T-Mobile US Inc (TMUS) 2015 Q1 法說會逐字稿

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

Welcome to the T-Mobile US first-quarter 2015 earnings call.

(Operator Instructions).

Following the opening remarks, the earnings call will be open for questions via the conference line, Twitter or text message.

(Operator Instructions) Those interested in submitting questions during the earnings call through Twitter, can do so by tweeting @T-MobileIR using the #TMUSearnings or send a text message to 313131, enter the keyword TMUS followed by a space.

This earnings call is being recorded today April 28, 2015.

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.

Good morning.

Welcome to T-Mobile's first-quarter 2015 earnings call.

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

Let me read the very brief disclaimer here.

During this call, we make projections and statements about the future performance of the Company, which are based on current expectations and assumptions.

Please consider the risk factors included in our annual report on Form 10-K that could cause our actual results to differ materially from those in the forward-looking statements.

In addition, we will comment as usual on non-GAAP financial results on this call.

You can find reconciliations between GAAP and these non-GAAP results in our investor factbook on the Investor Relations page of our website.

Let me now turn it over to John Legere.

Okay.

Good morning, everyone.

Thanks for joining us.

Welcome to the first-quarter Un-carrier earnings call and our third open Twitter conference.

We are providing a live video stream again, so you can actually watch all the action that's going on here from San Francisco if, in fact, that's what you feel like doing today.

Now we're going to generally go with the same q-and-a approach as last quarter.

And to accommodate all your questions, we've allocated up to 90 minutes.

Certainly won't use all that time if, in fact, it's not necessary.

We're going to take questions via Twitter, text, as well as the dial-in questions that we normally take.

But before we go into that and to make it brief -- we did send the information out -- I just want to give you some of the highlights of what was a fantastic quarter for the Company.

Now we clearly started the year with a bang, 1.8 million total net adds in Q1, and that included 1.1 million total postpaid net additions and 1 million postpaid phone net adds.

So I will carefully say that we are very confident that our postpaid results are the best in the industry by a long shot and that we have captured all of the industry postpaid phone growth in the first quarter of 2015.

And importantly, as I've told you before, we won't stop, and these results prove that.

A significant accomplishment of the quarter was delivering all-time low branded postpaid phone churn of 1.3% with the second two months of the quarter actually lower than 1.3%.

Now this is a record low for us and down 17 basis points year over year, and it demonstrates the real improvements we've made at T-Mobile.

The Un-carrier is taking hold, and it's giving customers not only a reason to come but a reason to stay, and we continue to rapidly improve and expand our network, which is a major source of increased customer satisfaction.

Sequentially, churn decreased 43 basis points and benefited from the moves we've made, plus particularly industry dynamics as well this quarter.

Now the number one question that I always get is, how long can T-Mobile keep tearing up the industry and putting up these types of numbers?

And I just want to point out that we have a market share, by the way, of about 16.5% amongst the big four.

Now that is dramatically up from about 11.5% two years ago, but we still have a long room to grow.

Our share of gross adds or SOGA and our porting stats show that more customers are joining the Un-carrier revolution, and our churn numbers show that our customers are staying with us longer.

So I think those things bode very well for us.

In Q1, by the way, our postpaid share of gross adds was an estimated 26.4%, which was up 120 basis points from Q4 with an intra quarter high of 28.4%.

Now, we continue to see our brand winning in the marketplace and, by the way, we'll continue be aggressive.

For the last two years or eight full quarters, our overall reporting ratios have been positive.

For the last five quarters, by the way, since Q1 of 2014, they've been positive every month against every carrier, no exceptions.

That momentum carries forward into 2015.

On a post-paid porting ratio, we were 1.93 overall in Q1, which was up from 1.7 in Q4.

We improved versus every single one of our peers.

And so far in Q2, by the way, we are accelerating further.

That's up to 2.2 overall, and versus every competitor, it's up as well.

Our fantastic growth is fueled by two primary drivers.

Our Un-carrier moves and our data strong 4G LTE network.

First, in terms of Un-carrier, we made another significant move in the first quarter.

We launched Un-carrier 9.0 business unleashed, doing for business what we've already done for consumers by eliminating pain points and forcing change.

Post-launch, weekly retail business sales have more than doubled.

We also launched Un-contract, which puts an end to price uncertainty and guarantees Simple Choice customers that their rates won't go up.

And we introduced Carrier Freedom with T-Mobile, pay off your outstanding device equipment installment plans releases when you switch to the Un-carrier.

Second, T-Mobile's blazing 4G LTE network, the fastest in the US, continues to get better and better.

We're reaching more Americans every day.

We ended the first quarter with 275 million POPs of 4G LTE, and we plan to expand our network to 300 million 4G LTE POPs by the end of 2015.

This will level the coverage playing field with our major competitors.

We are quickly deploying wideband LTE, already live in 157 markets and targeting more than 200 markets by year-end.

In addition, we're aggressively launching low band 700 MHz A Block spectrum now live in 55 markets.

On May 1, our acquisition of MetroPCS reached its two-year anniversary.

Look at what we've accomplished since then.

Our prepaid business is nearly 3 times the size it was prior to the combination with MetroPCS, and we are now the nation's largest prepaid carrier.

And we are making great progress on the MetroPCS integration with the majority well over 92% of the MetroPCS customer base already on the T-Mobile network and 80% of the spectrum already refarmed for use on the T-Mobile network.

This past week, we announced more industry innovation and disruption by partnering with Google on Project Fi.

This is going to make people think differently about wireless, and I love that.

Anything that shakes up the industry's status quo is a good thing for both US wireless consumers and T-Mobile.

In terms of network, we led the industry on unleashing Wi-Fi last fall.

Project Fi lets customers easily access Wi-Fi and cellular networks, and there's no doubt that Google and us share a vision that is great for customers.

So in summary, we are off to an incredible start to 2015 with the best customer growth in the industry, fueled by disruptive Un-carrier moves and a network that continues to be America's fastest.

We expect to have gained all of the industry's most valuable branded postpaid phone customers while delivering all-time record low branded postpaid churn of 1.3%.

And we are nowhere close to being done.

Now our CFO Braxton Carter will provide you with a quick overview of the key financial highlights, and then we'll get straight to your questions.

Braxton?

Thanks, John, and good morning everybody.

I'm so excited to be here to again provide financial highlights to another outstanding Un-carrier quarter.

Our industry-leading growth again translated into strong financial performance.

Service revenues were up 9% year over year.

Total revenues were up 13% year over year, and adjusted EBITDA grew by 28% year over year.

We are highly confident that these growth metrics will again lead the entire US industry.

It is important to note that we achieved this growth, despite the non-cash revenue deferral from Data Stash, which reduced adjusted EBITDA by $112 million in the quarter.

Sequentially, service revenues declined 0.9%, but this was due entirely to the impact from Data Stash.

Excluding Data Stash, service revenues grew 0.9% sequentially and double-digit 11% year over year.

And customer quality remains strong.

Bad debt and factoring expense as a percentage of total revenues declined year over year, and bad debt expenses, excluding factoring, also declined is absolute dollars in the fourth quarter.

The sequential increase in factoring expenses was primarily the result of a nonrecurring item due to a change in our factoring agreement.

Prime flow of EIP receivables remained in line with the overall trends over the last two years.

As expected, adjusted EBITDA declined from the fourth quarter, but this is due to our stated intention to invest heavily in growth in the first half of 2015, as well as the Data Stash impact.

To echo what John said before, we see momentum accelerating into Q2 as we continue to invest in growth.

The Data Stash impact will also turn from a headwind in Q1 to a tailwind as the year plays out.

We have revised our strong outlook for 2015 by increasing guidance for branded postpaid net adds from a range of $2.2 million to $3.2 million to a new range of $3.0 million to $3.5 million.

And we are maintaining our adjusted EBITDA guidance of $6.8 billion to $7.2 billion, even with the higher customer growth expectations.

Cash CapEx is also maintained at $4.4 billion to $4.7 billion.

And while we don't guide on branded postpaid ARPU, I think we've seen the low as it will increase from here.

Excluding the impact from Data Stash, ARPU declined slightly sequentially due to our strategic investment in family plans, which is an investment very worth making given the higher MPV, greater retention and lower acquisition costs associated with family plans.

All other ARPU metrics on APU, ARPA and APA increased sequentially and year over year, excluding the impact from Data Stash.

In fact, our average billings per account reached a new record high of $145, even including the impact of Data Stash.

In addition, our expectation is that earnings per share will be positive for all the remaining quarters and for the full year of 2015.

With regard to the second quarter, we expect a meaningful recovery in EBITDA compared to the first quarter, tempered by the impact of continued strong customer growth.

We remain very confident in being able to achieve our full-year EBITDA guidance.

We delivered strong financial results in Q1 and maintain a strong outlook for 2015.

We won't stop.

Rather than go on about such a great quarter, let's get to your questions.

You can ask questions via phone, text message or via Twitter.

We will start with a question on the phone.

Operator, first question, please.

(Operator Instructions).

Brett Feldman, Goldman Sachs.

(technical difficulty) was obviously quite strong in the quarter.

Could you talk a bit about the extent to which you think that was seasonal?

We've seen lower churn across the industry, and to what extent you think it's structural?

And any incremental color you can provide around that would be helpful.

And then just as an extension of that question, how are you thinking about churn -- how were you thinking about churn for the remainder of the year when you updated your net add guidance?

Thanks.

And Brett, before you go up, you came in after I think your first sentence.

And I'm assuming that the entire question was about churn?

Yes, sorry.

All right.

Do you want to start, Mike?

Yes, hi, Brett.

It's Mike.

Churn hit a record low.

And what's more interesting is that the sequential improvement was the biggest in the industry.

So everybody had pretty good churn this quarter, but we had the best improvement on a sequential basis.

And so yes, there were some industry dynamics, but those industry dynamics favored T-Mobile.

You know, the truth is people are reacting to both the Un-carrier story and what it delivers to them, but most importantly this is driven by the radical improvements that we've made over the last year in the network.

It's not rhetoric.

People are coming to this brand.

They're kicking the tires, and they are liking what they see, and they are staying at record rates.

It's a simple as that.

You know, Brett, there is from a standpoint of the Company and where we see it going and how things are going since we embarked on this journey.

When we initially, Braxton and I, started giving our five-year views from what we thought the Company was going to do, you'll just recall that the churn on the postpaid side back at that point was about 2.5%.

And it was our plan that we could gradually in successive years get it down to about 2017 is when we thought it would be 1.6%.

And so we're running well ahead of that.

As I think we kind of said and Braxton can elaborate, there are some seasonal increases in churn in the second half of the year that you can expect.

But outside of that, I think the churn changes in the business are somewhat directly correlated to the amazing changes that are taking place in our network, and I think those are only going to get better.

Plus, the customer care improvements in our Company are fantastic, and the feedback that we've been getting on that front is fantastic as well.

So, as we start planning the next few years, we to see these kind of churn levels with some seasonality that there being no reason why we can't continue to perform this way.

Braxton, did you want to comment?

Yes, Brett, I think it's really one of the true highlights of the quarter in a very, very significant development.

And a couple of things I want to add is, when we do our cohort analysis on churn, the highest churn in a customer's life is during their first six months of tenure, and we see a steady fall-off of churn as that customer matures over time.

And obviously with 8.3 million net additions and another outstanding growth quarter in the first quarter, we've fairly young base, which means that from a more mature standpoint, our churn is actually elevated.

I think John hit the reasons very well: incredible network performance, amazing innovation from a marketing standpoint.

But one of the things that we are really excited about is what the 700 MHz rollout can do, and Neville will talk about the great progress that we are seeing with the rollout of 700 MHz.

And a very key part of the business case and the rationale behind that investment was customer retention.

So yes, there is some seasonal impact, but we think we have a lot of things going on and especially one of the best customer service organizations in the industry.

That's really going to help us in the future continue to effectively retain our customers.

And you know that that is the Holy Grail to the economics of a wireless business.

Okay.

Let's take one more on the phone, and then I'm going to jump over to Twitter, and then we are going to go to the text message.

So let's take the next dial-in question, operator.

Simon Flannery, Morgan Stanley.

John, you talked about the upside.

You still have to market share of the headroom you have, and you recently launched Un-carrier 9.0 around the enterprise.

Can you just talk a little bit more about what you see as the opportunity there and if you can share any earlier results since you rolled that out, thanks?

Yes, first of all, Un-carrier 9.0, I'm sure everybody's gotten the chance to see what it was.

I think that's got incredible upside to the business for a number of reasons, which is when I talk about the combined market share that we have across the big four in the wireless basis, it's far, far, far less on any aspect of the business side.

And the immediate impact, of course, on the small and medium businesses and people going into the retail stores is actually up about 128% in the weeks that followed.

So a significant surge.

And I think on the business side, that kind of flow is not something that can't get even greater and greater in size, and I'll let Mike comment on that in the second.

But I think there are some things that excite me significantly about our ability to continue to grow.

I only talked about the 16.5% because people are starting to think about the sizable growth.

I mean we've gone from 33 million customers to 57 million customers in the last two years, including Metro coming in.

And the porting -- postpaid porting ratios are continuing to escalate.

And from a standpoint of the things that we've launched, I have two things to say.

We launched nine Un-carrier moves, and yes, 10 is coming very soon to a scared set of carriers near you.

But most importantly, what we track and Mike tracks very carefully is the awareness level in the United States on all customers and on likely switches of the first nine moves that we've done.

And I can only tell you that the awareness levels of some of our most innovative moves range from 10% to 29%, which means that two-thirds of the customers that are out there don't really know that we have free international data roaming.

And they don't know some of the things that are constantly once they understand a major switching move.

The components of Un-carrier 9.0 are absolutely phenomenal.

I mean the simplified pricing that's taking place, the way data is being handled, the tools that we're giving to small businesses with GoDaddy and Microsoft and then the implications for families on the business family discount, it's a big deal.

And the thing I can't measure, but I wish I could, is in addition to the 128% flow that's happening in our stores.

What's happening in the business customer rooms of AT&T and Verizon, and their customers are strolling in with T-Mobile's transparent simplified pricing and asking those scared to death business players, hey, can you please explain to me how my [1050th] line is $10 a line and includes a gig of data?

And I'm pretty sure that these guys have no comment.

So that piece I like as well, and it's so far so good.

But, Mike, do you want to comment on --

Well, just to amplify what John is saying, this is really about opening up a new front for us.

And the time to do that is when in your main thrust, there's tonnes of room left.

And you think about our 16.5% market share, it shows we've got tons of room left on the consumer side while at the same time plunging ourselves into real competitiveness in the business space.

And for those that aren't math geniuses, 128% growth, that's a doubling of our flow rate, which was already well established just in the last two months.

So we are really, really pleased with how the world has responded to this.

And remember, Un-carrier 9.0 wasn't just for business.

It also included the Un-contract, a really innovative new way for people to think about how they can rely on their pricing and their value proposition from us forever.

It also involved Carrier Freedom, a big extension of our Contract Freedom initiative from last year now will pay off not just early termination fee, but will pay every penny you owe on your old phone as well.

So really, really great contribution to our quarter's results in Un-carrier 9.0.

And I'll give you one thing, too: you notice on some of the last calls with our competitors, they have now decided that porting ratios aren't something they want to talk about.

It's like, hey, that doesn't mean anything to us.

One thing you'll notice with us is we'll talk about all of them.

Any variable -- and no variable in and of itself is going to give you the full answer, but they are all good leading indicators.

Let me give you an explanation why the other carriers don't want to talk about porting ratios.

For Verizon, the Q4 porting with T-Mobile was 1.4, so you get that certainly 1.4 times as many customers came this direction as the other one.

And then, of course, in Q1 when they were going to get aggressive, it went to 1.6.

And so far in Q2, it is 1.8.

So the trend is fairly clear.

AT&T is interesting.

They were 1.8.

Then they went to 1.85.

And so far, they have 2.05.

And if you've been waiting to ask the question as to -- and I do think it'll be interesting to see Sprint's earnings.

I think they are doing some interesting things.

But just from a standpoint of the postpaid porting ratios with Sprint, they were 2.2 in Q4.

They went to 2.45 in Q1, and they're running 2.75 in Q2.

So, so far, certainly not worthy of a task force for us to understand how to change the trend.

So, just a little data there.

Thanks for all the color.

Let me go over and take one Twitter message because he is tweeting all of us on the side as well, and he is probably parascoping himself while he's tweeting.

But [Walt Pyecheck], an avid Twitter user and follower, has the question and he has already told us that I shouldn't answer it, which means he wants a detailed technical answer from Neville Ray.

Does the plan to expand LTE to 300 million POPs require more 700 MHz spectrum purchase?

And maybe Neville, while you're at it -- the one from [Reed] as well because it's on the same topic from [Reed Dear].

(multiple speakers) How does that one go --

Reed says, when will new coverage build -- buildout kickoff, and will it be 700 MHz only full LTE, MTS GSM suite?

So, the immediate answer is, no, we don't require any more A Block licenses to reach the 300 million POPs of LTE.

And so, if I look through the balance of the year, tremendous progress through Q1.

275 million in the books.

We've said we are targeted 280 million by midyear, very, very confident on that metric.

And then to get to the 300 million, it's a combination of our continued work to modernize our sites with AWS and PCS-based LTE, and building on the great progress we've had with 700 MHz build already this year through the end of the year.

This is on existing licenses we own.

We are on an incredible tear.

We've had great success actually clearing any license encumbrance issues that we have across the vast majority of the markets that we are targeting for this year.

So we have over 80% of the licenses clear and free for us to build and operate within.

We have thousands of sites already construction complete and coming up.

The list of markets continues to grow.

And so just as of this morning, we lit up and turned on Denver with our A Block license.

So that adds to DC, Minneapolis, Philly, Dallas, Houston, Detroit, Tampa, San Antonio, Colorado Springs.

That list is kind of growing with 700 momentum every day.

So delighted with that progress.

We have a clear path with the licenses that we've cleared to date to get to the 300 million.

Would love to do more.

Performance results are truly exciting.

We're seeing big enhancements on building coverage.

The performance and reach in suburban and rural areas with 700 is spectacular, and we've got a great handset lineup building the new Galaxy 6, Samsung 6, that came out, band 12 capable, and just rocking away on that new 700 spectrum.

So we are making great progress there.

The second question about newbuild, we are building other sites across markets, many of those in areas where we don't have 700 MHz spectrum.

That program is already well underway this year, and there are improvements in multiple markets coming through without the 700 build.

I'll stop there.

Let's jump around.

Operator, I think the next question is from Phil Cusick.

From JP Morgan.

Hi, this is Eric in for Phil.

CapEx came in a little lower than the run rate.

What was the reason for the lower spend?

Are you guys waiting on anything before it ramps?

And then with regard to factoring, what should we expect from that going forward?

Are you guys looking to factor handsets as well as the service receivables?

Yes, the CapEx profile is just purely timing.

We, again, reiterated our guidance for the $4.4 billion to $4.7 billion in cash CapEx spend during 2015.

So I wouldn't read anything into a slight dip in Q1 CapEx.

On the factoring front, there will not be any more service receivable factoring, but we have been transparent in the capital and liquidity section of our MD&A that we are, in fact, exploring securitization of the $4.9 billion net that we've invested off of our balance sheet in EIP receivables.

And this something that we continue to take a look at.

Of course, we structurally would be looking at something that was very favorable from a cost of capital standpoint in regards to putting say, five four-year bonds out the marketplace.

But just stay tuned.

It's something we're looking at, but no definitive announcement at this point.

Okay.

I'm going to jump over to the text messages because there's a -- the first question that's come in is something that I've been seeing on various forms of social media overnight in the last couple of days.

Is it true that users 20 gigabits plus are now being throttled?

It's not prioritization because speeds are hovering around 0.02 speeds.

Now a couple of things.

First of all, I want to make sure you understand those of you that are writing in as well, you are heard.

I did read the Reddit trend on this and see what's going on, and I've seen it starting to fuel on social media.

And I would just tell you that there are -- from my observation, there are multiple issues being talked about at the same time that have nothing to do with each other.

And I want to reiterate that on unlimited 4G LTE customers we do not throttle.

So that's the thing that people are hovering around.

And I did see the Reddits and the social media definitions about individual customers who happen to be high users who are showing very low speeds.

And one of the things that is being conversed -- and I'll give you a solution in a second -- is that is very well-publicized only in areas where our network is completely congested for short periods of time.

It could be seconds.

It could be minutes.

It could be periods of time where large volumes of people are that the network management practice is how do we clear out the congestion at a time when nobody has speeds.

And I think what I'm watching happening is we must have some high-volume users who are in congested areas who are looking at their speeds and believing that they are being throttled and putting several items together on threads.

But I want to reiterate, we do not throttle 4G LTE unlimited customers.

And I think what we've decided to do, I talked with the team this morning is we are going to set up some sort of a separate forum.

Maybe we'll do a Reddit AMA or we'll do a periscope discussion just to deep dive into this so we don't give you a short answer.

But for those of you that are trying to connect this together and say, hey, is T-Mobile throttling, we are not throttling.

So let's take that off to the side, but also make sure you understand that your comments on Reddit, your comments on Twitter and various forms of email and social media, we are seeing all of them.

So I appreciate the question coming in, and I know it's indicative of a question a lot of people have.

Okay.

Let's go back to the phone for the next question.

Jonathan Chaplin, New Street.

Thank you very much.

I'm wondering if you could give us little more color on the arrangement from Google?

So I guess two quick questions.

First of all, our understanding is that you can pull a plug on the relationship once they get above a certain threshold of subscribers, and I'm wondering how large that is.

And secondly, it seems like Google is going to pour R&D into disruptive technologies, particularly around sort of Wi-Fi to cellular handoffs.

And I'm wondering to what extent your agreement with Google gives you access to the sort of the IP that they developed through this process?

A couple of things, and I'll see if Mike wants to -- we're not going to disclose terms of the agreements with Google, but I would say the last thing in my mind right now is how to unhook Google.

I think this is one of the most exciting things that's going on, and it's a great enhancement for us and a very profitable relationship and one that we are very excited about.

And I think it's quite consistent with our business going forward.

But we are not going to disclose the terms either on how we can extend, expand or exit and/or any of the technology sharing relationships -- I don't know if there's anything else?

And we certainly are excited about it.

I mean this is a strategic partnership.

We are excited about it really on two fronts, and it really goes to your question.

The first one is we expect to make money on this.

This is something that allows more customers on our network on terms that are very favorable for T-Mobile.

But probably more importantly, this is something where we get to collaborate deeply with some really smart thinkers.

And, you know, our whole DNA around change: changing the norms in the industry, bringing about things that are better for customers, tackling a bunch of the important why questions and why not questions that remain in this industry.

And they are passionate about that too.

And so we get to look at what's possible together.

Implementing these technologies takes work on both sides, and yes, to the premise of your question, if there are things that land on the Google side that turn out to be popular, many of those things we can bring over and offer on the T-Mobile side as well due to the collaboration.

So, we're really excited about it.

We think it will be great for us financially, but as importantly, we are of like mind.

And this is about disruption, and it's about changing the norms and standards in the industry, and we think it really lines up nicely with who we are.

I've actually said a couple of times as well that you're going to see this -- there's a big difference between the way our business is structured and the way we think about customers and the way we think about where the industry is headed.

And what to most of our competitors is a threat or something they hope to not see coming is something that we embrace and want to enhance.

It's very clear -- and this question on Google come go into a broad array of thinking about the future of the industry.

And it's very clear as we all see it that content and social media and entertainment are all moving to the Internet and the Internet is all moving to mobile.

So there's a real synergy between what we're doing, and I think we think far too simplistically about the four major carriers and what the structure of the industry is going to be without understanding that the tangential players in various industries are touching mobile players in a way that's going to make the partnerships and the capabilities and the go-to-market approaches of us with them and T-Mobile being the most likely obvious candidate to do these things with.

It's quite an exciting time, and this relationship with Google is just one small aspect.

Neville, did you want to say something?

Yes, just a quick comment on the R&D and especially on the Wi-Fi calling.

There's no doubt, we're the leading company across the earth really on Wi-Fi calling.

But you've seen how others have embraced our capabilities, notably the Apple team with the iPhone 6 launches, and T-Mobile, the first to enable Wi-Fi calling and transition into the voiceover LTE environment, which is absolutely the future of this industry.

And so I think for the Google folks, there's R&D and capabilities that they are looking to leverage from us as much as the other way, which is great to see.

So clearly, there's Wi-Fi capability on the Google Fi service.

At some point in time, you can get to where we are with handover into the VoLTE environment, but that's going to take some of the other folks that they are working with to actually even launch VoLTE and start moving towards the future state of these networks.

I'm going to jump over to the Twitter feed, and then we'll come back to the phone.

And I actually saw Rick Prentiss who has got a question coming in on text.

So we've got things going on.

You know, FierceWireless, who I'm an avid reader of, has a question.

Does T-Mo not feel any pressure to invest in areas like connected car, Internet of Things to complement the consumer business?

I think that's a consistent question to what I was just saying.

Now if you think about a number of adjacent industries and businesses, it's heavily likely that our two biggest competitors, dumb and dumber, will continue to attempt to use their balance sheet and their excess profitability from their businesses that we are competing in to go invest and own and control all aspects of the industry that they feel like they need to compete with, which will, therefore, annoy and cause all of the other innovators in the space to look at people that they want to work with, partner with, invest with, align with or merge with in order to play in that space.

And it's highly likely that the innovation will come from other than the one big one that dumb or dumber buy.

So yes, we don't feel pressure but we see ourselves uniquely positioned to be the player that these innovators look to to drive their business to mobile customers, as well as the large array of retail presence with our brand.

But I know, Mike, you think about this a lot.

Did you want to comment?

I would just say that the short answer is Internet of Things, yes.

Wearables, absolutely.

Connected cars, probably not so much.

But there's a lot of areas converging here, and we've got seeds planted in a number of different areas either alone or with partnerships.

But I also think that this quarter's results are a study in the value of focus.

Look, we kicked everybody's ass on postpaid phones.

That's what our view and I think everybody in the industry understands that's where the profits are.

That's where the customers are.

That's how we can change the industry.

And you're going to see everybody else trying to find something to point to in their results because we are taking all of the valuable customers.

AT&T is going to point to $10 tablets or somebody's going to point to their low revenue connected cars.

I'm quite sure Sprint is going to prance around and point at low value prepaid customers as something to point to when we are rolling up all of the valuable customers in the industry.

And as long as everybody's doing that and they're happy with that, I've got to tell you, we are very happy with that.

I would like to point out for everybody on the call that we are 43 minutes into the call, and Mike Seivert swore and I have yet to use any foul language at this point time.

And I'm quite proud of that.

(laughter) Let's go to the phone for the next call.

Amir Rozwadowski, Barclays.

Thank you very much.

John, just wanted to see if we could dissect some of the positive subscriber momentums you folks have experienced.

Specifically, you mentioned that you benefited from some prepaid conversions to postpaid, and I believe you gave a number of around 195,000 was the net benefit.

If we think about your expectations for continued subscriber momentum, how much of that is predicated from this type of conversion versus around competitive displacement.

And from a bigger picture perspective, how should we think about these two pools of subscribers sort of merging, given some of the changes that have occurred to pricing and contracts that you folks have initiated in the market?

Those are very good questions.

Let's just roll a few pieces together there, right.

So, we have had eight quarters in a row where we've added more than 1 million net customers to the business.

On the postpaid phones side, we led the industry totally in five quarters in a row six of the last seven.

Here's a fun factoid for you: we added more postpaid phone customers this quarter by a factor of 3 than AT&T has added in the sum total of the last two years.

So these are trends that are not just one quarter.

The migration from prepaid to postpaid, this is something that we embrace tremendously, and there's two variables in here.

And I'll ask the team to talk about this as well.

Because amongst the things that we are seeing is the industry and we may have spent a bit too much time on this black and white between prime and subprime.

And when it relates to what we are seeing from smartphone owners that were heretofore classified as subprime, their payment streams on this most important item that they have with some enhancement, things like smartphone equality, what we can expect is quite strong.

But from a standpoint of the trend and what are the expectations -- Mike, do you want to talk about that?

If you think about just to amplify what John is saying, in this quarter we had the highest migrations from prepaid to postpaid that we've seen.

Certainly our smartphone equality initiative, which is an initiative to let high-value customers into our postpaid side, people with a proven payment track record, we are now letting them into our postpaid side, which actually increases the quality of the postpaid base, which is quite counterintuitive.

But, as evidenced by the fact that bad debt rates are falling year over year and sequentially as a percentage of total revenues, so you can see that whether it's on the bad debt side or whether it's the achieving record churn level, even as this dynamic has unfolded, it shows you that the quality of the customers that landed T-Mobile on the postpaid side not as evidenced by their credit rating but as evidenced by their performance with T-Mobile is as good as it's ever been.

And then Mike, just to follow up on that comment, if we think about sort of the quality of that subscriber because there have been a lot of questions around sort of the different levels and tiers of subscribers across the industry, how do we think about the marginal benefit of making that transition from a prepaid customer to a postpaid?

It does seem like from a brisk perspective from potential churn, you folks have the controls in place to manage that risk, but I'd be interested in terms of the marginal benefit for pulling that type of subscriber on.

Yes, I'll start and maybe Braxton can add to it.

But, you know, the way we view it is that once we get somebody on the postpaid side, we are able to really deepen the relationship with them.

We get a better uptake of family plans.

We get better uptake of data attach.

We get much better uptake on super funds, you know the devices that have the best retention, partly because that's the place where people qualify for our device financing.

And so all of those things create sticky factors with our brand because they delight our customers.

We don't believe in the kinds of sticky factors that are all about tying people down.

We believe in the kinds that are about adding value to that customer relationship, and our customers are voting with their dollars.

This quarter we hit an all-time high on average revenues per account as our customers on the postpaid side partly fueled by this dynamic you are asking about have deepened their relationships with us.

Paying us more than ever before in service revenues on an account basis and, when you adjust for Data Stash, paying us more than ever before on the total billing spaces as well.

And that's not because we've raised our prices; it's because we are earning a deeper relationship with our customers.

I love the genesis of this question because, let's be candid, when we see these questions are being raised, what we mean is that big and bigger are -- this is their explanation as to why we are growing and they're not.

They are taking our low-end subprime customers, and I've got two things that are very important for me to say to my two friends in the ivory towers.

If everybody is happy with the way things are going, let's just keep doing it this way.

I can tell you exactly how many quarters it will take before we are bigger than them completely.

Second is when you change your mind and you go to customers and you change your thought process, they won't listen to you anymore.

And what's fun for me is that dumb and dumber are -- they talk about customers like they are things, and I know in Verizon's earnings, they refer to we are not going to chase those low-end customers that are price-sensitive.

Come on, these are customers that are choosing to go somewhere else, and I know the wireless guy over at AT&T, he actually referred to the customers as these are things we've acquired.

And since we paid money to acquire them, we are going to hold onto them.

As long as that rhetoric continues, we win because customers don't think or want to behave that way.

And at the top of all we do, the Un-carrier revolution is about changing that industry run by those kinds of morons and changing things for the benefit of consumers, and it creates brand, and that's the momentum that we are really into.

The questions around that are so exciting for me because it means that there are further quarters where they're going to sit over there and try to protect their fortress.

And that's the best news of all, after two years of us kicking their (expletive), we'll continue be able to keep doing it.

Sorry for the rant, but I just woke up.

It's early here.

(laughter).

Why don't we try Rick's since he was innovative enough to try texting us; a question from Rick Prentiss.

Any thoughts about the broadcast incentive auction in terms of timing and rule setting.

Neville, do you want to start, and then I will certainly pontificate on this.

Yes, Rick, I'd love to see it as soon as possible.

I think this is a major event for the industry.

It is probably the last opportunity for many, many years to further level the playing field in wireless.

Low band spectrum, all the success that we are driving through with our A Block low band spectrum is critical for competition in the industry.

And today, way too much of it, 73%, 74% is in the hands of the big two, and that needs to change.

This auction is a vehicle to enable that change.

I think the FCC, Mr. Wheeler, are very focused on driving that auction to a successful outcome in the first half of 2016.

And we'd love to see that, and we are excited about more low-band spectrum being released to the US marketplace.

Critical for competition as you look out into the future of this industry.

I have a few thoughts on this, and I won't spend too much time on it.

A couple of things to think about.

One is, I think what we've learned out of Washington in the past year or so is when they set their minds to certain items, you can predict that they're going to happen.

I think that the SEC and Jim Wheeler are pretty clear that they want this auction to happen early in 2016.

So I've got to believe that based upon track records lately that that's where we're headed.

Second is, with the AWS three auctions that took place, tremendous amounts of money were raised, but one of the objectives of the auctions that was not accomplished is doing the things with spectrum that you need to do to ensure a competitive environment takes place.

But that will be pinnacle in this auction, which is why we certainly have rallied around the idea of having a reserve of at least 40 MHz or 50% of the spectrum and not allowing more than one person to get more than 20 MHz.

And I think with those, we plan to be present in the auction, and for me now, our team here thinks ahead, and we think about the time that Neville not only deploys what we are doing in the 700, we deploy the 300 million POPs, but we also get a nationwide swath of low-band 600 spectrum and we deploy that.

And you look out three years to five years and you start thinking of the competitive environment and you know that it's better for America and it's better for consumers, and it makes Verizon and AT&T compete aggressively for their customers.

So I think Washington believes that, and I think the American population does.

So I have to believe that's going to be the outcome, and I think it's going to be a very positive event for the whole industry.

So those are our thoughts on the process, and we're going to be driving our business as if that's going to take place.

Christian asks on that very topic.

[Christian Prinzler] on Twitter are we going to see marketing shifts to tell customers about this coverage footprint and all the expansions in Q4 and Q3?

And the answer is, hell, yes.

And in fact, you're going to see us doing something that nobody in the industry has done a lot, which is very favorably comparing ourselves to Verizon.

You know, let's face it, we are the fastest 4G LTE network in the country.

We have more data capacity per customer that AT&T or Verizon, and now we have this rapidly unfolding coverage footprint that by the end of the year we'll compare with anybody.

So what we did last month was we rolled out the first crowd source maps in the industry.

We are the only ones in the industry putting out our data and what actual real customers' experiences are on every street corner.

So you can see what real customers experienced in that area.

And we will continue to augment that and make it better and better.

But the ideas about transparency, truth, honesty, showing with the crowd is really experiencing while we undertake the most rapid expansion of network LTE that the industry is ever seen.

So you'll be hearing a lot more from us on this topic.

And I just -- you watch these non-stop ads that are being placed.

Just do a little ticker and think about the cost of having every second commercial now be one of dumb and dumber's assessments with bicycles, with pieces missing and trying to convince you to never settle, etc.

Now we're going to have a reply to that.

But here's what I would suggest to you.

Right now, nobody argues it's very clear T-Mobile has the fastest 4G LTE network in the US.

So we could spend zillions of dollars, but we don't on that.

Why settle for slow when you can have fast?

Secondly, we know, everyone knows that Verizon, for example, is more expensive, they are more complex, they are less flexible, they are less focused on their customers, and they are less likely to adapt to what customers want in the future.

Now, I can't tell you the date, but there will be a time when T-Mobile's coverage will be superior or equal to Verizon's.

Then what?

We're faster; we're bigger; we are more focused on customers.

So that day is coming.

I can't put it on the calendar, but it's coming.

And that is why when you see this question on the auction, they don't want any part of that.

What commercial could they run?

Do business with us because we are more confusing, we hate you more, we are less complex.

We really need your profitability with our 55 points of EBITDA margin so we can go invest in content so we can hold you hostage for that, too?

I mean, that's was going on, and it's exciting.

Two years into the Un-carrier here is where we are.

Two years from now, I can only imagine.

Let's go to the phone, and I think Craig is the next question.

Craig Moffett, MoffettNathanson.

John, you talked in the past about the benefits of consolidation in the industry.

I wonder if you could reflect on the recent developments around Comcast and Time Warner cable, and just does that change your view about the feasibility of the wireless industry being allowed to consolidate?

Actually, let's take that topic because I'm going to add a few words to the sentence I've always used.

I've always said on consolidation, it's not a matter of if, it's when and how.

And now I'm going to add and who.

Because I think as we think ahead, you need to think.

I still reiterate that in five years, we will think it comical that we thought about the industry structure as the four major wireless carriers.

And, as I said before and as Mike says many times, as content and entertainment and social are moving to the Internet and the Internet is moving mobile, these industries, the adjacent industries are in the same game that we are in.

So whether it's what you see Google doing, what you see social media companies do, or as you start to see cable players trying to move content, Wi-Fi integration with mobile networks, etc., these are individual customers that are looking at both offer sets.

So I think you need to think about the cable industry and players like us as not competitors but potential partners and alternatives for each other in the future.

So I think once you broaden the definition of things and I think in my mind the fixed wire and home broadband industry is the one that was of a concern there.

But when you start to broaden the definition, as I said, of content and entertainment and video going to customers on fixed and mobile devices together and you start thinking of that industry, there's a far more broad set of potential partnerships, integrations and mergers that the United States could be looking at, and in that case, I think you will see consolidation of a much broader set.

Okay.

Let's go to one more on the phone, and then we'll jumped over to Twitter.

John Hodulik, UBS.

Okay.

Great.

Thanks.

John, just a follow-up to some of your comments.

It does seem like the number of new promotions in the industry is starting to slow here in early 2015, just as some bigger carriers are talking about being more price disciplined.

Is that what you view as really driving the subscriber momentum you have and some of the reporting ratios and you expected to help as we move through 2015?

And then maybe for Braxton, just looking at the financials, cash flow from operations is a bit weaker than we thought here in the first quarter.

Could you talk a little bit about what was driving that?

Was it timing differences in the working capital or some more color on that would be great?

Let me start and throw it to Mike.

I don't care what they do.

The amount of promotions which are usually reactive temporary attempts to stem their erosion versus us, our plans and what we do and how we roll out Un-carrier moves and promotions is agnostic to whether they do anything or not.

And our pace is not going to slow down.

Our focus on the customers will not slow down.

We have multiple Un-carrier moves continuing to come.

And frankly, this could just be some of Competitive Strategy 101 that I learned 25 years ago in school and them just protecting themselves and trying to assess whether for their own greedy profitability it's cheaper to seed a few share points than to price their whole base down.

But our focus has been on our customers and our brand and our momentum.

And with eight quarters in a row of reporting positively against the industry whether they are in a promotional period or not, we are continuing to grow, our brand is continuing to grow, and frankly, I don't think it matters what they do over the next quarter or two.

However, I tend to like the idea of them laying down, and if they want to continue to do that, it would be well appreciated.

Here are some numbers just to underscore what John is saying, just to prove the point.

Look at the fourth quarter.

Everybody says this was a quarter of hyper switching and serious competitiveness.

Everybody put everything in.

We delivered 1 million postpaid phone net adds.

Q1 was a period everybody said, oh, it's pretty quiet.

There wasn't much switching.

Churn is down for all the carriers.

Maybe people were taking a breath.

We delivered a million postpaid phone net adds.

We delivered a million in both quarters sequentially in completely different environments.

And it really shows you what John is saying is the case.

We are executing our game plan.

Our game plan is working.

Customers love this value proposition.

And we are completely uninterested in the promotions of our competitors.

And your question on operating cash flow, John, I think the shaping of that was as expected.

With an investment in growth upfront in the year which has the benefit of paying for itself in Europe from an EBITDA standpoint, we expected that there would be a decline in EBITDA and certainly guided to that on our year-end earnings call.

I think one of the bright points here is when you look at the major item that has been affecting working capital, which is our investment in EIP, net investment of $4.9 billion at the end of the first quarter, that growth in EIP significantly moderated from the fourth quarter.

We did $1.4 billion in gross EIP new receivables, but our billings on existing EIP receivables offset all but $150 million of that investment, which was a very significant moderation.

And I'll reiterate on a fully levered operating free cash flow basis, T-Mobile US will be a net generator of cash in 2015, and it gets very exciting when we look at the growth benefits in our cash flows when we go out to the outer years.

Just stay tuned.

Don't get confused as to what is a aggressive offer, a customer proposition that shows that competitors are finally waking up and serving customers.

I mean two weeks after or one week after Verizon said they're not going to chase low-end customers, they came up with an offer -- and let me tell you what the offer was.

It was the creation of mid-tier data buckets, which is nothing other than the insertion of something that will spin the cycle back to tricking customers into buying data buckets that are smaller than the ones that they had before so they can charge them overages when they exceed those data buckets.

So it's going to be highly ineffective, but it still isn't a stopping and a listening to customers and providing them with they want.

And I particularly celebrated AT&T's earnings, a summary of which is, hi, we're one of the biggest companies in the world, we are going to raise the synergies on our DirecTV process, and we're going to close it this quarter.

Any questions?

Which for me is not exactly what American wireless consumers wanted to hear from them and the focus on those guys.

Did you see one on Twitter -- anybody got one they want to take?

One of the top ones says SMS is a very outdated method of communication.

Any plans on T-Mo's part to implement a newer form of over-the-top communications?

Yes, absolutely.

Not going to tell you what or when though, but sooner than you might think.

Something that came in on text, which is for John -- a marriage of two (expletive) networks.

Why no partnership with cable?

They could use your network for their wireless offering, and you could use their network to deploy small cells, etc.

This is -- again, I won't get into the specifics of it, but I think I'm quite consistent on what I've just said.

These are the kind of things.

If it's something intuitively obvious with the integration of technology or the ability to interface with customers is going to provide a better capability to customers, the market will find those alternatives.

And that is why I've been consistent since day one.

These are not -- adjacent industries are not threats.

They are just partnerships for integrations waiting to happen.

So yes, you are absolutely right.

Bring it on.

We're going to go to the phone, and I'm going to give a little warning here.

We have more time.

We will take the questions, but in about six minutes, I've got to go because I'm going to be on CNBC in like 22 minutes or so.

And we've calculated how long I have to get over there.

So let's go to the phone, and at some point if I disappear, I'll announce it, and then the team can continue.

Michael Rollins, Citigroup.

Thanks for taking the question.

I'm wondering if you can discuss a little bit more about the integration with MetroPCS?

In terms of what cost savings you've been able to generate to date and how you think about the flow of those savings and maybe some metrics we should be watching over in the future?

Thanks.

This, I don't know which one of you guys wants to talk about it, and I appreciate you bringing it up because it is one of the most amazing stories of what we have.

It bodes well if we need to do further mergers and integrations in the beginning.

I want to start by saying we have 16.4 million prepaid customers now, and we are by far the biggest prepaid business, and we are 3 times bigger than we were before they came in.

And I think maybe you guys can just pick up on the exactly where we are with how many customers are left to move off of CDMA onto our network and what the savings are and what they'll look like in the future?

So I think it's definitely textbook execution.

The whole strategy of migration of the space over to the T-Mobile network.

We are really at the very tail end of that.

We disclosed today that we now have less than 500,000 customers utilizing the T-Mobile network -- utilizing the old legacy MetroPCS CDMA network, which means that we are getting very, very close to shutting down the three major remaining markets from a CDMA network standpoint.

What we said is we still expect that to happen in the second half of this year.

We believe that we will be in a much better position to give you a precise dates in connection with the second-quarter earnings call.

But these larger markets will take some time to decommission.

And Mike, you know that we've had discussions about really not being able to account for the realization of the synergies until those sites in these shutdown markets are completely decommissioned, which is anywhere from a three- to five-month period.

So we expect that we'll achieve very good timing on that, but the full run rate of those synergies will not occur until 2016, at which point we'll be at a $1.5 billion run rate.

And that I think bodes very, very well when you're looking at the EBITDA progression, along with the growth that we're putting on in the current year to what we'll see with EBITDA for 2016.

Neville, do you want to add anything?

Yes, the one thing I'd add on top, the program is so ahead of schedule, it's incredible.

The progress has been truly amazing, and we've so successfully grown the Metro brand throughout this in new markets in the prior mature market situations.

The piece that's usually exciting for me is the spectrum story.

And as Braxton referenced, there's a very small number of customers left on CDMA, and that's afforded us this opportunity to ahead of the synergy and run rate savings coming through from decommissioning of the network.

We have been able to move the spectrum across to LTE and to really fuel and drive this wideband LTE story that you heard John reference in the opening comments.

So we're adding more and more spectrum.

Pretty much every quarter has gone by we've added more and more spectrum to our LTE offering, and that continues through this year.

And that's been a huge benefit for our customers.

It's supported our fastest LTE position.

That's five quarters in a row now.

Who would've believed that?

Five quarters in a row T-Mobile beating the likes of Verizon on LTE, the best, fastest performing LTE.

And a big part of that success has come through our ability to secure early access to the MetroPCS spectrum.

So that's a big, big part of the success story, and we look forward to the decommissioning moving at pace and great cost savings and synergy savings hitting that full ramp as Braxton said in 2016.

And hats off to the MetroPCS team.

We've done this migration with very, very minimal impact to the MetroPCS customer base, and you can see that reflected in the overall churn metrics on prepaid.

So we're very, very pleased that the team has done an amazing job, and I think the vision that was laid out with the original merger of these two companies, you're seeing that totally come to fruition.

So very, very exciting.

Braxton, on Twitter, there's a question that we haven't gotten to yet, which is from [Coral Garnik] around, can you comment on the impact of Data Stash on net income, EBITDA, APU, etc.?

And maybe you could give us a little bit of an overview on this because even with all that folded in, we had record -- we think industry best year-over-year EBITDA.

Even with that extra, temporary, artificial pressure built-in, we had ARPA at its highest levels ever, but there was still an impact from it that was short-term and non-cash.

Maybe you could talk about the size of that?

Coral, that's a great question, and I really appreciate you highlighting that.

So with Data Stash, we gave existing customers a 10 GB gift of data throughout the year, and that's the way that we do things.

And we never roll a new program where we don't consider the base.

I mean that's one of the key tenants and foundational principles that we have with Un-carrier.

And from an accounting standpoint, when you give that type of offer to a base, you have to allocate part of the revenue that you are receiving from those customers to this new piece of the offering that you have in the marketplace.

So what that meant is, in the first quarter, we had $112 million non-cash revenue deferral that impacted EBITDA.

It hit the top line.

It fell down to EBITDA, and that was completely a non-cash timing issue.

As our customers utilize the 10 GB gift throughout the year and it does expire at the end of the year, that $112 million will fully reverse during the year, and there will be zero impact on EBITDA and net income for what we've done through the year.

And I think that's important to note, because when you look at all of these metrics, service revenues on the face of it had a slight decline.

But when you normalize for this non-cash accounting item, we actually had about a 1% increase in the sequential service revenues, and that applies to all of the metrics that we put out.

The average billings per user, the ARPU, of course, two-thirds on the decrease of the ARPU were directly related to the Data Stash 10 GB gift.

So that's really how it works.

Nothing to be alarmed about, but what is a little bit of a headwind in Q1 will turn into a tailwind, and it's part of the shaping that we expect in a year.

And again, I said we are highly confident that we'll deliver on EBITDA and all aspects of our guidance that's not exceed them.

That kind of helps people understand the shape of the year, right?

Because if you think about EBITDA at the center point of our guidance is 25% year-over-year growth, and in the first quarter, we delivered 27.6% so we are already ahead.

But that's with this rather artificial non-cash timing oriented Data Stash accrual that we put in.

If you look at our operational results and you put that $112 million on top, operationally we were really 37% year over year improved in EBITDA showing that we are well on our way to that 25% and then with some cushion midpoint on the year.

And so the shape of the year is that it's lower and then it builds throughout the year.

And as Braxton says, we remain very confident in the guidance that we gave.

So Braxton, do you want to go on the phone for another one?

Yes, let's do that.

Let's take Mike McCormack.

A couple of things.

Braxton, on ARPU, you outlined the sort of Data Stash reversal and clearly looking at an up and to the right function throughout the year, I assume.

And granted 4Q 10,000 pressures perhaps from new promotional activities, but is it out of the question to think about handset ARPU going positive on a year-over-year basis in 4Q?

And then maybe just, one, with respect to the EIP payoffs, I know it's early days, but what's been the reaction by consumers to that offering?

Yes, so, really good questions.

So when you look at the shaping of ARPU from Q4 to Q1, there was a 3.8% decrease.

But when you normalize for the non-cash Data Stash impact that we just discussed, ARPU would've decreased 1.2%.

And what that 1.2% relates to is our investment in family plans.

AT&T and Verizon have a very high percentage of their base in family plans.

We all know that there's higher customer retention with family plans, lower acquisition costs, higher MPV.

So we've made a conscious decision by pulsing promotions in the marketplace and specifically the four for 100 that we did in late Q4 and continued throughout Q1.

Had some ARPU dilutions.

But when we're looking at the value creation and the MPV of the customers that we are bringing in, it's a trade-off well worth making.

The family plan promotions at this point have been promotional.

We are not going to talk about some of the future innovations that we have planned.

But I think you know Un-carrier 10.0 is coming soon, and we are very excited about that, as well as other innovations throughout the year.

I think one of the challenges we have as a management team is with the innovation and the things that we are bringing into marketplace, how can we continue to target these family units coming out of Verizon and AT&T with a little bit of ARPU dilution, although it makes a lot of sense, but offset that dilution, which has been fairly minor with other innovations that we bring in the marketplace.

And this is something that the team is certainly interested in.

From an EIP standpoint, we are now at 91% of our base is eligible to take -- to really utilize the EIP construct.

But, as you know, we control it by overall credit profile.

And that's what I think one of the really cool innovations that we put in the marketplace by having well-qualified customers who have paid us on time for every month for a year can now take advantage of a full EIP construct.

And all the cohort analysis that we've done on this shows that they act exactly like a prime customer, and the early results definitely bore this out.

From a collection standpoint, you're seeing very favorable trends from an overall bad debt, and we look at it holistically.

We take all of our bad debt, factor in the losses on factoring.

And on an absolute dollar basis, when you adjust for the factoring change in our agreement in the first quarter, which we've disclosed, you're actually seeing improvements in the overall bad debt profile for three quarters in a row.

And I think that's very, very significant.

But it goes hand-in-hand with churn.

Look at the churn progress, look at the retention of the customers, our value proposition in our network is resonating.

So we're very pleased with what we're seeing.

But when you combine EIP with JUMP!, you have, I think, some very interesting dynamics, and that, remember, was our Un-carrier 2.0 offering.

And what it did is it really freed everybody from the old paradigm, and our expectation is the majority of customers will actually JUMP!

before they get their EIP paid off, and we are seeing that with some of the older EIPs at this point.

I think a lot of it will be driven by new significant generation handset launches.

I mean the iPhone 6 certainly was very significant in the fourth quarter, but the GS 6, other things that we're seeing, a lot of interest in jumping up to these new platforms.

That's one of the reasons why the churn profile is so much smoother than it was under the old contract model where you had these really spiky periods of churn late in contract tenure while people had pent-up demand to go do something differently.

Our customers done experience that.

The vast majority of people with EIP also have JUMP!, which gives them the freedom to start over at any time on a new device, and it really smooths things out because it serves their needs.

I think, Mike, you asked specifically about the EIP payoff program, too.

Yes, I was just seeing it from an inbound perspective what you guys are seeing?

Yes, it's been really popular.

It's a natural extension of Contract Freedom that we launched last year.

We are calling it Carrier Freedom because now we'll pay off the ETF and/or the device.

I would just say it's been popular, and it's been slightly -- in the early going, it's been slightly less expensive to us than we had anticipated.

A typical cost in the $100 to $150 range so far, a little less than we had modeled.

So if it's popular and slightly less costly than we had thought, so far, so good.

Braxton, if I could just sneak one more in on the cash flow comment?

You said net cash generation 2015, is that predicated on equipment factoring, or is that a totally different discussion?

Yes, it's like anything that we do on EIP factoring would just be enhancing to that profile.

Okay.

Great.

Thank you, guys.

So there is one on text that says, Neville, if Sprint sold some of that 2.5 gig spectrum, would you be interested in buying it?

Would it be a good solution for dense markets?

That's a fun question.

You kind of have to ask Sprint first what they're doing with their 2.5 gig spectrum.

And I think there's been a, well, series of uncertain headlines in terms of what will happen there.

I still say, where's the spark I suppose is my comment, but.

You know, if at some point in time they figure that stuff out and they decide that they have more than they need and they look to move into a sale process, of course, we'd look at it.

2.5 gig is it does suffer with propagation, and when building penetration, it is not the best spot on the spectrum map but can it work in dense and urban environments relatively well.

So I think you kind of have to ask the question of Sprint, what is their plan and the network strategy, what do they plan to do with 2.5.

Outside of that, they are pretty light on other spectrum, and you can see that in terms of the LG performance they have today.

Clearly the slowest in the nation by a big distance.

So we'll wait and see, and once they sort themselves out with the 2.5 gig strategy, we'll see if they push any of this to market.

And we have a great spectrum portfolio.

That's allowed us to be smart and opportunistic in how we enhance it.

So we were very smart in how we brought in the 700.

We were very smart in how we handled the AWS auction last year, opportunistically bringing in spectrum at a fair price, and we would be smart and opportunistic if there is spectrum that comes to market that we can get to extend our customer experience at a fair price, then we are always interested.

I think the only other thing I would add is that with opportunities in unlicensed, especially with licensed-assisted access in LTE, so this is 5 gig spectrum.

That's going to be a real opportunity in 2016.

We are regrettably trialing solutions, and we're confident we can bring those services to market next year.

And that, again, is kind of a dense urban application set.

You know, small cells with LAA leveraging 5 gig on license.

So there are going to be a series of alternatives that surface that we are working very hard on to assist in kind of urban capacity, and 2.5 gig is by no means the only path or option.

There's also a 3.5 gig spectrum option and process, which is moving through the FCC right now.

So some good activity in that area.

We'll take our final question on the phone.

Paul from Bernstein.

Thank you.

I had two questions.

The first is, you are the first carrier to complete the transition of your base to EIP, and I was wondering if there's anything that surprised you operationally or financially about serving a base that's all on the IP as opposed to traditional contracts?

And then the second question is with regard to tablets.

I think you guys are probably still a little underpenetrated compared to [TNBC] with respect to tablets.

And I was wondering why you think that is and whether we should think about that as a source of growth going forward?

We all jumped in.

On the first piece, I think we just got to it a second ago.

With phone payment plans and JUMP!, the customer is much more of a participant in their choices with us.

There's way more transparency in what they are paying for and what they get for what they are paying.

So satisfaction is a little bit higher.

People like this construct a lot more than they like contracts, and they have a lot more freedom of movement because with JUMP!

they can move to the new device at any time, at virtually any time.

So what that does is it smoothes out, as I said before, the churn curve, which is great.

It makes it more predictable.

We are serving the customer in a better way, and I think that's one of the dynamics at play.

And on that first question, Paul, one of the things that surprised me is that with the transparency on the true cost and value of that phone, we've actually seen people keeping their phones longer than we had anticipated in the initial business case.

And I think that's very, very healthy for the industry.

When everything was buried into a contract, no visibility, phones were viewed more as disposable items.

You know, I think there's, you know, more of a true consumer appreciation for the value of handsets in the marketplace.

And I think that's very, very healthy for the industry.

Your second question was related to tablets.

I think our results show that we are really focused on the best customers in the industry.

And what we find is when we have a finite set of marketing and distribution dollars to invest in our growth, we want to be investing in the things that get the very best returns for our shareholders and satisfy the most possible customers.

And that's why we've been going after the postpaid smartphone business.

We've managed to extend the industry leading prepaid business, even despite a massive, we think, irrational competitive onslaught.

We think Sprint will be prancing around bragging about prepaid results that they probably weren't able to economically acquire, and we think the big guys faced with major losses on postpaid phones have been forced into the lower return tablet business.

These are $10 a month customers.

They are investing massive amounts to get these $10 a month customers, just to be able to demonstrate that they can get points on the scoreboard.

We have been extending our tablet business every quarter systematically, methodically, extending our base, serving more and more customers, and we think that's the way to do it.

Generally around seasonal times, we come in with a short-term offer or a sale around holidays, and then the rest of the quarter, we have a great value proposition on tablets.

Our customers can add tablets to their plans for $10 a month.

But unlike the other guys, we are charging $10 and giving you the gig included.

The other guys charge $10 a month just to give you access to the data you've already paid for, which is on top of everything else slightly absurd.

Great.

Thank you very much.

Okay.

Well, we want to thank everybody for dialing in, for the Twitter questions, for the text message questions.

We are looking forward to the second quarter and being back with you in three months.

Thanks for your time today, and have a good one.

Ladies and gentlemen, this concludes the T-Mobile US first-quarter 2015 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.