T-Mobile US Inc (TMUS) 2016 Q2 法說會逐字稿

Good morning and welcome to the T-Mobile US second-quarter 2016 earnings call.

(Operator Instruction)

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

Please go ahead, Sir.

Thank you, good morning.

Welcome to the second quarter 2016 earnings call.

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

Thus reads the disclaimer: during this call we will make projections and statements about the future performance of the company which are based on current expectations and assumptions.

Our Form 10-K includes risk factors that could cause actual results to differ materially from the forward-looking statements.

Reconciliations between GAAP and non-GAAP results we discuss in this call can be found on the investor relations page of our website.

With this, let me now turn the over to John Legere.

Good morning.

Nils, I'm happy to see that the warning and disclaimer has yet to be updated (technical difficulty).

I wanted to say good morning to everyone, thank you for joining us.

T-Mobile second quarter 2016 Uncarrier earnings call.

It is an open twitter conference as well.

We're coming to you live from Bellevue.

I'd like to make this more about answering your questions rather than script.

After a few opening comments, we will keep it open for up to 90 minutes and take as many questions from twitter, Facebook and the phone as we can.

As usual there is a live stream up right now on Youtube If you want to watch how the soup is made in the kitchen as fascinating as that may be (technical difficulty).

Let's talk about Q2.\ Obviously we're in a good mood.

I am very proud of our team who delivered an outstanding quarter on all metrics and turned in another quarter of really blockbuster growth, even while our competitors struggled with a quarter that was seasonally low.

T-Mobile's delivered the best results in the industry again.

Beating the competition in key metrics, a few, such as net postpaid phone additions, prepaid phone additions, service revenue, and adjusted EBITDA growth.

In particular, service revenue growth is certainly an anomaly that is attributable only to T-Mobile.

Let me share a few highlights that are pertinent.

With 1.90 million total net adds in Q2, marked our 13th consecutive quarter over 1 million net adds.

We added 890,000 branded post paid customers.

We also added 646,000 branded postpaid phone customers which are getting such discussion in the industry.

That is 10 quarters in a row, by the way, that we led the entire industry postpaid phone additions.

Clearly, our winning streak continues this quarter.

We captured all, actually more than all of the industry's post paid phone industry growth in Q2 once again.

Now that's not the end of our story because in prepaid where we have the industry's top pre paid brand in Metro PCS, we added 476,000 new customers.

Our Metro team continues to dominate with a growth rate 167% over last year.

That is three years, 12 quarters, where T-Mobile is the only wireless company with positive growth in both prepaid and postpaid net.

Let's talk about porting and let's look at the whole picture.

There are share givers and there are share takers, and T-Mobile has been a share taker now for 13 quarters in a row.

For three years running, including Q2, we delivered positive overall postpaid reporting ratios versus the entire industry.

Also, we now have 10 quarters in a row where T-Mobile has been positive against every major carrier, contrary to what you may have heard on Monday.

I will acknowledge that Sprint made some progress after going all-in with the heavy discount strategy, but we are seeing positive postpaid porting ratios now for 13 quarters in a row versus Sprint, including Q2.

We're off to an even stronger start versus them and everyone else in Q3.

I will be glad to talk about more about that in detail.

I am very happy to sit back and take share like we did this quarter from here to the end of times if everybody else is.

Our net additions show the math and they show it all.

It's also worth noting by the way and I will add this to what we discuss about.

Our porting ratios that we talk about, none of these include our incredible Metro PCS prepaid business.

We are the only wireless carrier who actually has two number pools.

People aren't tracking this but what we are doing now is we track, when we look at competitors, we look at both, the postpaid porting ratios, we also look at T-Mobile plus Metro porting against the other carriers.

This is particularly important because Metro PCS has been our primary attack dog against Sprint and others and it is working incredibly well.

When you combine our two flagship brands, the story gets even better.

We showed improvement versus dumb and dumber in that Q1 with AT&T by the way, continuing to be the biggest donor by far.

With the net ports on the postpaid side, they generally donate 50% or so.

That is the point I have been making all and all.

When you look at this ratio, our strength versus all 3 carriers including Sprint is even stronger.

So the carriers by the way, have been busy this quarter.

I take we just sort of saw the same old bag of tricks.

I think Verizon must be feeling the pressure because when they were not distracted with their Yahoo purchase, which clearly we can discuss its prominence in providing them the term dumber now.

They decided to give away 50 inch TVs.

Always a bad sign, by the way, in the wireless industry.

They also agreed to rejigger their prices to start the quarter.

More importantly, did anyone beside me notice that a number of their new plan features are straight out of the Uncarrier play-book?

There are no overages attempted and free LTE Roaming in Mexico and Canada, sound familiar?

They didn't do it well but they certainly tried to copy our moves.

The crucial difference here is that Verizon is still nickel and diming their customers for these features which are free with any Simple Choice customers.

They just don't get it, I just love that about them.

It is hard to tell what's going on over at AT&T.

I know it's hard for all of you that are trying to track them to understand as well.

They seem to be on an extended vacation.

I guess their focus is on prepaid since they don't seem to be putting up much of a fight on the postpaid site.

Maybe they are buying time while they wait-and-see what their long promised OTT bundles will be or they are hoping their connected cars will hide some of the losses.

Your guess is as good as mine.

But I also love every time we talk about a carrier it is always about we think they're going to do in the future.

Finally we have Sprint.

They reported on Monday to some fanfare and I congratulated them on a good quarter.

T-Mobile just happened to deliver a great quarter with five-times their total nets, five-times their postpaid nets and nearly four times their postpaid phone nets, and that's before we talk about our prepaid net additions of nearly 0.5 million.

This is where brand segmentation plays itself out beautifully.

By the way, one last comment, going through and I can take this in Q&A as well.

By the way, we are early in July and I can tell you already that if you look at last quarter at the postpaid nets which were big negative for AT&T, at minus 266, 86,000 for Verizon and a whopping 173,000 for Sprint, I can tell you already in July, we have 25% more postpaid phone nets than Sprint did in all of last quarter.

They give you an idea of the momentum.

Congratulations, it took us until about July 17 to do what you did last quarter.

Yes, we win customers from our competition but they also stay with T-Mobile.

We had on lowest churn rate ever this quarter.

Branded postpaid phone churn in Q2 was down 6 basis points quarter over quarter, 5 basis points year-over-year to 1.27.

On top of all the customer momentum and success we delivered, as you will hear, rock solid financial results.

We remain the only growth company in the space.

Think about that.

In wireless, we're the only growth company.

Our customer growth is rapidly translating into double-digit revenue and adjusted EBITDA growth as we said it would.

In Q2, we delivered year over year service revenue growth of 12% and year-over-year adjusted EBITDA growth of 36%, incredible.

Our ARPUs story is also great, 1.19% increase in branded postpaid phone ARPU over the last quarter $47.11, and prepaid ARPU has hit an all-time high of $37.86.

That is important number to think about.

$37,86 is an all-time high is our prepaid ARPUs.

You could compare and contrast that with connected car, or various other wholesale options that make up the top net growth of the other companies.

These are big powerful profitable customers that we're adding.

Our investments in network, retail, customer care and more Uncarrier moves continue to pay off.

By the way, we have not stumbled upon a way to build a world-class wireless network without investing in it.

We're still open-minded to how that is done.

But in this case got we think we do it the old-fashioned way.

There are some things we know, Q2's continued success simply means we will keep investing in fueling even more growth.

Let's talk about the network.

Verizon's network is no longer in a class of its own.

Our coverage is near parity, and by the way, our network is still the fastest in the industry.

We now cover 311 million 4G LTE pops.

311 million, and again, had the fastest 4G LTE network in Q2.

That is from Crowdsource studies against all carriers, not some sampling of application speed at 100 small cities, et cetera.

This is serious results, consistently applied and Neville will have a not more to say about that.

311 Million pops a deployment of extended range LTE on the 700MHz A block spectrum band is way ahead of schedule.

350 markets are now live covering 200 million people.

And customers are experiencing the benefits first hand.

And we are far from done.

In the second quarter, we entered into agreement to acquire crucial Chicago A block spectrum license bringing our total low band spectrum footprint to 269 million once we close the transaction later this year.

We will already have low-band spectrum in Top Ten metro areas and 29 of the top 30 and finally, we are a qualified bidder for the incentive auction and we look forward to start of the forward auction in August.

As our network grows, so does our retail presence.

In terms distribution footprint we are on track with our plans for 400 additional T-Mobile retail doors in 2016 and are still targeting 30 million to 40 million additional marketing pops by the middle of next year.

Now, let's not forget about customer care.

Our care organization continues to be recognized for taking care of customers.

It's part of our DNA and what we do best.

Just yesterday, we found out that we were ranked highest by JDP, JD Power for total ownership experience.

I wanted to say congratulations to the best care team in the business, keep up the great work.

And of course, we are not finished with our Uncarrier moves.

With the launch of Uncarrier 11, we gave thanks in a big way to our customers without any tricks for trade-offs.

The responses been phenomenal.

Nearly 5 million T-Mobile Tuesdays apps have been installed, and customers have hit the redeem in the app 8 million times to receive their epic gifts just to say thank you.

May I remind you, there is a Tuesday every week.

The second quarter is in the books.

It was a fantastic quarter for T-Mobile.

2016 is delivering great customer growth, outstanding financial results and creating great value for shareholders.

Our strong performance means we are raising the customer outlook, and narrowing the adjusted EBITDA target for 2016.

Now let me hand over to our CFO, Braxton Carter, for an overview of our key financial highlights and he'll tell you about the updates to our full year 2016 guidance.

Thanks John.

It's so exciting to be here for another quarter of solid execution.

Let me give a quick snapshot of our strong financial results and an update of our 2016 guidance.

Let's start with the financial results for the second quarter.

Our customer growth is translating into very strong financial growth as we once again delivered at industry-leading metrics.

Service revenues grew by 12% and adjusted EBITDA came in at $2.5 billion in the second quarter, up 36% year-over-year.

The adjusted EBITDA margins expanded from 30% to 36% year-over-year.

This compares with 32% in the first quarter.

If you exclude the large spectrum gain that we recorded in the first quarter.

Adjusted free cash flow improved year-over-year from $73 million to $485 million.

Net cash from operating activities increased by 52% and benefited from a cash inflow of.$0.4 billion in connection with the sale of EIP receivables.

The increase in net cash from operating activities was partially offset by higher cash CapEx, which increased by 13% year-over-year.

Cash CapEx was more front end loaded this year due to a very aggressive rollout of the 700 MHz A block, which is bringing a lot of goodness as you are seeing in a customer retention or churn metrics.

This is just a timing issue which will normalize in the course of the year.

Compared to the first quarter, working capital benefited even further from a reduce take rate for leasing which amounted to just 3% of total devices sold or leased in the second quarter as we told you at the beginning of the year.

We continue to expect a significant improvement in free cash flow for this year especially with the front end loading of cash CapEx.

The free cash flow story is going to get very exciting in the second half of 2016.

Earnings per share came in at $0.25 per share in the second quarter compared to $0.56 in the first quarter.

Recall that the first-quarter EPS included an after tax impact of $0.46 related to the spectrum gain.

So underlining EPS was up strongly.

When comparing EPS to last year, recall that net income in the second quarter of the prior year benefited from an unusually low tax rate due to several discrete income tax items whereas this quarter the effective tax rate was essentially normal at 39.5%.

Post branded postpaid ARPU grew by 1.9% sequentially.

Excluding data stash the sequential growth rate amounted to 0.8% which represents the second quarter of sequential underlying growth.

Overall, we're very pleased that ARPU continues to be generally stable.

In terms of customer quality, we saw continued improvement in the quarter.

Total bad debt expense and losses from sale of receivables was a $165 million or 1.79% of total revenues compared to 2.10% in the first quarter of 2016, and 1.91% in the second quarter of 2015.

EIP receivables classified as prime was 53% at the end of the second quarter including the EIP receivables sold compared to 52% at the end of the first quarter.

Let me update you on a recent transaction.

In June 2016, we entered into an agreement under which we agreed to sell our marketing and distribution rights to certain existing T-mobile co-branded customers to a current MVNO partner.

The transaction expected to close late third quarter of 2016 is subject to regulatory approval and other closing conditions.

Assuming closing, approximately 1.4 million branded postpaid phone customers and approximately 0.3 million branded prepaid customers would transition to being reported as wholesale customers.

The customer transition is expected to have a significant impact on reported branded postpaid phone churn following closing.

For example, on a pro forma basis as if the transaction d at the beginning of the second quarter of 2016, reported branded postpaid phone churn would have been 18 basis points lower at 1.09%.

Yes, 1.09%, identical to the Consumer Mobility postpaid churn reported by AT&T in Q2.

Now let me give you an update on our 2016 guidance.

In light of the continued strong customer momentum, we're taking up our target for branded postpaid net customer additions to 3.4 million to 3.8 million, up from the prior target of 3.2 million to 3.6 million.

For adjusted EBITDA, our new target range is $9.8 billion to $10.1 billion, narrowing the prior target range of $9.7 billion to $10.2 billion.

This target range includes the spectrum gain of approximately $0.6 billion recorded in the first quarter.

Our EBITDA target also includes the aggregate impact from leasing and data stash of $0.8 billion to $1.0 billion.

Again narrowing the prior range of $0.7 billion to $1.0 billion.

For data stash, we now expect $300 million to $350 million compared to the prior expectation of $250 million to $350 million.

Finally, we target cash CapEx of $4.5 billion to $4.8 billion in 2016, which is unchanged from prior guidance.

In summary, we delivered very strong financial results in the second quarter and expect continued strong growth in 2016.

We won't stop.

Now let's go to your questions.

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

We will start with the question on the phone.

Operator?

( Operator Instructions )

Thank you.

John Hodulik with UBS.

Thanks.

Two quick ones.

If I could.

You gave us get good stats around T-Mobile Tuesday.

Is there anyway you could tease out the benefit you might have seen in terms of churn and the cost that may have gone along with that with that initiative.

And then, Braxton, in the past you have talked about a margin target of 34% to 36% percent.

You are at 36% or so now.

Obviously there is some leasing in there.

As you see leverage in the business, do you have a line of sight to 40 plus percent margins longer term.

Is there something we can expect?

Back --

I will let Mike talk about the phenomena where we learn that Americans love their pizza, much to the detriment of those who don't have enough dough on Tuesday.

Maybe you could talk about this ongoing phenomena.

By the way, I will just say coming in, you never know when you launch these things which thing is going to strike the nerve of a whole nation.

I would say we've had 6.6 billion social media impressions associated with this.

And a phenomenal amount of media stories and reach that actually matches or exceeds most un carrier moves or Super Bowl advertising.

When you think of some of those statistics, not only is a phenomenal so far as Michael described critical to our relationship with our customers, but it's got legs in a very big way.

Yes.

Kind of amazing what has happened here.

Some people are asking whether or not we were running out of ideas on uncarrier moves.

I think the results around uncarrier 11 show that is an emphatic no.

As John said, this is has captured the imagination of Americans.

This was the most talked about uncarrier move we have ever done.

Also the most covered in the media with 56 million broadcast impressions.

As John said, 6.6 billion social impresses from conversations, 360,000 new stories.

The app hit Number One in the App Store multiple days over a two-week period.

And Number One in the App Store is not a categorical thing.

That means number 5 is Facebook, number 4 is Instagram, number two is snapchat.

The number one app in America for many days of the launch sequence over the two weeks was T-Mobile Tuesday.

But don't remember number 793.

Last week, the number one app was pokemon, the number two was pokeman-related, and the number 3 app was to those T-Mobile Tuesdays in America.

So it continues.

We are not going to be able to unpack for you the business results for you line by line.

But remember, we had a record low churn in Q2.

As John said, we are off to an amazing start in Q3 with more postpaid phone nets than anyone in the industry did in the entire quarter of Q2.

What we have tapped in here, what we like to do with un carrier moves is tap into a sentiment, Into a pain point, a pre-existing belief.

This the idea there's a big difference between a loyalty program and thank you program.

Loyalty programs are some that companies due to say you the customer should comply will what we the company want.

You to do things for us.

What will do is a company will track you will keep track of how compliant you are in the form of points or something, and one day someday we will give you something.

And thank you program just says thank you.

Not once, not down the road, but every single week and people love it.

People love the phenomena.

Stay tuned for even more results on the road.

We should switch to Braxton.

But this is where This is where -- there are a couple of things that are important to me when we announce earnings.

There's a lot of focus on short-term metrics, but also not enough on the real qualitative investments that are going on into creating the business in a sustainable way.

There's also a weird comparison all the time still about what are the price of the four carriers.

What you have got to do now is, you have to realize is that the things that come within a T-Mobile customer, whether it's music freedom and free music streaming, or Binjon that now has a hundred providers participating, T-Mobile Tuesday, every Tuesday having value that is delivered contract free.

International data Roaming, including high-speed data in Europe for the summer.

Things like we just differ our customers going to the Olympic Games.

These are embedded in the basic pricing for T-Mobile, so it makes a comparison very important.

That's why we spent so much time on this.

Braxton, do you want to talk about the margins?

Good morning John and really good questions.

I will put one final answer on your cost question on carrier 11.

On all the uncarrier moves this was actually very -- ranked at the bottom of total cost investments.

Fully embedded in our actual results, and fully embedded in the guidance that we put out.

You have got to remember there's a lot of innovation and partnering with other companies to the benefit of other companies in what we're doing with un carrier 11.

Is actually quite affordable.

On your margin question, I think you very accurately point out we're already at the top end of our EBITDA margin guidance that we have reiterated multiple times.

Which definitely tells you as we continue to scale, the opportunity is to significantly grow our margins past the 36% range.

The other thing that we need to take into account is remember, we had over 100% of the growth in postpaid VoIP voice phones in the second quarter.

Almost 200% in the first quarter.

We're growing significantly, and that has significantly impacted our margins.

We have a lot of momentum, we have a lot of growth ahead of off, but we're achieving this margin expansion while being the fastest growing, and truly in certain categories the only growing wireless carrier in America.

John are you done?

Yes, all set.

Let's take the next question on the phone and then, if it's not [the best topic] I'm going to jump back because there's a tremendous amount of questions Roger and Walt, and a number of others about porting, and I will be glad to hit that to make sure were setting the right tone on that.

Let's take the question, the next will from Simon.

Simon Flannery with Morgan Stanley.

Thanks a lot.

I think you said Neville was there.

It would be great to get an update on the network in particular; talk about the CapEx trending through the year and how that relates to rolling out the 700 getting Chicago deployed.

I think John you touched on small cells and getting to adding capacities.

It would be great to get Neville's perspective on small cells and the ability to add capacity in a cost-effective manner.

Thanks.

Neville?

Thanks, Simon.

Thanks for the question.

Obviously we are delighted with the progress we're making on RLT roll out.

John touched on key stats there.

The 311 million covered pops with LTE is pretty remarkable when you look back at where we were a year or two years ago.

Continued tremendous progress on that front.

The low band roll out is also well ahead of our schedule.

Braxton referenced it in his comments at the beginning of the call.

That somewhat front loaded our Capex for the year.

We're at 200, over 200 million people now covered with our low band spectrum.

It is very clear when you look at our customer results, record-breaking churn levels, our lowest level in the company's history.

That the impact of that low bound spectrum is truly starting to take affect for the Company.

Great product goes on many fronts on LTE rollout.

We couldn't be happier with the progress we're making.

As we a lot more to run out as we go through the balance of this year.

We have almost 270,000,000 license pops now with low band, so another 70 million to go after, or just under.

We will take down a big chunk of that in 2016, in the second half of this year.

There isn't a team that works faster and harder in this industry than the team I have here at T-Mobile in terms of deploying LT networks.

There are many areas that will benefit from low band throughout the end of this year.

You reference Chicago, which is a new spectrum edition for us.

We are starting to work very hard on that; obviously the deal has to go through final approval with the FCC.

There should be no issues at all on that front.

Chicago is a fairly recent acquisition, so I expect Chicago will be more of a 17 turn out than much the C in 2016.

You can take it to the bank that we will have a much bigger number than 200 million covered pops on low band by the end of this year.

Coverage piece, tremendous progress.

You reference small cells in capacity.

I think is we talked many times before, we benefit from the strongest mid band spectrum position in the industry.

We have tremendous macro network which is delivering the fastest LTE across the US today.

That is a great proxy for the offered capacity that is available on a network.

It is truly broad-based coverage.

We are starting to densify our network as you hear from many others, but we don't have to move at the same pace that they are.

We are working small cell opportunities, which you specifically asked about, Simon.

We have several thousand that we are working on.

Not all of those will come up this year.

But because of the strong spectrum position we have, and the very dense macro network that we have, and the types of spectrum that we are deploying, we do not have to rush headlong to the densification that you hear from some of our competition.

We are refarming our spectrum very rapidly.

I often talk about having not just the fastest growing LTE in the US, but the most advanced.

We have now over, almost, actually, 90% of our data traffic is on our LT network, 58% of our voice traffic.

58%, nobody can match anything like that, of our voice traffic is now on LTE.

Why is that important?

It allows us to free up legacy technology bound spectrum.

Much of our competitive set is wrapped up in old legacy technologies that they cannot free themselves of for several years to come.

Though more and more LTE from us, more refarming, allows us to really strengthen in that capacity position that we have done so well over the last two years.

Coverage capacity, all coming together.

Lots more to talk about.

We will see other questions that come on the call.

Obviously, we're in the midst of a very exciting auction.

One that I think will forever change the competitive landscape in the US to the benefit of T-Mobile.

Just a quick follow up, what is a 700 MHz hand set penetration at this point?

That is very strong, Simon.

It is well more than half of the base.

Pretty much every thing we cell now is 700 banded.

North of 70% of our customer have LT-banded headsets, and the lion's share of those have band 12.

Tremendous progress not just rolling out the network, but getting the benefit of the network into our customers' hands.

Thank you.

I think it should be evident as news unfolds, we need time to be able to factor them into our future-looking results for the business.

I really just want to say, is too early for us to have figured out the impacts of our company on the fact that we now learn that that 300 hundred million of CapEx Is sufficient for investment in a growing network, or that you can drive at high speeds down the road with a truck and just throw poles out to densify your network.

But we're also -- interesting to learn that now in the future you can just open your desk and push a button and increase the capacity.

All of these things could have put potential significance upside to our business.

We have not had time to factor them into our future looking view.

Let's take -- in a lot of fashions, I saw Walt, I saw Roger, I think I saw Bill Hogue, a number people asking for details around porting.

I want to do that respectfully, because I know that was an item of confusion this week.

I just wanted to give you some data and I just explain why I'm not here to call Sprint a liar.

Roger, I know you already have the battle here on.

Give me a second and let me go through this.

I go through the data the way I always have.

This is the magenta, this is the postpaid porting ratios, which we previously announced for Q1 with the industry was 1.50.

In Q2 that same number was 1.43.

That 1.43 broken out by the 3 carriers was AT&T 1.64, Verizon 1.43, and Sprint 1.15.

Sticking with this data I'll just tell you that Q3 quarter to date is 1.51, so it's back up to where Q1 was.

This current week, the most recent information is one point is1.77.

In that same vein the 3 carriers this week, which is short so far, AT&T is 2, Verizon is 2, and Sprint is 1.3.

So that is the data and I have that with complete net ports, percentage of net port.

As I said, what has always been important that I have been signaling all along, I know you love the little back-and-forth with Sprint and us, but 50% of these ads come from AT&T, and a greater position now come from Verizon.

Now, importantly, remember, we are the only ones that have 2 number pools.

So we have two groups with Metro PCS and T-Mobile.

So, if you take Magenta post paid and Metro PCS together, then Q1 was 1.7 3, Q2 was 1.66, broken out by the 3 carriers, 1.91 for AT&T, 1.95 for Verizon, and 1.37, or 1.4 with Sprint.

In the latest week of the data is, 1.92 broken out 2.2 for AT&T, 2.3 for Verizon, and 1.51 for Sprint.

That is the business as we look at it.

We look competitively far greater at that second piece of information.

The net ads that go with this clearly are why we captured all of the growth in the industry at a very healthy prepaid.

Now, you can stop your conspiracy theories, porting is not all of the ads, and I will just throw up bone here, Roger, and say, theoretically, there is a way that if your Sprint, and you're sitting there and you're looking at numbers, you're looking at Sprint postpaid customers going out to T-Mobile.

Then you look at postpaid customers coming in from T-Mobile, which may or may not may not be postpaid at T-Mobile.

It could be postpaid T-Mobile plus some of what were the magenta prepaid customers going to Sprint.

Since Sprint was already in the overall data at 1.15, it is theoretically possible that when you're sitting in their spot that they see a balance coming into them as postpaid.

I would just say our data is consistent.

We continue to drive growth against all 3, but I am just throwing a professorial, theoretical bone there is some possibility the way they are looking at the data, that they could be in a good position.

I would also reiterate, the mother load from the duopoly seems to be what is driving both our gains and clearly theirs, because we are netting customers from Sprint, as well as the other carriers.

So, if they gained 173,000 post paid phones, they pretty much went to the bank as a duopoly, as well.

I hope that answers those questions.

I will take follow-ups as we go through.

Anybody have a favorite on this plethora of screens, or should we go to Phil.

Let's go to the next question on the phone.

Phil Cusick with JPMorgan.

With nothing better to do let's go to Phil, thank you.

( laughter ). Thanks John.

That's a win.

I wonder John if you could talk about your competitors vertegral integration strategy.

It seems like t and Verizon are doing more and more outside of wireless.

Is this increasingly necessary for you over the next few years?

And what about the guy sitting in the cable footprint?

Do you think they need to do more in wireless as well?

Let's bounce around with that.

I think amongst the things that are important to note is Verizon has now spent over $10 billion in their fussing around.

There are couple of pieces to this strategy, and I think both of their strategies.

Pretty clearly they're trying to create new revenue streams and new businesses.

And they are not successfully migrating there way from the bank of their business, which is there wireless business.

The facet of buying content and having preferential access to content as a way to solidify a relationship with a group of customers, I just don't I don't think that's the strategy.

It's clearly not the strategy for us.

What we try to do is we try to partner with innovative players that have establish bases of customers who want to view their content and provide the capability through our various offers to allow those to coexist.

And the benefit of that is, as those players emerge and fall, so do our relationships in our ability to drive that.

So I think at the surface level, it's an old school.

In each of the endeavors that both AT&T and Verizon have tried in these areas have failed miserably.

We are not looking back yet at all the money they have spent.

We're looking at the shiny new toy, which is Yahoo, who's mysteriously gone from $128 billion worth of market value to $4 [billion].

But I'm sure with their polishing up strategy they can do something miraculous with that.

Underneath this though is a pretty clear strategy by Verizon to compete with Facebook and Google in the advertising space.

That is a very risky longer-term strategy against two of the very powerful self-endowed players.

And for us, we will clearly not self invest in going to those.

Is a broader game.

That is the game and looking at your customers as a unit cost, a unit opportunity of advertising load, that is very different from where the uncarrier is.

And segueing over how you mentioned the cable players.

This is the battle that's going on.

I did listen to Comcast earnings today.

I think you can anticipate nothing other from the heads of the cable players right now except to put forth the belief they're going to stick Wi-Fi nodes out the same rate Sprint is going to stick out poles, and that everything is going to be beautiful, and they will launch an NBNO with Verizon.

Well, Verizon is ready to attack and fight back.

That is just all they grow up and learn that you need a deeper ownership economics.

And yes, I firmly believe that there will be a dramatic coming together of everybody to that wants to serve customers across multiple devices with content.

And we will play aggressively in that space from our own point, but we are going to be very open-minded to who we play with our brand in the future.

I may have touched on a number of your points there.

My opinion on that topic has being consistent, I think.

If I can follow-up.

Neville, there have been an FCC approve the 5-G spectrum bands.

How does that make you think about the world in terms of densification and maybe working with cable?

Obviously we applaud the FCC efforts to move forward on 5-G spectrum sources for the industry.

It is key.

Chair Wieder and the team have done a great job of pushing forward at a great pace and well ahead many other places in the world.

That's good to see.

Clearly for us, one of the bands that they are slating for 5G use is the spectrum band where we already own spectrum, unlike most of our competitors who are begging, stealing, or borrowing.

We actually do own a sizable chunk 28 MGHz, so some good alignment pieces there.

To your question, I think for me, the jury is still out of what's going to happen on the 5G story.

We could talk about this for the next 30 minutes.

I'll avoid it.

I will try to do it in a couple.

It's clear that Verizon has attempted to take a leadership position on 5G and got way out in front of the skis.

If you go back 6 - 9 months ago, it is very clear that we're not going to be at the Super Bowl next year with 5-G phones doing wonderful things that we will all talk about a couple of quarters back.

We are going to have to be patient for mobility solutions in the 5G space.

By patient, it is 19 and 20.

I am just back fro European visits, and it is very clear, talking to the folks who are really in the heart of driving these technologies that we have to be patient.

That doesn't mean there is you're paying visits is not a lot of work to do, and we are extremely engaged with our vendors.

We have trials, and testing, and work all underway at T-Mobile.

More news will come on that is we work through the balance of the year.

I'm very excited about the 5G opportunity.

What I'm not hugely excited about is the optimization of delivery of broadband to the home.

That is what Verizon has gone out and trumped, is, that this is 5G.

We are going to have the first 5G network.

They are really talking about optimizing the economics of last mile delivery for home broadband.

And not even a mobility story.

It's exciting for the cable guys, a bit of a threat to the cable guys, to your question, right?

The cable folks have to think about what's going to happen in that space pretty long and hard.

With Verizon, and to Verizon' s customers, am I hugely excited about watching Netflix on a link that is wireless compared to fixed, fiber compared to a 5G wireless service, not really.

My netflix would look pretty much the same.

That's not a hugely exciting 5G use case.

Especially if you have concerns about will the economic benefits be passed down to the customers at the end of it.

So, we are far more focused and excited on what will happen in the 5G space with mobility.

It's very clear from Verizon and everybody else that the base layer of technology over the next 10 or 15 years is going to be 4G LTE.

5G will come in, it will offer better speeds, better latencies, a whole host of opportunities in mobility with virtual and augmentive reality; a whole host of things that we are starting to work on and explore.

As I said we will have to be patient for those.

It will take some time and the networks will have to densify and the range and capability of the spectrum is being targeted for 5G at this point in time is going to be very limited.

The physics of ensuring a 28 GHz or higher banded signal can actually match what you can do with 600 MHz or 700 MHz spectrum.

Every engineer that has ever looked at wireless understands how big a challenge that will be.

There's a lot to come, Phil.

To answer your question, we're very positive we won't be [C] in terms of the 5G movement.

We will push very hard to make sure that it comes into the mobility space as soon as possible, and we will be a leader in that.

But a lot of work to happen.

One pushbutton to say, this is another part -- I'm sorry if I'm cranky today, this is part of these earnings call every quarter where the (explicit) factor that goes around and annoys me the day after.

Neville Rays and his team have done things in the last three to four years building this network that are going to be written about in the history of wireless.

And it is expensive and its hard and it takes a long time, and there are no trick plays, and we have invested considerably in this network.

The churn rate in the future of this company now that we have got this network growing, 311 million pops, the work that went into very quietly acquiring license for 269 million pops of 700, and getting ourselves ready and funded to be eligible for this auction, that kind of stuff is extremely important.

The two things that annoy me are, the flip answer about building network when your capital investment is purely backed into based upon how much cash you can really say that you have got to stay alive.

Secondly, it's pretty clear that we scare Verizon from the standpoint of what our network is doing, 5G was put out of the chute very quickly as a brand they were trying to capture so they could be the different network.

It was less than 6 months ago where their CEO sat on TV and spewed such pablum about one year of consumer wireless application and then they together and Fran Schemmel have walked it back week after week after week to where we have been.

Wherein previously we sounded boring with our views about standards in 2019 2020 and the spectrum we have and the great work that the FCC is doing.

Now that we are all caught up we see is that is opportunity that makes sense, that we are equally or better positioned in than anybody.

Congratulations on all you do Neville.

( laughter ). Thanks, guys.

Next question on the phone.

Brett Feldman from Goldman Sachs.

Thanks for taking the question.

I want to talk about the network expansion, the distribution expansion that you're planning.

How do you decide which market makes sense to bring the T-Mobile brand into?

I would imagine these are obviously markets were you've deployed 700 MGHz a block.

You also deploy any mid-band in order to make sure you have sufficient spectrum in that market, or do you spend it afterwards?

How do you take about SGE levels that you prepare to build out and enter these markets, and just to your historical experience got when you put up the T-Mobile sign in a place you have not been before, how quickly can you rent penetration?

The footnote going and is the exciting possibility of how much extra expansion in our retail that we can have based upon the network.

We already talk about the 30 million to 40 million extra people we can reach with the 400 stores we will deploy.

This is magenta; we are not talking about Metric which is an entirely reach story.

We're also -- I am going to ask Mike when he gives his answer to double click not just on the 30 million to 40 million new people we are going to get by 2017, but what we're doing to increase the penetration where we are ready are, and what that looks like when the opportunity arises.

Right, it is an interesting question when you think about all the expansion potential we have in the context of the fact that we, for 10 quarters in a row, have been leading the industry in postpaid phone growth, while only competing in about two thirds of the country in about two-thirds of the segments.

Think about it this way, as John said, we have our full makes with distribution and full network and about 230 million pops.

We see an opportunity to add 30 million to 40 million to that by the middle of next year and we are well on track for that.

Secondly, from a segment standpoint, we're underpenetrated, both with time consumers, suburban families, as well as with businesses, including large enterprises and small businesses.

These are areas again, we've been kicking everybody's [explicit] on growth without normative penetrations in those segments.

So, those are big growth areas for us, as well.

We pick the markets pretty simply.

As you know, we're rapidly rolling out network and we go into the places where our network is newly strong and where distribution needs to take advantage of it.

As John was saying, that is not just new cities and greenfield areas, that's also places where we have densified or extended out into the suburbs and in the hinterlands.

It could be areas where we added in fill.

It could be areas out in the suburbs, or it could be greenfield markets.

It could be a mix of those in a our distribution expansion: about 400 stores this year.

And we are on track for that.

About 1000 Metro PCS stores, something we don't talk about as much as we should because that is a big part of our expansion.

As we finish this year, were looking at one of for thousand T-Mobile branded stores, 90,000 Metro PCS-branded doors, a huge source of strength for us.

In terms of the ramp time, it does take a little bit of time.

So, when we come in there is a buildup time both for a team to get productive and for the local market to understand the T-Mobile value proposition, so it doesn't all role in right away.

But what we see is a path towards our normal [SOGA] levels and we make investment together with our distribution partners with that success in mind.

Thanks for that color.

Were going to put one within a mile of your house, Brett.

I need a new phone.

There's a new one coming out soon.

Next question.

Let's go to Rick, the next question on the phone.

You pick from this plethora.

I'm tempted to go to Walt Piecyk, but he keeps doing facts, as opposed to questions.

By the way, I just want to say this, Walt Piecyk is posting on social a fact that is fascinating.

I had not seen it this way.

Looking at the wireless invested in Q2 and look at the absolute numbers of Verizon, T-Mobile and Sprint, and then breaking it down per subscriber.

What is shows is that Verizon invested $25 per subscriber, T-mobile invested $26 per subscriber, Sprint invested $8 per subscriber.

Again, as soon as we can figure out the trick we're all on that.

( laughter )

Your line is open.

Thanks.

Good morning.

You mentioned distribution partners, I want to circle back to Brax on something you talked about where you going to sell some of your customers to a current in the NBO partner.

Walk us through a little bit about what triggered this, why are you selling them, would you get.

I would expect there are some changes, not just on churn, but how revenue and EBITDA will play out on it, as well.

It seems like a interesting item that you're doing.

Let's have Mike start with that and I would be happy to finish up.

As most people are aware, for a long time now, for many years, our postpaid business has been comprised of our branded T-Mobile business, as well as a co-brand called Walmart family Mobile.

We have taken a decision to transact with one of our wholesale partners to have them take over the sales and distribution of Walmart family mobile for a variety of reasons.

To help us streamline our operation, we think they are in a great position to be able to more effectively grow that business, and we retain the network outside the value chain on that.

It is a great transaction.

It is not closed.

There is work left to be done, but we felt it important enough to disclose it to you today since we signed agreement with that partner.

What it does cut one thing it does with that disclosure is it causes us to show you how the underlying T-Mobile business, which is the vast majority of our postpaid business, all but 1.4 million of our subscribers, is performing.

What's interesting is, this last quarter, had that been the postpaid business, as it would be prospectively, our postpaid churn on the T-Mobile brand was 1.09%, completely flat with AT&T consumer churn, just for a point of comparison.

It really shows the amazing progress that this business has made that with its brand, with its customer service, but most importantly with its network.

Going forward, presuming that the business closes his we expect, we would be reporting our postpaid business with only the T-Mobile brand.

You will see comparisons going forward that build off of this quarter.

That 1.4 million subscribers is generally stable, has not been a contributor to our growth in a long time, is not declining substantially, it's a stable business that's been out there that has been contribute into our results and that we think we can get better financials out of going forward with marketing and distribution at least in the hands of one of our wholesale partners.

I think that was a great recap.

The only thing I would add is that is our only cobranded partner that was currently imbedded in our postpaid numbers.

This is completely a one-off.

From an EBITDA standpoint, it is fairly neutral.

But certainly the ARPUS on Walmart family and underlying demographics are very different from the rest of the T-Mobile base.

I think for one thing it is going to be exciting to see true T-Mobile branded postpaid results in the quarter.

It is best in class.

We been hearing Walmart might reduce the number of people they would carry in the store, so it probably also locks you into having a better shot at keeping the shelf space.

I wanted to know I love the social interaction here.

I am going to read the tweet from Aaron Pressman that says that he is impressed that I'm reading walt's tweet.

I'm going to point that out, Aaron, because I am a fan of your writing as well.

There is a Walt Piecyk check question here that I'm going to take.

Have you talked to Comcast about selling prepaid TV in Metro PCS stores?

What I'm going to tell you, Walt, is we have absolutely no interest in using our Metro PCS store in that fashion.

I'm sure it's a roundabout way -- I guess the boot stores had to do something.

In general my feelings about where the industry is going on a substitute basis stand.

From the standpoint of dating or showing any leg, I'm not interested.

In my case, unlike Verizon' s, I would say the last two letters in MBNO are no.

The answer -- there were some people that wrote and said it's interesting that the people talking about consolidation the most and T-Mobile are the only ones that have not been invited to the party.

If you think that's true I have some land to sell you.

T-Mobile is an extremely powerful brand and coveted highly.

But opening up our stores to sell some unproven prepaid TV products that's not integrated as all is not part of what we plan to do with our brand or with our stores.

All the powers to you over there if you have got excess capacity.

Let's go back to the folks.

I next question's comes from Jonathan Chaplin for New Street Research.

Braxton there has been quite a meaningful capital drag in the first half of the year.

You said that trends in the second half of the year would look a lot better.

I want to make sure was still on track for what we were expecting previously.

So, if I look at the midpoint of EBITDA and CapEx Guidance and take out where you are in interest expense, it looks like we are at about $2 billion to $2.5 billion in free cash flow.

But for whatever the drag is in working capital, should working capital be more or less neutral for the full year this year?

My second question is, I know you don't want to talk about this now, but as we look ahead toward 2017, you will end the year below your leverage threshold.

It seems like were getting into the zone where the capital returns should come onto the table.

I know the capital returns are a decision that have to be taken by the board; is there any reason why you wouldn't keep this business levered at three times or more, given the operating trends you have?

Thanks.

Great question.

I think the whole free cash flow story is one of the things that we actually get the most excited about here T-Mobile when we look at future projections.

I think it's informative to look at the differences in the first half of this year versus the first half of the prior-year.

Even though we are showing very substantial growth in our free cash flow, that's in the context of for the first six-months of this year, we have spent by $500 million more in CapEx on a fairly flat CapEx budget from 2015 to 2016.

So it's much more front loaded in 2016 than it was in 2015.

And we are doing that because the goodness of rapidly rolling out 700 MHz.

All it does for us from a lift, from an expansion and from a retention standpoint is key.

The second thing, if you tease the numbers out, when you look at the net payables for the first six-months of 2016 versus the first six-months of 2015, there was a incremental $300 million plus reduction in payables over the prior year.

That's coming out of a strategy of really trying to optimize every part of the financial equation.

Were in a position where we have entered into new agreements with early paid discounts and trying to take full advantage of those early paid discounts, it falls right to the bottom line.

And that is a shift in strategy that we have had over the last year.

Those two items alone are organically $800 million more in working capital generation in 2016 versus what we did in 2015.

We're investing it in those types of initiatives.

I think what gets exciting is, yes, the thesis is fully intact.

You look at the midpoints of the guidance.

You look at the front ending of CapEx during the year, you're going to see some very nice working capital increases in the balance of the year.

Just wait for 2017.

The story really with the leverage we're getting, with the scale we're getting, we're extremely excited about it.

Your final question, we do have a capitalization policy that has been keeping our net leverage between 3 and 4 times.

We do think that leverage is healthy to the equity component if it's reasonable and prudent.

We're certainly going to be increasing the leverage based upon everything we have announced on: debt we have raised, and the commitments we have from DT, which is better than anything we could of gotten on the open market.

That the way this model is performing, and the way we are executing, we very rapidly delever.

When you look a year out, what will have at our disposal is a decision to make.

Are there opportunities to invest in our Business that will create a higher return versus returning capital to shareholders.

Ultimately, that's a right way to look at it from a fiduciary standpoint.

We will see what develops.

We'll see what opportunities develop.

I think we are very uniquely positioned to capitalize on several opportunities in the future, and certainly with the way the models working the way were executing, return of equity, or cash to shareholders in the future will certainly happen.

I would position it more as Midterm being at two to three years out before we would really be looking at that type of scenario.

But hey, let's see what develops.

Double click here, as well.

The work that Braxton has done in this Company on so many fronts preparing us for example for where we sit in this historic auction.

These are things that don't get covered on quarterly earnings calls.

I know that early this morning there was at least one or two analysts that were confused about our cash generation for the quarter.

So I think what Braxton just covered, where in this type of environment that we are in, he was even aggressively paying down payables.

That's just a qualitative phenomenon when you hear the other earnings that have taken place.

To be prepared for an option, making the down payments cut generating cash, and bringing payables down, Paul attentively is something Braxton has done an incredible job on and does not get enough focus on.

I hope that bridge with the payables also answers your questions that were running around this morning.

Braxton, great job by your team on all this.

I also just saw a couple of things go by.

I am going to do a two-second commercial.

There's been a number comments and questions about how much information is flowing here on twitter.

I actually saw one joking comment: does Jack call you to thank you for the twitter flow?

I want to be clear, I and we are big fans of twitter.

The product is extremely powerful in how we run our business.

We are running our earnings calls on it.

At the tip of our fingers, how much information we have.

I use periscope extensively along with other social media.

So, I just want to make sure that from a business standpoint, this Company, and me personally, we are all in on twitter.

The product is extremely powerful, we're running our earnings call on it.

At the tip of our fingers how much information we have.

I use periscope extentively, along with other social media.

I want to make sure from a business standpoint from this company, and me personally, we're all in on twitter.

I know there's a lot of negativity or question.

Not for us.

We find it to be an extremely useful and growing platform for us, and we continue to focus on it.

That's my shout out to Jack.

Mike McCormack from Jefferies.

Braxton, just a quick comment on ARPU.

It seems like, obviously, simple choice penetration has gotten very high.

Can we anticipate, as we progress to the back half of the year, that we can see year-over-year growth in ARPU, and what would be the drivers there?

Secondly, on the promos targeting families, can you dig a little deeper on what you are doing there, and whether or not the 700 MHz deployment is a big help there?

Let me start with that, and then we will have Mike address the family plan component.

For the second quarter in a row, adjusted for DataTach, you have seen sequential growth in our ARPU.

Again, adjusted for DataTach, it was up 0.8%.

If you look at the balance of the industry and you look at the trajectories of ARPU, it is another way, I think we are really differentiating.

The strength comes with DataTach, as well as penetration of insurance on higher end iconic devices.

Those of 2 of the strengths that we have and DataTach being the most significant.

And that is even in the context of binjon.

But remember, to really participate in binjon, you have to be at least on a 3G plan.

So a lot of what we do is very well thought through from an uncarrier standpoint that encourages placement of the consumer in the appropriate bucket for their usage.

But as data uses has gone up, you're seeing that progression in DataTach.

That's been the strength and the underlining driver of what's causing the two quarters in a row in the sequential improvement in ARPU.

Offsetting that are family plan promos.

The interesting thing about family plan promos, you're doing discounts on your additional lines in the family unit.

But, when you look at the overall MPV, you're sacrificing some ARPU, but you're creating more value for your Company.

It has a better retention, more overall SAT costs.

So it's a trade-off well worth making.

You can look at our per subscriber metrics, consistent quarter over quarter, the number of lines per account has been significantly increasing, which is showing the results of this emphasis on family plans, and that absolutely will continue.

That's when we talk about ARPU, is we talk general stability.

Certainly there underlying strength there, but the family penetration, especially when you look at the AT&T and Verizon base, where over 80% of their customers are family plan units, that's very important for us.

Let me handed it over to Mike.

Before you jump, just on the churn data point there, if it is normalized this quarter for 1.09, presuming next quarter there is some seasonality, but 1.09 should be the jumping off point as we look at forecasting?

Remembered this transaction will not close.

It has not closed now, and it will not close towards the later part of the third quarter.

It is not retro active; it will be a prospective.

So, no, you would not get the full benefit of the transaction when it closes in the third quarter.

You will see run rates in the third quarter.

The other thing on churn is -- By the way, were so delighted with what's going on with churn.

1.27% is an all-time record driven by the health of our brand, the progress of our network, and certainly seasonality.

In this case there was no iconic phone launch in the quarter, and that brought everybody's churn down a little bit.

Year over year it was about 5 bps.

If you just look in the past years, we don't guide on churn, but if you look in the past years, churn has been a lot higher in the second half that in the first half.

You have to keep that in mind as you look at the full picture.

But we're seeing nice year-over-year progress here and that is the important point.

As Braxton said on these family plans, 2.64 lines per account is an all-time record for T-Mobile.

We have been after family for about two years.

We really launched in at the beginning at the beginning of 2014.

So 2.5 years of progress.

We continue to update and change the way were bringing value propositions to families.

Our latest promotion is one we are really excited about, which is one is being able to provide the entire family with a smart phone included with your plan at no extra charge.

Smart phones are getting affordable enough what we could do this in a very cost-effective way.

We found a way to provide that.

Obviously the market is very excited about it.

We would stay focused on this market and as Braxton said, data attach is growing and family plans are hitting it an all-time high.

Those generally offset each other to provide ARPU stability of the kind we have been talking about and telling you to expect.

Mike, as it relates to the 700 MHz is that driving the message home on network quality

Absolutely.

At the end of the day what people care about is coverage.

We are the fastest network in the country.

We have been over two years, but what they really care about his coverage.

With more than doubled our coverage in the last year and 700 MHz mostly gets the credit for that.

As you know, that something that is an epic of a company having 269 million pops of licenses for extended range LTE and were rapidly rolling out against that.

Mike this is still for us not just the retail expansion, but for us the challenge and retail opportunity is the same.

We have our relatively small share player and our network is wildly ahead of the ingrained perceptions for the outdated experiences of customers.

It's a very much still a game where we've got to get people to update their experiences, including you.

You are next on the list.

John, you know I'm already there.

Let's go to the next question.

I think it's Craig Moffett, who, I have been sitting here reading stories about Craig and his assessment of everything that is happened, and who is buying us and who is not buying us.

So lets open the mike to craig and maybe we will ask him some questions.

( multiple speakers ).

Your line is open.

You can ask whatever you want.

I would ask a network densification question.

If I can take the bait on some of the things you been talking about capital budgets across the sector.

There are two levels of network densification.

There is network densification in the context of LTE that you and everybody else are doing at a steady pace.

But then there's a completely different order and magnitude of network densification for millimeter wave that others are talking about for fixed wireless broadband.

You were pretty dismissive of that opportunity.

How do we think about that?

Maybe for neville first, how do think about the kind of network densification that is going to be required for those kind of cell RDI for 5G, and then maybe Braxton perspective on the same question, of how you would find something like that?

I think the dose if you look at densification today and what is being talked about, you have to come back to the spectrum that you own, and the assets that you have.

And unfortunately for the sprint folks, they are still trying to figure out how to deploy effectively 2.5 gig spectrum.

It's a challenge of physics.

It doesn't propagate that well, and so they are having to adopt mass densification strategies.

The rest of the competitive set, quite frankly don't at this point in time.

That's a big challenge for them.

It's a bigger challenge if you have no money to fund it.

They are in a tough spot.

I give the network team credit, their working hard to solve the problem.

I think there on version 352 in the network plan to fix this thing and it seems to be pretty stalled at this point in time, be that capital, be that permitting, be that vendor equipment, or a combination of all those things.

When you hear Verizon and us and AT&T talk about densification, it's a much more measured story and it's because the spectrum assets that we have.

Verizon and AT&T have to do more, because today they have a bigger customer base in us, and they don't have the wealth of Mid band spectrum we have following the combination with Metro.

And so were in a very strong position with a very powerful macro network that allows us to look at densification where our customer loading and payload is it its most intense.

That is and upload strategy more than how do I deliver my callout in the base strategy which Sprint is still struggling through.

When you come to 5G, it's the current debate on steroids.

28 gigs and with everything that will happen, with massive [memo and] (inaudible).

Sure the physics will help, but it's going to be very difficult to match 28 gig to even 2.5 gig spectrum performance.

So the industry is working very hard on those things.

But early 5G rollouts will be pretty much capacity-type offloads.

You will see them in small, dense areas of network.

Maybe core areas in big cities.

That is why you will see this stuff happen in urban footprints to begin with.

But is it going to be years, decades, maybe even never when you are going to see 28 gig deployed on a broad-scale basis.

The physics don't work and the cost that make it work across that type of range -- if Sprint cannot make it work in 2.5, how is the industry going to break the back of it in 28 or 70 GHz.

I think your question about what that will cost, from a 5G vision perspective, right now this game in the next three to four years in this industry, it's all about what you do in LTE advanced.

That's the game.

As I mention at the beginning of my comments, were the most advanced LTE network in the US.

We have deliver the functionality and capability on LTE features, be it MIMO, Carrier Rag, whatever the situation or feature may be, ahead of our competition.

We're moving very quickly to ensure that LTE capacity and coverage is delivered to meet the requirements of all of our customer base.

That's the game for the next 2 to 3 years.

5G will come on, and the densification strategies will evolve as we resolve the physics on propagation.

It iss going to take some time; it's going to take several years for the whole economics here to work through.

John by the way, since what I said is a little different than what's been reported, all I said is that I wish people would stop focusing on M&A and start focusing on how well you are actually doing.

And I read it that way as well and as long as you want to talk about it, there are a number of headlines, and I think what Craig said is these are executing on the business and its values and headlines were M&A will be off the table cause there is so much momentum as opposed to we have had an incredible stand alone strategy that is going extremely well.

The world of consolidation is inevitable.

But it is not the past quote.

I got it Craig, and I appreciate it very much.

We have eight or 9 minutes, but we have a big queue here.

Let's try to be one quarter as voluminous as that great answer that Neville just gave on network.

Michael Rollins with Citigroup.

Thanks for taking the question.

Talking about the ongoing proceeding from the FCC on special access, which they are now calling Data Services.

In terms of your exposure to that, how you think it might play out as it impact to your finances over time?

Secondly, can you talk a little bit about device leasing, and your latest thoughts on leasing devices to your customers versus the installment plans?

Thanks.

Okay Neville can you do a quick shot of the first one, then mike go.

-- data services, as it is now called, we are supportive.

Mike, for us, we were the first carrier.

It sounds crazy, but to deliver fiber to the cell.

We resolved the economics on backhaul strategies long ago, and we continue to scale and do that very, very economically for us.

I'm hopeful the new regulation will help us as we push into more rural and tough areas to fiber across the US.

We are supportive.

We don't need it to resolve our economics of our back log.

Leasing versus EIP.

As you know, we have been focused on EIP this quarter.

We have said that is going to be generally the focus for the short term.

We are very pleased that we have two great products that are customers love.

We like to maintain some element of surprise here competitively.

We focused on EIP largely because we found our team's of better at it, based on the state of the IP systems.

As Braxton has mentioned we are making big investments right now in IT transformation, and our systems are more mature on the EIP side.

That makes transaction times faster, and that allows us to be more productive at retail.

But that is not a static state.

With each passing month we are making big strides in IT, which may cause us to change the strategy, or may cause us to do something completely new and unexpected.

So stay tuned.

To your credit, Mike, you and Braxton, we did in leasing in Q2, exactly what we said we were going to do, and so stay tuned.

I think we are very pleased with the trend and what we are doing with the IP.

But it is a weapon in our arsenal that we can pull.

Next we hear from Amir Rozwadowski with Barclays.

Just a network question for Neville.

Recognizing a lot of the initiative that you folks have put into place in order to enhance speed on the network site, one of the questions that we tend to get from investors is with the success of initiatives such as binjon and the growth in data usage across your network, is there point in time where you would need to consider augmenting your spectrum portfolio in the midband range.

I recognize you're in the midst of a low band spectrum auction at the current moment, but thinking about sort of the longer-term pieces in order to further accelerate network improvement?

You never say never, obviously we have a rich spectrum portfolio today.

Our LTE is just north of 60% of the spectrum assets that we own, so we have a long way to go in terms of driving LTE in the balance of the spectrum assets.

I'm excited about new capabilities like unlicensed LTE.

It's something that we need to break the back of not just for the industry; it's a great technology, is a foundational story for 5G.

We really need to make progress within the US environment on technologies like that.

The low band stuff, obviously that's great spectrum.

We're in the middle of an auction.

Great spectrum.

There's are a lot of options and opportunities to go on attack before you have to go whole scale at massive densification of your network with steel and concrete.

That's very helpful.

A quick follow up to some of the comments Mike you have made on some of the new market opportunities and some of the greenfield bills, any color you can give us in your subscriber trends in some of those markets.

I think one of the questions we get from investors is, how much longer with the momentum with subscribers trajectory right now go going forward, given where you have been in terms of share in Metro markets versus some of these newer markets.

We have seen places where we have built out network and followed it with distribution.

What we have seen is that we can achieve our normative SOGA share of gross ad rates when we come into the market late like that.

One of the reasons, it's kind of obvious, we do most of our marketing nationally.

So there are places where actually there some pent up demand where people for years seeing commercials about T-Mobile, and they could only get in that market have maybe in that small town, they be Verizon and a rural carrier.

And now there's an exciting new choice.

There is an opportunity for us to achieve our normative [Sogula].

It takes a little time.

We tell you were going to achieve 30 or 40 million more in pops and distribution by the middle of next year, you can't straight line math, but the endpoint is normative soga levels.

Operator, I think we have time for one to more.

Next we have Walter Piechyk with BTIG.

He's everywhere.

( laughter ).

Thanks John for increasing my Twitter followers and a couple of trolls along with it.

I appreciate that.

Are you up to 10 now?

On the cash flow statement there's obviously a very big payment, which I don't think you close on the $2 billion worth of spectrum this quarter.

I'm assuming that the early upfront payment for the auction.

Based on my math, that can by your pretty chunk of spectrum.

I know you can't really talk about the auction, but maybe Braxton can talk about past comments about the amount of money you would spend and whether this is just an indication that the numbers are low and you can pick up that amount of spectrum that down payment implies that you will?

Or is it a possibility that some of numbers you talked about in the past might actually go higher?

You are very astute when it comes to looking at all aspects of our financials.

The one thing that I would say is we cannot comment on anything related to the auction.

But I can tell you that we fully stand behind all the public comments that we have made in the past.

And I will have to leave it at that.

I think that does answer the question.

If I could do a follow-up for Neville.

In the past you talking about partnering with cyber company and embracing small cells as long as you can put them along those lines, as opposed to making some of these extensions.

Just curious, where you are on your own small cell roll out?

Have you seen any delays in being able to do that based on what some of the guys, like Crown Castle, or maybe Mobility have been doing in the market and have you seen in a reaction by local mean the qualities pushing back on those types of rollouts?

Has it been pretty much at the same pace with your ability to roll out small cells as it has been in the past.

You seem to more in the space than I do, Walt.

Maybe you could share what you know.

I think obviously, our small cell strategy is moving, I referenced earlier, we are not in a massive rush that you would see in big yellow at this point in time.

We have thousands of opportunities we're pursuing this year and a big chunk of them we have to come online.

That's for capacity needs in 2017, 2018, and beyond.

To the heart of your question, we've been very careful making sure we have the right economics and right deployment models for small cells.

And back to John's earlier comment, if you run crazy around the country trying to drop poles in every right of way that you can find there's going to be some community push back and backlash.

I think there are some signs of that.

I think that's clearly driving some delays for some of the competitive set, but not for us.

We have been very thoughtful about how we engineered the solutions, the partners that we have selected, and we are fully on track with what we are doing.

But I am not trying to do something at a massive scale that some of the other folks are, and we are having more success than they are, I think, at this point in time.

One follow up.

You and Neville can have your bromance after the call.

Five years from now how many small cells will you have in the ground?

10,000, 50,000?

That's hard to predict.

Do a Twitter poll.

At least 10 ( multiple speakers ) ( laughter ).

Let's allocate up to15 minutes for waltz question.

Let's take one last question, and then we are going to wrap up.

James Ratcliffe.

Just looking at the strength of prepaid on the gross ad side, do you have any read on -- I know you know where the customer is reporting from, but what sorts of services they are coming from, or are these people are moving from postpaid offerings, or are they prepaid feature phones to prepaid smart phones?

I know you don't get that specific, but any color on that would be helpful?

Including launching into the fact that we are now selling the iPhone in Metro.

Everything we can tell Metro is not only the biggest prepaid business, the fastest growing prepaid business, but the most effective at taking postpaid prescribers from competitors.

It competes very well in a group we measure carefully, which is people who port their numbers, who had their phone number for at least a couple of years, who have a proven ability to pay, Metro PCS is highly effective at winning those kinds of customers.

That is why, as John said, we had an all-time high prepaid ARPU this quarter.

So it's really important to dig into the fundamentals of this prepaid business, because it's a back testing is.

We now carry the iPhone at our Metro PCS stores.

Were adding 1000 stores this year to roughly 9,000 stores nationwide.

We're covering 200 million pops with Metro PCS 65 markets in 100 cities.

This is a powerhouse: the biggest, the fastest growing and the most effective at competing for postpaid style customers.

Thank you.

Thank you everyone for tuning in.

Would very much look forward to speaking with you again next quarter and thanks for your participation.

Tune in to Power Lunch on CNBC and Bloomberg, and you can watch Braxton Carter telling more of the story.

Thanks everybody.

Ladies and gentlemen this concludes the conference call.

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

Thank you for your participation, you may now does connect.