Earnings Call Transcript
T-Mobile US, Inc. (TMUS)
Earnings Call Transcript - TMUS Q2 2025
Cathy Yao, Senior Vice President of Investor Relations
Good afternoon. I would now like to turn the conference over to Cathy Yao, Senior Vice President of Investor Relations for T-Mobile U.S. Please go ahead.
Quan Yao, Moderator
Good afternoon. Welcome to T-Mobile's Second Quarter 2025 Earnings Call. Joining me on our call today are Mike Sievert, our President and CEO; Srini Gopalan, our COO; 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 facts 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.
Mike Sievert, President and CEO
Okay. Cathy, thank you for your support. Welcome, everyone, and thank you for joining us. Good afternoon from Bellevue. We're excited to discuss our Q2 results and answer your questions. This quarter was fantastic. Our team delivered strong, profitable growth, leading the industry in both customer and financial growth across various metrics. We set new records, achieving the highest growth in T-Mobile's history for Q2, including the best postpaid phone net additions and total postpaid net additions. Both gross and total postpaid additions showed double-digit growth year-over-year against a strong 2024 comparison. Additionally, our postpaid account growth accelerated year-over-year, and our share of households increased in all cohorts within the top 100, as well as in smaller markets and rural areas. Our momentum continues with strong customer acquisition. Although some say this is a competitive environment, we thrive in it. Our performance, including value creation, speaks for itself. Our customer quality is improving rapidly, with ARPA growth exceeding 5%, the highest in 8 years. Our customers are increasingly opting for higher-tier pricing plans. Since launching our new rate plans in April, we’ve seen significant interest in our premium offerings. Our business division also broke records again, leading in net additions. We recently announced a new multiyear partnership with a cable company to provide mobile services to small and mid-market businesses, which will enhance our growth in underrepresented areas. This deal targets regions that will increase revenue, aligning with our existing strong retail transactions and large enterprise markets. Although the impact will take time, I am genuinely excited about this growth opportunity in the SMB sector. I want to talk about our network, which is the best in America. Over the past two years, many customers have cited our network as their reason for switching to T-Mobile. However, most potential customers still don’t recognize that we have the best network, presenting a significant opportunity. We are focusing on changing this perception because there are millions of customers who chose other providers during the 4G era, believing they had the best network. We plan to communicate why now is the best time to join T-Mobile in innovative ways. We are actively enhancing our network with rapid site expansions and new technologies, including nationwide 5G Advanced and higher-order carrier aggregation. Our lead continues to grow, and we are also reinforcing our network in smaller markets through our agreement with UScellular. With all approvals in place, we expect to finalize the transaction next week, increasing our capacity and expanding our site coverage significantly. Additionally, we recently launched our T-Satellite service, connecting customers in hard-to-reach areas. As for 5G broadband, we had another outstanding quarter, leading the industry in net additions for the 14th consecutive quarter. T-Mobile for Business achieved its highest net additions for business 5G broadband. Customer speeds and satisfaction are on the rise, as evidenced by our record low churn rates. We also launched T-Fiber after acquiring Lumos, and we plan to finalize our acquisition of Metronet soon. We expect to deliver significant fiber net additions on top of our 5G broadband growth this year. Now, let me address our digital transformation. We shared an ambitious plan to improve customer experiences through advanced AI-enabled sales and service. Our T-Life app has grown significantly, with over 75 million installs, and it’s now a key platform for customer transactions and benefits. About two-thirds of phone upgrades now occur digitally through our app, showing our progress in this area. In terms of financials, our strong customer growth drives industry-leading financial performance. Postpaid service revenues grew 9% year-over-year, while total service revenues grew 6%, significantly outperforming competitors. Our core adjusted EBITDA grew by 6% year-over-year. We recorded $4.6 billion in adjusted free cash flow, setting a new Q2 record with a 26% conversion from service revenues. These results highlight our strong value proposition of the best network, best value, and best experiences. Our differentiated strategy has significant growth potential in various areas, including smaller markets and broadband services. Our determination and focus are evident as we strive to exceed expectations and continue setting records. We are committed to our customers and our long-term goals. Now, Peter, I will hand it over to you for an update on our financials and guidance.
Peter Osvaldik, CFO
Perfect. Thanks, Mike. As you can see, we had a fabulous Q2, which underpins the confidence in our increased guidance. Before we jump into those updated full year expectations, I'll note they now reflect the inclusion of Metronet but exclude UScellular, for which we will provide an update later after the close. Okay, starting with customers. We are raising our total postpaid net additions expectations to be between 6.1 million to 6.4 million, an increase of 500,000 at the midpoint. Approximately 100,000 of the total will be fiber net additions. We are also increasing our expectation for postpaid phone net additions now expected to be between 2.95 million and 3.1 million, highlighting the great momentum we're seeing in the business. Both of these represent our highest ever customer guidance at this point in the year. We also continue to expect strong postpaid ARPA growth of at least 3.5% for the full year as we see continued deepening of customer relationships, and we now expect 2025 service revenue growth of at least 6% for the full year. We now expect core adjusted EBITDA to be between $33.3 billion and $33.7 billion for the full year, an increase of $100 million at the lower end of the range which includes funding our significantly increased total postpaid net additions expectation. As part of that, we expect Q3 core adjusted EBITDA to be approximately $8.5 billion as we accelerate investments into our business. Okay. Turning to cash CapEx we continue to expect cash CapEx to be approximately $9.5 billion for the full year. We also expect adjusted free cash flow, including payments for merger-related costs in the range of $17.6 billion to $18 billion also representing an increase of $100 million at the lower end of the range. I also wanted to touch on the upcoming close of the joint venture transaction, which is acquiring Metronet. As with the Lumos joint venture, the consumer experience and residential business will be fully owned by us, and we will also share in 50% of the joint venture economics. We will treat the acquired customers as a base adjustment in our third quarter results, and as we fuel customer growth, we expect the retail business to be slightly accretive to service revenues while remaining neutral to adjusted EBITDA and adjusted free cash flow this year. Additionally, our 50% equity stake in the joint venture will be reported below the line as an equity method invested and is expected to be immaterial to net income this year. Next quarter, we will provide a more comprehensive update regarding the contribution of both of our fiber joint ventures. Okay. Let me also spend a moment on the benefits from the recent legislation coming out of D.C. While this won't meaningfully impact our 2025 cash tax expectations, we do expect an approximately $1.5 billion benefit to cash taxes in 2026 which will be deployed thoughtfully guided by our capital allocation philosophy. And finally, I want to provide an update on the sale of our 800-megahertz licenses. We have reached an agreement with Grain Management to divest our entire portfolio of 800 megahertz licenses in exchange for a combination of $2.9 billion in cash, all of Grain's 600 megahertz licenses and have additional potential upside via participation in future proceeds Grain receives for monetizing the licenses after a minimum return to Grain. The transaction is anticipated to generate approximately $850 million in incremental income taxes following the close. But as a reminder, all of the net proceeds are incremental upside to the guidance we laid out for you at Capital Markets Day last year. We expect this transaction to close in the fourth quarter of '25 or the first quarter of 2026. Okay. To sum it all up, not only did our results continue to demonstrate our ability to consistently execute and deliver outsized and profitable growth, but we cannot be more excited to carry our strong momentum far into the future.
Quan Yao, Moderator
Thank you, Peter. Let's move on to your questions. We will start with a question from the phone. Operator, please go ahead with the first question.
Operator, Operator
And your first question today will come from John Hodulik with UBS.
John Hodulik, Analyst
Great. And two questions if I may. First, you experienced significant subscriber growth in the quarter despite a slight increase in churn. Mike, could you provide some insights on the current market conditions and your expectations for churn trends in the second half? Additionally, thank you for sharing information about the fiber side, with a target of 100,000 for the year. Can you elaborate on that? Is that projected as a run rate of 50,000 for the upcoming quarters, or does it already include some figures from the second quarter? Any further details on the growth of that business now or in the future would be appreciated. Do you foresee any potential for inorganic growth in that area?
Mike Sievert, President and CEO
Okay. Terrific. Thanks for the questions. Let me start with Srini on the competitive environment, although I'll invite anybody to jump in. And then we'll turn to Mike on fiber and what we can expect for the second half. So Srini what are we seeing out there?
Srini Gopalan, COO
Thanks, John. So a quick sense of the competitive environment. Firstly, we like the fact that it's a dynamic competitive market. As natural share takers, we enjoy these moments when there's more movement and more switching in the market. And part of that is our conviction that the fact that we win in these moments has far less to do with promotions. It has far more to do with the compelling proposition we have. Now I've worked in a few different telco markets. And seldom do you see the kind of unicorn position where one telco or one provider is able to provide not just the best network, but also the best value and best experience, and that unique proposition is what really powers our ability to win in situations like this. Talking about the market itself, this is a market where the dynamics of competition changes and evolves. So we go through periods where the focus is on rate plans. Currently, we're in a period where the focus is on device promotions. The reality is, even as the focus shifts to device promotions, there's kind of more spend upfront. But the CLVs we're generating are robust and pretty consistent with our history of CLVs. So this feels like a really good economic investment, and we feel very, very comfortable making that investment. I mean the driver to that is, yes, you have more outflow upfront in the device promotion, but you get longer lifetimes, you get higher ARPUs. All of that comes together to make a solid and robust and dynamic environment, and we like the dynamic bit of it. I think the last point I'd make on that is if we just lift out of kind of the dynamics of competition, shifting sands, how we compete and the rest of it. The reality is this is a great time to be in the U.S. wireless industry, as a customer, and as a participant. As customers in the last 3 to 4 years, we've seen customer speeds grow 3 to 4x. Data consumption grow 3 to 4x. And at the same time, customers have paid less in real terms for the product. And as an industry, we've seen a 50% growth in free cash flow, which is the one metric that really matters from a value creation perspective for the industry as a whole. So it's a really good time to be in wireless, and we're enjoying the dynamic nature of the competition.
Peter Osvaldik, CFO
Yes. I mean the only thing I'd add around, John, your question around churn is much as we foreshadowed, we anticipated Q2 to be up given the finalization of our rate plan optimizations. What we're anticipating going forward, if I think about Q3, sequentially, we anticipated being down, and year-over-year, probably flat to potentially slightly up, but we're through that heightened area of churn for us, and we're seeing great dynamics now. So that's probably the color around Q3.
Mike Sievert, President and CEO
Okay. Sounds great. I don't have much to add to that, well said. Mike, you want to talk about fiber. What are we going to see in the second half?
Michael Katz, Vice President
Yes. After a couple of years in pilot mode, we officially launched T-Fiber last month in both the Lumos and wholesale markets. It's been a few weeks, and so far, things are going well. We were optimistic about entering the fiber business, believing that our unique assets would help us access new markets, and everything we've experienced so far has confirmed that belief. The 100,000 subscribers that Mike mentioned earlier are coming from both the two joint ventures and the wholesale markets. The Metronet deal is set to close tomorrow, and we will launch T-Fiber commercially in those areas later this year. The 100,000 figure includes both the joint ventures and the wholesale markets. Regarding other inorganic opportunities, we remain open-minded as expected. However, the 100,000 reflects the organic deals we've finalized, which will all be concluded by tomorrow, along with the markets where we have already been operating in wholesale.
Mike Sievert, President and CEO
One aspect we haven't discussed much is our overall go-to-market strategy, which I truly appreciate. We have established ourselves as leaders in broadband, capturing market share for 14 consecutive quarters. Now, we are introducing T-Fiber across various locations in the country, leveraging an existing infrastructure for our go-to-market efforts. We have also developed an impressive IT platform for T-Fiber, which will function alongside wholesale partners, joint ventures like Lumos and Metronet, and potential future partnerships, allowing them to easily integrate into a unified T-Fiber platform. Though it took time to accomplish, this initiative is outstanding and offers us significant flexibility in executing our core mission of reaching the market and serving our customers. I am genuinely excited about this development.
Quan Yao, Moderator
Thanks, Mike. Thanks, John. Operator, next question, please.
Operator, Operator
And your next question today will come from Benjamin Swinburne with Morgan Stanley.
Benjamin Swinburne, Analyst
Thank you. Good afternoon. Looking back at your Capital Markets Day from last September, one key metric that stands out is the ARPA growth. You mentioned a 2% increase last year during the 3-year planning period, and now you're nearly 5% year-to-date. Can you explain the factors driving this growth and whether you feel more optimistic about growth in that area and service revenue over the next few years given the current strength? Also, I didn't expect you to pursue a deal with cable operators during this call. Could you elaborate on your strategy in that area and explain why you believe it makes sense for T-Mobile and what the long-term opportunities are in partnering with that industry?
Mike Sievert, President and CEO
I love it. Well, we'll start with Peter on ARPA. And I think Ben is trying to be played. Are you sandbagging us here? What's going on?
Peter Osvaldik, CFO
Right, right, yes, and the multiyear arc, and what do you do? Look, much like we said at Capital Markets Day, our job is to put together a set of rational, aggressive assumptions and then go try to beat them. And I'm not here to start updating '26 or 2027, that's not the job. They'll come a time. We'll have to layer in UScellular as well, as I mentioned in the prepared remarks. But ARPA growth is definitely going fabulously well this year. And that's the underpinnings for both the service revenue increase, now at least 6%, but also the strength there of 3.5% this year. And of course, that does have to do in part with the rate plan optimizations that we executed on. And that's why you see a little bit of year-to-date versus year-to-date difference versus the second half because remember, we began those late in Q2 of last year. So you're kind of lapping right now the periods where we have this year, the benefit of two rate plan optimizations, the finalization of the first one and the very first one. And now we'll have the real true organic growth in the second half. And what really is exciting, what underpins that as Mike highlighted in his prepared remarks, is just what we're seeing from a rate plan perspective. Customers are really appreciating the value that we're packing into the plans, combined with, of course, the best network and experience proposition and they're self-selecting up the tiers to our most premium tier at very exciting levels. So not here to update '26 and '27. Our job is to keep this momentum going in 2025. And then thoughtfully update you when it comes later.
Mike Sievert, President and CEO
We really didn't expect this. Jon Freier and his team effectively connected customers to these value propositions, highlighting the strong appeal of T-Satellite, which is part of our high-end plans. It’s a surprise, but it's impressive execution and a compelling value proposition. We've shared that 60% of our loading is in premium tiers, which include multiple rate plans. I mentioned earlier that we’ve increased the high end from 10 to 20 of that 60, with an additional 40 more bringing us to the total. That growth is fantastic, and we genuinely didn't anticipate it. Customers are upgrading within the premium tiers to access more of what T-Mobile offers, which is great to see. Regarding the second half, we are adjusting for last year's rate plan changes, which may make it tougher to achieve the same percentage gains. However, we are confident in our current position. Regarding cable, I had a lot to say on that. We see it as incremental growth. We are targeting the SMB segment, where we have limited exposure. We operate effectively in very small businesses and in enterprise, but we lack significant market share in between. This creates an opportunity for incremental revenue, which is ideal for us. This isn't the beginning of a larger strategy; it’s a multi-year initiative. While we hope it develops into something substantial, the dynamics are distinct. Some have speculated about whether we are moving into consumer markets, but we are not pursuing that direction due to the different dynamics and our focus on the incremental gains in the business segments we’re targeting. We anticipate steady growth and productivity from this approach, but it won’t lead us into new segments.
Quan Yao, Moderator
Thanks, Ben. Operator, next question, please.
Operator, Operator
Your next question today will come from Sam McHugh with BNP.
Sam McHugh, Analyst
You talked about only 20% of switches perceiving T-Mobile as having the best network. And I guess that's increased over time. But what do you think you need to do to improve that? Is that leaning on advertising? What can shift that up even further? And then secondly, on the cable, just to clarify, so are they restricted from selling to certain subsets of the enterprise community then, they can't sell to a super large enterprise? Is that the right reasoning?
Mike Sievert, President and CEO
I'll start with the easy one. That is correct. So the deal limits our partners to 1,000 lines or below. Let's move on to the first question and discuss brand, and I would like to hear from both Mike and Jon about what it takes to persuade people.
Michael Katz, Vice President
Yes, the good news is that our customers are confident in us. Over the past couple of years, T-Mobile customers have already come to believe they are using the best network. The statistic you mentioned about 20% refers to potential customers evaluating T-Mobile and other providers and their perceptions of us. We see this 20% as a significant opportunity across every region in the U.S. Raising awareness is key, and while advertising will certainly play a role—we recently launched a substantial campaign that included TV ads and promotions at events like the All-Star Weekend and Major League Baseball last weekend—experience is also crucial. Customers will be able to see the benefits of using our network when they visit our stores or use the T-Life app. Additionally, our network leadership isn't just a temporary achievement. We have been aware of having the best network for a long time, and it's gratifying to see it recognized by third parties. We are committed to maintaining and expanding this advantage. A major part of shifting customer perceptions will involve ensuring we stay in the lead and broaden that lead. Ulf can elaborate further on this.
Mike Sievert, President and CEO
Well, I'd just say one thing, which is Callie and team keep landing some of the most high-profile large enterprise and government customers in this country. And they choose T-Mobile after they give everybody a try. And they're choosing us because we're the best and a lot of them now are standing up as third parties to talk about why they chose T-Mobile. And when you have some of the most respected brands and government organizations and first responders talking about their choice of T-Mobile, that kind of third-party endorsement is really, really powerful.
Callie Field, Senior Vice President
Yes. If I could add on to that, Mike. Key priority we launched in Q1 of this year. And we've seen double-digit growth in new accounts with T-Priority since launched. And you had the City of New York who shared the stage with us to talk about why they chose the best network. But we've also seen the City of Miami Police Department, the L.A. County Police or Fire Department, the City of El Paso, we're starting to see like the top 10 cities and first responders say, hey, this is a network that performs on the nation's first 5G Advanced, truly nationwide 5G slice in a way that there's just no other option for us. So I think that really speaks to the strength of what we've built.
Mike Sievert, President and CEO
Terrific. Did we cover that one?
Quan Yao, Moderator
Thanks, Sam. Operator next question please.
Operator, Operator
Your next question today will come from Craig Moffett with MoffettNathanson.
Craig Moffett, Analyst
Mike, you mentioned T-Satellite earlier. Could you elaborate on its impact on your ARPU growth and how it influences your approach to serving rural markets and customer segments? It seems to have had a surprising effect on the market.
Mike Sievert, President and CEO
Well, Craig, I really appreciate your question. We launched this thing at 8:00 this morning, and you’re looking for a business update already. I appreciate that. You’re right; leading up to this launch, many people have been opting for our higher-end rate plans, especially during the beta period. Unfortunately, I can’t provide specific details, but our top-tier plan is more popular than ever. I believe a significant part of how we will monetize this strategy will stem from this trend in plan selection. The service is available to everyone for just $10 a month, which is very appealing. I might be wrong, but this is speculation for now. Nevertheless, I think it will be a major attraction for many users to engage more deeply with T-Mobile, which benefits us greatly. The stronger our relationship with customers, the more they enjoy not only T-Satellite but also a variety of other membership benefits that are valuable and engaging. This could lead to a positive feedback loop. You will need to check back with us after we've gathered more than just one day of experience. However, we are optimistic that we will be able to present this as a truly unique service that catches attention, not only from T-Mobile customers but also from AT&T and Verizon customers.
Craig Moffett, Analyst
Just based on what you learned in the beta period, does it change your thinking about the way you deploy your network assets in very rural areas?
Mike Sievert, President and CEO
No, not at all. And in fact, part of what I mentioned in my prepared remarks is we are on the build, 1,000 sites on air so far, on a plan we greenlit late last year with 4,000 total in our plan for this year. And maybe Ulf, you can talk about how we do this because we actually don't have a market-by-market methodology it's informed by our AI algorithms where we build and maybe talk about this 4,000 greenfield program that we have going on this year.
Ulf Ewaldsson, Chief Technology Officer
We are extremely proud of our network and believe we are about two years ahead of our competition. Our goal is to extend this lead by focusing our investments where they will benefit our customers the most. We refer to this approach as customer-driven coverage, which we discussed during our Capital Markets Day. We analyze millions of data points on real customer experiences, including their interactions with the network and any issues they encounter, and combine this with business metrics. Using AI, we prioritize every capital allocation, tower upgrade, and new tower deployment. This year alone, we plan to build 4,000 new sites, having already launched 1,000. This growth is separate from what we will achieve through our collaboration with UScellular, leading to remarkable improvements in coverage. Additionally, our network's capacity is impressive, as we currently have 67% of our traffic on 5G, leaving us with ample opportunity to convert more spectrum to 5G.
Mike Sievert, President and CEO
So Craig, while we don't specifically target smaller markets and rural areas as part of our strategy, the algorithm is currently favoring these regions. This is where most of the 4,000 builds are occurring. Additionally, the new sites will increase our coverage from 9,000 to about 12,000, primarily in smaller markets and rural areas. As I previously mentioned, this represents a significant one-year change in our tower footprint for these regions. Furthermore, when you consider the unique service of T-Satellite, we are simply enhancing our competitive edge. I firmly believe that building a successful company involves not only addressing issues but also identifying and expanding on what is working. Currently, T-Mobile is effectively gaining market share as the leader in smaller markets and rural areas, and we intend to continue this momentum.
Quan Yao, Moderator
Thanks, Mike, thanks, Craig. Next question please.
Operator, Operator
And your next question today will come from Jonathan Chaplin with New Street Research.
Jonathan Chaplin, Analyst
Thank you. So Mike, I'm wondering if you can give us an update on how many locations you pass in the Metronet and Lumos markets at the moment? And what penetration is on those assets? And then one tiny housekeeping question. I don't think you told us in the past what the cash tax expectation for '26 was. So I'm wondering what it is now that you get the $1.5 billion benefit in '26?
Mike Sievert, President and CEO
Okay. Great. We'll come to Peter for the second one. Let me start with Srini because although I don't know if we'll be able to give you the point estimates, I'd love for you to talk about where this all leads us Srini in the fiber space because I think it's really important for people to understand.
Srini Gopalan, COO
We are very excited about the broadband space overall. We are now the fifth largest Internet Service Provider. This year, we plan to add 100,000 fiber customers, primarily in the second half of the year. We believe in this business, which combines Fixed Wireless Access with our investment in fiber where the economics make sense. Together, these elements position us as a significant player in broadband, with 12 million FWA customers. If we consider these numbers in terms of fiber homes passed, assuming a 40% utilization rate, this equates to 30 million homes. Furthermore, with our intentions for Lumos and Metronet, we aim to reach between 12 million and 15 million households. This puts us at the equivalent of 40 million to 45 million homes passed in broadband. This is all before making additional investments, as we are open to pursuing suitable opportunities in fiber, particularly preferring pure-play fiber assets. Overall, we are very optimistic about the broadband space and see a significant opportunity to enhance equity value here. Mike, do you want to provide any updates on Metronet and Lumos considering it’s just the beginning?
Michael Katz, Vice President
Yes, we probably can get in the details of Metronet. But one of the things that really attracted us to both companies, and we certainly have seen this with Lumos is these companies are the best in the country at building greenfield fiber. And there's still a lot of places left to cover in this country where you can be first to market with fiber. And what we've seen so far from Lumos is they continue to be very successful at that, and we're very optimistic and we'll continue to see that with Metro and after we close tomorrow.
Mike Sievert, President and CEO
During the transaction period, Metronet exceeded their project expectations in terms of construction. As a result, we are seeing better penetration than we initially anticipated when we signed the deal. We will provide updates on our actual build expectations once we officially own the assets, Jonathan, but we are excited about this opportunity.
Peter Osvaldik, CFO
And let me, on the last question, I'm going to have to disappoint you. I'm going to resist the urge to give you a pinpoint cash tax estimate for 2026 and primarily because, obviously, there's a lot of other factors to update in there, including UScellular closing and all the purchase accounting around that, the timing of the close of the 800 megahertz transaction. So for now, I'm going to resist it, but there'll definitely be a time to give a more comprehensive '26 update.
Mike Sievert, President and CEO
But the OBBB versus the not OBBB is $1.5 billion benefit. And it's great to see that coming in. Terrific. Okay.
Quan Yao, Moderator
Thanks, Jonathan. Operator next question please.
Operator, Operator
And your next question today will come from Gregory Williams with TD Cowen.
Gregory Williams, Analyst
First one is on your rural market share. A few years back on your Analyst Day, you noted a goal of reaching 20%, I believe, of the smaller markets. I think it was right around by 2025. Here we are in 2025, I'm curious what your market share is now and if it's reached that 20% where it could go and if UScellular changes that calculus as well? Second question is just on the $1.5 billion benefit from the tax relief bill. You said you deploy the capital thoughtfully, so I was wondering if you can add more color to those words thoughtfully whether we think about M&A buybacks or network investment?
Jon Freier, Senior Vice President
I'm going to try to like contain my enthusiasm for this question, Greg. I really appreciate the question. First, we're unbelievably excited about smaller markets, rural areas. Just for the first-time listeners here. The way we define this is outside, everything else out of our top 100 markets. So this would be 140 million people, 50 million households, roughly 40% of U.S. and we're excited about it for two reasons. #1, we have surpassed 20% share of household in smaller markets and rural areas. So we have beat that goal that we set for you in 2025. We're really excited about that. This is our ninth consecutive quarter where we have been the leader in postpaid switching. And so we've been on a tear on this for a little bit more than a couple of years now. We're really excited about that. But the thing that excites us more is exactly to the premise of your question, is what the opportunity still is in smaller markets, rural areas with the addition of UScellular and all the assets, the complementary spectrum, the sell-side assets, etc., that we will be implementing into our network and the thousands of greenfield sites that are coming into the network as well. And so we have this huge opportunity still. Like we're doing all sorts of things as you would expect in terms of network investment, distribution investment, community investment. We just kicked off Friday Night 5G Lights for the second year in a row in smaller markets and rural areas. We're having a lot of fun with that as well, and they have a so much more tailwind that we expect into this business. And I don't think anybody ever thought that we would hit 20% and pack up our tent and go back home to New York City. We're going to stay in here and continue to drive this business to our fair share of the market, maybe even outside fair share of the market. So we'll have more to say after we close the UScellular transaction give you a little bit more of an update in terms of what we're up to, but we're incredibly excited about our progress so far and even more progress to come.
Mike Sievert, President and CEO
But you're asking the $1 million or $1 billion question, Greg, which is where could it all go? And I'd love to be able to answer that for you today. And it's something we think a lot about. We don't know, but I'll tell you this, our current win share without even all the advantages that we believe we can build to further accelerate in these areas is way higher than that 20% household share. And so if nothing improves, you would expect it to normalize over time to a market share way higher. Now in places we've been successful for a long time, there are places we have market shares way, way higher than our national average. And so it's really about can we deliver the advantages that we think are really going to be required to be long-term market leaders in smaller markets and rural areas. Will our digital transformation strategy speak particularly well to people that live further away from retail? Will our ongoing improvements in network, including our merger with UScellular make a step change in our competitiveness? Will our T-Satellite capabilities, which really only are a differentiator if you fall off our network. Will they disproportionately benefit people who live closer to the edge of cellular networks that is people in rural areas. We don't know the answers to all these, but theoretically, there are reasons to believe that over the long haul, we could become more successful in this subsegment of the market than we are today in the top 100 markets. So when I use phrases like room to run, I'm serious about it.
Peter Osvaldik, CFO
Yes. The important question we need to consider is how we will be guided by our consistent and thoughtful capital allocation strategy. I want to highlight a couple of points, starting with the 800 megahertz I mentioned in my prepared remarks. Once that closes, it will create $850 million in taxable expenses for us, leading to a net additional benefit of about $2 billion beyond what we outlined at Capital Markets Day concerning the $1.5 billion. As we move forward with closing UScellular, we are also examining the data to identify potential opportunities for acceleration. We previously shared our expectation of $1 billion in synergies over a 3- to 4-year period, with estimated costs to achieve those synergies ranging from $2.2 billion to $2.6 billion. We are exploring whether there is a chance to accelerate some of those synergies from a 3- to 4-year timeline and to bring forward some of the costs to deliver even greater value and net present value from those synergies sooner. These are the kinds of considerations we are currently investigating, but it's not yet the right time to finalize those projections for 2026. Please know that we will approach this matter thoughtfully.
Mike Sievert, President and CEO
But it's interesting you give those examples because they follow your long-established capital allocation philosophy, right? Peter has been very clear, we peg our leverage at 2.5 that's our current board authorized leverage, and that's where this management team wants to be. That gives us a capital envelope and within that capital envelope, we invest first in our core business. You just mentioned maybe highly accretive opportunities in our core that we could move faster on. Then we invest in smart adjacencies and potential inorganic investment opportunities, and then we return capital to shareholders. And we've been following this philosophy, I think, very successfully for a while. So you tumble right away to some of these potential things that could allow us to unlock even more value faster for our shareholders. But it's too early to tell. We'll only put the money in them if they're a better idea than not.
Quan Yao, Moderator
Thank you, Greg. Operator, next question, please.
Operator, Operator
Your next question today will come from Michael Rollins with Citi.
Michael Rollins, Analyst
A couple of questions on 5G broadband and FWA. First, just curious what you're seeing that's driving the ongoing momentum in that volume. How much of that quarterly volume may be benefiting from greater breadth of coverage versus deeper penetration in some of the existing markets? And then secondly, are you seeing evidence that FWA may move from a fallow-capacity model to one which you can invest in specific capacity enhancements for additional growth and returns over time?
Mike Sievert, President and CEO
Sounds good. What's really driving this is word of mouth. The satisfaction rates of this product are incredibly high. People love it and are pleasantly surprised by its performance. The average user is now using about 560 gigs, which is a 25% increase from two years ago. They're experiencing speeds of 200 to 250 megabits per second on a national average, a 50% rise from two years ago. Customers appreciate the flexibility, elegance, and simplicity of the product, and they share their positive experiences with others when they sign up because it offers great value and savings. That's the main factor behind the momentum. I forgot the second part of the question.
Peter Osvaldik, CFO
Fallow to invest.
Mike Sievert, President and CEO
Yes, you want to talk a little bit about the strategy there Srini.
Srini Gopalan, COO
Yes. So the way I think of it is our center of gravity is very much the fallow capacity model. Now we're looking at whether other models work or not. But one of the reasons that's our center of gravity is I think one myth is that to some extent, mobile technology is static. The reality is with each passing days especially with our 5G SA network, we're finding more and more opportunities to squeeze more out of our existing spectrum out of our existing towers. Now there's a lot of work still to be done, but we're constantly challenging every day our 12 million number and looking at how much more we can squeeze from our network in terms of fallow capacity. I mean just some of the recent examples like the introduction of L4S, which is low latency right? Innovations that we're bringing in with 5G SA are allowing us to squeeze more or the work we've done on business FWA, right, where we're finding newer opportunities to extract more out of our fallow capacity model. So that remains priority one.
Mike Sievert, President and CEO
So it's really interesting. I mean we've been pretty clear. We have this 12 million customer target in 2028. It's entirely predicated on the fallow capacity model. And we have our teams hard at work in a dual strategy. #1, can we get more out of the fallow capacity model through all the tactics that Srini just summarized? And #2, to the very premise of your question, are there smart ways to allocate capital and get a fantastic return? Look, we don't have answers to either of those two questions. But are our teams thoughtfully working on those things? Absolutely.
Quan Yao, Moderator
Thank you, Mike. Operator next question please.
Operator, Operator
Your next question today will come from Kutgun Maral with Evercore ISI.
Kutgun Maral, Analyst
I have one high-level question. Going back to the 2021 Analyst Day and for maybe a few years afterwards. Part of the narrative was that you were increasingly mindful of T-Mobile's role evolving from being an insurgent to more of a steward of the industry. And while you'd continue to push for competitive pressure and execute as un-carrier, perhaps there would be a greater consideration of not only your leadership position in the space but also the merits of helping to ensure it remains a profitable and attractive one. Maybe fast forward to today, competition isn't new, but the offers in the marketplace keep getting more and more aggressive and some of your peers are perhaps acting more and more un-carrier-like. So with all that context, can you update us on where you view T-Mobile as being on the insurgent versus steward spectrum? And I guess, ultimately, how much more runway is there to be as disruptive without the tilt in competitive postures disrupting the balance for the broader industry?
Mike Sievert, President and CEO
That's a great question. From what Srini mentioned earlier, it's clear we are in a very competitive environment, which we embrace as a strong value brand. We have consistently performed as the disruptor and leader in the market, maintaining our position as the un-carrier. Peter often gets asked why we haven't pushed for even more growth, especially after our record Q2 for postpaid phone net additions. Our response is that we consciously balance competition while striving for excellence. We aim to grow a sustainable and profitable business, a principle we've upheld for years, and that is not going to change. Regarding the longevity of our strategy, it definitely has a promising future; it focuses on long-term advantages rooted in understanding what customers want—the best network, great value, and a company that truly cares for them. We uniquely deliver on these expectations and have built lasting advantages in these areas. This moment in our history presents unparalleled opportunities for our strategy. I also want to address a part of your question about the level of investment in competition. The financial metrics for the industry currently don’t support the idea that we're facing unprecedented competition. For instance, T-Mobile, as the value leader, is achieving a 26% conversion of cash to service revenues. That’s a fantastic figure and near the top of our historical performance. This reflects our progress. Furthermore, cash flow in our sector has increased by 50% since 2022, all while customers are enjoying more data at faster speeds for the same prices. This indicates that customers are reaping the benefits of the 5G revolution, and so are our competitors. While there are definitely aggressive device promotions, ARPUs are also higher than ever, along with longer device ownership. These aspects balance each other out. Customer lifetime values at T-Mobile have remained very steady, and I hope this perspective is useful.
Quan Yao, Moderator
Thank you, Kutgun. We'll now turn to social and take one final question from the phone queue afterward. This question is from Chetan Sharma. Congratulations on your continued momentum with new services and network features. Could you provide some insights into the demand you are observing from enterprises for slicing and T-Satellite? What is the profile of these customers and their use cases?
Mike Sievert, President and CEO
Should we go over to Callie for that one?
Callie Field, Senior Vice President
Sure thing. Well, I mentioned earlier before in responding to you, Mike, about key priority and just how fantastic it's resonating with first responders in the marketplace. Since we launched in Q1, we're up double digits in growth in new accounts with T-Priority since launched. And you had the City of New York who shared the stage with us to talk about why they chose the best network. But we've also seen the City of Miami Police Department, the L.A. County Police or Fire Department, the City of El Paso, we're starting to see like the top 10 cities and first responders say, hey, this is a network that performs on the nation's first 5G Advanced, truly nationwide 5G slice in a way that there's just no other option for us. So I think that really speaks to the strength of what we've built.
Mike Sievert, President and CEO
These types of solutions are helping us achieve win share that exceeds our market share in every segment. Additionally, some of our competitors have mentioned their challenges in the government segment, particularly with DOGE, which is not surprising given their status as older incumbents with a majority share. For us, the key driver of our business is win share, which has increased year-over-year and quarter-over-quarter. This allows us to engage effectively with decision-makers, especially in federal agencies facing pressures to reduce costs or manage headcounts. When they review their options and evaluate the value offered by our network against alternatives, they recognize the efficacy and efficiency we provide while addressing their requirements. Here we thought Jon would be the most exciting. While discussing slicing, I find it interesting that this represents a classic win-win situation. Our network remains the least congested, and we have significantly more capacity. You might wonder about the need for slicing, but enterprises are still very interested in it because they seek guaranteed service levels. Depending on how critical those connections are, it makes sense for them to invest in ensuring that they maintain those service levels, especially in unforeseen circumstances where the network could become congested. This guarantees them mission-critical connectivity that serves their interests, and in the case of first responders, benefits everyone. They are willing to pay for this assurance, which is a fascinating insight. On a more serious note, I want to acknowledge T-Satellite for its significant role during the recent severe floods in Texas a couple of weeks ago. I am incredibly proud of our on-ground team for rushing to help, keeping the network operational, and performing excellently. Additionally, we were able to send emergency messages to customers, not just T-Mobile users but all customers via satellite. Over 250,000 text messages were distributed through satellite during the critical moments of this emergency, allowing people to stay connected when it mattered most. I am deeply grateful for our teams on the ground, and I'd like to extend my heartfelt thanks to our wonderful team in Texas.
Quan Yao, Moderator
Thanks, Mike. Operator, we'll take our final question from the queue.
Operator, Operator
And your next question today will come from Kannan Venkateshwar with Barclays.
Kannan Venkateshwar, Analyst
Thank you. Mike, I have a question regarding your broadband growth goals. When considering fixed wireless, it's evident that your competitors are involved in this space as well. On the wireline side, other companies seem to have build targets ranging from 40 million to 70 million. With your goal set at roughly 15 million in wireline, can you explain why that target is sufficient? I understand you are exploring more fiber opportunities, but in light of your competitors' scale, should you consider larger transactions or more significant opportunities to expand your network more quickly?
Mike Sievert, President and CEO
Yes, it's a great question. Maybe Srini and I can kind of take it together. We're interested in ongoing transactions. But probably if the premise of your question is something like are we interested in cable, I become decreasingly interested in that over time. I just feel like the growth is in fixed wireless, where there's value and flexibility and the growth is in fiber because it's a superior product. And that seems to be where the customer sentiment is going. So we want to be where the puck is going to be. I'm so proud of the choices we've made so far. And what's driven us in these choices has been our ability to, one, deliver a fantastic product customers will love. And two, deliver a superior return for our shareholders in doing so. And I want to make sure that we don't chase scale for scale sake that we actually chase scale because we can deliver a fantastic return because our premise is a little different than some others who are on a race regardless of consequences, we're in this business to deliver a great product and make money, superior returns by virtue of our know-how and investments in mobile. And that's because our premise about how this market is coming together. It's just a little different. Our view is that mobile is the considered sale, and we're going to add products to that mobile that makes sense for our customers and that we can make money on. Now as Srini explained a minute ago, our already published plans get us to knocking at the door of 45 million homes passed equivalent in wireline language through the strategies we've already announced. And as we've said, we have some ongoing appetite should the right opportunities present themselves at a fair value.
Srinivasan Gopalan, COO
And the only thing I'd add to that, Mike, is also culture, right? Which is we're about great returns, but we're also about challenging an industry for the good of the customer and growth, right? And that ethos fits very nicely with FWA, that fits very nicely with fiber. The last thing we want to be is be an incumbent, right? We are all about challenging an industry about creating value for customers, about smashing customer problems. And that's a big part of this calculus as much as returns as well.
Mike Sievert, President and CEO
I love that. It's a great place for us to end where I ended in my prepared remarks. This team right here at this table sees growth opportunities everywhere. And on your behalf, we're going to be thoughtful investors and the resources of this company to go chase it and chase it ambitiously. And thanks, everybody, for joining our Q2 call.
Quan Yao, Moderator
Thanks, Mike. That's all the time we have for questions. Thanks, everyone, for joining. We're looking forward to connecting with you again soon. If you have any additional questions, you may contact the Investor Relations or Media Departments. Thank you.