T-Mobile US Inc (TMUS) 2016 Q3 法說會逐字稿

Welcome to the T-Mobile US third-quarter 2016 earnings call.

(Operator Instructions)

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 and welcome to T-Mobile' third-quarter 2016 earnings call. With me today are John Legere, our President and CEO; Braxton Carter, our CFO; and other members of our senior membership team.

Let me briefly read 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 our actual results to differ materially from the forward-looking statements. Reconciliations between GAAP and non-GAAP results we discuss on this call can be found on the investor relations page of our website.

With that, let me turn it over to John.

Okay. Good morning, everyone, and thanks for joining us directly from the last call that you were on for the last hour and a half. I want to welcome everybody to T-Mobile's third-quarter 2016 Un-carrier earnings call and conference. We're live in Bellevue, Washington.

I like answering questions way more than reading numbers off of a page, so after a few comments we are going to spend up to 90 minutes taking as many questions from Twitter, Facebook and the phone. And, as always, we're live streaming on YouTube so you can watch all the behind the scenes action, including Braxton in his famous, now infamous, magenta cowboy hat.

Let's talk about Q3. We delivered the best results in the industry again. And we beat the competition in key metrics such as net postpaid phone customer additions, prepaid additions, service revenue percentage growth and adjusted EBITDA percentage growth, just to name a few.

I'm going to share those Q3 highlights in a second, but first I've got just a couple of things on my mind. I just had my fourth anniversary at T-Mobile so I stepped back and I really looked at where we are and what we've accomplished.

When we started we set crazy high goals for this business. Much to our competitors' surprised and our shareholders' delight, the way we have delivered has been exceptional. Step by step we are forcing the industry to change, and T-Mobile is making wireless better for all.

We've more than doubled our customer base and we are translating that amazing customer growth into financial growth and shareholder value. Sure, you've heard some good spinning from our competitors last week and I think you're going to hear some more tomorrow. But I've got to be honest, I love the industry dynamics right now.

Any gains by the number four are not coming at our expense, period. And anything that weakens number one or number two or loses their focus is great for us.

Meanwhile, we're not the player in this game making questionable economic choices or under-investing in the network. You may be easily able to guess who that is. We are comfortable with the competitive climate, and we're definitely comfortable taking share from the big guys.

Here is the thing -- the carriers suddenly think this is a competitive environment. Well, guess what? We are the competitive environment. Competitive quarters, by the way, like the last 14, are when we grow and deliver financial results.

We know how to navigate it because three years ago when we began this change in the environment with the launch with the Un-carrier and we are not even close to done yet. What might feel competitively painful to the carriers is just them being forced to adapt to our moves in their struggle.

For T-Mobile it's just another quarter. And, again, we delivered big. So, the current dynamic works hugely in T-Mobile's favor. We can do this all day, every quarter. In fact, that seems exactly to be what we're doing.

Okay, so you have the fact book and the Q3 financials speak for themselves, but I want to highlight just a few, in a little bit of a reverse order this time. We are delivering rock-solid financial results. And we actually remain the only growth company in our space. Year over year we delivered 18% total revenue growth, 13% service revenue growth, and 38% adjusted EBITDA.

No doubt our customer growth numbers will lead the category again with 2 million net adds in Q3, the 14th consecutive quarter with over 1 million net adds -- by the way, averaging 1.9 million per quarter. That brings us to 69.4 million customers. We added 851,000 postpaid phone customers. That is 11 quarters in a row we led the entire industry in postpaid phone nets.

And looking back over 14 quarters, you know that we took 100% of the growth, adding over 12 million new customers, while the net total of the other three is less than zero, if you're wondering why they're interested in new business. We win customers and they stay with T-Mobile. Branded postpaid phone churn in Q3 was down 14 basis points year over year to 1.32%, continuing the positive trend from prior quarters. Churn this quarter was the best ever for a third quarter.

Now, prepaid -- it is a huge driver of our business where we have the number one prepaid brand with MetroPCS. We added 684,000 new customers. That is more than double our closest competitor. The past three years we've added 4.6 million prepaid customers. That's over 97% of the industry.

By the way, it bears mentioning and reminding, these are high-value customers with ARPUs at record levels above $38, and churn dropping 27 basis points year over year. So, a prepaid customer addition simultaneously with the postpaid is very key to the revenue growth in the industry.

So, here is what makes us different from others. We are winning big in both postpaid and prepaid, which is translating to service revenue. If you look closely at the others it is pretty clear that it is hard for them to create sustainable service revenue growth without winning in both. And, of course, you have to couple this with stable and improving ARPU and (inaudible), which we are, and I will have more to say about that when we get to Q&A.

The bottom line, T-Mobile continues to take all -- that's 100% -- of the phone growth and has dominated the industry over the last (inaudible) years.

Now let's just touch slightly on porting ratios. We've now had 11 quarters in a row where T-Mobile has been positive against every major carrier. In fact, our postpaid porting ratios improved against every carrier further in Q3.

I have to mention network. Our 4G LTE coverage is now at 312 million POPs, so we match Verizon, reaching 99.7% of the customers that they do.

And don't forget, our network is still the fastest in America. We've been the fastest in both downloads and uploads for 11 quarters in a row. By the way, upload speeds are becoming increasingly important with the rise of social sharing. Our upload speeds are almost 50% faster than Verizon who happens to be our closest competitor.

Our deployment of extended range LTE on the 700 megahertz A-block spectrum plan is way ahead of schedule. 366 markets are live covering more than 225 million people. Our A-block spectrum portfolio includes pending transactions that now cover 272 million or over 84% of the US population.

We also launched Un-carrier 12 in Q3. It's proven very successful already. Approximately 80% of new postpaid phone accounts are activating on T-Mobile One, which is well ahead of our expectations. T-Mobile One is all about simplicity, which drives cost reduction and margin expansion in our business.

And of course we are not yet done. There is still a ton to fix in the industry. And a quick note -- in fact, we will announce the next Un-carrier move before the next time we get together for earnings.

Our brand is stronger than ever. We're the only pure play wireless Company with sustained momentum. Flat out, we are the only company in wireless consistently winning. The only Company taking all, more than 100% of the phone growth over the past 14 quarters, including all, more than 100% of the postpaid phone growth, and 16.6 million total phones and 12.1 million postpaid customers added to T-Mobile and none for the others.

The only company growing both sides of the business, postpaid and prepaid, for 13 quarters. The only one with any service revenue growth this year over year, actually double-digit service revenue growth. And the only company with the fastest 4G LTE speeds in the country for over 11 quarters.

On the heels of these great results, we are raising our customer outlook, and increasing and narrowing the adjusted EBITDA target range for 2016. Let me hand it over to our CFO, Braxton Carter, for more financial highlights, to share updates to our full-year 2016 guidance. Braxton?

Thanks, John, and good morning, everyone. I am so excited to give a quick snapshot of our very strong financial results and update on our 2015 guidance. Let's start with the financial results for the third quarter.

Our customer growth is translating into strong financial growth as we once again delivered industry-leading metrics. Service revenues grew by 13% and adjusted EBITDA came in at $2.6 billion in the third quarter, up 38% year over year. This includes a spectrum gain of approximately $200 million.

Including the spectrum gain, adjusted EBITDA grew by 27% year over year, while the margin expanded to 34%, up from 30% a year ago. EBITDA benefited from strong cost discipline, the cost of service now equivalent to 20% of service revenues, down approximately 180 basis points year over year. And SG&A expenses down approximately 100 basis points year over year as a percentage of service revenue.

Adjusted free cash flow grew by 28% year over year to $624 million. Net cash from operating activities increased by 14%. The increase in net cash from operating activities was partially offset by higher cash CapEx, which increased by 3% year over year.

As said before, cash CapEx was much more front-ended this year due to our aggressive 700 megahertz A-block rollout. This is just a timing issue which will normalize in the remainder of the year. We continue to expect a significant improvement in free cash flow this year compared to 2015.

Earnings per share came in at $0.42 per share in the third quarter compared to $0.15 in the third quarter of 2015. Note that this includes the after-tax gain from our spectrum transaction of $0.15 per share.

Branded postpaid ARPU was another key highlight of the quarter, it grew 2.2% sequentially. Excluding Data Stash, the sequential growth rate amounted to 1.6%. This has been driven by the very strong popularity of our new T-Mobile One service plans introduced recently.

In terms of customer quality, we continue to see continued improvements in the quarter. Total bad debt expense and losses from the sales of receivables were $177 million or 1.91% of total revenue, a slight seasonal increase from Q2, as expected. Importantly, this is down year over year both in absolute dollars and in percent of service revenues.

In fact, the percentage approved by 61 basis points from 2.52% in the third quarter of 2015. EIP receivables classified as prime, adjusted for securitization, was 53% at the end of the third quarter, in line with the prior quarter.

Let me now come to the update of our 2016 guidance. In light of the continued strong customer momentum, we're taking up our target for branded postpaid net customer additions to 3.7 million to 3.9 million, up from the prior million dollars of 3.4 million to 3.8 million.

For adjusted EBITDA, our new target range is $10.2 billion to $10.4 billion, increasing and narrowing the prior target range of $9.8 billion $10.1 billion. This target range includes the spectrum gains of approximately $800 million in the first and third quarters, of which $200 million was in the third quarter.

Our EBITDA target also includes the aggregate net impact of leasing and Data Stash of $1 billion to $1.1 billion, again increasing and narrowing the prior range of $800 million to $1 billion. For Data Stash we now expect $250 million to $300 million compared to the prior expectation of $300 million to $350 million due to the impact of T-Mobile One. Finally, we target cash CapEx of $4.5 billion to $4.7 billion in 2016, narrowing the prior range of $4.5 billion to $4.8 billion.

In summary, we've delivered very strong financial results in the third quarter and expect continued strong growth in 2016. We won't stop.

Now let's get to your questions. You can ask questions via phone, text message or via Twitter or Facebook. We will start with a question on the phone. Operator, first question, please.

Simon Flannery, Morgan Stanley.

John, you touched briefly on porting numbers. I wonder if you could you give us an update on anything for October?

And then, Braxton, can you just talk a little bit about the operating margin leverage model as we go into 2017? You're past the synergies now. How should we think about, if you still have a double-digit top line, what is the incremental drop-down to the EBITDA line? Thanks.

As I said, overall porting ratios in Q3 were about 1.55, up from 1.43 [carrier] for the industry. And they were up in Q3, improved versus every carrier.

They are pretty much flat on the industry into Q4 and October, except we have seen an improvement specifically against Sprint. So, we have moved up more towards 1.3 with Sprint.

But one of the things that we track very closely, especially with Sprint, is porting of MetroPCS and T-Mobile. And together MetroPCS, which was 1.92 for the whole industry in Q3, has moved up to about 2.11 with Sprint. So, we're off to a pretty stable with the other guys and further improvement versus Sprint.

The thesis here has always been to have a significant growth left, translating into significant increases in the top-line profit down to improved sustainable free cash. And we are certainly proving that. We will give full 2017 guidance on our year-end earnings call, but suffice it to say we do still expect to grow our top line double digit going into the next year.

We have incredible momentum behind us. We have incredible growth momentum behind us. And then the conversion of that, the EBITDA and to truly leverage free cash flow, is very exciting when we look at the future.

But we will provide a full update for 2017 on our year-end call. But suffice it to say you can certainly expect continued strong financial performance and margin expansion.

Thanks, Braxton.

John Hodulik, UBS.

John, you mentioned that we were all on another call before this. Could you talk a little bit about how you think that the wireless industry changed, if at all, by this AT&T Time Warner transaction? Does it change the need for wireless companies to get into content or cable companies to get into wireless? Just your view on the industry would be helpful. Thanks.

It is clearly very exciting. I spent most of the weekend looking at it, as you have. It's a bold move and certainly a long road to go before it is completed. But a couple of things.

They also announced their earnings for Q3. And if you look and you compare and contrast their earnings and what's happening, for example, with ours, you understand why they are trying to do a vertical integration, which is, in effect, investing in new businesses and revenue streams as opposed to something with synergy. What yelled loudly in their results was, when you normalized, they lost 354,000 postpaid customers at a time when we're certainly adding many.

I would point out a couple of things on that, by the way. You did notice, as well, that U-verse was way down, DirecTV was barely growing. So, they are migrating with significant amounts of capital to provide a revenue stream.

I have an interesting factoid you, which is when they announced in Q2 of 2014 the DirecTV acquisition, they have not added a postpaid phone customer ever since. So, one of the things pertinent to T-Mobile is, I would say, the great news is that they are going to be further defocused than they are now, and the upside opportunity to continue to acquire businesses in the space bar for us is tremendous.

The second thing is that there is a piece of an industry of the future that they are attempting to define. I think Randall's short version of something I've been saying for quite a while, he used something along the lines of mobile is going video and video is going mobile. I might have gotten it backwards.

What we have been saying all along is all content is going to the internet, and all Internet is going mobile. And the future of getting to now 70 million and growing of people who have mobile devices with T-Mobile, completely ubiquitous access to all the content they want in an easy and convenient way, we have maybe many paths forward to that -- binge On and T-Mobile One are a start -- could potentially over time, even with ourselves, becoming an aggregator of aggregators, an aggregator of content and indexing of what is there.

AT&T may end up being a provider to us of content as opposed to anybody thinking that there is any possibility that they will exclusively use that content. I think that will be sorted out in Washington. I also would promote to Washington that they should significantly consider making AT&T divest Batman. (laughter) I think there's no way that AT&T should own Batman.

And then, lastly, I've been a big proponent again -- customers are going to drive everybody's desire to have ubiquitous access on all devices, including the phone, which I think is going to cause all sorts of consolidation between cable providers, broadband providers, wireless providers, and content. And I would have to suggest that there certainly are not calls going on inside charter and Comcast right now where the team is -- Hey, how is everybody feeling about that MVNO strategy right now.

So, yes, it's going to cause some acceleration. It's a very fast move. It's very good for T-Mobile in the short and medium term, and it highlights the key opportunities we have as a company in the medium.

Thanks, John.

Craig Moffett, MoffettNathanson.

John, I wonder if I could stay with that theme for a second and ask two long-term strategic questions, maybe from the other direction. As you think about network densification and what is going to come in the next five years of your wireless network, what do you think you need in terms of a wired network to support it?

And then a related question is -- and I apologize, I didn't hear if Neville was there in the room or not -- but if you could talk about your spectrum position and how comfortable you feel, now that you've been doing unlimited for a while, with your capacity and your ability to handle the kind of demand you're seeing on the network, not just in the next year or so but a bit longer term.

Neville is here. And, for those of you who don't have a video, he is sitting in his underwear (laughter) because a couple of years ago he promised that if the stock ever approached or passed $50, even for a moment, he would join us in his underwear, which it did shortly today. So, yes, you can tune in.

I'm going to start that and then I'm going to move to Neville. I think there is a couple of things. An entry point of what I would like to say is, as you know, the investments required to create the kind of infrastructure which we have with 312 million POPs, now deploying so far 225 million POPs at 700, and then to prepare for a world of 5G and also participate aggressively in the spectrum offer, this is a significant amount of money, time and focus.

Which also raises an interesting point to me with the Mexican entry and the DirecTV acquisition and now Time Warner, how does this position AT&T to make the investments that it is going to require to continue to have competitive carriage and network associated with us. From a standpoint of what we need for a wired work and what the identification plans are, why don't I just have Neville give you an update on the network, as well as some of how we think about that.

Thanks, John. I promise not to stand up during this conference. Hold your breath for later.

Craig, I will try and answer both questions in one, really. Let's start with the fact that we have as T-Mobile the most dense wireless network in the US today, hands down. The combination of Metro seems a long time ago but it put us in a very enviable position. And the other three players have been desperately trying to build out the density and capability that we have on our network.

An extremely strong mid-band spectrum position, great growth on low-band spectrum. We're in the 700 megahertz A-block. Now, as John referenced on the call, 225 million covered POPs. That's another 25 million Americans we have covered this quarter on low band. So, we are in a very, very strong position to continue to support great growth on this network.

Your question talks and thinks about longer term and what happens. I look at the major steps that we're making. The first thing is you've got to make sure you maximize every ounce of goodness that you can from the spectrum that you own. And clearly we are a leader in the US.

I often talk about us having the most advanced LTE network, and we clearly do, the first to do so many network enhancements and bring features, most recently 4x4 MIMO, 256 QAM on the downlink, 64 on the uplink, on the back of VoLTE, ViLTE, RCS, EVS. What is that all about? It's all about making sure you make the most and best use of the spectrum assets you have.

The role LTE for us in the near future, as we look to start to move away from legacy technologies and refarming at a furious rate, we have 61% of our calls on the network now on VoLTE. That, based on all the information I have, is a global leading VoLTE penetration. So, we have approaching the fastest and most efficient LTE network on a global basis. So, tremendous progress on that front.

As we look to more spectrum assets, first we announced just recently AWS 3. We've started to light up AWS 3 spectrum. I look into 2017 and the fact that we will start to use through LTEU, and LAA, we will start to use and leverage unlicensed spectrum. More building blocks coming with 3.5 gigahertz spectrum.

And then ultimately you look towards a 5G world where we will start to move into millimeter wave spectrum. And as we've often said, that is 2020 time frame in the mobile environment. But huge swaths of spectrum coming down the pike in the outer years as we look to move into the next decade.

So, a ton of efficiency, a ton of capability on a very dense network. We continue to densify our network, as well, adding sector splits and cell sites, as well as our first batch of small cells. We have several thousand going into the ground this year, and that work will continue on.

I think your question about how do you deal with that densification, clearly you look to maximize the spectrum assets that you have, you look to find very efficient modes for backhaul. We have a tremendous history on driving fiber to our cell sites. And we have the same strategy on our small cells so that not only can we support the great 4G and LTE experience but a great 5G one when it comes down to that.

So, we are in a very strong position. The team is executing better than any team in the industry today. We delivered the fastest network, and that's a great proxy for speed and capacity. And we've highlighted in the investor material today, that's just not on the downlink but on the uplink. So, read those stats and see how fast we are on the uplink. It's tremendous.

A lot happening, a lot in the question and a lot in my answer, but very good position.

Philip Cusick, JPMorgan.

John, you mentioned sustained growth in ARPU. Braxton, can you explain that? What's going on in postpaid on an apples-to-apples basis, correcting for all the Data Stash ins and outs? How is T-Mobile One uptake doing that? And then also, Neville, quickly on an iPhone backlog update, and what are you seeing from the Samsung recall so far? Thanks, guys.

Phil, I think, again, it is one of the highlights of this quarter. We definitely did disclosures normalizing for the Data Stash impact, and ARPU minus the impact of Data Stash was up a very strong 1.6. And I think that is very significant.

The driver there is T-Mobile One. Over 80% of our flow coming in is on this new unlimited paradigm, which was enabled by our foundational work on Binge On. And this is underlying strength that, quite frankly, is a bit better than what the original business case has shown.

Certainly we are a competitive environment. I'm not saying that we are going to see sustained substantial increases in ARPU, but this is a very good sign and we are very pleased with it.

I think there is so much in that topic, before we go over to Neville. I'm just going to double-click for one second because in our industry in the past few years people have done portions of these things well.

Certainly there's been times where AT&T and Verizon have tried very hard to keep their ARPUs high and then had eroding customer bases but drove it for margin. You have situations now where giving prices of 50% off, Sprint is eking out some gains on the postpaid side, but clearly not anything that will drive revenue growth or both at the same time.

So, I would just say, we have raised ARPU to $48.15 and ABPU of $63.38. And it's very important for people to remember that the ARPU on a postpaid ad now is over $38 per customer. Too often we hear companies in their math add a connected car or add a wholesale net. But when you have 851,000 postpaid and 684,000 prepaid, both phone customers at high ARPUs, and your ARPUs are going up, that is really with low churn.

And I would ask you to do the math. Before we get too excited about Sprint, Sprint does 347,000 postpaid nets at 50% off prices, but then loses 427,000 prepaid customers at the same time. That will not equate to profitability or revenue growth. So, very good item to keep your eye on.

Let me handle the recall situation real quick and then we will give it to Neville. It is a very unfortunate situation. This recalled handset was probably one of the best, most popular handsets that we've launched in some time. They were absolutely flying off the shelves. It's such a shame that we've seen those types of issues.

But what we had to do because of the recall is a 100% reversal of all revenue and all cost of sales associated with it, and then impairing the handsets down to its fair market value. But I've got to tell you the OEMs stepped up, did absolutely the right thing, full reimbursement. But it was hundreds of millions of dollars in revenue, and I believe that we were leading the country in sales of it.

Had that not happened all of that would've been, again, reflected in our results. But we will move on. It's a great company, a great brand and there's definitely a huge future.

Mike, do you want to just comment on T-Mobile One?

Yes, absolutely. It's going fantastically well. As John mentioned, it's about 80% of our sales to new customers right now, which is better than what we were expecting. But, more importantly, our existing base is rapidly moving to it and adopting it, as well. As Braxton said, what is happening is we're seeing a benefit relative to what our expectations were on ARPU.

But, as Neville said, what we are not seeing is any negative impact on the network because, remember, Binge On and the foundation of Binge On from over a year ago gave most of our customers functionally unlimited service in the first place in the form of setting their video free, which is by far the most consumptive thing on the network. So, after the launch of T-Mobile One, which has been accretive so far to ARPU, and we expect in the long haul to be neutral to accretive, the network is actually performing faster than it was before. So, it's a win/win on all sides.

And with that do you want to take one or two from the --? Jan Dawson says -- can you tell us a little bit could you talk us through what the post Walmart postpaid metrics looks like going forward, ARPU, churn, et cetera. For those of you not tracking along, remember, we announced an MBNO deal that was effective September 1.

What it did was move some of our postpaid customers under a brand called Walmart Family Mobile, less than 1.4 million of them, over to an MBNO, and moves them out of our postpaid base where they can be better managed as an MBNO. Over the long haul we expect this to have a modest but slightly positive impact to both churn and postpaid ARPU going forward because Walmart Family Mobile inside of our base, while small, had higher churn and lower ARPU than the rest of our base.

[@telnetport] says -- why not let OEMs do device financing so they can sell devices more directly instead of T-Mobile doing the financing? That is a fascinating idea. We think it's really great.

It does remind me to point out one thing that was buried in our numbers today but you should really take note, which is device financing, which we have been providing now for years, is no longer a cash consumer in our working capital. We have been saying for many years that this would be normalized at some point.

We've had a couple of quarters now of general stability where the incoming flows of people paying for their financing is generally matched by the outflowing flows of us writing new financings for new customers. And that's really terrific.

You have a great idea on that one, by the way. As Braxton talked about, what happened with the note seven -- and, by the way, they will be back and they'll be stronger than ever, I've no doubt about it -- but it raised the awareness of people of a lot of other devices that are going around. There's been a lot of interest in the LGV 20.

There's been a lot of talk about the Google Pixel. And I just want to make it clear. There's been a lot of confusion especially driven by some of the commercials that you can only have that device on Verizon.

Google is smarter than that. They did an exclusive distribution but it's unlocked. You can buy it from Google and you can bring it to the T-Mobile network and it actually works beautiful if not better.

To your question, I think it would be fabulous if Google did device financing and then people could run over and buy it there and bring it over. I might even try to bridge that gap for you. But there's a lot of great devices right now. It's an exciting time. And I think a lot of people's eyes have been opened to various alternatives.

Let's go back to the phone for one more.

Brett Feldman, Goldman Sachs.

A couple of cash flow questions for Braxton. You guys have moved back towards EIP from leasing.

But you do have a number of lease devices in the base and a lot of them are going to be coming off lease next year. And I do think there is some residual value in those devices. So, I was just hoping you could give us some color on how to think about that in our cash flow modeling.

And then just at a higher level, after the auction, whatever the outcome, how do you think about your capital allocation priorities from there? Is it mostly going to be focused on delevering or are there other areas you'd be looking to invest in the business?

A really good question on the residual value. And obviously we do a tremendous amount of work on accounting for and estimating the future residual value. But the thing to keep in mind, even with third-party market sale residual value valuation, which is of course the standard that you have to utilize in looking at this issue from an accounting standpoint, the highest value realization is organically within our own business. And it is really an opportunity cost avoidance.

What we do is we take these handsets back into our ecosystem, we refurbish them like new, and then we utilize those in our insurance claim fulfillment and warranty exchange program. And the opportunity there, Brett, is you are not breaking a brand-new box of A stock, a brand-new phone, to utilize fulfilling those customer needs. And what it does is creates a significant step up in value for us over and above what we could get from a third-party market sale.

So, this is all opportunity. And then once we've satisfied all the demand, the warranty and the insurance claim fulfillment, is we sell certified refurbished products in a lot of our distribution. Very effective. Gives customers the ability to step into an iconic phone platform, maybe a generation or two old, at a much more affordable price. So, this is a very good opportunity for us. Thanks for pointing it out.

Braxton, if I could just interject, after the next commercial break I'm going to be on CNBC so I'm going to sneak out and do that and then I will be back with you guys.

On the capital allocation issue, certainly we will see what the outcome of the auction is and what our leverage is. It's amazing, you look at all the deals in the industry, you look at all the financial profiles, our net leverage, we probably have the strongest balance sheet in the entire industry now, plus the ability to delever organically very rapidly.

We are taking our leverage up, without any doubt, as we've talked about in the past, up to a $10 billion cumulative spend for all sources of spectrum in the auction. We will see where things end up. So, immediately we will need to delever a little bit. And, again, we'll do that both organically and with true cash generation.

And then once we get there then we are in the classic paradigm of what are our alternatives. The trick there is to realize the highest return on invested capital. We can do that organically or inorganically, looking at strategic opportunities, looking at future spectrum deals that could possibly come up.

And ultimately, if you don't have those opportunities, then you start exploring returning capital to the shareholders. But my expectation for that type of evaluation is we are still two or three years off so it's more of a mid-term question.

Just to make sure I understood the answer to the first question in terms of the residual value of the devices, to the extent they come back to you, you're basically saying you will either be able to avoid buying a refurbished device in the second market to satisfy a claim for insurance, or you might just have some devices you could sell. But either way it sounds like all of those things flow through to EBITDA. Is that the right way to think about it, that if there is value in that residual value of those devices, we'll see it in your EBITDA performance next year?

Yes, and it's not buying refurbished handsets in the marketplace because often you can't. There is not enough supply out there. So, where the true opportunity comes from an EBITDA lift standpoint, Brett, is we're not taking brand-new A stock, breaking the boxes open for those purposes.

We're taking lower-cost refurb, like-new handsets and utilizing those for the warranty and insurance claims fulfillment. And that puts a significant opportunity on the books for us because we have adequate refurbed stock.

Brett, just a small caution, which should be obvious. A lot of those phones, if you've been calculating how big the base might be have already made their way back to us in the form of people who take leasing, or people who like to change out their phones were often. We just had two iconic phone launch. Some of those people have already taken advantage of their ability to swap out.

How about one from Twitter. John at JTL 2000 says -- Q3 2016 was the first time Verizon lost postpaid subscribers. Are they responding to what the competitive environment looked like?

This is interesting. It's one of those things that probably hasn't gone noticed by a lot of people outside the inner circle. But this was a big moment that Verizon is going backwards. But I think what is more important is that everybody is going backwards.

We always get asked -- how was this quarter, was it competitively more intense than usual. And the answer is no. It was normal and normally competitive quarter. It happened to have an iconic phone launch.

But what is interesting is, in an environment where we have real competitive intensity -- and we have had for some time -- T-Mobile is the only company in the space posting double-digit service revenue growth. And, in fact, we are the only company in the space posting any service revenue growth at all.

John said it has been since the middle of 2014 since AT&T has added a postpaid phone. Verizon has fared a little better than that but began moving negative this quarter.

The big guys are obviously distracted with other things, but also they're just facing a competitive intensity that is being brought by T-Mobile that's making it difficult for them to be able to deliver real revenue success in their core wireless business.

Matthew Niknam, Deutsche Bank.

Just two, if I could. One on the T-Mobile One. If you can talk about -- I am assuming customer inbounds trended higher -- whether the higher entry price point at around $40 may have limited some growth from customers not necessarily needing unlimited.

And, secondly, on the EBITDA guidance, I get that the adjusted EBITDA number is moving higher through there's $200 million in spectrum gains this quarter and some changes to the Data Stash and leasing. My question is, cash EBITDA, is that fair to assume that cash EBITDA guidance is effectively unchanged? Thanks.

I will take the last one. Yes, that is correct. When you look at the layer cake of all the EBITDA guidance, there is no changes to core EBITDA, which is really exciting given the fact that we continue to up our growth guidance quarter after quarter. And it's the same playbook we've played in prior years, delivering on our EBITDA cash flow commitments while overachieving on a gross standpoint.

And, Matthew, on T-Mobile One, not only is it not limiting our sales, it is supporting and helping our sales. It's a highly differentiated offer in the marketplace and it's driving the right kind of customers to our business, principally prime suburban families. So, we are delighted with it.

Now, to your point, there are some people that want a lower price point than $40 a line for a family of four or $70 for a single line, and we have not yet withdrawn Simple Choice in our 2 gigabyte offers from the marketplace. As John said, about 80% of our sales are on T-Mobile One. That leaves a residual 20% on Simple Choice, some of which had lower price points.

We will be phasing out Simple Choice but we won't be doing so until we have delivered on the solution that allows T-Mobile One to reach all of the competitively important price points, and that is still in the (inaudible).

Got it, thank you.

Mike McCormack, Jefferies.

Braxton, looking at the implied 4Q net addition expectation, it seems like the bar is low there. Maybe some thoughts around that. And then, also, I think a lot of people are thinking into next year, the tenth anniversary iPhone, what it might mean for upgrade rates and translating that into what free cash flow pressures you might feel on working capital. And, lastly, I was just thinking the EIP that you shifted into and away from leasing, does that protect you against higher upgrade rates next year? Thanks.

Yes, sure. Let's start with, is our earnings guidance for Q4 conservative and is the bar too low. It still implies a very strong growth quarter for us on a postpaid standpoint. And certainly the other part of the equation is we have tremendous momentum going from a prepaid standpoint. And certainly that is going to continue in Q4. And we do not guide to the prepaid growth part of the business.

But you look at the numbers, you look at the trajectories, it's hard to imagine that we're not in 8 million net addition range again for the third year in a row. And, remember, our issue has always been subscale. And the whole translation of this growth, is it recurring sustainable free cash flow, is the fact we are a highly fixed cost business and we are getting tremendous organic leverage on it.

The other thing I will point out, Mike, is we have never missed or not exceeded the guidance that we put into the marketplace. And the strategy that we are deploying is one of balance.

Could we grow faster? Absolutely we could grow faster. And over the last 3.5 years there has been many times where we have made a conscious decision to have balance and meet the commitments that we're making to the marketplace. And I think we can all see the credibility and the sustained value creation that comes out of that strategy.

We have no intentions of not hitting our guidance. We could easily post higher growth numbers and have a slight miss on EBITDA, but we are planning a long-term very mapped out financial strategy here with one ultimate purpose in mind -- to take care of our customers and to create value for our shareholders.

Let me turn it over to Mike to talk a little bit about what I think is going to be a very exciting year next year on the upgrade standpoint, the iPhone 8. There certainly will be a Note 8 that comes out, which was a phenomenal phone, and the opportunity for T-Mobile with those iconic launches last year.

It's kind of obvious but switching moments like that are great moments for T-Mobile. We had a big switching moment this quarter. You saw the results and how significantly we grew at the expense of our competitors, with a switching moment like iPhone 7. And I want to point out there's huge opportunity for that next year, as well.

Overall, it's a good thing financially that customers are holding on to their phones a little bit longer. And EIP, the construct we innovated and brought to the market, is certainly helping with that.

The only thing I would probably watch for next year is whether or not there would be the kinds of promotional intensity around next year's devices that we saw this year. T-Mobile led the way with an offer for a free iPhone 7 We were very excited about that. It was quickly matched by everybody. And I think in the end that doesn't really change the competitive equation much when everybody is offering the exact same device.

That is something that I would be surprised if it happened again. But next year is an exciting opportunity. And, remember, switching moments that cause people to ask -- do I have the great the right device -- is a great time for them to ask -- do I have the right carrier. So, overall it's an opportunity.

We have some good questions here from Walt. Neville, do you want to try to take that?

The first one is, are you still expecting a Q4 close of the Chicago spectrum purchase? What Walt is referencing there is the 700 megahertz A-block spectrum deal that we shook hands on earlier this year.

We should see approvals from the regulatory authorities in Q4. We are already busy with pre-deployment activity. So, looking to light that spectrum up in 2017.

I talked earlier on, just to fill out that 700 megahertz story, we're at 225 million covered, 700 million megahertz low-band POPs today. And, as we all know, that provides significant improvement in building coverage of our four times better, really enhances suburban fringe and rural coverage. So, it's a great story for the Company.

We now have over 217 million licensed POPs to go after. So, we will close the 225 to 270 gap materially between now and the end of 2016, and that is also a key focus for us as we move into 2017. So, tremendous story. This quarter we also closed the transaction. We still need to get approvals, et cetera, for a deal in Montana.

The second question from Walt -- any evidence of higher gross adds in markets where 700 megahertz has been deployed providing new coverage? And I will throw this to Mike. Clearly we're seeing a ton of benefits come through where we have deployed 700 megahertz. It really adds a quality and capability to our coverage that we have been looking for some time.

We'd often build material density in markets to overcome some coverage deficiency with just a mid-bound spectrum position. So, the addition of low band has really enabled us to compete on an equivalent basis with the AT&Ts and Verizons of the world. And, as you heard from John at the beginning of the call, the 312 million covered POPs on LTE, we're now effectively matching the Verizon coverage.

But I will toss this to Mike because I know we have good reference on sales and what's happening in these 700 markets where we're materially deployed.

The short answer, as Neville said, is yes, but only where we have distribution present. And that is what is interesting. I want everybody to just bear in mind about these results. Remember, we are doing all of this growth (expletive) kicking, while historically only competing in a little over two-thirds of the US with our full suite of both network marketing and distribution.

Think about that. We have a huge opportunity to move to three-thirds of the market. And that's what we're doing. You know about our plans to not only expand the network, which has now hit 312 million of the US population parity with Verizon, but also our plans to expand distribution in behind that.

We've talked about our aspiration from the beginning of 2016 through the middle of 2017 to add 30 million to 40 million population to our distribution. When you have both things in place that's when you see the potential for upside after a period of ramp up. So, we are very excited about the potential. And it is mostly driven by that network expansion as a foundation.

One final thing, Walt. We're just delighted to have you and your family as new customers on T-Mobile One. (laughter) Thank you very much for your business.

Ric Prentiss, Raymond James.

A couple questions, guys. Let me follow up on Walt's question there. Can you update us as far as you are doing as far as opening up the stores for that extra 30 million, 40 million POPs of the low-band frequency? Where are you at as far as marketable POPs and where do you think you could be by mid 2017 or mid 2017?

The only outlook we have given is for mid 2017 which is to add, as I said, 30 million to 40 million from the beginning of 2016 to what we call marketable POPs. And we are tracking really nicely for that. It is a back-end loaded plan, but we are tracking for the pieces that we said. One of the pieces we said is that we would add 400 stores on postpaid this year. And that's tracking along very nicely to be wrapped up by the end of the year or certainly by the next time we talk.

The other pieces, we're rapidly expanding distribution for MetroPCS, which, you've seen the phenomenal numbers that we are posting. A lot of that is due to the distribution expansion -- 1,000 new stores inside of this year and more aspiration for next year.

Basically it's a very simple formula. Put the network there, fill it in behind it with marketing and distribution, then and after a ramp up period you see the performance. We have been able to experience this in some places to test the pieces and it certainly holds.

Neville, you touched briefly on 3.5 gigahertz, as well. What are your thoughts as far as could you use that for small cells? Would you use that for backhaul? I think it's 150 megahertz of unlicensed shared spectrum that would be out there. But what are your thoughts of what 3.5 could be used for and when could it make it into the ecosystem of handsets and infrastructure?

That's a good question, Ric. Obviously the old phrase is -- we've never seen a megahertz we don't like. And we have been a strong proponent of looking to drive LTE into the unlicensed space.

Ahead of 3.5 almost guaranteed you will see deployments of LTEU and LAA in the 5 gigahertz bands in 2017. And there is a lot of that spectrum, Ric, in many areas, especially in outdoor environments, which is very heavily underused. LAA opens up, I think, north of 500 megahertz of unlicensed spectrum. Not all majorly usable and not all majorly necessary to use.

The 3.5 gigahertz process is underway. I think everything we see would point to probably an 2018 time frame. There are several building blocks that have to be put in place in terms of a sharing mechanism, shared access system. SAS is the acronym you will see thrown around in the industry.

So, that is a shared approach to using the 3.5 gigahertz. And you are right, there is 150 megahertz of that. But there is military use in a chunk of it. So, it's kind of a sharing mechanism, which is dependent on new infrastructure being built.

That all said, we love all these spectrum opportunities. And, clearly, in terms of propagation and capability you are now in the space where everybody talks about the 2.5 gigahertz over at Sprint but there's going to be a lot of spectrum in that 2.5, 3.5, 5 gigahertz range, which can do a lot on small cells.

And then ultimately then you look at millimeter wave spectrum coming, 28 gigs, 39 gigs in the US. There will be auctions inside the next two to three years, for sure. That's a pretty conservative statement from me, I think. And, again, we will start to see spectrum in millimeter waves that can be used on small cells in the early running.

So, there is going to be a lot of different highly competitive spectrum sources coming at that traditional high-band space, which creates a pretty interesting environment and opportunity for everybody, I think, that is looking to continue to deliver great service and expand their offering. We continue to work all dimensions of spectrum -- low, mid and high and ultra-high coming with millimeter waves.

Neville and Ric, I would just like to point out what a thoughtful and serious answer Neville just gave you for a guy that's not wearing pants. (laughter)

Here is a good one on Twitter. You guide to $4.5 billion to $4.7 billion CapEx for 2016. This implies $757 million for Q4, 47% below last year. Any reason for that?

Yes, Benjamin, good question. And I think that the way you need to look at that is we have had a very upfronted and disproportionate CapEx spend during 2016. And it also has implications for the true cash flow trajectory that you are seeing.

If you look at year to date this year versus year to date last year, very significant upfront on spending on investment in our network. And what has been driving that is the rollout at the 700 megahertz.

Neville and his team have been flat-out building this as quickly as they can. And the majority of what could have been accomplished during the year has now been accomplished. So, this is real normal CapEx without overlays of LT expansion that we have seen in the past and what we are doing right now with 700 megahertz.

And it does not apply any slowdown to our overall capital intensity. We are deploying a success-based capital investment program and we again will give guidance on our year-end call for next year's investment. It is not going to go down, I guarantee you that. But nor do we see the necessity as we pivot dollars for other uses of it having a significant step function increase. But very good question, Benjamin.

Michael Bowen, Pacific Crest.

I just wanted to get your thoughts on margins -- obviously strong here -- and where you think the throttle points are for margins and how you were viewing that versus subscriber adds. Thanks.

I will let Braxton handle that as long as he doesn't use the word throttle. (laughter).

You got it, John. Yes, it is a great question. The number one sensitivity that we will be dealing with and looking at projecting margins is how quickly we continue to grow from a subscriber standpoint. What you have seen, I think, is incredible leverage from a cost of sales standpoint on the operating of our network.

Neville and his team have worked for years being ahead of the competition, laying in a fiber backbone. We've been doing a major expansion. And you're seeing massive leverage from a network standpoint, which of course goes straight to margin expansion, 180 basis points year over year.

The other part of the equation was the SG&A piece and there's also variable costs associated with acquiring subscribers. What we had been doing is bouncing growth against all of the progression that we see in our financial metrics. And we certainly will continue to do that.

But we also feel very strong about the momentum of the business and about our sustained opportunity to grow. And as long as we are growing to the tune that we have been growing, roughly 8 million subscribers a year, you are not going to see as much leverage coming off the SG&A versus if our growth moderated where you'd see an explosion in EBITDA and an explosion in margins.

But the fact that we continue this growth rate and still expand margins, which we have consistently shown, really provides the context that we are building a lot of terminal value in the future, and that is important to us. Again, we are here to create value for all of our shareholders and create value for our customers.

Just a quick follow-up on that, you typically have been aggressive early in the year. That being said, does the AT&T transaction maybe perhaps make you more aggressive given perhaps they take their eye off the ball a little bit?

You are right. We have very effectively deployed a contracyclical strategy. All of the big guns and the big dollars come out in the fourth quarter, and the incremental costs of bringing that incremental add are much higher than if you do it in other parts of the year.

Based on that strategy, while everybody else is pivoting off trying to talk about margin recovery as they go into the first quarter, we tend to be very, very aggressive. You just heard John say earlier today, we've got another Un-carrier move coming before the next time we have an earnings call. And, believe me, it is something we are excited about and it's something we think is going to create a lot of value and momentum going into 2011.

And, Braxton, let's face it. AT&T can't take their eye on the ball because it has not been on the ball for so long. It has been way over two years that they've added a customer. They are just not interested in this business or anticipating it. And that's why they are vertically integrating their business into other businesses and they're going to tack them on.

It's almost like -- and you can see this in many companies -- if you look at their results announcement, you can almost see the stage of when they were excited in investing in something and then they dropped it off the box. Wireless was shrinking. U-verse was shrinking. DirecTv is already slightly anemic.

This movement is just assuring that it's going to be another year or two of really thankful donations from AT&T to our further growth. I think that is the most exciting part about the deal.

Thanks, guys. And thanks for that mental picture for Neville. (laughter)

Did you take any of Sasha's questions? He's had a ton of them and they are really good ones. I would just say, Sasha, that your Twitter photo scares me. (laughter) But, do you want to take a couple of those?

A couple from Sasha Sagan here. What carrier aggregation layout will band 66 rollout enable and thus what speeds? And when will we see more 4-by-4 MIMO devices?

Just on 4x4, do that one first, that's a global first from T-Mobile in the smartphone space to launch 4x4 MIMI, the first company in the word to have 4x4 moving out in the network for smartphone capability. We will launch multiple devices as we move into 2017 in addition to the devices we already have on 4x4.

We've just recently launched and we have over 1 million customers now enjoying 4x4. There will be great traction on 4x4 capability in 2017.

On band 66, this is AWS 3 extension to the AWS band. I'll do this one quick, Sasha. It depends on your holdings and where you sit. Your AWS 3 addition may be contiguous with your existing AWS assets, so actually doesn't require carrier agg in its traditional sense.

But, long story short, you are going to see that spectrum come to market and become a valuable tool for us in 2017. We have already turned the radio up in some markets in southern Texas. And we will have our first device launched with, again, a first T-Mobile, a the first device launch later this month.

And in terms of speeds, if you think about a world where you have three-way carrier agg, and you can do 4x4, and you can do both together, which is the story for 2017, then you are approaching gigabit LTE speed, which is really exciting for 2017. We can do about 400 megabits per second on 4x4 and/or three-way carrier agg. And then the two coming together you can start to double down. And as you expand your carrier agg reach you can move towards gigabit.

Before we go back to the question, just so that I can insert him into this dialogue, there is a question here for today's earnings call -- T-Mobile announced a partnership with Twilio. It think it was a while back. Is it working?

I bring this up so that I can introduce and let at least say hello, Peter Ewens, who is our Head of Corporate Strategy and Development, and is behind the scenes working on a lot of very unique and creative partnerships and relationships. This was one of them. Thanks for asking. Peter, maybe you want to comment real quickly.

Yes, sure, I will take that. We did announce a partnership with Twilio earlier this year. The products are just rolling out now. But we have great hopes.

What the partnership with Twilio does is it marries our great network with their software development environment and software development tools. IoT is a very fragmented space and we are going to see tons and tons of innovation over the next few years. And what this enables us to do is to really go after all the innovators and developers out there.

We're going to build great IoT applications on our network. We have great hopes for it and we think it's really going to start to deliver in 2017.

I use that to say there are significant ways to create partnership, alliances, and then eventually potentially investment related and/or merger relationships without trying to do the earthquake move all at once. We do have a vision and a strategy how to migrate ourselves to the future environment.

What happens, I've said this before, what happens when mega monoliths get together and think that they've locked the market down in a certain space, it frees up all of the other creativity to align itself behind the more nimble creative players like T-Mobile. So, any one thing that AT&T does, for example, that could prohibit anything for us just creates a plethora of others that now become very capable and willing partners.

Amir Rozwadowski, Barclays.

Thank you for the color on how to think about growth versus the earnings capability of the Company. I was wondering if we could translate that a bit in terms of cash flow and cash generation. In the past, Braxton, I believe you have endorsed or taken a look at where the expectations were for cash flow for the Company in the near term, albeit 2016. I was wondering if you could give some color on that.

And then as a follow-up, how should we think about balancing that going forward? It does seem as though you are at an inflection point when it comes to the capabilities of the Company to drive additional cash generation, but would love to hear the puts and takes about how you plan on managing that while balancing the opportunity set for growth going forward.

Yes. Absolutely. On 2016 we still are dialing into exactly what we have talked about in the past. From a core or cash EBITDA standpoint you've seen our guidance being unchanged while yet once again taking up our growth projections for the quarter and thus the year.

And you saw a slight narrowing of the range on our cash CapEx. Quite frankly, what do we have? A little over two months left in the year. So, we have really good visibility how we are going to land the year.

With the reaffirmance and narrowing of that guidance, then the other part of the equation is working capital burn. And, again, we have not specifically guided to a true levered free cash flow number, but from a working capital burn standpoint we are comfortable with the general consensus of $500 million to $1 billion. And when you get a chance to dig into our cash flow statement, you will certainly see the upfront investment we've done from a cash CapEx standpoint this year, as well as a fairly significant year-over-year paydown in our accounts payable.

With that intact, the other part of the equation that gets a true levered GAAP free cash flow is the interest expense, and, quite frankly, that is still an unknown. We can certainly dial in fairly close for 2016 but ultimately it is going to be a function of where we end up with this upcoming auction, which we can't really talk about at this point.

We do have a lot of flexibility with the agreements that were put in place with Deutsche Telekom, which we never could have received in the open marketplace. We have the full optionality whether to draw or not. We have significant refinancing capability if we do draw for higher-cost, high-yield notes that are out in the marketplace that would be highly MTV positive.

So, we are really focused on, number one, getting through this auction, understanding what our spends are going to be. And I think there is going to be a lot of things we can do with our capital structure to manage increased leverage yet optimize interest expense going forward. So that is really the picture on 2016.

When you get to 2017 we will have a full year run rate of whatever debt is going to be in place associated with ultimately what happens with this auction. So, that will be a little bit of drag on truly levered free cash flow. But the other part of the equation, the growth in EBITDA again will be very significant, certainly double digits like we've seen in the past. And, again, and we will give very specific guidance at year end.

But that is just a function of what we're seeing with the fundamentals of the business. You put on 8 million subs in a year and then you get the recurring margin and the contracyclical strategy, trying to grow growth in the first part of the year, the EBITDA development will be significant in 2017. And then you have the cash CapEx paradigm. It's not going to go down but you are not going to see any significant step function increase in the cash CapEx.

All that points to, with a fully embedded financing structure in our base -- and, remember, we pioneered this -- very high ramp in cash flow going into 2017 and beyond.

Operator, I am pretty sure that the next caller is one of T-Mobile's most recent customer additions. And in anticipation of him becoming a customer we've had to significantly add force for the many questions that he's going to continue to ask us on how to use these capabilities. Can we take the next caller?

Walter Piecyk, BTIG.

This is where you press the mute button Walt.

Can you hear me now? (laughter) No, that wasn't purposeful. My headset died. I know you're looking forward to my speed test on Twitter. I think my phone is to arrive in about a week. And that you for the $400 for my iPhone 5C, I think you paid me. That was nice.

Can we just go back to Sash's question on the band 66? Can you give us a sense of how many of those phones you are going to have in the base by the end of next year or maybe the end of 2018, because I know when Masta was asked about 2.5 spectrum, he made a big deal about saying band 66 is not in the ecosystem. So, I'm just curious how quickly you think that's going to ramp into the base.

Yes. I think it is a 2017 story. As I said, it is the first device in the US which is launching this month. It's funny it's from us, but I suppose we are always the Company that drives spectrum to use before all the other guys. I think the big two paid $28 billion for spectrum there, and no devices and no news on networks on them.

Anyway, we are pushing forward. I know first half of the year we have a slew of devices coming with band 66 AWS 3 capability. So, we are pushing it into every device as fast as we can.

As you guys know, some OEMs move quicker than others on new banding, but there will be a large number of devices available in 2017 with AWS 3 capability. I don't know when and how. I can't speak to what AT&T and Verizon will do in terms of turning up that spectrum, but I would imagine it will be a slow process, as usual. But not from us.

Okay. And then for Braxton, I think you talked a little bit about the upgrade. I think you said the Samsung returns were not processed in the upgrade rates. So, assuming that people weren't returning their phones, do you have a sense of where the upgrade rate is?

And then, more importantly, your smartphone sales are growing yet your upgrade rate is down, obviously because of the gross adds. Can you give us a sense, though, in the fourth quarter has there been follow through on that very strong order flow that you saw for the iPhone?

So, is it possible that the upgrade rate could be flat or even up? That would obviously be further levered to the gross adds, so that could make for a relatively sizable smartphone sales quarter. If you could just talk about those dynamics and what you are thinking about as far as the December quarter.

On the recalls, the Note 7, every one of those sales, both from a revenue and cost of sales and unit standpoint, was reversed. So, when you're looking at the upgrade rate it does not include anything for the Note 7. It was as if that handset had never been launched.

What would it have been if you did not reverse those? How much higher would the upgrade rate have been?

It would have been higher but not significantly higher. Definitely would not have moved more than 50 bps, but it would've been slightly higher.

On the iPhone 7, the really interesting thing is -- and you are hitting on something really important -- is extreme supply constraint, once again, with an iPhone launch. It's not going to be as bad as we saw with the iPhone 6, but is going to be pretty much in line with the 6S. We still do not have adequate inventory. There's still a backlog of people wanting to upgrade or new adds coming in on that platform.

We currently anticipate it's going to be sometime in November when we have complete health from an inventory standpoint and then can start stocking in all of our retail fleets this great handset. I just activated mine. It's fantastic.

So, that will imply additional upgrades flowing into Q4. But, again, it's not going to significantly move the needle. There is always puts and takes in upgrade rates. You saw a little bit of elevation in the third quarter. You will see a little bit of iPhone 7 impact in the fourth quarter but it is not going to materially move the needle from any financial aspect.

Because of the phone payment plans obviously you can take that through and not have a big impact. But if it's the same as last year and your upgrade rates are the same, that's a change from it being down a couple hundred basis points year on year this quarter, right?

Yes, but again, precisely forecasting exactly what happens, there is a lot of other puts and takes.

The broad trend seems to be people are keeping their phones a little longer. So, that's the broad trend. You should see that when you squint in the general direction of our year over year. But sequentially, for all the reasons Braxton talked about, we see more upgrades in Q4 than in Q3.

Colby Synesael, Cowen.

Two questions, if I may. Just for modeling purposes, I was wondering if you can give us some of the historical churn or ARPU numbers tied to the Walmart base that moved from postpaid, just so we have an understanding there. And then, secondly, I was wondering if I could coax out any hints around what the next Un-carrier might be, any areas where you are seeing pain points that obviously you can be addressing. Thanks.

I think if you look in the fact book, what we did is we disclosed the pro forma churn with the transaction with Walmart had it closed on July 1. Our churn for the quarter would've been 1.2%, which reflected in our actual results. The deal closed on September 1 so the month of September the impact was there and you had 1.32% reported postpaid churn. I would use that as a proxy for the churn impact going forward.

And I think, suffice it to say, even normalizing, and we're providing full transparency on this, you have very nice year-over-year improvements in the churn trajectory of the business, which you would expect given our Un-carrier moves, the investments that we're making in the network, and all the other things that we talked about.

From an ARPU standpoint it does have some small impact but, quite frankly, it's really not material. It is a little more material for prepaid. It is very immaterial for postpaid. So, it's just noise in the system. I think that is the right way to take a look at it.

And our Un-carrier of 13, which we haven't decided what we are going to call 13 yet, I have no input at this time. But if you want to preview I refer you to WikiLeaks. (laughter)

Tim Horan, Oppenheimer.

Two question. Braxton, can you maybe talk about the pricing of your base? Are there any moves that you can do to help out that ARPU growth? I know you had some unlimited pricing that you were going to keep steady for two years.

And then, Neville, can you just maybe give us your thoughts about Wi-Fi LTE integration and maybe the ability for cable companies to do that as an MVNO. Or, maybe conversely, if they owned, say, a network can they really accomplish that seamlessly? Thank you.

I think from a pricing standpoint the way that we should all continue looking at our business is stable to flat ARPU. And I think to do anything more aggressive would really be a disservice. We're more than holding our own. We are showing a lot of momentum with the business. But there still are promotions, there's still competition in the marketplace.

We certainly have a pricing umbrella compared to AT&T and Verizon, which we are very comfortable with. It's performing quite well for us.

But to really sit here and say that we are going to significantly accrete ARPU in the future given the history of this industry and the saturation I think is overly aggressive. We will make other moves in the future and we are really focused on a stable ARPU picture. I will pass it over to Neville.

I will be quick, Tim. Clearly, if you want to talk to a company that understands how to make Wi-Fi calling work seamlessly with mobility it's T-Mobile. We are the global leader. We were the first to launch integrated LTE voice with Wi-Fi. We understand the space better than anybody. We have the strongest smartphone lineup. We are just the clear leader in the space.

When it comes down to connecting various networks, be they Wi-Fi-based, cellular-based, et cetera, the art is you've got to connect through the course. You need to join the intelligence behind the radio together in a way to build seamless mobility. And that is coming. There is a whole host of features with [A&D assess] and Hotspot 2.0 that are coming in 2017 and 2018 that will make that technically achievable.

But, again, you've got to really share the core architecture across the respective companies. You want to know who does that well and who does it best? US T-Mobile.

I think the vision picture, though, is a pretty clear one. We say all the time customers don't really care what you use. They want you to use whatever you need to use for them to seamlessly be able to have capabilities on their devices in the home and mobile. And if one player could control and uses simultaneously Wi-Fi unlicensed and cellular in an appropriate integrated manner, they would clearly have a superior capability, and tangentially people trying to coexist with each other and do hand offs.

So, in a future world, I think ultimately they will be seamlessly integrated under individual players that have all three. And I think that is the vision. But I don't know if it's two years, five years. I don't know who gets there, but somebody will get there and then have the onerous economics of having and controlling that, and they will be in a superior position.

Thank you.

Braxton, do you want to summarize?

Yes. We definitely appreciate everybody's time today. It's been a lot of fun talking with you. We will definitely look forward to speaking with you again on our Q4 and full-year earnings to be done in early February. Have a great day and thank you very much.

Ladies and gentlemen, this concludes the T-Mobile US third-quarter 2016 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.