thesis for investors because we have room to run. We delivered all of this financial performance: $7.1 billion in EBITDA, simultaneously doing that and delivering our best growth quarter in history with 2 million net new additions with that 0.9% churn that you know we’ve shown with our T-Mobile brand we know how to get down. I think it’s a great potential tailwind on our story. But let's talk about promotions because I know you're not the only one that's going to want to talk about what's happening out there, and it is a bit of a misnomer, I think, what's happening. Matt, do you want to share what you're seeing as the quarter is unfolding? I know everybody is curious about the view from the marketing seat.

Matt Staneff, Chief Marketing Officer

Yes. Thank you, Mike, and thank you for the question, Phil. To reiterate what Mike mentioned, the iPhone cycle this year is different from previous years. It is more spread out and occurring later in the quarter. As we know, Q4 tends to be back-end loaded, with offers becoming more competitive as customers prepare for Black Friday and Christmas. What we are witnessing is a shift in the schedule, with more expensive phones launching first. We've already noticed adjustments in the offers that have been made, and there is a new pre-order starting tomorrow for the iPhone. The marketplace is evolving. However, as Mike pointed out, when comparing the phone, the plan, and the network experience on an apples-to-apples basis, the offers remain largely consistent with one exception. There are more aggressive base offers and retention offers available, which raises questions about the market dynamics. We are well positioned to succeed as we always are. I want to remind you that Q4 is typically back-end loaded compared to the early days of an iPhone launch. We are set up to succeed and believe we have a solid and disciplined strategy to maintain our momentum and gain market share.

Phil Cusick, Analyst

I think the fear has been that some aggressive retention offers are affecting the marketplace. Thank you.

Matt Staneff, Chief Marketing Officer

No, that's okay. Keep going.

Mike Sievert, President and CEO

Yes. There is a latency, but you were going to pile on a little bit.

Phil Cusick, Analyst

I was going to say the fear was that some aggressive retention offers would nail down the sort of porting opportunity in the industry and you would grow more slowly. Clearly, that's not what you see. Have you seen less sort of porting opportunity in the last couple of weeks?

Mike Sievert, President and CEO

Well, switching is muted. I mean, if you look across the span of Q3, as well as what's happening in Q4, switching is down. You see that because churn is down. But what Matt was just saying, I just think is important to underscore. We've seen environments like this. We've seen highly intense environments with lots of switching, and our team has got a flexible model and we find a way to post the growth and we’re just really proud of that. We’ve been at this for a long time as a share-taker. We invest with discipline. We try not to overdo it. But in a muted switching environment, very muted, we delivered the highest growth in our history this quarter. It really shows, I think more than anything, two things: one, how our team executes. Every company is something. Our company is great at execution. And two, that being executing against a synergy-backed model is a real benefit because we’re able to unlock the value of those synergies and invest them in growth and still deliver the financial performance and period, as I said in my prepared remarks.

Phil Cusick, Analyst

Thanks, again, Mike.

Mike Sievert, President and CEO

Cool. All right. Operator, we're on a roll. Let's just keep going to the phone. Meanwhile, I'll ask Peter to scan across Twitter and see what he sees.

Operator, Operator

Our next question comes from John Hodulik with UBS.

John Hodulik, Analyst

Great. Thanks, guys. Two if I could. First, maybe Mike on the new TV service. Could you just talk a little bit about the positioning of that virtual product? What do you expect it to do for your sort of economics of the business? Is it for churn reduction? Do you think it could be profitable? And then a couple of the media companies today sort of expressed some push back around the packaging and suggested that those offers may change. So if you could comment on that, that'd be great? And then, I don't know if Neville is on, but I thought the comments around synergies for next year suggested a bit of a pull-forward. It sounds like you really getting into the meat of the network integration in '21. And then if he's around, if he could talk about how that's going and how you expect that to ramp next year would be great? Thanks.

Mike Sievert, President and CEO

Sounds great. We'll start with the second one on network and then circle back and I'll answer your TVision question, but you're on to a great point. This is a critical year for us in '21. You want to talk about it, Neville?

Neville Ray, President of Technology

Yes. I'll cover it quickly, John. Tremendous progress. The pace and acceleration of our plans inside 2020 has been pretty remarkable. The main start that I’d focus on for you in terms of progress we're making on migration, first, 15% of the Sprint postpaid traffic already on the T-Mobile network. We’re building out that capacity. You heard Mike talk about all of the work we have ongoing upgrading the network. Migration is in full swing and what follows on migration, of course, is decomposition and synergy acceleration. We’ve already scored some decomposition activity inside 2020, but we will start to really ramp and accelerate that in '21 and that is ahead of our original plans. The primary kind of decomposition years were really '23 and '24, and you're seeing that move forward in a material way from a timeline perspective. So super pleased with the progress. We want to get every customer on that one final T-Mobile network with all that 5G goodness that Mike talked about. We're going to be famous for network in this Company. That's our goal and our ambition, and we want all of our customers on that network enjoying and exploring that 5G capability as fast and as soon as we can while delivering on that synergy ambition, and we’re very confident on both fronts.

Mike Sievert, President and CEO

That's obviously going to be a big part of our story next time we talk when we release earnings and provide more in-depth guidance for '21. We're really excited about the potential because we're ahead of schedule. It is primarily network-driven, and Neville and his team are moving faster than we expected. TVision is also exciting, and I'm glad we got it out. We've discussed TVision for a long time and made sure it was ready in time for our 5G broadband launch, despite the merger and other distractions. To answer your question, that's a significant aspect of our plan. We're approaching the home broadband segment seriously as it will play a crucial role in growing our business and generating profit. Having a full suite of services is necessary to effectively serve customers in this area. Additionally, I believe there are potential benefits for our mobile offerings. Customers rely on us for connectivity and appreciate our brand. We're providing a streamlined, elegant solution that adds value for T-Mobile customers and addresses many pain points in the industry. As we mentioned at our launch, we're very excited and just getting started. I've often said we aim to be a strong partner to media companies, as we are not a media company ourselves but a dedicated network and connections provider. This approach has a significant future for us as the world shifts towards an OTT landscape. Regarding your specific question, yes, we are adhering to all our media contracts. Simultaneously, we're collaborating because we are open to suggestions. If changes benefit customers and help us address their issues, we're willing to consider them. This is just the beginning—a move to un-carrier status, aimed at delighting customers and establishing a home broadband business that will be a key part of our profit strategy. I hope that clarifies things.

John Hodulik, Analyst

Yes. That was great. Thanks, Mike and Neville.

Mike Sievert, President and CEO

You bet. Did you find some ones online you wanted to hit?

Peter Osvaldik, CFO

There is a great one from Cameron Berkshire around, when will the home Internet be able to use your guys' awesome 5G network?

Mike Sievert, President and CEO

Soon is my answer. We haven't specified a date, but it's coming soon. Currently, we're in a pilot program focused on 4G LTE, and our 4G LTE customers are really enjoying it. This is an important business for us, and we want to make sure we get it right. We're taking our time, learning how to better serve and satisfy our customers. Consider the capacity of the network that Neville is building; since all the capital for that network is funded by the mobile business, we can provide 5G home Internet in a cost-effective manner because the infrastructure is already in place. There are many areas in the country where typical mobile usage won't utilize all of that capacity, and that’s where we can offer fantastic deals on 5G home Internet. You won’t need a physical connection dug to your house, and you won’t be reliant on outdated DSL copper wires. Instead, you'll be able to access 5G, which is significantly faster than today’s home Internet options, even in well-served areas. I'm truly excited about it, and it's coming soon. I can't disclose the exact date. Sorry for not providing a specific answer. Would you like another question from Twitter, or should we proceed to the phone?

Peter Osvaldik, CFO

I think there are a lot of congratulations. People want some T-shirts, Mike. So we'll have to figure out how to…

Mike Sievert, President and CEO

Yes. We'll take those great quarter guys tweet and stay long, but I think we'll go back to the phone. Operator, who's next?

Operator, Operator

Next will be Michael Rollins with Citi.

Michael Rollins, Analyst

Thanks. A couple of quick questions. First, curious because you've now had the Sprint assets in your possession for, I guess, over six months now. Have you seen any opportunities to monetize some of the assets inside of Sprint that may not be core or strategic to what you're doing in the future? And then secondly, if you could talk a bit about what's happening with device leasing? In your new marketing plans how customers are responding? And your progress to moving customers over to a more traditional EIP program? Thanks.

Mike Sievert, President and CEO

Sounds great. We'll start with Sprint and device leasing and everything happening with financing. I'm going to turn to Matt Staneff on that, and then we'll answer your question about the Sprint assets.

Matt Staneff, Chief Marketing Officer

Yes, Mike, thanks for that question. In early August, I think it was August 2, we retired the Sprint brand, but what we also did is converted the value propositions in the models within the Sprint base to match that of what we're used to at T-Mobile, and we're seeing great success with that, by the way. Great success with customers continuing to come in and upgrade. It’s actually opened up a lot of opportunities as well in terms of access to offers and promotions, and the ability for Sprint customers to upgrade a phone when they want to and not be beholden to other issues with the legacy products. We're still using a blend like we do at T-Mobile, as we have done at T-Mobile, but the progress we're making is really good. Over time, it's going to blend and match that more closely to what we're used to on the T-Mobile side as we continue to manage the Sprint customer base and be there to serve them for and when they want to upgrade.

Mike Sievert, President and CEO

It's early days, and I can't provide any significant insights on that question, but I can mention two things. First, the capabilities we've inherited from the Sprint team and their know-how are impressive. Evaluating this team based on the previous business performance of standalone Sprint is misleading. That company had numerous financial challenges, and it's easy to underestimate what they can contribute, which is completely incorrect. Now that we're involved, we've started adopting many best practices from them, which is exciting, including the team itself. Regarding your question, there are also certain businesses and capabilities, such as a wireline capability that T-Mobile never had on its own. We're carefully examining that and other opportunities. Unfortunately, I can't provide many details about that process yet because we're still in the evaluation stage, but we'll share updates when we have them. Thank you for the question.

Michael Rollins, Analyst

Thank you.

Mike Sievert, President and CEO

Okay. Go back to the phones.

Operator, Operator

Next will be Walter Piecyk with LightShed.

Walter Piecyk, Analyst

Thanks.

Mike Sievert, President and CEO

Hi, Walt.

Walter Piecyk, Analyst

The first question is for Mike. I think the first question is for Neville regarding the overall synergies. Once everything is complete, how many of the Sprint sites will remain? Additionally, how quickly can you increase the traffic from 15% to, say, 60% or 80%? What should we anticipate in terms of timing for that?

Mike Sievert, President and CEO

My favorite number is a 100%, Walt, that's the goal. So please don't reduce Neville's goals.

Walter Piecyk, Analyst

So how quickly can you get to 100%, Neville?

Neville Ray, President of Technology

I can't see you but hear you. So, how have you been? So, on the coverage and capacity opportunity with the Sprint sites, we are on this target to deliver about 35,000 sites that would be decommissioned over the coming years. That would leave 12,000 or 13,000 Sprint sites that we would bring into the T-Mobile network effectively for capacity and/or coverage. We're doing a lot of work across both networks now. I don't see those numbers materially changing, Walt. The target network, obviously, we're over well over 100,000 sites today, but the target networks in kind of the 80,000 range, 80,000 to 85,000 sites. We’re going to decommission a bunch. We're going to add some too, right? We still have areas where we want to add some new investment, but target range 82,000 to 83,000 sites. That's where we are today. Very confident. We’re doing a lot of work to make sure we fully understand the coverage growth and capabilities that we need to deliver along with everything from that 5G. In terms of the traffic number, I mean, I'm really pleased, Walt, we're six months in and we're already at 15% on that postpaid traffic base. That's pretty remarkable. I didn't anticipate we would make that much progress in a short number of really weeks and months. You look at that run rate, where will we be this time next year? I hope to be in the numbers that you talk about. I'm not going to commit and say we'll get it all done in, say, 2021. It’s going to run clearly into 2022. But the goal and ambition of the team here is to really drive all of this goodness on 5G and LTE capacity into the customer base of the Sprint and the T-Mobile customers in '21. Mike talked about this huge plan and execution phase we’re in to bring mid-band 5G to 200 million people in '21. That's a massive goal, we're well on track, feel very confident about delivery on that as we'll get to 100 million this year alone. That capacity and capability is going to be foundational to that migration opportunity. So, all things are moving very well. I'm just delighted with our progress that we've made in a short number of months, and I'm very confident in beating the targets that we put out there whenever that was, a year or so back. So things are going very well, and that migration volume on traffic will continue to grow at a real pace.

Mike Sievert, President and CEO

That's obviously going to be a big part of our story next time we talk when we release earnings. Give you some more in-depth guidance on '21, but we're so excited about the potential because we're just way ahead of schedule. It is mostly network-driven, and Neville and team are running faster than we had expected in our model. So that's really exciting. TVision, also really exciting. Well, I'll ask Peter to scan across Twitter and see what he sees for the final question.

Operator, Operator

Let's go to the phone for the final two questions. Operator, who's next? Certainly. Our next question comes from Craig Moffett with MoffettNathanson.

Craig Moffett, Analyst

Hi. Thank you. I wonder maybe we could stay with the Business services conversation that you were just having. You talked about being in the sales process and getting in front of customers. How much of the sales process decision-making among, particularly enterprise and government customers, is already based on expectations around 5G? What are the applications, and is it latency or IoT? What are the applications in 5G that you see starting to drive decision-making in the enterprise market?

Mike Sievert, President and CEO

Yes. Craig, I'll be brief on this one instead of tossing it out. The answer is yes, but it's not necessarily yet at scale driving our business centered around new applications. That's common. What's driving our business right now is reliable, high-capacity network leadership on smartphones. There are plenty of other things that we're working with customers on. But if you’re asking what’s contributing to our results in getting us in the door, it’s that unlike consumers—and this is really interesting because it goes to the premise that we— I think the very first question was consumer perception of our network. Unlike consumers, businesses test this stuff. They’ll check out 100 phones and run them through the ringer for six weeks and then decide. When they do that we’re winning. Especially to the premise of your question, when the question is, who’s got the best 5G coverage and capacity and experience? Because it’s just—not even close right now and they know it, we’re pulling further away from the pack. Businesses want their employees connected right now more than they ever have. They need that connection to be reliable and they need it right now especially to be high-capacity and that’s what we’re able to offer. As we just said, Mike and team just posted the biggest quarter in our history for TFB, we’re so proud of them but this is really more than anything a story about network leadership, we’ve kind of caught up on LTE. The real story is how far ahead we are for—on 5G and how well positioned we are to the premise of your question, Craig, to stay ahead for the duration of the 5G era.

Craig Moffett, Analyst

And so, are customers looking out and I'm really pre-planning for 2023 and '24 when my enterprise is going to need these services and I want to be on the T-Mobile network now in preparation?

Mike Sievert, President and CEO

I don't think that's what's driving our business. Yes, of course, they are doing that and with a time frame sooner than that. But right now what's driving our business is the dynamic I talked about. So a lot of that can be additive when it comes to the low-latency, high-capacity experiences, network as a service for enterprises, automation services, all the things— the augmented reality, virtual reality, all the things that we can deliver with a high-capacity, low-latency network, most of those things are still in our future as it relates to how they can contribute to growth. What’s contributing right now is that they understand our story that we're out in front and we’re going to stay out in front. I think that’s a lot of comfort to somebody picking a partner in the 5G space.

Craig Moffett, Analyst

That's great. Thank you.

Mike Sievert, President and CEO

Okay. Great to hear from you. Let’s go to what I think is going to be our last question, right? Because the time frame, I want to be respectful. We said 2:30. Operator, let’s go to the last question.

Operator, Operator

And that question comes from Simon Flannery with Morgan Stanley.

Simon Flannery, Analyst

Great. Thanks for fitting me in. Mike, great results, but the whole industry had some pretty robust subscriber numbers both on the postpaid side and on the prepaid side, which was impressive given that there wasn't really a new iPhone cycle in Q3. Any sense on the sustainability of this and what you see? Is it more second devices? Is it more younger people, etc., maybe using some of the money they are not spending on other things in this environment? So any color there would be great. And any update on the Shenandoah negotiations next steps and timing on that? Thanks.

Mike Sievert, President and CEO

Sounds great. Well, on the first one, you have to look underneath everybody's report. When you look underneath ours, you saw postpaid phones again leading the industry, very strong performance on the centerpiece that we've always focused on. The prepaid leader, T-Mobile continuing to grow from a leadership position, which is not something you've been able to see postpaid leaders do reliably in the past, so that's great. You saw our great outsized performance on postpaid other, driven by a number of different dynamics, including those dynamics you talked about. People adding to their relationships with us, but also new opportunities in TFB. We spent some time on the call talking about. So that happens when you double click into ours. When you double click into our competitors, there are some gymnastics. A lot of the big numbers have to do with like reversing accruals from previous quarters that were too conservative, or strange things in the prepaid space having to do with connected cars and accrual reversals that when you really look underneath it, I don't think cricket's crowing at all. In fact, I think they reduced. You really have to look through the reports right now because COVID made things so difficult. What you get from us is transparency, lots and lots of it, you got to work a little harder to get underneath the reports of our competitors. But I think you're seeing because of this public sector dynamic you’re also seeing some terrific category growth. As for Shentel, do we want to say anything, give an update on how that’s we can’t, right? Yeah, I hate to end on no, we have no response. But we're following a process. The original agreement is that we had with a couple of these partners called for us to have the rights to buy and there is a prescribed process on valuation and we're following that process and we just don’t have anything to report. So, I'm ending this call on a no comment. That's great. Listen, you guys, thank you for your in. We’re so proud of the results that the Company was able to post. Really look forward to talking to you again when we report the full-year and double click with a longer conversation with our 2021 Analyst Day, so stay tuned for all that. Thanks, everybody.

Peter Osvaldik, CFO

Absolutely. Thank you everyone for tuning in. Operator, go ahead and close the call.

Operator, Operator

Thank you. Ladies and gentlemen, this concludes the T-Mobile U.S. third quarter 2020 earnings call. If you have any further questions, you may contact the Investor Relations or media departments. Thank you for your participation. You may now disconnect, and have a pleasant day.