T-Mobile US Inc (TMUS) 2014 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by.

Welcome to the T-Mobile US third-quarter 2014 conference call.

(Operator Instructions)

This conference call is being recorded today, October 28, 2014.

I would 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 third-quarter 2014 earnings call and first ever open Twitter conference.

With me today are John Legere, our President and CEO; Braxton Carter, our CFO, and other members of the senior leadership team.

While this is an Un-carrier call today, we still have a disclaimer.

So here is the disclaimer.

During the course of this earnings call the Company will make projections and other forward-looking statements.

A detailed discussion of the risks and uncertainties that could cause the Company's actual results to differ materially from those in the forward-looking statements can be found in T-Mobile's SEC filings, particularly the risk factors included in our annual report on form10-K filed with the SEC on February 25, 2014.

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 discussion Management will comment on both actual results and certain non-GAAP results.

Reconciliations between GAAP results and these non-GAAP results are available in the investor fact book on the investor relation's home page on our website at T-Mobile.com.

So with this let me now turn it over to John.

Okay good morning.

I now have a new objective for next quarter, which is to come up with an Un-carrier IR disclaimer.

(laughter)

It's hopefully the only the piece of our earnings call that is still traditional and verbose and somewhat unuseful in its wording.

We are doing something different this quarter.

As you probably know, we sent out a very comprehensive fact book and story of what happened in the quarter, to alleviate the need for the long scripted speeches that you tune out to before you can get to Q&A.

So what we're going to do is we're going to have Braxton make very brief up front comments, very factual, and then we're going to move into all Q&A.

It will be into formats as we said, one dial-in as well as on Twitter and it will be a combination of the analysts that have very deep questions to go through and an assortment of other people coming into both lines.

I hope this works.

We'll take feedback on it.

I know we certainly enjoy it more.

And with that I'll turn it over to CFO Braxton Carter.

Thank you, John, and welcome everyone to our Un-carrier earnings call.

Now onto our third-quarter results.

We had a fantastic quarter with the biggest growth in our Company's history.

It was our best quarter ever in terms of branded postpaid net additions.

We added 1.4 million branded postpaid customers in the quarter.

Branded postpaid phone net adds were 1.2 million, more than double the second quarter, and yet again we led the industry.

The same story applies to prepay, where net adds were 411,000, up four times versus the second quarter and also leading the industry.

We added 10 million total customers over the last six quarters, including 2.3 million in the third quarter alone.

The gains in subscribers are translating into financial results.

Service revenues increased at a double digit percentage rate, 10.6% year-over-year to $5.7 billion.

That is another industry best and an acceleration from the second quarter, where service revenues rose 7.1% year over year on a pro forma combined basis.

Branded postpaid average billings per user, or ABPU, grew 4.2% year over year to $61.59, which was the highest in the Company's history.

In other words the monthly amount our customers pay us is at an all-time high, demonstrating the strength of our model and our customers' enthusiasm for our offerings.

Adjusted EBITDA of $1.35 billion this quarter was flat year over year and down sequentially, significantly impacted by the higher costs associated with the record customer growth we experienced this quarter.

We believe we are adding the right customers with high customer lifetime values, so this trade-off is worth making.

Moving over to the network, we continue to get bigger and better.

We now cover 250 million people with 4G LTE, already reaching our year-end goal and are now targeting at least 260 million by the end of 2014, 280 million by mid-2015, and 300 million by the end of 2015.

The rollout of the 700 megahertz A-block spectrum is progressing well, with first sites already on air and handsets in the market.

And we're beginning to hit our stride there.

We are also converting our 1,900 spectrum from 2G to 4G LTE to add coverage, fees, and depth to our network.

Finally, we are continuing to introduce Wideband LTE, which has configurations of at least 15 by 15 megahertz 4G LTE to new markets.

And we currently have it operational in 19 markets with at least 26 scheduled to be lit up by year end.

We have continued to innovate on the service side, offering our customers more means to communicate than anyone in the industry.

This past quarter we rolled out Un-carrier 7.0, which unleashed Wi-Fi and made T-Mobile the first US carrier to adopt Wi-Fi calling across all its new smartphones at retail.

We also boosted coverage by offering postpaid customers a free Personal CellSpot device to replace the aging routers in their homes.

And we brought Un-carrier to the skies by partnering with Gogo to enable free in-flight texting.

We were pleased when Apple recognized our innovation at their iPhone launch event in September, calling out T-Mobile as the first US partner to launch both VoLTE and Wi-Fi calling on both the iPhone 6 and 6 Plus.

We appreciate the shout out from Apple, and the publicity around Wi-Fi calling certainly helped our iPhone sales, making the launch of the new iPhones our biggest launch ever.

Finally, we expect a strong finish to the year.

Our momentum continues, our network is getting better every day, and we expect a strong holiday selling season.

Given our optimism, we are increasing our guidance range for branded postpaid net adds for the full year by over $1 million to $4.3 million to $4.7 million.

We are keeping our adjusted EBITDA guidance range unchanged at $5.6 billion to $5.8 billion, but anticipate the actual outcome will be at the very low end of the range given the expected customer growth momentum.

Let me end by saying a few words about ARPU.

In the third quarter branded postpaid phone ARPU increased 1.1% sequentially.

Excluding the impact of non-reoccurring factors from the second quarter, ARPU stabilized from Q2 to Q3 despite the ongoing migration to Simple Choice plans.

I am pleased to report that the stabilization in ARPU that we have been talking about happened in the third quarter.

I do want to point out that I'm looking forward to the fourth quarter specifically.

We expect branded postpaid phone ARPU will be down approximately 2.5% on a sequential basis primarily due to two factors.

First, we saw incremental growth well beyond the expectations we gave you, driven partially from lower ARPU but very successful in NPV positive one-time promotions, including the 4 for 100 promotion.

This incremental growth is estimated to reduce Q4 ARPU by approximately 1.7%.

Secondly, we see a reduction in certain regulatory surcharges, which are estimated to reduce Q4 ARPU by approximately 0.8%.

The reduction in regulatory surcharges is not EBITDA affecting since these are pass-through charges.

When normalizing an EBITDA neutral item and for the incremental high-quality growth beyond the forecast we gave you, we are right on track on the ARPU stabilization.

We expect ARPU to increase sequentially in Q1 of 2015, demonstrating the short term nature of these effects in Q4.

Our customers continue to deepen their relationship with us, using and paying for more of our services than ever before, reflected in the all-time high average billings per user, or ABPU, we saw in Q3.

In summary, we continue to execute and our growth story is far from over.

Now we are ready for Q&A.

Let me point out that we won't be able to take or answer any questions regarding Spectrum or Spectrum strategy due to the anti-collusion period in connection with the pending AWS-3 auction.

You can ask questions via phone or via Twitter using the Twitter handle @TMobileIR.

We will start with a question on the phone.

Operator, first question.

(Operator Instructions)

Brett Feldman, Goldman Sachs.

Thanks for taking the question.

If I look at the full year EBITDA guidance, which you maintained coming in around the low end, which is what you cited as the likely target in the release, would still imply a fairly meaningful inflection higher in the fourth quarter.

Your net add guidance implies that maybe things will slow down a little, and so perhaps there could be a benefit from lower customer acquisition cost.

But it seems there is a lot more going on there.

So I was hoping you could dig into that just a little bit?

Thanks.

You're absolutely right, Brett, there is a lot more going on.

And we started talking about this at the end of the second quarter.

That there were numerous cost transformation initiatives that we had in place as well as numerous top line initiatives that would have more of a proportional positive impact on the fourth quarter versus the third quarter.

Let me tell you that we are very, very focused on growing not only our sub base with very high quality subs, but also growing our profitability and our cash flows and the creation of substantial shareholder value here.

We are very, very excited that we were able to deliver this type of guidance on growth within the EBITDA envelope that we have been recently guiding to.

Is there any way you can maybe break it down just a little bit?

I can sort of do the math and figure out what a lower level of gross adds would yield.

I'm just trying to close the gap there.

Yes.

So obviously the third quarter was the largest growth quarter in the Company's history.

And I think one of the real positives there, not only from a postpaid standpoint, which was record shattering, look what we did from a prepaid standpoint during a period of time where prepaid has the slowest quarter of the year.

Substantial growth, so very, very positive about that.

But you're right, you can do the math.

And, Brett, I also want to point out we are conservative in the way that we position our forward growth.

I mean, have we ever missed our guidance?

No, we have continued to at least meet or beat our guidance.

Brett, one way to think about it is the low end of our guidance on postpaid net adds is somewhat similar to what AT&T and Verizon collectively added in Q3.

It's still a pretty aggressive piece of business, but there's certainly some leeway there

Let me -- on the cost and the top line standpoint.

We continue to really look at transformation, a complete focus on the simplification of our value proposition through Un-carrier and how that translates to driving cost out of the back office of the business.

We have continued to significantly invest in the front line in care.

But there is a lot of the efficiencies that we're harvesting from a back office standpoint that are really coming to fruition in a larger way during the fourth quarter and will continue throughout 2015.

From a top line standpoint, you know we've taken steps to -- in a very consumer friendly way position unlimited at a higher rate in the marketplace.

But we also did other things, Brett.

One of the things if you remember, we eliminated corporate discounts.

Why have a corporate discount when you have the simplicity and world-class pricing with Simple Choice?

And we eliminated prospectively for all customers, for all future customers but with our existing customer base we went through a revalidation.

And that revalidation was completed during the third quarter and really doesn't hit full impact until the fourth quarter.

So that's another example of one of the more incremental benefits to the fourth quarter.

Great.

I'll let someone else jump in.

Thanks for taking the question.

You're very welcome

Let's do one more on the phone and then I'm going to jump over to Twitter and then come back to the phone.

So operator, next one on the phone.

Kevin Smithen with Macquarie.

John, I think last time you were quoted as saying that most of what you've done in the last year is actually raise price.

So you weren't -- your target was never to be sustainably the value leader in the market.

How should we think about ARPU progression here as we move through the year?

And given all the progress you've made on the Wide LTE and turning out 30-, 40-megahertz of spectrum, could you possibly move to a tiering or charging a higher ARPU for those customers that are getting 20- to 70-megs of downstream?

Yes, thanks for the questions.

I'm going to get Mike Sievert and Braxton involved.

There's a lot in there.

There's certainly some outpricing, what we've done over the past year, which I think should be compared and contrasted to what others are trying to do.

Also a good chance for us to talk about our position on tiered pricing and on things that have taken place, as well as some proposed competitive differentiated pricing strategies, a lot of which we think are part of the trickery of the industry that we won't participate in.

Let start, Mike, with pricing and then we can talk about ARPU trajectory and some of how we'll look at it.

Couple things.

First of all the ABPU, or average billing per user, is the total amount our customers pay us on our bills, reached its highest level ever in Q3.

And that's not because of price increases, that's because customers are showing a deep commitment to our products and services, they're using them more, they are getting tremendous value from them, and therefore they are paying us more on their bills.

But I will say that Un-carrier through seven moves now has been incredibly disciplined.

We've given these amazing experiences to customers, great value proposition, while maintaining a price that allows us to profitably grow the Company.

We think that's really important and very, very different from what we've seen out of the gate from Sprint in the last couple of months as they got started on their moves.

They came in, and I think facing a tough environment, employed a scorched earth pricing approach.

They said right there as soon as the CEO took over that they were going to have to do that because their network is deficient.

I don't think customers are willing to trade up a good experience for a scorched earth type of price.

It really begs the question what's the second and third move?

We're seven moves into this.

Our brand is becoming known as somebody that tackles pain points in the industry and frustrations that customers have, solves them, gives them a great experience.

How do you follow up doing a $50 unlimited?

I think they're going to struggle with that.

And I think people are going to be a little bit disappointed in the numbers that they post as a result.

So it's really about good balance, focusing on value but also focusing on profitably growing the Company so we can keep this Un-carrier revolution going indefinitely.

Very clearly the fourth quarter is a trough in ARPU.

And we clearly stated that you're going to see it increase in the first quarter.

And let's go a little bit deeper on that.

We're pretty much at the end of penetration of our base in the Simple Choice in the whole EIP construct.

We ended the quarter at 84%.

Our guidance for the year end on the upper side of that range was 90%.

And 90% is about as far as it's going to go, because some of our partners and other offerings don't offer Simple Choice or EIP.

And that has been really what the drag has been on EBITDA and the sustained basis.

And we're really past it, and we'll be passed it at the end of the quarter.

That impact would've been much more significant without a lot of the innovations and other items that we're bringing to the marketplace that more than offset the full amount of the potential dilution there.

Things like data attach, things like our jump proposition, and other innovations that we bring to the market.

Again, we are very optimistic about our increase of ARPU going into next year and more good stuff to come.

But I really want to emphasize again average billings per user, highest in the Company's history and up over 4% year-over-year.

That says a lot right there.

Do you have a policy to John's point on tiered pricing?

What we've done this year is we've introduced an additional tier.

So it's $80, or call it plus $30 on a family plan to get to the unlimited level.

And that reflects the tremendous growth we've seen in usage.

And look, we are not going to make a forward-looking prediction about pricing other than to say that we're interested in giving customers a great experience and we're going to charge fairly for that.

We intend to be highly competitive but also disciplined.

I think you've seen that now through seven moves that we are keeping things in balance and focused on giving great value, but also profitably growing our Company.

Thank you

I'm going to jump over to Twitter for a second.

And I've got to give credit to the handle is DanielHSQR.

Credit because he was first in the queue.

We want to thank him for that.

We want to un-thank him for he asked 10 questions all at once (laughter) and flood gated our entire screen.

He kind of crashed our mechanism here.

So we are at least going to acknowledge you so everybody can follow you on Twitter and then crash your feed.

(laughter) Let's take one interesting question amongst the 10.

And there's two of them are together.

One of them is about talking with investors and talking with consumers, many are unaware of music freedom and why.

And what's the reception and the uptake of music freedom and any change in subs daily usage because music streams.

So I'll let Mike talk about that.

And I'm just going to preface as I hand it to Mike to say we could probably insert into this sentence two or three other Un-carrier moves like international data freedom, et cetera which is to us a double-edged sword.

One is there is clearly a lot of awareness that we can increase.

Second is that as people hear about these things, and the reason the question is being asked, it's almost a no-brainer that they switch to T-Mobile, which suggests that our moves have long term legs as we raise the awareness.

But music freedom in particular has gotten a lot of attention.

I'll let Mike talk about it.

That's really the point.

We've done seven or eight major moves here.

And by the way, we're number one in growth in the industry while being number four in advertising.

So the struggle is how do you tell people about all of these incredible things that we've done for customers with our Un-carrier moves?

And the truth is we are relying on the public.

We're relying on enthusiasts.

We're relying on people to tell other people about it.

And that's working, because we are the fourth, a distant fourth in advertising spend but number one in growth.

By the way, on music freedom Neville's statistics, he's sitting right next to me, tell us that we're streaming 60 million songs a day for free for our customers.

Which is an amazing statistic showing that yes, they absolutely are using and getting amazing benefit from this.

Un-carrier 7 we just did last month.

Everybody's focused on Wi-Fi freedom and Wi-Fi calling.

But we announced an exclusive partnership with Gogo that allows you to text completely free and receive your voicemail completely free on Gogo flights nationwide.

So it just keeps -- the list of things we're doing for our customers just keeps getting longer and the challenge is for us to get all those pieces out.

Even if people don't understand every single move we've made or would fail our pop quiz, what they do understand is that we are the brand changing wireless for the better.

The statistics on that are crystal clear.

We're far and away the brand most famous for this.

And we think that's contributing to our growth, and certainly was one of the reasons why we had the biggest growth quarter in our Company's history in Q3.

And it's 8:28 AM and I haven't done any acquiring of customers yet.

So DanielHSQR I'd like you to write at @JohnLegere and tell me whether you're a T-Mobile customer, why not, and what can I do to make sure that you are one.

And then you can have music freedom too.

Let's take another call from one of the analysts and then I'm going to go back to a Twitter call from the tech community that is clamoring to speak with Neville Ray.

Next call.

Simon Flannery, Morgan Stanley.

Thank you very much.

Good morning.

John, you talked last night about multiple players entering the wireless industry over the next few years.

Can you talk about your opportunity there as a wholesale provider helping those folks offer Enviano type services?

Is that something where as your network gets built out and you add more capacity from MetroPCS you can really differentiate from your competitors?

Thanks.

Listen, I said a lot of things last night.

Some quotable, some that I hoped wouldn't be there when I woke up this morning.

The comments though, let's just think out loud because clearly this is a long-term strategic discussion about migration of the value chain and different players entering what we see as quote the wireless space now.

That doesn't necessarily mean that this is the migration of other people being the interface and the provider of customers and us being the wholesale provider.

Although there are scenarios where you could picture one part of what you do with others being that.

There are also tremendous amounts of people with content that are trying to get to mobile distribution that would like to use our brand and our customers.

And certainly tangential industries, especially as you get into wearables.

You can start to think of a lot of other players that are tangential to the current industry who will probably be coming in.

That's more of the type of discussion I was having.

To the specifics of what you're doing, certainly part of a longer strategy for us could be something associated with our -- build over our network and a portion of it being an underlying carriage provider to a new opportunity for others in the industry.

But I don't have any specific people or relationships in mind.

I just want to make sure you understand that for us there are multiple paths, organic, inorganic.

The organic growth of our Company is the most important now and provides a standalone value and long-term shareholder value.

But you've got to think creatively about this industry.

And when you do you'll realize that T-Mobile and where it's going, what its brand is, is a natural kind of ally in some fashion to a lot of other players trying to get to the customer base in the United States.

Thank you.

Okay.

What are you pointing at?

I'm going to do one over here.

There's a lot of people on Twitter that are giddy over the fact that Neville Ray is here.

So temporarily we'll tee one question up that we don't understand what it says and Neville will answer in a way that we don't understand what he said, but a whole community will be very happy.

(laughter) This is Atomic50.

Let's try this one: Team clarified PCS 1,900 LTE deployment in the early core.

Early refi of HSPA plus GSM, et cetera.

Neville, maybe you can talk about that?

It's an urban call question.

We've announced today we're at 250 million pops of LTE coverage, which is well ahead.

That was our year end goal.

We're now at 250 and we're shooting for 260 by the end of the year.

And I think the other piece that we talked about in the materials is a 300 million LTE covered pops number by the end of 2015.

So big strong improvements in the LTE footprint.

To the specifics on the question, it was asking about what we're doing in the urban core on PCS LTE.

Most of our build on PCS LTE is outside of the urban core at this point in time.

We will be re-farming as we move into 15 more of that PCS spectrum.

But the rationale behind that is that we have such a strong spectrum position in the urban core today.

We've recently announced more markets moving to Wideband LTE, which is committed spectrum at 15 plus 15 or 20 plus 20 Megahertz.

And our progress there is continuing to move at a rapid pace.

19 major markets today with Wideband LTE and 26, so another seven markets before the end of the year.

So our capacity position is strong.

We will re-farm PCS in the urban core as and when we need to, but our primary push right now is to expand our footprint with PCS LTE as we have a strong capacity position in the urban core.

Just one quick thing to add on that capacity position, a great proxy to look and think about what's being offered in the marketplace today is the speeds that you can see and support on your LTE network.

As most of you know we're the fastest LTE provider in the US, we have been for all of the year so far, quarter to date we still are, and we look to maintain that position.

Verizon comes in second, AT&T a third, and Sprint a very distant fourth place.

You have capacity you can support greater speeds.

So we win on that front today and we win very well in the urban core markets.

Okay.

That was our tech dose for the morning.

Let's go back to the calls.

Walter Piecyk, BTIG Research.

Thanks.

I think I actually want to stay with Neville on some tech questions, John.

Can you talk a little bit about what the data usage has been like when you kind of unleash these fat channel LTE networks?

And also I think Verizon when they first launched their AWS spectrum and they saw these speed uptakes and they were saying speed was going to slow down over time, I think that's actually -- there's been some evidence of that.

I'm just curious if as you kind of launch these new fat channel LTE networks, have you seen any type of -- with the uptake of customers, obviously the customer growth is really strong, have you seen any pullback in how that network is performing?

And if not when could that happen?

What type of subscriber level are you going to have to hit for you to see some of that kind of capacity-generated slow down in speeds?

Thanks.

As Neville starts, Walt, I want to let you know that you personally are responsible for the 23 tweet storm that I put out after taunting me on Twitter as to why I wasn't speaking up.

So everyone who is pissed about their feed being clogged, this is the man that you can thank for that.

And don't forget to follow me @WaltBTIG as well.

(laughter) I got to put that in there as well.

How about a retweet on that?

I don't want to run over again what I was just going through.

But we're the fastest LTE provider in the US.

We've maintained that position.

There was a very marginal decrease in speeds from us as for others as we work through 3Q.

But we're back again adding more spectrum to our LTE offering, and that's the path forward.

The combination with Metro afforded us this great opportunity to build highly contiguous spectrum assets in the mid-band.

So more lanes on that LTE freeway.

And we're doing very well right now.

Has the average usage of the customers increased?

And can you give us some type of sense of what the use did?

I think Joe was saying that there was some data you provided out of California talking about a 2.5 gig of usage from your customers.

Can you give any average on a nationwide basis and how that may have increased on the fatter channel networks?

Yes I don't think we've -- obviously were seeing customers come on to the network in great numbers and we're supporting a great experience for them.

That's the plan.

Unlike others we want customers to use the service when they subscribe to us and give us their dollars.

So average payloads, I mean we've talked about in that 2- to 3-gigabytes per month range.

So that's up, that's moving from where we were last year.

But that's our plan, Walt.

That's what we plan to do when we look to see more uptake and more growth on this network.

That's the entire plan that we are working on in 2014.

We look to continue that push in 2015 as we'll bring more spectrum assets like our 700 megahertz more formatively to the markets.

I'm sorry, but one last one.

I think 2- to 3-gig is much higher than what other carriers have talked about as far as the usage on their networks.

And you're saying that's a level that you expect to go even higher.

So I'm just curious where your spectrum position provides that advantage, where you'll start to see slow growth.

If Verizon's customers go to 2- to 3-gig or 4- to 5-, I'm not sure that the spectrum necessarily enables them to provide those types of usage levels of their customers.

I wonder if you could just elaborate on that.

And that's my last question, thanks.

We don't disagree.

If you look at the spectrum holdings on a per customer basis, that's one lens to look at this, and you compare us and you take that ratio of spectrum against the supported customers, we're in a good place.

Our ratios are in the 1.5 to 1.6 range.

For Verizon and T it's one or less.

Their ability to support those types of growth capabilities and numbers becomes more limited as growth comes upon the industry.

It's our plan to support high levels of usage and growth on this network.

Our LTE network has come on from 0 pops to 250 in a very short period of time, and we packed a lot of spectrum into that offering.

We are re-farming aggressively, adding more spectrum assets to LTE portfolio.

So we're in a good place and we think it's a differentiator for us.

Walt, again I think their average uses are getting somewhat in that zone already.

If we're 2.7 gigabytes at average user they're probably 2 at Verizon already.

They're at just about 2.

And AT&T is about 1.5.

And that's rising of course.

I think their capability to handle that with the spectrum they have is certainly a good question, far greater than the question on us.

Obviously on unlimited plans the median user across our base is even higher.

So we are already with our network handling much bigger use, so we know what that looks like.

I think they're just getting into that zone.

So it's a very good question.

We'll go over here and we'll give another Twitter question for the network folks.

It's Sidekicker89.

Dead giveaway that he's probably 25 years old.

It's T-Mobile IR.

How many devices are 700 megahertz capable?

Some devices can't even get LTE on 1,900 like my HTC One M1.

So, Neville?

Technically the two pieces mean -- so 700 megahertz, we're delighted with progress there considering how recently we acquired those assets.

But handsets are coming on thick and fast.

There's eight planned for this quarter.

And we already have our first in the market.

Great handsets like the Note 4 from Samsung.

So we're making great progress there considering that we've been working with our handset providers for what about nine months.

As we move into 2015 our plan is to have everything that's LTE capable to have 700 megahertz support.

So that's that piece.

There was a tag on the question about 1,900 LTE.

Thankfully not the PCS band has been in our LTE products the vast majority of them for some time.

There are a small number of handsets that don't support LTE 1,900 but it's a very limited percentage of our base.

Apologies to the questioner coming in there if that's not on his handset, but the vast majority of LTE terminals that we have today support the 1,900 LTE band.

Okay, let's take another dial-in question.

Mike McCormack, Jefferies and Company.

Thanks, guys.

And John, for those of us on the East Coast moving into primetime will be great for us.

Anyway, thinking about the subs and fourth quarter, looks a little bit conservative.

I guess your thoughts on iPhone 6 supply?

And I know the 6 Plus has been constrained.

Also thoughts regarding maybe Sprint?

They've talked about and you guys have talked about porting ratios getting a bit better.

I'm just trying to get a sense because it looks like a pretty good slowdown potentially quarter-on-quarter which is usually a pretty good holiday season.

And then maybe just some thoughts looking into next year?

Consensus looks awfully low versus the 2014 performance.

Thanks.

Okay, let's wander around with that a little bit.

I'm not sure we're going to comment on 2015 until people can absorb some of what's going on here today.

Remember our first guidance on postpaid nets was $2 million to $3 million, then $2.8 million to $3.5 million, $3.5 million to $3.8 million, now $4.3 million to $4.7 million.

I would clearly as Braxton said say it's a conservative estimate for us.

And I will add on to it we're talking about Q3, but it is the end of October and we're pleased with the momentum that carried into October.

Your question about conservatism is a good one.

The porting that's going on in the industry I would say a couple of things about.

The first one is important.

While it's natural, every bone in my body just naturally wants to compete with anybody on anything, we don't need to beat Sprint down to succeed.

Right?

That's not -- and vice versa.

There's a fallacy in the industry that AT&T and Verizon are going to sit where they are and T-Mobile and Sprint are going to bash each other over the head and exchange customers.

It's highly likely that what you're going to find is that's not what's going on.

So we'll see how Sprint's results are, but if I was a betting man I would bet that the momentum they are getting, if they're getting some, is coming from AT&T and Verizon.

Which is really positive.

For us right now the porting ratios with everybody are at a very good place.

As I said last night, if everybody is okay with the way it is right now, I'm okay.

Let's just keep it where it is.

So far in October we're porting 2.2 to 2.3 with AT&T and Verizon and about 2.5 with Sprint.

That is steadily up Q2, Q3 and now with AT&T and Verizon, call it 1.56 or so to 1.8 to 1.9, now to 2.3 to 2.

Sprint has gone Q2 from 3.5 to 1 to Q3 to 3.6 to 1 and they're about 2.5.

So we're still porting highly favorably with them.

But across the board it's good.

You may see that, which would be I think really positive that these customers that are going to test Sprint's network don't come from T-Mobile.

And I do hope that they do well because they'll also add to the competition.

That's some of my feelings on that topic.

Anything, John, on the iPhone 6 supply sort of dampening fourth quarter rounds?

Well, there's good news and bad news.

Obviously the iPhone was the biggest phone launch we've ever had.

And the demand for that product line is and was unheralded.

Supply in some aspects, especially in the iPhone 6 are getting better.

There's line of sight out to what's happening with the 6 Plus, and I think that's with everybody.

I don't think it's dampened customers' desire for it.

It's a beautiful product and very well done.

But as far as Q4, I don't know if Mike, if you want to comment on the iPhone?

Yes, we've got -- we'll be dealing with supply issues on the 6 well into November.

And on the 6 Plus for the majority of the quarter.

And obviously this is a great share-taking opportunity for us if once we work through the supply.

Even with the supply issues the momentum that we're seeing is terrific.

But look, people change carriers when they change phones.

And we've always said this is a big moment for us because this is a big device launch, and so far those predictions are turning out to be true.

As to the conservatism in the Q4 numbers, if you look at our guidance it implies a number for Q4 between 700,000 and 1.1 million postpaid net adds on the quarter.

That midpoint is better than last year, it's better than the sum of the phone net adds that AT&T plus Verizon delivered this past quarter.

So while it may be conservative, it's also a good, strong, solid quarter.

We're going to show balance.

We're going to grow and be disciplined about our growth during a season that's traditionally very expensive to compete.

Great, thanks guys.

These last two answers were our attempt at humility.

I hope they went well.

(laughter) Let's take another dial-in question.

Timothy Horan, Oppenheimer.

Thanks, guys.

Two questions.

John, last thing you mentioned, roaming rates and the FCC maybe is talking about lowering your roaming rates that you pay.

Could you just elaborate on that a little bit?

Does the FCC have the authority to do that, maybe the probability that you would assign to that?

And then secondly just on the synergies from MetroPCS, could you give us an idea where you are on that run rate or more importantly how much more is there to go there?

Thanks a lot.

Yes.

I'm not going to amplify too much on the first piece because frankly there is pending activity in Washington that I am in no position to guess the outcome on.

There was a Guggenheim article written this week that suggested there might be some correlation between the FCC's decision associated with the delay in the auction and the desire to do something favorable for Sprint and T-Mobile on roaming rates.

And certainly I think that would be a great potential outcome.

They referenced decisions sometime in the December timeframe, but I have no inside track on that outside of the fact that we know Washington loves the competition and the competitive environment.

And I think they feel somewhat accountable to make sure that all the players have the tools necessary to compete.

And that would be one area.

So no inside information on that, but something to watch.

The whole MetroPCS story is one that we just don't talk about enough.

I'm going to start with the fact that in the prepaid space, driven heavily if not almost entirely by the MetroPCS brand, we had 411,000 prepaid net adds this quarter.

And this is not a seasonally great quarter for Metro in the prepaid space.

Remember the ARPU here is $37.92.

This is a strong base of business and the momentum continues.

Quietly what we haven't updated up on much is when we announce this transaction, a significant part of this transaction comes from about $1.5 billion worth of savings when you ultimately close their network down, which means that we carefully had to migrate their customers to new handsets or to a experience off of that network.

And at this point 84% of the MetroPCS customers are no longer on the MetroPCS network.

That's a gigantic move.

And about 63% and growing of that capacity on that spectrum has been re-farmed.

So what -- all we did guide to this year is that the one-time cost associated with that network transition would be about $250 million to $300 million this year, $97 million of which we took in Q3.

And in Q4 we're going to update you on the overall savings and what can be anticipated.

It's a story of an integration and a merger and a brand that I'm very, very proud of.

And just a comparison lastly; the prepaid base at Verizon grew 9,000 last quarter and AT&T with their recent acquisitions shrunk 141,000.

Thanks for letting us talk about that topic.

Let me add one thing.

The actual positive synergy realization has really been minimus for 2014.

We'll start stepping into it in 2015 and then hit the full run rate that John is talking about, CapEx and the OpEx of $1.5 billion in 2016.

And technically from an accounting standpoint you have to completely decommission those sites before you can start realizing financial benefits of the synergies realized.

That's why there's not a significant impact on 2014.

That's what I was looking for.

Thanks, guys.

Okay, let's take another dial-in and then we'll go over to Twitter again.

Phil Cusick, JPMorgan.

John, last night you called out Sprint's 10 for $100 promotion as potentially driving more lines than are really valid.

Are you creating the same problem with the 4 for $100 promo?

Can you talk about the customers that are coming in there and what they cost you on ETF?

You've talked about it being NTV positive.

Can you give us a little more detail?

Are they all connected to active handsets and actually using the devices?

Thanks.

It's Mike.

Just a little bit of color on that.

First of all the people that are coming in on that promotion tended to skew a little bit more BYOD than our average.

Not a lot more, but a little bit more which helps moderate the cost.

That's good news.

Secondly the OpEx on these customers looks good.

What happens when you've got a family of two and they add a third or a fourth, you pick up the extra revenue from that extra customer but you don't pick up a proportional amount of cost because they don't call care that much more, et cetera.

So you get some nice business benefits there.

What we had talked about was a one-time suppression of ARPU in Q4 that recovers in Q1, partly driven by the promotion.

But you also see some OpEx benefits because those customers are lower cost to care for.

On balance we're really, really pleased with how it went.

We were able to deepen our relationships with our existing customers, give them a great value proposition.

It wasn't the majority of our loading.

It was a promotion.

It wasn't one of our structural Un-carrier moves.

But a promotion we're really pleased with how it went.

And Phil, the final part of your question was phantom adds.

We can actually track usage by line.

And this is not something that we're the least bit worried about on 4 for $100.

Contrary to what a lot of people think, 4 for $100 has always been a part of the Simple Choice lineup.

It's just that with this promotion we increased the data allowances in the 4 for $100.

And I think that's very different than doing a larger line offering that hey, why not?

If I can get the phone and take the extra lines and are you really using them or not.

And I think that's what John was referring to.

I think if you did a United States census it would show you that there are far more families of four than there are families of 10.

(laughter) But who am I?

Time will tell on that and I -- this is something that we went into understanding and we're very comfortable with.

There is a number of Twitter questions coming in on the same topic.

And I'm going to let Mike use this as a chance.

Taylor_Soper its, his version is why hasn't -- he came in with a negative version.

There's several with the positive.

But the negative version here is why hasn't the T-Mobile test drive program generated as many tests as John Legere expected.

Importantly John Legere had no huge expectations, but he did offer 1 million tests drives.

And the 1 million test drive offer stands.

I also pointed out last night and often, you need to understand when we do Un-carrier moves that start with a philosophy about solving customer pain points, these moves are structural and permanent.

So the test drive, the ability to try which started with the iPhone 5S, we're doing this not only to drive short-term business, but because we think that's the way the industry should be.

So we're learning how to do it, we're looking at ways over time to expand the program.

We'd like to see the whole industry create a process where people can test drive.

So from that standpoint it's a long journey, one that we're very patient with, and one that we'll stick with.

But to talk about this specifically, Mike, comments?

Yes, I think you've touched on the test themselves.

The fundamental measure of this thing is whether or not it's causing people to take a fresh look at our network and change their perception of our network, which itself has changed so much in the last year.

On that measure it's been a resounding success.

There's been complete reassessment by the public of what we offer when it comes to a network.

We've launched our new network campaign backed up by the incredible advances we've made going from zero LTE a year and half ago to 250 million of the fastest LTE with more data capacity than AT&T or Verizon.

And we're explaining all that.

But look, you can explain all that in TV commercials.

But when you back it up with a test drive that says it's totally free, just come check it out.

Whether or not people take you up on that test drive, it shows them that we're not (expletive) them.

That we really mean it.

That our network really is that good and people start to be willing to reassess.

Now some of those people are reassessing because they actually took the test drive, which is great as well.

We've made it available, it's totally free, we're very proud of it, and with the partnership with Apple that brought it about.

Separately we announced when we got it started that eventually we would keep it on the contemporary handsets when they're in good supply.

We're very anxious to make that update as well, which I think will not only continue our long-term commitment to this program, but probably reinvigorate the actual tests themselves

Let's go to the phone operator, take the next question but if it ends up being Tom Gryta let's make believe we can't hear him and then move to the next one.

I'm just kidding.

(laughter)

Tom Gryta, Wall Street Journal.

Thanks for taking the question.

Quickly can you talk about churn in the quarter?

You're still much higher than AT&T and Verizon.

Can you get it down?

If so how do you do that?

And then just second, was there a tablet number for the quarter and how do tablets factor into the net add guidance?

Let's wander around with that one, Tom.

Remember the starting point for us in postpaid churn was 2.5% and that was a variable that as we set out a multi-year plan we anticipated that it would take us several years to get down to the 1.8%, 1.7% range driven obviously by the progress in our network and care teams.

That's gone extremely well.

And as you know this quarter our postpaid was 1.6%, which is flat but just with the seasonal adjustment between Q2 and Q3 we were 1.5% plus last quarter.

We are very comfortable.

That's a very positive range.

Couple of things to think about are certainly we don't have the government and enterprise-base that AT&T has, which is a much lower churn level.

As well as we are 100% no contract.

So there's a lot of reasons this is way ahead of our plan.

I think part of our success is that churn.

We will try to get it down further, but that's a range that is something we've planned for and we're very positive about.

I think that the other guys churn has been a kind of a hallmark as to why they've been able to maintain huge profitability.

And I think the bigger question is how are they going to fare in their model as that churn starts to approach 1.0 and numbers up that they're heading to.

But this is the head of our plan and we're very comfortable with it.

AT&T has spent an unheralded amount of money attempting to re-secure their base over the course of this year.

I think we're going to find, and there's some productions being written out there right now, that their base isn't very secure at all despite all that expense and all those efforts.

Our Un-carrier campaign has always been targeted at giving their customers a better experience over at T-Mobile.

And we intend to demonstrate with our next couple of Un-carrier moves that if they think their base is secure they're quite mistaken.

We're looking forward to solving some more pain points in the market.

Focus squarely on some of the disadvantages of doing business with the big two.

Tom, I had an experience last night that I have every time I can get an audience of 500 or 1,000 people.

And I always ask how many use T-Mobile.

And remember we've got 16.5% market share.

So it's never more than a loud and proud few.

In any group I ask the following questions: How many have used AT&T?

Pretty sizable base.

How many of you got your first iPhone from AT&T?

Pretty sizable base.

How many of you hated it and are really discontent with them and would consider moving to another carrier?

Two-thirds.

I think there were articles written this week that as many as 20 million of their 75 million customers are not locked down.

And in this period of new device change, I think that's a fascinating ground for us.

And I think the possibilities for us and the challenges for them seem to be tremendously connected.

Thanks for your question, Tom.

Let's do one more on the dial-in.

And at some point after this I also want to make some comments, because we are not going to let all these Twitter questions just go away.

We'll make some closing comments on how we're going to handle some of those.

But let's take one more question on the phone.

And this will be our last question.

John Hodulik, UBS.

Great.

Maybe first for John.

John, you talked a lot about the porting ratios, but can you maintain the momentum and the share specifically of handset net adds that you showed this quarter in the fourth quarter and beyond while sunsetting the 4 for $100 promotion and while seeing the renewed pressure from Sprint, which is now focusing on share?

That's number one.

And then for Braxton it looks like the fourth quarter margins you're going to see a nice uptick as was said in the previous question.

Is that sort of 28%, 29%, 30% general range what we should start to think about as we look out into 2015?

Mike, do you want to start?

I mean if you look at the quarter ahead, as I said a few minutes ago and you take our guidance that implies 700,000 to 1.1 million on the quarter on net adds, which is more than last year and more than the sum of the phone net adds that AT&T and Verizon did this last quarter.

So it's a strong, solid quarter.

We've got a lot going for us including some nice momentum into October.

We think iPhone is a share-taking opportunity.

Note 4 is a share-taking opportunity.

It's a device-centric quarter.

So just because we're pulling back the promotion doesn't mean we're not playing hard.

It's not a quarter that's usually driven by rate plans, it's more driven by devices and we intend to play hard in devices this quarter.

We guide somewhat conservatively on this.

But if we hit the midpoint of this guidance that also would be a solid set of numbers, as I said.

And we have been very disciplined all along at playing smartly.

We've got 3.6 million postpaid net adds in the bag so far, and we have focused the majority of those on smartphones because they're better customers; higher productivity customers, higher ARPU, better usage profiles.

Where our competitors are basically hiding behind tablet nets, some of which are of dubious quality and whether or not they're really even real customers.

So we're really proud of the mix.

It was 200,000 tablets, 1.2 million nets on the phone side, which is a very, very high quality profile.

And we're guiding for another strong quarter in Q4

John, I went out of my way and I maintain the position of pointing out that this isn't a game about us beating Sprint.

I don't want to let that be viewed as that we're not beating Sprint.

We are summarily beating Sprint consistently.

And I don't think we should, we won't, you guys can do whatever you want.

Let's not get too carried away with somebody that went from dead to showing a pulse.

I mean they've got a lot of work to do.

And we're still porting 2.5 to 1 with them.

That's not exactly calling a need for a task force to figure out what to do.

We're very strongly rolling.

Our gross add flow was up 46% year-over-year.

A couple of things, and I know they sound a bit like pablum when we talk about them.

But there's something going on with the Un-carrier moves that have taken place, not only the awareness needing to grow, but our brand is accreting significant value.

And a huge portion of all carriers' customers are now seeing T-Mobile as the number one company that is taking the most steps to change wireless for the better.

That has tremendously positive ramifications.

And when you do any survey about likely switchers, et cetera.

While some of the offers Sprint is laying out are getting headlines mainly because they woke up.

It's not necessarily the kind of thing that builds brand loyalty, and over time I think that's a big deal for us.

Now let's also know in addition to brand we happen to have the fastest network.

So one of the big things that we've learned this year that Sprint and others will need to learn, you can get them to come, but will they stay.

And right now our network experience, what we've just outlined is 250 million pops and we're announcing we're going to move to 300 million, that is a great experience and it's the fastest one.

Our JDP award-winning customer care team, these are all part of that multi-period success.

And lastly, we -- 4 for $100 as it was designed was a one-time offer, but we are the only ones that offer unlimited on a family plan, which you can get.

And I don't want make any announcements, but hell, the last thing we did was our fourth Un-carrier move this year, which was Un-carrier seven, what do you think is coming around the corner to you?

Seven plus one equals Un-carrier eight.

So let's wait and see what happens.

Thanks for your questions.

Listen this format has been fun.

We could probably allocate more time to it in the future.

Anybody want to make a comment on what we're going to do with the Twitter questions?

We're going to do our best, I'll make it.

We're going to do our best to answer as many of these as we can going forward.

I of course will be on my own handle answering all my own Twitter.

But give me six hours or so to catch up with the flow.

We're very proud of this quarter and we look forward.

Braxton, any final comments?

We definitely appreciate everybody.

I hope you enjoyed the Un-carrier earnings and definitely looking forward to next quarter.

Okay everybody, thank you very much.

Ladies and gentlemen, this concludes the T-Mobile US third-quarter 2014 conference call.

If you have any further questions you may contact the investor relations or media departments.

Thank you for your participation.

You may now disconnect and have a pleasant day.