T-Mobile US Inc (TMUS) 2013 Q4 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by.

Welcome to the T-Mobile US fourth-quarter and full-year 2013 conference call.

(Operator Instructions)

This conference call is being recorded today, February 25, 2014.

I'd now like to turn the conference over to Mr. Nils Paellmann, Head of Investor Relations for T-Mobile US.

Please go ahead, sir.

Thank you very much.

Welcome to T-Mobile's Fourth-Quarter and Full-Year 2013 Earnings call.

With me today are John Legere, our President and CEO, and Braxton Carter, our CFO.

Let me just read the disclaimer.

During the course of this earnings call the Company will make projections and other forward-looking statements that are subject to many risks and uncertainties that could cause actual results to differ materially from expectations.

A detailed discussion of the risks and uncertainties that affect the Company's business and qualify the forward-looking statements made in this call is contained in T-Mobile SEC filings, particularly the risk factors included in our annual report on Form 10-K filed with the SEC this morning, February 25, 2014.

Copies of T-Mobile's SEC filings are available online from the SEC or at the Investor Relations Home Page on the T-Mobile website.

The Company's projections and forward-looking statements are based on factors that are subject to change, and therefore these statements speak only as of the date they are given.

The Company does not undertake any duty to update any projections or forward-looking statements.

In addition, during today's discussions management will comment on both actual results and certain non-GAAP results.

Reconciliations between GAAP results and these non-GAAP results are available quarterly on the Investor Relations Home Page on our website at T-Mobile.com.

Without further ado, let me turn it over to John.

Okay.

Good morning, everyone.

Thank you for joining us today.

What a year it's been.

We've been extremely busy, so I'd like to jump right into some of the key results that are going to be covered on today's call.

T-Mobile is now the fastest-growing wireless company.

Just look at the numbers.

We added more than 4.4 million customers in total in 2013, and that's versus losing 256,000 customers in 2012.

That's a swing of 4.7 million customers in one year.

In the fourth quarter alone, we added more than 1.6 million total customers.

By the way, that's our third consecutive quarter with more than 1 million net customer additions.

We had more than 2 million branded postpaid net customer additions in 2013, and that's versus losing more than 2 million the year before.

In the fourth quarter, we added 869,000 branded postpaid nets.

That was our best quarterly performance since the fourth quarter of 2005 which, by the way, was when industry penetration was only 70%.

We delivered our significant customer growth in a fiscally responsible way.

That's growth and profitability, not either/or.

We hit our adjusted EBITDA targets while exceeding our branded postpaid net add sites.

And we showed that we have strong cost discipline across the entire business, taking out $1.7 billion in run rate cost in 2013.

Most of these savings we've reinvested in our business.

Our strong operating improvements resulted in improved retention, customer quality.

In other words, better customers are coming to T-Mobile and they are staying longer.

Branded postpaid churn in 2013 was 1.7%, down 70 basis points year over year.

In the fourth quarter, it was also 1.7%, down 80 basis points.

Customer quality metrics continued to improve.

Service bad debt expense is down.

And the percentage of prime customers in our EIP receivables (technical difficulties).

Finally, while 2013 was great for us, we expect that the pace of growth will continue even further in 2014, with strong evidence of that already seen in Q1.

We expect adjusted EBITDA to be between $5.7 billion and $6 billion in 2014.

That's up 7% to 13%.

We are also guiding branded postpaid net adds to be 2 million to 3 million in 2014.

In other words, the momentum continues as the Un-Carrier continues to shake up the industry.

With regard to the first quarter, Un-Carrier 4.0 offering has already received tremendous market response.

2013 was a transformational year for us as we turned a declining business into a growth one.

How did we do it?

By listening to customers and then offering them what they told us they really want -- a great service on a nationwide lightning-fast 4G LTE network; devices when and how they want them; and plans that are simple, affordable and without the restrictions the other guys placed on them.

We changed the way this industry operates, and customers responded.

Let me remind you of the major steps we have taken so far.

On March 26, we launched Un-carrier 1.0, our radically-simplified unlimited Simple Choice service plan with no annual service contract.

On April 12, we launched the iPhone and achieved device carry.

On April 30th, we closed the MetroPCS deal, which expanded our spectrum holdings in key markets.

And on May 1, we listed TMUS on the New York Stock Exchange.

On July 10, we launched JUMP!

and Prepaid Simple Choice for families.

We closed the year with more than 3.6 million JUMP!

customers.

On October 9, we launched Un-carrier 3.0, Part I, Simple Global, making the world your network in 100-plus countries at no extra charge.

And, at the same time, we announced that our LTE network was now nationwide, covering more than 200 million people.

On October 23, we launched Un-carrier 3.0 Part II, Tablets Unleashed.

And on January 6, we announced 700 megahertz A-Block option transaction with Verizon, providing us with key strategic low-band spectrum in areas covering 158 million people, including our own Boston holdings.

Finally, on January 8, we announced Un-carrier 4.0, Contract Freedom.

And also announced that we now have the fastest 4G LTE network based on download speeds from millions of user-generated tests.

And we are not done yet.

Stay tuned for more Un-carrier steps in the future.

Now let me turn to the results for the fourth quarter starting with customers.

We added 869,000 branded postpaid customers, our best results since the fourth quarter of 2005.

This consisted of 800,000 postpaid phone net adds, very close to industry best, as well as 69,000 mobile broadband postpaid net adds, primarily tablets.

The latter was up from just 5,000 in Q3 and demonstrates the success of our Un-carrier 3.0 Part II, Tablets unleashed offering.

Gross adds were up 80% year over year, and 15% quarter over quarter.

Postpaid churn was 1.7% in Q4, which is down 80 basis points year over year and flat sequentially.

This quarterly churn improvement was the largest year-over-year reduction in 2013, demonstrating the continued improving quality of our customer base.

This improving customer quality is also demonstrated by the reduction in service bad debt expenses, down 51% in 2013 versus 2012, and the continuing improvement in the quality of our EIP receivables.

At the end of 2013, 54% of the EIP receivables were classified as prime, up 11 percentage points from the previous (technical difficulties) at the end of 2012.

Most recently, our Un-carrier 4.0 launch has seen very strong uptake amongst the highest-credit quality customers.

I will share a data point with you.

Approximately two-thirds of the customers who have taken the EPF offer so far are in prime credit class.

As expected, branded prepaid growth accelerated in the fourth quarter with 112,000 branded prepaid net, up nearly 90,000 from the third quarter.

Gross adds improved 5% compared to the third quarter, driven primarily by the MetroPCS brand expansion.

As in the two preceding quarters, branded prepaid growth was impacted by ongoing prepaid to postpaid migration, which amounted to approximately 120,000 in the fourth quarter.

Now, let me turn to total customer growth including wholesale.

Total branded net, including postpaid and prepaid, were nearly 1 million in Q4, demonstrating the success of our Un-carrier strategy.

We also had a very strong performance in wholesale in the fourth quarter, with a total of 664,000 net adds.

MVNO net adds of 492,000 were up 79% year over year and 43% Q over Q. While M2M net adds of 172,000 were up 27% year over year, up from just 7,000 in Q3.

Combining all of this, we generated over 1.6 million total net adds in Q4 and 4.4 million total net adds in 2013.

Now, I know I've said this before, but I just want to say it one more time.

This was our third consecutive quarter with over 1 million total net adds.

All of this customer growth and low churn would not have been possible without the foundation of a very solid network.

That's where the success starts.

Let me give you a few highlights from 2013 and our plans for 2014.

We rapidly expanded our 4G LTE network in 2013.

We went from literally zero to 209 million people covered in just over three quarters.

We now have 4G LTE in 95 of the top 100 metro areas in the US.

In 2014, we plan to further expand our population coverage, getting up to a footprint in excess of 250 million people by the end of 2014.

This also includes the rollout of 4G LTE on the 1900 spectrum.

As I told you at CES, we now have the fastest 4G LTE network in the US based on download speeds from millions of user-generated test results.

10-by-10, 4G LTE has now been rolled out in 43 of the top 50 metro areas.

We are already live with 20-by-20 4G LTE in North Dallas and plan to continue the rollout in 2014.

As a reminder, with 20-by-20 4G LTE, Dallas customers can get theoretical peak download speeds of up to 150 megs and average download speeds in the 20 megs and 30 megs.

In early January we announced our strategic 700 A-Block transaction with Verizon.

This transaction will provide us with the essential low-band spectrum, covering 158 million customers, including our existing Boston holdings.

Upon deal closing, we will have low-band spectrum in 9 of the top 10 metro areas, and 21 of the top 30, covering 70% of our customer base.

We plan to commence deployment of this spectrum this year after closing.

Now let me provide you with an update of the MetroPCS integration, which continues to hit milestones ahead of plan.

In terms of spectrum, more than 25% of MetroPCS spectrum on a megahertz cost basis has already been re-farmed and integrated into the T-Mobile network at the end of 2013.

This was enabled by the rapid migration of the MetroPCS customer base to T-Mobile-compatible handsets.

Currently, 3.5 million MetroPCS customers are on the T-Mobile network, close to 40% of the total MetroPCS customer base.

In terms of market expansion, we continue to ramp distribution in the 30 markets where we expanded the MetroPCS brand, reaching over 1,700 new distribution points at the end of 2013.

We talked in the third-quarter call about synergies and integrations in 2013.

Let me give you an update of where we stand at the end of 2013.

On CapEx, our original plan for 2013 was for synergies to total $70 million to $135 million.

That's the original year one target multiplied times two-thirds.

We did a lot better than that plan, with CapEx synergies of approximately $675 million realized in 2013.

That's more than $500 million better than the original plan.

On OpEx, our original plan for 2013 was for synergies to be between negative $30 million and positive $30 million.

In reality, OpEx synergies came in at approximately $105 million.

Again, better than plan.

On one-time integration costs, both OpEx and CapEx, our original plan for 2013 was for costs to be between $500 million and $640 million.

Integration costs for 2013 ended up totaling approximately $450 million, again, better than the original plan.

I also wanted to let you know that we will be accelerating shutdown of the MetroPCS network in several markets in 2014.

That's a year earlier than expected.

We will be shutting down Philadelphia, Las Vegas and Boston with the potential for early shutdown in several additional markets, always ensuring a seamless transition for MetroPCS customers.

That will yield significant cost savings in the future, but also pull forward one-time integration expenses in 2014 and 2015.

Going forward, we will continue to give you updates on the MetroPCS integration as we continue to decommission the MetroPCS network and realize the associated adjustment benefits.

It's been an incredibly good year for the T-Mobile business.

Now, I'd like to turn things over to our CFO, Braxton Carter, for a review of the quarterly financials and guidance.

And then we will answer your questions.

Braxton?

Thank you, John.

And good morning.

I'm very excited to be here talking about our quarterly financials and outlook for 2014.

Let me start by discussing our revenue and EBITDA in the quarter.

All figures for 2013 are presented on a pro forma combined basis to allow for an apples-to-apples comparison.

In the fourth quarter, total revenue amounted to [$6.8 billion], growing at more than 10% year over year and 2.1% quarter over quarter.

This was driven primarily by strong growth in equipment sales revenue, due to record smartphone sales and the tremendous success of our Equipment Financing program.

In the fourth quarter, we financed $1.2 billion of equipment sales revenue on our equipment installment plans, or EIP, compared to $1 billion in the third quarter and just $375 million in the fourth quarter of 2012.

Total revenue growth was also supported by the continuing growth (inaudible) which have now grown on a sequential basis in three consecutive quarters.

Growth was due to a significant increase in customers, which more than offset the impact of the continued adoption of the Simple Choice Value Plan which generates lower service revenue compared to traditional bundled rate plans.

We are able to generate over $5.3 billion of adjusted EBITDA in 2013, fully in line with our guidance, coupled with significant outperformance on customer growth.

Fourth-quarter EBITDA declined 7.8% quarter over quarter, as expected, due to higher promotional expense typically associated with the fourth-quarter selling season and the higher growth additions.

Given our tremendous growth, our profitability was quite impressive.

Especially when you consider that we had record smartphone sales of 6.2 million and branded postpaid upgrade rate of 9%, unchanged from the third quarter, but up from 6% for the fourth quarter of 2012.

Turning to ARPU.

Branded postpaid ARPU declined at a similar rate to Q3, down 2.9% quarter over quarter.

This reflects the ongoing adoption of Simple Choice plans, which puts pressure on service revenues while boosting equipment sales revenue.

At the end of 2013, 69% of our branded postpaid base was on Simple Choice or Value Plan, up from 61% at the end of Q3.

We continue to expect that ARPU will stabilize in the second half of 2014, once we are done with most of the migration to Simple Choice.

Let me introduce you to another way of looking at our postpaid ARPU -- branded postpaid average billings per user.

This is just branded postpaid service revenues plus EIP billing, which we report in our investor quarterly, divided by average branded postpaid customers.

It approximates what we actually get on a cash basis from our customers on a monthly basis.

Looking at it this way, branded postpaid average billings per user, $58.78 in the fourth quarter, grew by 1.4% year over year, and was down just 0.5% sequentially.

All quarter-over-quarter decrease was primarily related to the weighting of gross additions towards the back end of the fourth quarter.

The 1.4% year-over-year increase in Q4 represents a slight acceleration over the Q3 growth of 0.9% year over year.

And, as already highlighted by John, but I want to reiterate again because it is so important, customer quality continues to improve.

You can really see this best by looking at full year 2013 versus 2012.

Service bad debt expenses were down 51% year over year.

Service bad debt expense, as a percentage of service revenues, were 1.5%, down 136 basis points year over year.

Lastly, branded prepaid ARPU grew slightly both year over year and quarter over quarter.

This reflects the growth in monthly prepaid service plans that include data service.

Turning to cash CapEx and cash flows.

We spent a total of $4.2 billion in cash CapEx in 2013, supporting the ongoing investment in network modernization.

As you can see, we weighted our CapEx spend towards the first half of the year to maximize the customer benefits, and will do the same in 2014.

In 4Q 2013, we spent $882 million in cash CapEx.

The sequential decline in the fourth quarter is due primarily to the timing of network payments and does not reflect a material slowdown of our network modernization.

To the contrary, we continue to push full steam ahead with our network modernization with our 4G LTE network, now the fastest in the nation, covering 209 million people in 273 metro areas at the end of 2013.

While supporting the necessary network modernization, we also remain focused on free cash flow generation.

In 2013, we generated simple free cash flow - that is, adjusted EBITDA minus cash CapEx -- of more than $1 billion, including $357 million in the fourth quarter alone.

In terms of working capital, total EIP receivables, net of allowances and credit loss, increased by $0.6 billion in Q3, reaching a total of $2.5 billion in Q4.

Our cash position is strong.

Following the very successful debt and equity raises in Q4, we had an ending cash position of approximately $5.9 billion.

Pro forma for the acquisition of 700 megahertz A-Block spectrum from Verizon, our cash balance was reduced to $3.5 billion, still leaving us with significant financial flexibility.

Net debt excluding towers is now $14.3 billion at the end of 2013, or 2.7 times our pro forma combined adjusted EBITDA in 2013, below our target range of 3 to 4 times.

Pro forma for the spectrum deal, our net leverage will be 3.15.

Before turning to our 2014 guidance, let's briefly review how we executed again against our 2013 guidance targets.

Adjusted EBITDA amounted to $5.3 billion on a pro forma combined basis.

This was right in the middle of our guidance range of $5.2 billion to $5.4 billion.

Cash CapEx was $4.2 billion, within our guidance range of $4.2 billion to $4.4 billion.

In terms of branded postpaid net additions, we achieved over 2 million compared to the guidance range of 1.7 million to 1.8 million.

The strong growth makes our adjusted EBITDA results even more impressive.

Finally, we ended the year with a penetration of Simple Choice and Value Plans of 69%, close to the middle of our guidance range of 65% to 75%.

Let me now turn to guidance for 2014.

Adjusted EBITDA is expected to be between $5.7 billion and $6 billion.

This implies a growth rate of between 7% at the low end and 13% at the high end.

Cash CapEx is expected to be between $4.3 billion and $4.6 billion, an increase of up to 9% versus 2013.

This increase reflects further expansion of our 4G LTE coverage to a footprint in excess of $250 million by the end of 2014 and the commencement of A-Block (inaudible).

Given our Un-carrier initiative, we expect the momentum in postpaid customer growth to continue, and currently expect between 2 million and 3 million branded postpaid net additions in 2014.

The transition to Simple Choice plans should be mostly concluded by the end of this year with the penetration of Simple Choice and Value Plan reaching 85% to 90% of the branded postpaid base by the end of 2014.

As to the first quarter of 2014, while not giving quarterly guidance, I want to point out that we expected and are experiencing very significant uptick on our Un-carrier 4.0 offering, putting incremental EBITDA pressure on Q1.

We expect Q1 to be our highest volume of Un-carrier 4.0.

As you can see with our overall 2014 guidance, we expect to deliver very strong 2014 customer growth, while growing EBITDA and cash flow.

Lastly, consistent with the industry practice, this release will conclude our practice of disclosing the non-GAAP metrics, EPGA and CPU.

Let me now turn it back to John for a recap of 2014.

Thank you, Braxton.

I can't tell you how grateful I am for the success we've seen and the hard work of all of T-Mobile's employees.

Let me briefly just recap a few of the most important aspects of this year's performance.

In 2013, T-Mobile became the fastest-growing wireless company, with more than 4.4 million customer net additions.

We delivered our significant customer growth, while continuing to hit our financial targets -- growth and profitability.

We will continue to take costs out of the business as needed.

Our operational improvements have resulted in significant positive changes in customer retention and the overall quality of our customer base.

And we expect that the pace of growth will continue even further in 2014, with strong evidence of that already seen in Q1.

2013 was a very strong year, and we have more work to do in 2014 to sustain that momentum and continue growing the business.

Now I think we are ready for Q&A, Alex.

First question, please.

(Operator Instructions)

John Hodulik, UBS.

Maybe just a follow-up to Braxton's comments on the first-quarter sub trend.

Braxton, I don't want to put words in your mouth, but are you saying that despite the weak seasonality we see in the first quarter, that you could see a meaningful uptick in the postpaid net add numbers on a sequential basis?

Maybe if you could follow-up that and give us some color on where those subscribers are coming from?

And, then, lastly on the ARPU, you are continuing to say that you expect ARPU declines to level out in the second half.

But do you have enough visibility to suggest that this 8.6% decline that we saw here in the fourth quarter in terms of postpaid ARPU is the worst it's going to get and it's going to improve from here?

Thanks.

Yes, sure thing.

First of all, yes.

I think we were very clear that we expected, and are experiencing, significant growth related to our Un-Carrier 4.0 initiative.

I think it's important to understand there will certainly, like any offering of this type, be a natural decline curve.

And we expect Q1 to be the absolute highest amount of attraction into our value proposition due to paying off ETFs.

I think it's worth talking a minute about the impact of ETFs.

At this point we are looking at, as a percentage of gross adds, somewhere between 20% to 25%.

And, we also, as mentioned in prior public announcements, expect that the average ETF will be about or less than $200.

If you do the math on this, and especially when you consider that there will be incremental lift associated with this offer, it is fairly economical to go out and target the types of customers that we are bringing in.

And I really want to emphasize something that John said.

And that's the types of customers that we are bringing in.

What we've seen with Un-Carrier 4.0 is unprecedented numbers of the best-quality prime customers coming into our value process.

John mentioned that significant uptick.

So, a little bit on Q1.

On ARPU, what you've got to remember is that we've been doing a massive migration of our base and new growth additions coming in to our Simple Choice plans, which typically have a lower ARPU and service revenues than the traditional bundled service rate plans.

That's a natural progression.

We were 69% through this migration at the end of 2013, so the worst of it is behind us.

And that does give us visibility that we will stabilize ARPU in the second half of this year.

And I think it's also important that you look at the average billing per user because that, on an apples-to-apples basis, shows that we have actually a slight increase in the total cash consideration coming from all (technical difficulty).

Thanks, Braxton.

Kevin Smithen with Macquarie.

Thanks.

Can you elaborate a little bit on your discussions with the Board on CapEx and capital for the 700 megahertz?

Did you get what you wanted?

Would you have spent more, given all your impressive sub growth guidance?

Or is this enough CapEx to meet the demands of the new subscribers coming on your network?

Kevin, it's a great question.

Let me tell you that we are prepared to invest as necessary in supporting the quality of our network and supporting the significant growth in customers that we had and will continue to experience.

That's a fundamental premise and foundation as to the way we are operating the business.

There is always a balance between the amount of capital intensity.

You've got to remember on an apples-to-apples basis, we are significantly accelerating what the prior views pre-merger were that we would spend on capital.

We have a fairly simplified spectrum band holdings compared to other US wireless carriers.

Two primary bands, with a 700 megahertz being a third.

We don't have a lot of legacy technology to support from a network expansion.

Our total footprint is 285 million, concentrated in the more dense parts of the US, which makes for a more efficient capital build.

And I think, importantly, we are making a significant investment in the 700 megahertz spectrum.

We will begin seeding 700 megahertz handsets into our customer base at the end of the year, and we want to get ahead of this 700 megahertz build to be able to take advantage of this, I think, very differentiating asset that we've not had at our disposal in the past.

So, yes, we are very comfortable with the trade-off between the amount of capital investment while still generating increasing cash flows for the business.

Brett Feldman with Deutsche Bank.

Thanks for taking the question.

Just a point of clarification.

Earlier when you were answering John's question, are you saying that you think the first quarter of the year will be your best quarter in terms of postpaid net adds?

Or are you simply saying you think it's going to be the quarter that has the biggest impact from the ETF buyout?

And then I have a follow-up question after that.

Brett, it's really the latter.

We are going to have other moves that we make during the year.

We've demonstrated a lot of innovation.

We're just really commenting about the impact of Un-Carrier 4.0.

Okay.

And then just a little more color on the net add guidance.

You did a great job in 2013 in terms of bringing the churn rate down.

What kind of churn assumptions are factored into your net add guidance for this year?

And then, also last year you kept setting what we all thought were pretty low bars for your net adds.

And you said, well, we are expecting a competitive response, and then you never got one.

But now we have seen competitors respond.

So, can you update us in terms of what your view on the competitive environment is like and how that's factored into your guidance, as well?

Let me start and then I will ask Mike to join in, since he got up so early today.

Remember, we are less than a year into the Un-Carrier initiative.

If you remember, at the start of this game we were looking for 2013 from a postpaid net add standpoint to actually be negative, although sequential as we exited.

We then changed that view to 1.0 million to 1.2 million positive.

We then changed it to 1.6 million to 1.8 million.

And we did 2 million.

So the guidance that we've given of 2 million to 3 million we think is clearly a statement that we believe we can continue to grow.

And you are right.

It is a highly competitive environment.

Players are responding.

I would say we haven't seen much impact to us on the Q4 price changes that AT&T made nor based on their program targeting our users.

And then in Q1, we've seen both Verizon and AT&T respond.

But mostly with what I would say are changes that are a bit more targeted towards each other, and specific sets of users, and a bit more of a base protection.

However, we have a great deal of respect for the competitive environment, and we expect it to continue in a healthy way.

And I think that's baked into our assessment of growth throughout the year.

Do you want to talk about churn, Mike?

I don't have a lot to add to that other than the fact that, as you said, we've driven churn to a low level.

It was 1.7% in the fourth quarter and we certainly expect to perform, give or take, in that range, and the guidance assumes that.

There's seasonal variability as you move through the year, as you saw in 2013.

And just to amplify John's point.

We are in a very competitive market.

We have been for a while.

It has intensified in the fourth quarter and in the first quarter.

That's something that we fully expected.

We get questions a lot -- how are you guys going to be able to perform when the competitors really come out to compete.

Our view is, they are competing.

They are competing very vigorously.

It's a highly competitive market.

We are certainly seeing all of that out in the marketplace right now, and yet we continue to grow.

Great.

Thanks for taking the questions.

Amir Rozwadowski with Barclays.

Just following up on the prior questions about the trajectory for pricing and the conversion of your base to the value-oriented plans.

In thinking about the contribution for the EPS and the success that you've had, clearly, you are seeing some margin pressure in the first quarter.

How should we think about how that pans out through the course of the year?

As you stand today, do you feel very comfortable in getting to a recovering margin trajectory in the back half of the year?

Good question.

Margins are also a function of the amount of growth.

You can see from our guidance that we certainly are looking at growth in the branded postpaid part of the business in excess of what we experienced during 2013.

So, when you normalize for that, absolutely there is some incremental margin pressure that we've talked about relating to Q1 in ETF.

Which we expect to be the highest quarter of Un-Carrier 4.0, which does imply sequential improvement, if you normalize growth for the balance.

Great.

That's very helpful.

And, if I may, one brief follow-up.

John, you mentioned that you expect the competitive environment to remain healthy.

Generally we've seen some concerns about pricing wars in the marketplace.

And some of these announcements have been interpreted as such by some of your competitors.

I was wondering where you think pricing is going from an industry perspective here.

Are we in the midst of this pricing war, or is this just normal, healthy competition?

I think it's normal, healthy competition.

There's quite a bit of it.

I don't think any of the players in the industry have ever used the term pricing war.

In fact, I think even in the past 24 hours, I think Verizon has spoken about their price adjustments as being even less frequent than they had anticipated that they'd be.

Certainly, I think all of the players are trying to protect their base, find their way amongst some of the new -- remember, the changes in the industry have been as much about structure of how we've serving customers as it has been about price and flexibility.

So, no, I don't feel it is a price war.

I don't believe it will become a price war.

I think it's good, healthy competition and choice for customers.

And I think it will continue.

Thank you very much for the incremental color.

Craig Moffett with MoffettNathanson.

Two questions, if I could.

Braxton, I wanted to go back to comments about ARPU for a second, just to make sure I understand.

It sounds like the dilution from Simple Choice is just about over.

Is the marginal ARPU of customers that you are getting from the ETF buyouts higher or lower than your current average ARPU, just given the mix of family plans?

And, so, would we expect to see higher or lower ARPU as a trend?

And then, second, with the prior Un-Carrier and the international roaming offering that you have had, can you talk about what impact that has had on your mix in the small and medium business segment?

Are you starting to see some uptake among small, medium business accounts, or is it really coming from the bring-your-own-device segment of the small, medium business market?

I will take the first question.

Absolutely, we are through the majority of the migration to Simple Choice.

We ended the year at 69% and we're giving guidance to 85% to 90% by the end of the year.

Which is a great thing.

We have a lot of that migration behind us.

That's choosing types of customers that we are bringing in with Un-Carrier 4.0.

Again, remember that the huge skewing and the increase of prime customers being attracted to this value proposition is also translating into higher ARPUs for those customers that are coming in.

So, we are very pleased with what we are seeing as that part of the equation.

As to the second question, Drew, do you want to --?

We are seeing across the board in the business community a strong uptake of Simple Choice International, Simple Choice Global.

We don't break it out but I will give you some color.

Our Q4 adds were up year on year 53% in the business market segments.

Now, remember, we only launched Simple Choice Global on the 9th of October.

So, only really two months of the quarter to take that uptake.

So we want to see that continuing in 2014.

Thank you.

Simon Flannery with Morgan Stanley.

Braxton, you talked about accelerating the shutdown of Philly, Vegas, and Boston.

Where are we on the remaining PCS markets?

Is that something we can pull forward?

Give us a sense of your latest thoughts on that and the synergies related to that.

And then, tablets started to appear as 9% or so of adds in Q4.

How is that going to trend in 2014?

Are we going to see that more like a 20% number?

It looks like there's an opportunity to do more in that space.

Thanks.

Sure thing, Simon.

From the start, we said that we were very conservative on our guidance relating to the synergies and costs to achieve relating to the integration of MetroPCS.

You saw with some of our remarks here that we are executing very well both on a CapEx and OpEx synergy and with lower costs to achieve.

We also talked about how we were extremely conservative in looking at the migration of that base.

We are making great progress towards that.

Announcing the shutdown of three of the legacy Metro systems by the end of this year is a very significant pull forward.

We do believe that there's significant opportunity to pull forward other markets and it's something that we are very focused on.

Because, remember, there is a pot of gold at the end of this migration of the Metro customer base.

And that is over $1 billion pop in run rate synergies.

And was a huge part of the rationale for combining the two companies.

So, yes.

As for tablets, this is Mike.

We do see a lot of growth potential in 2014.

It will grow as a percentage of the base.

But it will have a certain curve to it and we don't expect a sudden lurch up in totals.

What you see going on with our competitors with their 100 million unit customer bases is they're selling tablets into their bases.

And that's why they are able to produce those kinds of numbers.

What we are doing, I think, is more important and more valuable which is we are bringing new families to our franchise.

And they start with phones.

But there's certainly an opportunity over time, especially as notoriety around our tablet offer grows.

One thing to point out is that we don't count any adds that come in on tablets that are only taking our Tablets Unleashed free data for life offer.

Only paying customers are in our tablet numbers.

So, obviously we have more people out there using tablets than are what in the reported numbers.

Great.

Is there any decent conversion on some of those?

Are you starting to see that picking up?

Absolutely.

It's turned out to be, I think, a very good move for us.

Obviously, it was launched during the period in the fourth quarter.

But people come in.

The vast majority of people come in, they use it as a way to check out the network.

We expect not only to get conversion to tablets, but also to get conversion to phones because this is a great low-risk way for somebody to come out and test our network and realize it meets all their needs.

Thank you.

Mike McCormack with Jefferies.

Braxton, could you just frame the impact of the PCS integration costs being moved forward a little bit on the guide for the full year?

And then, maybe thinking longer term, where do you think margins can go in this business?

Obviously we've got the ETF Un-Carrier 4.0 hit.

ARPUs should get better.

The PCS costs should come out.

I'm just trying to get a sense of where margins go longer term.

And then maybe just a quick comment on, you've got roughly 50% prime in the EIP base.

What's the haircut delta on the receivable you take between a prime and subprime customer?

Thanks.

First of all, the acceleration of three markets to fully migrate the MetroPCS space over to our T-Mobile network is going to occur at the very end of 2014.

So, there is really not a significant benefit to 2014.

But it's exciting when you look at the benefit to 2015.

I think that's really the best way to look at and plan that issue.

As to margins, we stand behind the margin guidance that we put forward at the formation of TMUS.

That's developing our EBITDA margins to 34% to 36% in a five-year basis.

The great thing is, we've returned to a significant growth company.

And, as you can see from our guidance, we believe that that growth is accelerating into 2014, which sets up for a lot of future profits coming from this growth.

So, definitely stand behind the original guidance that we put there.

The final question, was your third one?

Just on the [VIP] base between prime and sub prime, what's the haircut you take on the actual receivable that the customer signs versus what you're posting on the balance sheet?

I think the best way to look at subprime versus prime -- and, by the way, the subprime is now significantly less than 50%.

We went from 43% prime at the end of last year to 54%.

That's moving the whole base.

And as you can see with Un-Carrier 4.0, good continued trends there.

What we do from a credit standpoint is we definitely run through all our proprietary scoring, using a lot of alternative data sources.

And the farther you go down the spectrum chain, or probably you go down the credit quality chain, the more you have to pay for the handset.

We call it tailored out-of-pocket.

So, depending on where you score, even though we have a zero down proposition, if you don't meet the required scoring, you are actually paying increasing amounts of that handset upfront as you go down the credit quality range.

So, I think that's really the right way to look at it.

We don't really disclose any bad debt rates or any other metrics relating to granular credit scoring.

Nor do we think that would be appropriate.

But I do want to emphasize that we've seen very significant decreases in bad debt.

We've seen very significant decreases in churn.

Which speaks, I think, well to the Un-Carrier strategy and how well it's working.

That's great.

John, just a follow-up.

What are you guys seeing in some of the dense urban markets, are there any data points you can share with respect to utilization of network?

Anything that we should be concerned about on that?

Or is there still a lot of room to move?

Neville, are you on?

I am, John.

Yes, let me take that.

Can you hear me okay?

Apologies -- I am dialing in from a congress in Barcelona.

Hopefully it's clear enough.

Obviously, load across the network is far from uniform.

But we are in a good place.

We are doing very, very well from a competitive performance perspective across all market areas.

Our speeds are second to none, as Braxton and John have both outlined on the call.

Our strength is extremely strong in the urban areas, based on the density of our network and our spectrum position in mid band.

So we are actually doing well there.

The growth in performance that we see over the next 12 months, you've heard about us adding and expanding the breadth of our LTE network.

We are also adding material density to our LTE network across the 200 million pops that we have today.

So, that's adding performance capability for capacity, as well as speed needs.

The other pot of gold at the end of the MetroPCS spectrum is the AWS spectrum that we were able to bring across and add to the TMUS network.

And we continue to do that, made great strides in 2013, will continue to add spectrum in AWS LTE in 2014.

So, we are in a good position and we are in a great position to support the customer growth that's coming at us.

Great.

Thank you, guys.

Phil Cusick with JPMorgan.

First, I love the hold music and I'm looking forward to Mike's thrift shop-themed ad campaign, which must be coming soon.

(laughter)

Can you talk about needs for additional capital, either to support the faster growth and working capital and CapEx or for spectrum?

We've got an auction coming this year and maybe next year.

And with EBITDA increasing, is there room to do that with debt instead of with equity next time?

Thanks.

Phil, I think we've said in the past, and we continue to say that we are prepared to invest what is necessary in our business to support the growth and the quality of our network.

When we did our equity raise, we were pretty clear that that was a one-time occasion.

We don't really have any interest whatsoever in any further dilution.

And would be oriented toward debt raises to fund any opportunistic spectrum acquisitions in the future.

Certainly, you have the broadcast spectrum auctions coming up in mid 2015.

We are anxiously awaiting the rule setting there.

And we are certainly going to be a participant in those auctions.

The good news is that we have substantial current liquidity, even pro forma for the Verizon A-Block transactions.

But certainly it's going to be interesting to see how the rules develop on A-Block.

And we are definitely going to be focused there.

Phil, I would say pretty clearly we have a good balanced CapEx portfolio.

I think we're comfortable with the pace that we are growing and looking carefully each year as to where we are headed.

Now, with the success that T-Mobile had, and the impact on the industry, and the size of the gap between the number one and two and three and four players, it isn't that hard to figure out that with significant capital, what a player like us could do to close that gap, or almost somewhat of an unlimited capital.

And it also isn't hard to understand why we have a position that we've espoused consistently that over time, this industry is ripe for the impact of further consolidation.

Which is one of the ways to have significant capital exploited to try to close that gap.

But our own growth right now, and our capital profile, we feel is balanced and allows us to do the things that we've outlined.

I'm a little shocked we got this far on the call without talking about M&A.

But since you bring it up -- (laughter).

The consensus seems to be that it's a deal you can't do.

Why is that incorrect?

Again, if it sounded like I was entering into an M&A discussion, I wasn't.

All I would say is just the economics of investing for significant scale and growth begs the questions of an industry that requires further consolidation to lower the concentration gap.

But as far as any specific items or transactions, we are not going to comment on that at all.

Thanks, John.

Matthew Niknam with Goldman Sachs.

Just a couple follow-ups on Un-Carrier 4.0.

Can you give us some more color on the uptick, and specifically around the size of the family you may be attracting, and where they may be coming from?

Thanks.

Yes.

Mike.

A couple of things.

We were pretty successful at bringing in families before this launch.

Certainly we've seen an uptick with the launch of the latest Un-Carrier in bringing in multiple lines at a time.

They tend to come in in twos or better than twos.

They're much more prime, as Braxton outlined earlier, than they were prior to the launch.

We continue to receive the highest nominal number from AT&T.

That hasn't changed.

We've said that previously, as well.

And the quality of these customers is just terrific.

There's a little extra marginal cost to bring them in, as Braxton said, around 20%, maybe a little more than 20% of the customers coming in and qualify.

We expect the payment for each of them to be less than $200, perhaps significantly less over time.

And, because there's some lift, we're getting more efficiency out of our fixed cost per gross add base.

And so there's an offsetting benefit from the efficiency improvement, as well.

Net of all that, there's a marginal extra cost per average customer to come in, which is more than offset by the marginal extra quality.

As Braxton said, we are experiencing a pickup in our acquisition ARPU net of all effects, including the family effect.

And that shows you the power of these higher-quality customers who attach data at a higher rate.

I would just add on, we are not trying to be evasive but it is early on in the program.

And we are not giving too much input yet as to how Un-Carrier 4.0 is going, outside of the fact that we are pleased with it.

We are also not trying to be too cute about where the customers are coming from.

As we've all said, it is a highly competitive environment.

From a standpoint of historical discussions about quoting ratios and size of the flows, that's not something that we are going to get into anymore.

As people are all getting highly competitive, we are going to not give a further roadmap as to where things are coming from.

But we feel pretty good about the impact of the Un-Carrier 4.0.

It's done what we believe it would do.

And we'll have a lot more to say to that as the next quarter unfolds and we see some of the early results.

Walter Piecyk with BTIG.

John, I think the info on the credit quality that you've been seeing from Un-Carrier 4.0 probably gives us some inclination where there's incremental subs coming from, though, right?

I'd say more, Walt.

Okay.

I just want to go back on this wide range of net add guidance, 1 million to 2 million -- or, I'm sorry, 2 million to 3 million, excuse me.

I think Mike talked about churn remaining relatively flat.

But if you look it, your primer is up to 54%.

You are saying Un-Carrier 4.0 is coming on at like two-thirds prime, so these are higher-quality customers.

Is the ability to take churn down further incremental to the upside of that range, or is that within this wide range?

And then if it's not within the range, what is it that's going to swing gross adds that significantly over the course of the year?

Walt, as usual -- and I spend my call following you on Twitter -- I think all of your insights into our announcements are quite good.

The credit quality is very high.

And that is indicative of a broad distribution of where these customers are coming from.

Certainly, we see potential upside to our churn, which, as you say, along with the significant change in gross adds could drive some upside.

I think it's safe to say that if we were forced to look hard at it, we would suspect that in this range we are operating to the high point as opposed to the low point.

We are very respectful of the competitive environment.

And we want to make sure that we give guidance that's consistent with what we see taking place and could take place.

But, if you are looking for the weak spot, it's not necessarily there.

But we're being cautious and respectful as to what could take place throughout the year.

Got it.

And then the other thing that I thought was a little notable in the quarter was your sequential decline in network expense.

I suspect that's just shutting down Metro networks.

When you look at the puts and takes of accelerating the Metro shutdown, but also increasing the LTE coverage that you have to 250 from 225, how should we look at that network expense moving over the course of the year and then into 2015?

Walt, I think that's very astute.

We are doing very well with some of the integration relating to the Metro customers and to the network.

That is driving some efficiencies and was the primary cause of what you are referring to in the fourth quarter.

I think, when you look forward to 2015, you shouldn't expect that throughout the year that there will be sequential decreases in the network.

We are continuing the expansion of our 4G LTE footprint.

That occurred throughout this last year.

So you will have more run rate costs there.

We talked about taking the total footprint up over 250 million.

And we also talked about starting the deployment of our A-Block 700 megahertz spectrum, which will certainly drive some incremental costs.

All this is fully embedded in our EBITDA guidance for the year.

But I think that's the way I would look at it.

Okay, great.

Thank you.

I'd like to turn it back over to our speakers for any additional or closing comments.

Okay.

No closing comments.

This concludes the fourth-quarter call and annual results.

And we look forward to talking to you again soon.

Thanks, everybody, for joining.

Ladies and gentlemen, again, this does conclude the T-Mobile US fourth-quarter and full-year 2013 conference call.

If you have any further questions, you may contact the Investor Relations department.

Thank you for your participation.

You may now disconnect.

Have a pleasant day.