T-Mobile US Inc (TMUS) 2016 Q4 法說會逐字稿

Good morning, and welcome to the T-Mobile US fourth-quarter and full-year 2016 earnings call.

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

(Operator Instructions).

I would like to turn the conference over to Nils Paellmann, Head of Investor Relations for T-Mobile US.

Please go ahead, sir.

Thank you, and welcome to T-Mobile's fourth-quarter and full-year 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.

Let me 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 filed this morning includes risk factors that could cause our actual results to differ materially from the forward-looking statements.

Reconciliations between GAAP and the non-GAAP results we discussed on this call can be found on the Investor Relations page of our website.

With that, let me turn it over to John Legere.

Okay.

Good morning, everyone, and happy Valentine's Day.

Is my mic on?

I'll start over.

Good morning, everyone, and a happy Valentine's Day.

Welcome to T-Mobile's fourth quarter and full year 2016 un-carrier earnings call and open Twitter conference.

We're coming to you live today from San Francisco.

I've got a few comments, and then we're going get right to your questions.

We'll spend up to 90 minutes taking as many questions as possible from Twitter, Facebook, and on the phone.

You know the drill.

We're live streaming on YouTube so stay tuned and tune in any time that you want.

Okay, let's talk about T-Mobile's absolutely fantastic Q4 and full year 2016 guidance.

Guess what?

We did it again.

Our 2016 results continue to trend, setting T-Mobile even further apart from everyone in the wireless industry, and now frankly we're in a class of our own.

We're not just doing what they try to do better and faster.

We're doing it different.

We're the only wireless provider growing both our postpaid and prepaid businesses for 14 quarters in a row.

And for the third year in a row T-Mobile is beating the competition in postpaid phone growth and total net additions.

Our financials are just as strong, and we've led the industry again for the third straight year in service revenue growth and total revenue growth.

In addition, we more than doubled our earnings per share and free cash flow for the full year of 2016.

On top of that, T-Mobile had three years of speed leadership so far with the fastest 4G LTE network in the nation.

Skeptics spent years doubting that our performance would be sustainable.

Clearly they got it wrong.

Our consistent results over many years prove that putting customers first is also good for shareholders.

Now, you have the release and you have the fact book, but I wanted to cover a few highlights for the quarter.

Our financial results were fantastic.

We remain the only growth Company in this industry.

In Q4, we delivered 23% total revenue growth year over year, 11% in service revenue, and 12% in adjusted EBITDA, excluding the spectrum gained in the fourth quarter of 2015 the year-over-year adjusted EBITDA growth was 19%.

Our customer growth numbers led the category again with 2.1 million total net adds in Q4.

By the way the 15th consecutive quarter with over 1 million net adds.

Maybe even more impressive, for full year 2016 we added 8.2 million customers making 2016 the third year in a row with over 8 million net adds.

That brings us by the way to 71.5 million total customers at the close of the year.

We added 933,000 branded postpaid phone customers.

By the way, that's12 quarters in a row that we've led the entire industry in postpaid phone nets.

For the full year we added 3.3 million postpaid phone customers, and in case you're keeping score, that's 103% of the industry growth in full year 2016 and 109% of the growth for the last three years.

Yes, that does mean that the other three combined lost customers.

Now, I've got to touch on porting ratios.

We've now had 15 quarters with positive postpaid porting ratios overall and 12 quarters in a row positive against every individual major carrier.

Our overall postpaid porting ratios in Q4 were consistent with our very strong Q3.

By the way, after the launch of Un-carrier Next last month we've seen a massive improvement quarter to date in Q1 with improvements against all carriers especially the duopoly formally known as dumb and dumber.

We also expect Un-carrier Next to result in even lower churn, increased gross adds and cost reductions over time.

Now you can't forget prepaid, although some seem to have.

It's a huge driver of our business where we have the number one prepaid brand with MetroPCS.

We added 541,000 new customers, again leading the industry.

For the full year we added 2.5 million prepaid customers, nearly double what we did 2015.

Now churn.

Branded postpaid churn in Q4 was down 18 basis points year over year to 1.28%.

This marks the best Q4 postpaid churn we've ever reported.

Prepaid churn was down 26 basis points year-over-year and also the best Q4 reported to date for prepaid since the merger with MetroPCS.

Now these results were due to investments we've made in our network.

Our 4G LTE coverage is at 314 million pops today, and we're targeting 320 million by year-end 2017.

We are reaping huge benefits from this.

Multiple sources recently confirmed what we already knew that T-Mobile's network is now at parity with Verizon.

Their back is against the wall.

And after fighting it for a long time they just reluctantly announced an unlimited plan.

This is what the Un-carrier does.

We drag the carriers kicking and screaming into the future.

And, of course, we have a great offer in the market already with T-Mobile and we just made it even better.

Look, they don't do any of this well.

It's easy to one up Verizon and yesterday we did just that.

And don't forget our network is still the fastest in America.

We've been the fastest in both download and upload LTE speeds for 12 quarters in a row.

That's three years of speed leadership for T-Mobile.

By the way, upload speeds are increasingly important with the giant rise in social sharing and T-Mobile's upload speeds are at least 40% faster than Verizon, the next closest competitor.

And more than 150% higher than Sprint's speeds.

Now, that doesn't sound like the 1% difference that Sprint keeps blabbing about, does it?

Our deployment of extended range LTE on the 700 megahertz A block spectrum band is way ahead of schedule.

500 markets alive covering more than 252 million people.

True to form, we are rolling up the remaining 700 megahertz A block spectrum which includes Chicago as we speak.

And you know how fast Neville and his team can get this done.

This network expansion also provides us with the unique ability to grow our distribution footprint by 30 million to 40 million pops by the middle of this year.

We plan to open an additional 2,500 stores this year, roughly 1,000 T-Mobile stores and 1,500 MetroPCS stores.

That's on top of about 1,400 stores we added last year and almost 400 T-Mobile stores and 1,000 MetroPCS stores in that 1,400.

Now, I've never been more confident about the future as T-Mobile as we look into 2017.

Braxton will go through the 2017 guidance in detail, but let me just highlight the big picture.

Our guidance for branded post paid net customer additions is the same as what we started with for 2016.

We expect adjusted EBITDA will be up significantly, double digits over last year, excluding spectrum gains and the net impact of leasing and data stash.

In terms of cash CapEx we continue to invest to support our growth and will not starve our network.

This contrasts with one of our competitors who has said they can do it on the cheap, and that is now showing up in the form of higher churn.

And I'm most excited about our expected three-year CAGR on free cash flow.

For the first time ever we are guiding on free cash flow, demonstrating our confidence in our ability to deliver strong growth over the next few years.

Let me now hand it over to CFO Braxton Carter for more financial highlights and the details on the 2017 guidance.

Braxton.

Hey, thanks, John, and happy Valentines, everyone.

Let me give a quick snapshot of our very strong financial results and the details on our 2017 guidance.

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

Our customer growth continues to translate into strong financial growth as we delivered industry leading metrics for the third year in a row.

Service revenues grew by 11% year over year, and adjusted EBITDA grew by 19% excluding the spectrum gain recorded last year.

Adjusted EBITDA margin, excluding the spectrum gains expanded to 35%, up from 33% a year ago.

EBITDA benefited from strong cost discipline as both cost of service and SG&A showed operating leverage even as T-Mobile captured all of the industry post paid growth in 2016.

As a percentage of service revenues, cost of services and SG&A each declined by 120 basis points year-over-year.

The post paid upgrade rate was 10% in the fourth quarter, up from 7% in the third quarter and flat year-over-year, given very strong customers demand for the iPhone 7.

Free cash flow, including approximately $200 million of MetroPCS network decommissioning payments more than doubled to $1.4 billion in 2016, from $690 million in 2015.

Net cash from operating activities increased by 13%.

Cash CapEx was flat year-over-year at $4.7 billion.

CapEx excludes capitalized interests which increased slightly year over year, including capitalized interests from $4.5 billion in 2015 to $4.6 billion in 2016.

The improvements in free cash flow occurred despite two headwinds; the sequential $400 million increase in EIP receivable balance in the fourth quarter due to the sequentially higher upgrade rate; and a very significant cash outflow in accounts payable and accrued liabilities of $1.2 billion for the year, which represents a swing of $1.9 billion from 2015.

When looking at free cash flow in the fourth quarter also recall that free cash flow in the fourth quarter of 2015 benefited from a cash inflow of $900 million compared to just $170 million in the fourth quarter of 2016.

For 2016 as a whole, the cash inflow from securitization amounted to approximately $540 million compared to $900 million in 2015.

Earnings per share came in at $0.45 per share in the fourth quarter compared to $0.34 in the fourth quarter of 2015.

Note that EPS from the prior year included an after tax spectrum gain of $0.10 per share.

Branded post paid phone ARPU of $48.37 in the fourth quarter grew by 0.7% year-over-year.

Excluding Data Stash, the year-over-year growth rate was 2%.

We expect ARPU will continue to be generally stable from 2016 to 2017 with some quarterly variation driven primarily by the actual migration ramp to T-Mobile One including taxes and fees.

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

Total bad debt expense and loss of some sale receivables were $190 million, 1.87% of total revenues.

Importantly, this is down year-over-year in both absolute dollars and in percent of total revenues even given a much higher customer base.

Let me now come to 2017 guidance.

Our target for branded postpaid net customer additions is 2.4 million to 3.4 million which is the same guidance we started off with last year.

You guys know the play book.

We will update guidance as the actual quarterly results warrant throughout the course of the year.

On a side note, while not providing guidance here, we expect wholesale net additions to be significantly lower in 2017 as our MVNO partners de-emphasize lifeline in favor of higher ARPU customer categories.

For adjusted EBITDA our target range is $10.4 billion to $10.8 billion compared to $9.6 billion last year excluding spectrum gains.

Our EBITDA target includes expected leasing revenues of $0.8 billion to $0.9 billion while Data Stash is expected to have an immaterial impact in 2017.

In comparison, in 2016, leasing revenues amounted to $1.4 billion, and Data Stash to $0.3 billion, for a combined net impact of $1.1 billion.

We're also making one accounting change in 2017.

In line with our big four competitors, we will include imputed interest associated with EIP receivables and other revenues which will be included in adjusted EBITDA but not included in ARPU.

Up until now, imputed interest, which reflects cash received from customers, was included below the line in interest income.

The impact from this accounting change is expected to be approximately $0.2 billion to $0.3 billion in 2017.

Net-net, we expect continued double-digit growth in adjusted EBITDA excluding spectrum gains in the net impact of leasing and Data Stash.

We target cash CapEx of $4.8 billion to $5.1 billion in 2017 excluding capitalized interest compared to $4.6 billion in 2016 on a like for like basis.

Cash CapEx spend will again be front-end loaded this year, due to the completion of the 700 megahertz A block build, specifically Chicago, which is going very, very well in the early part of the year.

We expect free cash flow, defined as net cash provided by operating activities, minus cash CapEx, to increase at a three-year CAGR of 45% to 48% from 2016 to 2019.

This guidance underscores our expectation of strong free cash flow growth while also giving us room to continue our Un-carrier momentum.

During the same period we expect the underlying net cash provided by operating activities to increase at a CAGR of 15% to 18%.

Now, let's get on to your questions.

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

We'll start with a question on the phone.

Operator, first question.

Thank you.

(Operator Instructions)

We'll go first to John Hodulik with UBS.

Good morning.

Thanks.

Maybe one for John and one for Braxton.

First, for John, there's obviously been a lot of competitive pricing changes thus far this year.

Sprint had an aggressive one, and now Verizon going to unlimited.

Is there anything that you are seeing out there now that could potentially change the trend you're talking about in terms of the strong porting in the first quarter, gross adds or churn, and just some comments on the competitive environment would be good.

Then number two for Braxton, guidance suggests you're going to generate about $10 billion in free cash flow over the next three years.

How should we thunk of uses of that cash over that time?

Thanks.

Thanks, John.

A couple of comments up-front.

Let's remember that what we are announcing today is Q4.

The quarter where everybody else in our industry kind of laid themselves on the table and complained about the competitive environment and the craziness of the holiday period.

That is the period here where we culminated a year of taking more than 100% of all the prepaid and postpaid phone growth, 11% service revenue growth.

I just want to remind everybody, the service revenue growth of our three competitors in 2016 were as follows.

Minus 5, minus 5, and minus 1.

They lost customers, they shrunk revenue growth.

So that thing that they call the competitive environment, it's us.

And we thrive in that, and we've done so for three years.

Now, going into this year, too, you've now clearly seen some moves that can only be deemed desperation.

Sprint's, remember, these are exploding prices.

These are prices that tantalize you, and then they explode.

So what's happening at Sprint is last year's tantalizing appetizer is exploding.

So their churn is going up, so they're bringing in a whole new group of people who need to be educated as to what that is.

It's a fake price.

On a network that doesn't work, with CapEx that is not being put into it.

So certainly there's a level at which people ignore you, and they're pretty solidly in it.

Let me just pinpoint for those that weren't paying attention.

Sprint had 368,000 postpaid nets.

Most of those were given away but still that's what everybody seems to be hooraying.

They lost 501,000 prepaid nets and wrote off another 1.2 million prepaid nets, which means they lost, took off the books about 1.4 million customers in the quarter and burned cash.

The stock is trading like an option, because somebody is praying somebody is going to help them out of their misery.

That's not the competitive environment.

That's them.

Verizon, everybody knows Yahoo is driving them nuts.

They're damned if they do it, they're damned if they don't.

Go 90 has become let go 155.

They're about to potentially do some other big transaction, and in the middle of that, within a month's period, they went from hell will freeze over before we do unlimited, nobody needs unlimited, everybody's stupid, here's our 5 gigs, to hey, we're going to do unlimited.

They called it an a introductory offer, and by the way, the thing that you can learn from that is, they finally agree, their network advantage is over.

Welcome to the game, Verizon.

Let's compete on price.

Let's compete on network, and remember, that is kind of the scenario where we are.

We immediately made sure that the terms that are important to customers were matched, but if they want to step up the next pieces, taxes and fees.

Taxes and fees are included in their prices, which is another form of trickery.

I would say that the competitive environment so far is based upon moves that others are making out of desperation.

We're playing from a position of strength.

Unlimited is who we are.

I just want to remind you on Verizon that in Q4, or in Q1, when we announced all-in unlimited, quote that I said was, "We will drag the rest of the industry kicking and screaming into unlimited because it's the future." So just picture as Verizon announced this kicking and screaming because that's what took place.

Braxton?

Yes, John, what a journey that we've been on over the last four years to the point where we're giving this type of future free cash flow guidance with a great deal of confidence.

A couple additional points to make.

First of all, this embraces expectation for very significant growth of T-Mobile over the next three years.

It also includes all anticipated debt issuances associated with anything that's on the horizon that we're planning on in connection with business.

That's very, very strong.

Like all guidance we've put out, we've not missed or exceeded guidance since we started this journey four years ago.

We have no intention of not beating or meeting guidance in the future.

But with that said what do we do with this cash generation?

The first thing that we will do is continue to maintain the strongest balance sheet in the industry, even the duopoly, given the serial acquisitions and what they're doing are at extreme levels of historic leverage, and the Sprint comparison isn't even a comparison.

But having a strong balance sheet and the financial flexibility to look at strategic options in the future is extremely important to us.

So that will be the first use.

The second use, we'll have to wait and see what inorganic opportunities are ahead of us.

5G spectrum is a reality.

We already own a lot.

Neville will talk about that.

But there will be other important government auctions in the future and potentially some private party transactions.

Finally, we would absolutely prefer to reinvest in our business for the higher -- highest IRR and return to shareholders, but at some point with this type of cash flow generation, albeit medium term, we would look at returning cash to shareholders.

Operator, next question.

We'll go next to Phil Cusick with JPMorgan.

Hey, guys, thanks.

I guess two follow-ups, if I can.

One, Braxton what is the leverage that would you sort of target?

We talked about three to four times in the past.

If you got back down to three turns, is that where you start to think about returning cash?

And I know that's a long way away.

And then John, since you brought up someone taking Sprint out, how do you think of the potential for industry consolidation these days?

Thanks.

Yes, I think that the capitalization policy of three to four times we think is more of an optimal range, because some leverage is absolutely good for the equity.

However, there will be times when we flex to the higher end of the range for a short time period, and there will be times when we are below that range, potentially anticipating other things that happen in the future.

The great thing about T-Mobile is with the significant momentum that we have and expect to continue with our network and our strong innovation, we'll definitely provide a significant growth platform in the organic de-leveraging we have will be significant and rapid.

On the second part of the question, I have to color myself highly amused by the conversation that's been taking place at the top of most people's list over the past month or two.

I will preface by saying we're in an anti-collusion period during the low band spectrum auction.

So one thing I can assure you is nobody is talking to anybody.

So there's an air of thinking driven by a couple of things.

One is I'll take the positive side, which is that customers with smartphones no longer are interested in our artificial barriers that we as industries have put on segmenting how they use their devices.

They don't care about the cable industry or the wireless industry or the Internet industry or the content industry.

They want to pick up their device and do whatever they want to do with it, watch whatever they want, and preferably for free.

But that's the demand.

That's causing industries to look at each other as better ways to serve customers.

So that brings to mind obviously a brand like T-Mobile with tremendous growth prospects and an organization of employees that is unparalleled.

72 million people who use their devices and growing faster than anyone else in the world.

Then there's the second part, which is obviously, there are always industry consolidations or changes that are driven in the worst way for some people, which is, hey, look at me, I need help.

And right now you know that going into this year, you know that Dish needs to do something.

Regulatory-wise they have to do something with their spectrum.

Sprint is clearly playing the game for next quarter, in that they've got good spectrum but they don't a franchise, and they're a candidate for being a part of a greater organization, either through scale or something else.

Verizon, clearly with what they did yesterday needs to do multiple things, and then an interesting angle on what has happened in the unlimited world, it only significantly enhances the reason the cable industry needs to understand how are they going to get to those that are viewing the mobile Internet.

And if you think about what happened, the cable industry has been hoping to use MVNOs on Verizon to get economics to do something in the wireless entry point.

However, there's no possible way they will get economics to do unlimited, which has now become the industry standard, and that will compel them, and don't rule out that part of what Verizon did with their unlimited offer is send a message to the cable industry that you're not going to ride us to what's going to happen on your entry into wireless.

So it's a fascinating time.

I would say if you listen to Sprint the other week talking about all their options, T-Mobile has all those options, plus one that Sprint doesn't have, which is we are a very healthy growing franchise, and if we choose to, we can continue to drive tremendous shareholder value on our own or participate in various forms of significantly growing the industry through consolidation.

And I got news for you.

I couldn't be more excited about the period that's going to come up when this auction is over.

While we continue to do what we just announced and then engage in understanding what the future of this industry is going to be, which is fascinating.

Understood.

Thanks, John.

Operator?

We'll go next to Simon Flannery with Morgan Stanley.

Thank you very much.

Good morning.

John I wonder if you could elaborate on your comments about the massive increase in porting since Un-carrier Next came out, and then Neville, you did add HD video to your un-carrier standard offering last night.

Can you help us understand the impact on the network and how you're positioned to handle that?

Thanks.

Thanks, Simon.

So what's been going on in porting, and again it's important to note, and I apologized for keep dragging this through but this has been going on for three years.

Up, down, sideways, whatever Mo, Larry, and Curly decide to do, we continue to port positively for 15 quarters against the industry, 12 quarters against each individual carrier in a row.

Q4's post paid porting rate was about flat to what it was a great Q3, call it 1.53, 1.55.

In Q1 thus far, several comments to make.

Overall porting spiked over 1.9.

And if you can think about that, that's 2.0 or so with AT&T, 2.28 with Verizon.

Hello?

If you want continued information as to why Verizon is waking up, 2.28, that's the customers response to, hey, you guys, you don't need unlimited, and we moved with Sprint to about 1.5.

If you think about what's happened with Sprint, they've gone over Q3, Q4, Q1 from about 1.2 to 1.33 to 1.5, which is a good comfortable range especially when somebody is giving things away and mortgaging the tires on the car that they rent.

Now, the only comment I will make is that Q1 thus far is going to be an interesting quarter to keep an eye on.

We all know that tax season is somewhat delayed, and this is going to be a very rear end loaded quarter.

Not something that's going to impact the year, but the porting that we're showing shows our competitive thrust, but thus far, 2017 has -- they always start slow, but there's a tax season question, and so far there's an awful lot to see in Q1, and I would assume that the rest of the industry sees that as well.

Braxton?

Thank you.

I think it was for me.

Hey, Simon.

We had a tremendous year of execution across the network in 2016.

John touched on a bunch of the coverage highlights.

Your question refers to what have we done to really expand the capacity and LTE performance on the network.

Obviously we're in a great place.

The speed test results that we discussed earlier, three years of leadership there.

I always talk about how that's a great proxy for offered capacity on a competitive basis across the US And we lead and have led, and everybody has been chasing our tail, and will continue to do so especially when you look at combined uplink and downlink performance on LTE.

But what did we do in 2016?

t was a big year of re-farming for us, whereby we're re-purposing legacy spectrum that was committed prior to 3G or 2G technologies and lighting that up for LTE.

We did a lot of that in 2016, primarily driven by our ability to really lead on the conversion of voice traffic to voice over LTE.

We have two-thirds of our customers now on volte.

That's a global leading industry stat.

Nobody is close to us in the US.

Nowhere near.

One of our competitors is actually on 0% volte.

That's super important when you look at the spectrum assets you own and your ability to commit those to LTE rather than legacy voice services.

We moved a lot of spectrum over to LTE and we'll do a lot more.

Right now 70% of our spectrum assets' committed to LTE.

That number will probably move north of 80% as we move through 2017.

So that's added a lot of spectrum and capacity on LTE for us.

We clearly added leading features and capability on carrier aggregation.

4X4 mimo, 256 quam, all of those things are adding capacity and capability to the network not just today, but over the next two to three years as handsets start to really ramp with those capabilities on the network.

So both of -- or all three of those features really helping us.

Densification.

We've been adding small cells.

We're just about 1,000 small cells now, and we've been moving very quietly, but very strongly and sales in small will be ready this year.

Not because we desperately need to densify, but because we're getting ready for two important things.

One, 5G, but more importantly and in the near term the use of 5 GHz spectrum for LTE.

Everybody talks about LTE in unlicensed, or LIA.

That's a fact that will happen in 2017, and we'll open up new spectrum opportunities in the unlicensed bands for T-Mobile to leverage in 2017, 2018 and on into the 5G space.

So overall Simon a ton of things happening.

We're in a very, very strong position from a capacity perspective.

We've been adding obviously 700.

We're AWS3 ready, the first carrier in the US to actually deploy handsets and capability on AWS3.

It costs, as John referenced earlier, we're in and about to close out another major auction.

So very strong position, very confident in our performance, and I think the benchmarking that's out there today, very delighted to see the results from open signal last week, show how much we've done and the strong position we're in.

Mike, do you want to add something to that?

Sure, Simon, I want to underscore one thing that Neville said.

Everything in our announcement yesterday around high definition, there's nothing unprecedented about it.

This is the way unlimited plans have always worked at T-Mobile up until T-Mobile One where customers have the choice of high definition or not.

As you know when we launched Binge On, we gave customers a new choice, including unlimited customers of streaming of standard definition to make sure they get a much better bang for their buck on total data streaming.

Better network capacity, better overall performance for all other applications.

When we did that, very few unlimited customers actually chose to stream in hi-def, which underscores why we did T-Mobile One in the first place.

Our customers really like the overall performance of the network including when it streams at standard def.

So with T-Mobile One, what people will do is raise their hand in the app and select hi-def if they want it.

That's something that we have very good mathematical experience from our past on how many people do.

And that gives us confidence in our ability to forecast network capacity as we make this move.

Thank you.

Operator.

We go next to Michael Rollins with Citi.

Thanks for taking the question.

I was wondering if you could talk a little more about, Braxton, double-digit revenue growth aspirations that you described early in the year and maybe if you can give us some sense of the bridge of the postpaid net add guide and to that revenue number.

Secondly in terms of the category, it seems like one of the significant changes over the last few years is that customers are taking longer to make decisions.

They're holding their devices longer.

Could you talk about the implications of that and what you are trying to do to accelerate that decision making for customers?

Thanks.

Yes, sure.

First and foremost you know our play book on the guidance.

We think it is not prudent to get out there too aggressive for the year.

And as we demonstrate growth as a quarter to quarter basis, as warranted we adjust our growth guidance.

You know, obviously our business has tremendous momentum.

We're the innovator driving all change in the industry, and we won't stop with that.

We have some very, very interesting innovation plans for the future, and with a value proposition that we have in place, we're highly confident of significant continued growth.

All at the same time where you are seeing significant drops in the ARPU and service revenues with all the other major carriers in the industry.

And we talk quit a bit with Un-carrier Next that our view on ARPU is generally stable on a year over year basis, which is really important.

With all the fears of irrational pricing, again you look at the macro environment, and it's really not conducive to complete irrationality, and you look closely at a lot of these promotions or temporary offers in the mark, that's just what they are.

This ARPU stability, as well as our customer growth, gives us a great deal of confidence that service revenues are going to continue to expand significantly.

And let me just start a little bit on the device lifecycle, and I will turn it over to Mike Sievert.

We believe that the churn equation definitely is somewhat correlated to the launch of new iconic generations.

And in periods where you don't have that, you are certainly going to see lower overall switching in the category.

In periods where you do see that, you have historically seen more switching, which is a net-net opportunity for T-Mobile.

But more importantly, we are the innovator in the industry, and the more we innovate, the more we will drive switching, and with that I will hand it over to Mike.

While we're passing the ball, let me remind you of two things.

One, the fact that customers are able to move between carries started with the first un-carrier move that we had moving to no contract.

Secondly is, one of the ways, before Mike talks about how we accelerate things, one of the ways that you thrive in an environment where there's limited switching is you take 110% of all the growth.

So in the last three years where there were 10 million incremental post-paid phone nets in the industry, we got almost 11 million.

So that is -- shows that no matter what the pool is in the environment, we can thrive, but Mike, you want to comment on actions?

Yes, three quick things.

First of all we do have the best upgrade rates in the industry.

Let's make sure we underscore that.

It was 10% in Q 4. Verizon's was 8%, AT&T's was 6%, Sprint's was 9%.

So our customers continue to recommit in the form of a new device to our network at a greater rate than anybody else's, and that's a great vote of confidence, and it certainly, as Braxton pointed out, contributes to a record low Q4 churn that we had in Q4.

But two other quick points.

One is we're seeing a trend towards affordable phones.

This is something that's very interesting.

As people keep their phones longer, an offsetting trends is they are in some cases spending less on phones.

That's potentially a very good thing for the industry, because as you know we provide industry free financing.

It's very good for our overall cash profile if people start to be more attracted to more affordable phones.

Lastly and perhaps most importantly, we're seeing something that's really changed in the industry and doesn't get discussed enough.

And that is a broad compatibility of phones across all four major carriers.

Wasn't true even two years ago.

But today, virtually every super phone out there in the hands of competitive customers is 100% completely compatible with T-Mobile.

That opens up a brand-new opportunity to attract people to come over and switch and keep their phone, which means this idea that people keeping their phones longer should inhibit switching is an historical assumption that's decreasingly true as time goes on.

Thanks very much.

Operator.

We go next to Craig Moffett with MoffettNathanson.

Hi, good morning.

Two quick things if I could.

First, Braxton, if could you just give us a little bit of color on the guidance for free cash flow as to what that assumes with respect to working capital and also handset financing going forward, and then, John, if could I just return to your comments before to make sure I'm clear on what you meant, when you were describing the tax season, I think you said it was a slow start.

Did you mean a slow start for T-Mobile or a slow start for your competitors as you run into tax season for the year?

And are you referring just to prepaid or also to post paid?

I will kind of switch that back to Braxton by start by -- I'm always intimidated by answering questions of somebody who wrote the novel about the industry's nuclear meltdown yesterday.

You certainly caught my attention on that head line.

What I'm referring to nothing more than what is written in the media that the season associated with tax refunds seems to be somewhat slower.

So I'm not pointing to any significant trends.

Q1 is usually a slow starting quarter, and I'm anticipating that if what's written in the media.

So it significantly impacts prepaid and the timing which you know is highly lumpy.

So it was more an observation of what's written in the media than a real identification of anything or forecast associated with our numbers.

Okay.

Yes, Craig.

When you look at the free cash flow guidance, I think the first thing I will comment on is handset financing.

And we were the first carrier to innovate with financing in the US marketplace.

And we're the first carrier to truly reach the ultimate penetration there.

And while there will be some build assumed in EIP receivables during this period that we're giving our free cash flow CAGR, the build is not significant in relation to what we've experienced in the past.

It's just the simple fact that collections on these receivables from the embedded base will approximate new financing done in a very high-growth environment.

Net-net, again, our internal views are very aggressive continued growth, which has been fully embedded in this guidance, which would imply some sequential growth, but at a very low rate compared to historic.

Working capital I think is basically the same issue.

As we continue to scale, and remember, one of the I think extremely exciting things about our story is that we've done everything that we've done in the last four years in two-thirds of the US marketplace.

And what the team is executing now is a massive distribution expansion, and with that distribution expansion to the other third of the US, there will certainly be some working capital associated with that.

You have a significant upstart and swing up in the number of retail elections.

We've already guided towards in 2017 is just the start of it.

We will continue, just like we've done with Metro, significant geographical distribution expansion over the next several years, and all that working capital associated with that expansion is fully embedded in the guidance that we've given.

As we go to the next question, Operator, I'm going to grab one on the way in, and it jumps on what Neville was saying.

Coming in on Twitter, Walt Piecyk had a question associated, Will the store growth be linear across the year.

I just want to amplify what Braxton was talking about.

We added 1,400 stores last year.

1,000 on the Metro side, 400 on the Magenta side.

We're going to add 2,500 this year, 1,000 Magenta, 1,500.

And they are very first six months loaded.

And so they're not linear.

They're very aggressively in the first half of the year, especially on the Magenta side.

So with that, Operator, we'll take the next question which may even be from the same person.

We'll go to Walter Piecyk, BTIG.

Hey, John.

Right when you guys were offering free taxes and all that stuff I was actually revising my pay TV bill and realized how much I'm getting gouged as far as extra boxes and what have you.

Just curious as to whether that would be a service you would look to add as far as your services going forward.

You've done pretty well.

If not that, are there other acquisitions or types of things that would you buy in addition to just being a wireless service provider?

Which group was gouging you at that moment, Walt, if we can --

In my case, it was DirecTV, but the group of us here all did it and we realized how much we're paying for these incremental box fees, HD fees, DVR fees.

It's crazy.

I was exchanging tweets with Walt on this as you know, he's a prolific tweeter, even though nobody follows him except me and Nils.

If I remember, Walt, the question, which is really at a very high level, a fantastic one, which was about whether or not the cable and the pay TV and the box industry is ripe for un-carriering.

We would have to change from the carrier.

But talk about a poster child for an industry that has really ignored customers and ignored customer care and gouged at every corner, the answer is clearly I salivate when I think about the possibility of changing some of those industries.

And frankly I'm fascinated with how little AT&T has done since they spent the motherlode buying DirecTV and pretty much have let it sit on the side and let it be an old crappy linear TV that ehy bundle weekly with their unlimited offer.

Maybe more to come, but Mike, do you want to comment?

I can't believe they advertised one price to you and ended up charging you another price.

I'm appalled.

I actually tried to switch to FiOS, but I realized that even then I already have FiOS on broadband.

I tried that on the pay TV side, but the charges were so high on a per box and a HD fee that it didn't even make sense to switch at that point.

I'm just curious why this would not be an area that you guys would go after or anything else.

Why not offer fixed broadband if you're so happy with where your network is as another incremental revenue opportunity.

As we go back to Mike, alert the media that Walt Piecyk lives in one of the ten homes that FiOS passes.

(Laughter).

The data on this is really clear.

The cable industry is statistically one of the most unloved industries in history of the consumer economy.

So obviously it's ripe for innovation in this area.

Look, we're not going to make any predictions today but if you think about -- you've heard John say over and a over that the broad trends are crystal clear, which is all content of all kinds is landing on the Internet and moving away from linear formats.

The Internet itself is moving to mobile.

And within this broad convergence, and we do something in there really, really well, which is deliver an a incredible mobile experience to consumers.

We will have to see how it all you know unfolds as that content transforms and viewing habits change.

In 2017 we will reach the point where people have more screen time on mobile devices than on any other kind of screen.

And that's really something incredible when it comes to watching their videos.

So we'll see how this convergence unfolds.

But in it we're where the industry is going, not where it's coming from, and we've got a brand that really resonates with people and possibly could resonate in an industry that's even more maligned than we found ours four years ago when we got here.

Can I get one quick follow-up for Braxton, which is a related question.

Braxton you talked about the optimal range of the debt leverage being three to four times, but if there was a highly strategic acquisition available to you would it make sense for the Company to take on debt leverage that was above that optimal range?

Even if it was for a brief period of time.

Walt, as we go through the last of your 10-part question and hand to Braxton, I do need to acknowledge on the Twitter feed Travis Sweeteck who has the best tweet of the day where he says Braxton's voice makes me sleepy, but I like his hat.

Go ahead, Braxton.

Yes, so Walt, when you look at the leverage, you always have to look at, if you are doing something inorganically, the actual situation you are in.

What is the de-leveraging profile of newco?

Is it rapid?

Is it slow?

What is the unique opportunity, what's the relative capitalization structure?

Certainly in specific situations, purely theoretical, you could flex higher if you had a great deal of confidence in a rapid de-leveraging.

But you wouldn't flex significantly higher because a strong, healthy Company and the flexibility to invest in whatever the cost of achieving the synergies are, would be an important consideration.

So again, very theoretical, but there's an answer.

Thank you.

Next to Brett Feldman with Goldman Sachs.

Thanks for taking the question.

When we look at the loading of your post paid net adds over the course of the year you tend to be a little bit more even than say what we see across the industry which has tended to be more back-end loaded.

If I listen to some of the things you've said on the call particularly front end loading, the deployment of new stores, a lot more doors open for the duration of the second half and maybe a new iPhone coming that could create a lot of activity, I'm wondering how you're thinking about this year and whether it may end up being a year where you actually do see acceleration in growth in your subscriber base more towards the back end.

Yes, you know, it could unfold that way.

It's a good observation.

We are rolling out stores on both of our brands at a rapid pace in a way that is front-end loaded.

We've been signaling you for a long time that we have really been competing in two thirds of the market and have the opportunity to add 20, 30, 40 million additional marketable pops from the beginning of 2016 to the middle of 017.

And we're on track for that.

So that does bode well.

There's a ramp time associated with distribution.

So just because you open the door doesn't mean it contributes its fair share right away.

So you have to factor that as well.

So yes, I think your observation that the shaping could be a little different than in prior years, could pan out.

We don't give quarter by quarter guidance, but logic, the industrial logic of what you are saying is sound.

Let me put agent finer point on that.

John very importantly talked about what we're seeing with a very significant delay in the tax season in Q1.

And the backdrop of our porting ratios is before any of that impact really materializes.

Back in November, a law was passed relating to tax broad avoidance that delayed any refunds for two categories.

Earned income credit and childcare credits to the 15th of February.

And the tax season really isn't going to ramp up until the end of February, which is a delayed impact.

The other thing that I want to be really clear on the stores is there are very few incremental stores opened at this point.

We're executing towards the second half of the year.

To the first half of the year, i.e.

which implies a very significant ramp during the second quarter.

And I think it's really important to pivot off Mike's statements that all distributions does, in fact, after ramp associated with it.

And a lot of what we're doing here with this expansion is third-party retailers, which is really an efficient methodology, but it does take time to get this stuff up and running.

Just a quick follow-up.

Okay, go ahead.

I was going to ask, as an extension of this, your churn rate, particularly postpaid churn rate has trended nicely year over year.

Do you think that's sustainable with that embedded in your guidance?

I think that's one of the things we're most excited about.

For four years in a row, we have continued to show significant progress in year-over-year.

There's always seasonality in churn, but importantly year-over-year on a quarterly basis we continue to show goodness there.

And how could we not?

The investments that we're making in the network, the expansion that we're doing, the leading technology, the upload speeds, all that accrues to very, very happy customers.

And you overlay on that foundation extreme innovation.

And as we say, we won't stop that innovation is going to continue, and that just more accreted to the brand and to customer satisfaction.

And we're not going to make a specific forecast about it, but we, just to put a fine point on that, we see no reason why our churn can't be at industry best benchmarks compared to any competitor in our industry over time.

Because one of the core things behind is it network.

And as we've been crystal clear, we intend to have a network in this industry that's second to none.

And on many of the attributes we're arriving there already.

So we see nothing to prevent continued progress on this metric.

Let's take a -- coming in on twitter, Jan Dawson has a good question to Braxton and Mike.

Given your guidance around wholesale in 2017, can you tell us what the trend was in 2016 across MVNO and M2M?

Just to give you specifically we started out 2016 with about 14 million wholesale customers, and ended with a little over 17 million.

17.2 million customers.

So it's a big growth year for us.

One of the things going on, our customers, our big wholesale customers, we're focused on high-velocity transactions.

There were a movement towards lifeline in 2016 which tend to be low revenue per connection -- profitable customers, but lower revenue per connection.

What we're seeing right now is they are shifting their strategy in a different direction.

They're focus now on higher value connections.

And part of that is due to the changes in regulation around lifeline and so on, but higher revenue per customer connections, which means as we view it, our revenue plan for this area of our business looks intact.

We're very confident in it.

We have great partners in the space.

But how it will unfold when it comes to customer accounts will be different than 2016.

We were just signaling to you that was a different kind of a year with those kinds of unit growths, even though our revenue plans for 2017 look quite good.

Hey, operator.

Next, Jonathan Chaplain, New Street Research.

Thanks.

One for Braxton.

Quickie.

So I just wanted to sort of dissect some of the impacts for 2017, free cash flow from the three-year guide.

So I guess what I'm hearing from you is that the work -- there will be a working capital drag as you roll out stores.

I'm assuming that's for this year.

What's the thought process over the course of the next three years with working capital and EIP, and I guess what I'm trying to get to is the 14% -- 15% to 18% guidance that you've given for OCS, more or less what we should be looking for, for EBITDA.

Yes, so again, let me you know pack this to the extent that I can, and Jonathan, one of the reasons that we gave a three-year CAGR again is our philosophy of having guidance out there that we have a great deal of confidence that we're going to meet or exceed.

And the retail expansion that we are talking about actually will occur over all three years of this period.

I go back to the points that were made about our distributions in two-thirds of the country, and we have expansion into all of the United States of America.

And what's really cool about that is it's major tailwind from a growth perspective.

You essential have no base that you are churning off of when you go into these new areas.

So all of the customer flow actually goes into growth and margin growth and cash flows for the Company.

But it will take awhile to expand distribution across the full US.

So we are definitely assuming that this is not just a 2017 issue.

Secondly, when it comes to investments in receivables, I did make the comment that we are at penetration of the base.

So any incremental EIP is associated with growth of the business.

And our external expectations of growth over the next three years are very strong.

And as a result, there will be net investment in the EIP, and a world of lower growth.

Not only would you see maximum leverage of the scale of the business and an explosion in cash, you also wouldn't be making these future investments in working capital.

We're positioning, I think very appropriately, with a great deal of confidence in the continued momentum of the business.

And other than that, that's about as much as I can unpack it for you.

I hope that was helpful.

Thanks, Braxton.

Operator.

Next, Jonathan Atkin, RBC.

I wonder if you could give some thoughts on how you see the regulatory environment unfolding, how that might affect the business differently going forward.

Secondly on the B2B channel, wondered with kind of milestones you are planning, if any, as you sort of target that segment.

Thank you.

Okay.

On the first, we certainly don't know more than everybody else, but there certainly is an expectation and an air of less regulation, less impediment to kind of innovation, a process of looking at change in a more aggressive way without government intervention, as well as an expectation of a more favorable corporate tax environment.

I think there's been some reports released as early as this morning listing some of the top beneficiaries potentially of some of the possible tax change, and I think T-Mobile is one of the top three.

So we don't have specifics, but certainly we feel a positive environment.

And as you say, in addition, we do feel that there will be a more positive environment to consider structural change to the industry, all of which I think is positive for our Company.

More will unfold.

And we look forward to working with Chairman Pye, who we know well and have great respect for, as well as the Trump administration and anything that's important in the telecom space.

Jonathan, the on your question about the B2B segment, our business we call At Work is just doing fantastic.

I can't give you a lot of forecasts on things that are coming up.

We like to keep our cards a little close to the vest on that, but just a couple of factoid's.

We had the highest percentage ever percentage of our net adds in Q4 in the business channel this Q4.

You saw the highest ever performance of our business channel in the quarter we just announced as a percentage of our total net adds.

That means it's outperforming every other part of our business on growth.

So we are really proud of our team in this space.

What we're finding is that there's been a big change in the last year, and that is that our network is now meeting all the threshold requirements that big enterprises have.

And that just wasn't the case a couple of years ago.

We weren't really in the discussion with medium and larger enterprises, because they have facts and data to back up their choices and they're very thoughtful about this.

They weren't choosing us back then.

Now that those same fact and data are pointing that we have a network that is second to none, and they're choosing us on purpose because of our network, I think this is a leading indicator for consumers who have less data at their disposal than enterprises have.

We're delighted to see that progress.

Mostly driven by network.

Secondary point.

The final point is that we're the only one of the major wireless companies serving them who are unconfused about the future.

The future is mobile communications.

Every other company out there is trying to serve them legacy technology as well.

And over monetize that.

I think our customers appreciate us for that, because the industry is shifting towards mobile when it comes to enterprise communications.

Okay, operator, as we go to the next question I'm going to answer one on the way over that I know people have passionately been wanting to ask but it hasn't come up yet.

Yes, we are giving away Valentine's Day socks on T-Mobile Tuesdays as well as pizza.

Pizza

At the end of this call you can all log in to the app and get your socks and your pizza.

Operator, next question after that.

Next to Ric Prentiss, Raymond James.

Love to get some of that pizza delivery down here to Tampa.

The first question, pretty easy.

Braxton, there's been some spectrum backed debt issued in the marketplace recently.

What are your thoughts about approaching that market and what it might mean to your free cash flow?

I think importantly that is not something that we would entertain at all, using our life blood of the business to collateralize any borrowings out there.

Quite frankly we don't need to do that.

That I'm sure that you recently saw the significant term loan B that we put in place.

That's the total amount that we will do on that, because we're very focused on not layering too much secured debt against the unsecured.

That could do anything to jeopardize the ratings.

That's very important to us.

To protect the unsecured market.

But when you look at the free cash flow guidance that we just gave, there is a very significant amount of cash generation, and our business has been fully funded for all investments that we're doing, for really the second year in a row, and the outlook is very, very positive.

So no, it's not anything that we would consider.

Braxton, I would point out that in some sections of even the city we're in, there are lone sharks still in business and a pawnshops that are other ways to get money that we won't be using, either.

I'm not sure which of your competitors you are referring to, but I assume they didn't go to that move because it was one of their top two or three options.

I've got one for Neville as well.

I don't want to put you in a box with the broadcast auction still underway, obviously winding down from an assignment base, but from a fundamental theoretical standpoint how soon could broadcast spectrum be deployed if someone were to buy some and as we look at your 2019 guidance and the reconciliation about $5 billion to $5.4 billion in 2019, should we think that broadcast spectrum could have some impact on that?

We're out of time, Neville, sorry about that.

(Laughter).

No, go ahead.

Let me just start by saying we have had significant projects every year.

First, rolling out 4G LTE, then to 700 megahertz rollout, the geographical expansion.

And as we complete these project we certainly do roll those dollars and make them available for other uses in the run rate.

The guidance that we provided has all of our known issues fully embedded in it for this three-year period.

So just to frame it overall and I will turn it over to Neville.

Yes.

So, Ric, the focus this year is to continue the incredible pace we've achieved on rolling out our current low band spectrum asset, 700 MHz.

We're at 252 million deployed.

Much of that has happened in the last 18 months.

We have 272 million licensed pops to round out.

The big delta between the two is Chicago.

As Braxton referenced earlier, we're pushing very, very hard to bring large pieces of that market on air with 700 in the first half of the year.

So 700 is key focus for us.

It's driven massive footprint expansion for us on low band and puts us in a great place for all the dimensions of new competition, stores, B2B, et cetera, that Mike talked about earlier on.

Now, when it comes to 600, obviously we can't say anything really in terms of the auction.

What I can tell you, though, is that the ecosystem around 600 MHz radios for the handset, for the actual cell site equipment, that marketplace is starting to buzz.

And so equipment will come through.

There's standardization work that has to happen for the 600 MHz band.

We do now know the band plan, so that's a material shift in change progress from the last time we talked on a call like this.

And so equipment is coming.

There's a lot of work to happen with broadcast clearance and so on.

But it is going to be an exciting time on 600 MHz.

I'm encouraged by the new administration's statements on a robust and timely clearance of broadcasters as we work through the coming months and years.

So a lot of positives to come on 600.

Let's amplify that, Brad.

Neville, nothing to do with the auction that we can speak of but you have always been one person different from all the others that believes that whoever does get spectrum in the low band auction could put to the use as early as this year.

It's certainly feasible.

Thanks, John.

Operator?

Next to Mike McCormack, Jefferies.

Hey, guys, thanks.

John, maybe just a thought on mobile video, your thoughts of where T-Mobile can go on that, whether or not you have any interest in OGT partnerships, any interest in ownership of content itself, and then maybe for Braxton, just looking into 2017 on upgrade rates, as we move more into EIP as opposed to leasing, shouldn't that dampen the overall update grade?

Even in the face of this tenth anniversary iPhone

Let's swing through.

Mike Sievert is quite passionate about that topic so I'm going to introduce it by saying if you go back even a year, year and a half, we've said all along that you can understand most of what's going to happen by the header of all content is going to the Internet, all Internet is going mobile.

Because of the trends of what have happened in the last year we've now shortened that to all content is going to the mobile Internet, so in fact, clearly by default, anybody that's in the business of content or on smartphones and eyeballs will be going into the mobile video business in some way.

Mike, why don't you talk about some of the vision.

I think one of the things our customers really appreciate about us is our tendency to put them first and listen to what they're looking for.

We'll be guided by them on this.

So far we don't hear customers crying out for their wireless company to erect walled gardens and curate their content for them and pick and choose for them.

We saw how badly that failed when Verizon tried with it Go 90.

It's just not something that customers are asking for yet.

That being said, as we talked about a few minutes ago our brand is really strong, and as things start to change, it's possible that customers might expect us to do that for them, and if they do, we will.

But we've been clear since Ben John that if we can make it easier for customers to access without penalties, without fear of data overage's, the way we've changed the industry, if we could make it easier to buy, if we could make it easier to excuse me, there's plenty of things we could do besides erecting our own plan, which is a walled garden and curate all their internet content for them, when the magic of the Internet is that you can have all of the content.

We will be guided by our customers on this but right now what they're telling us is they love our neutrality tee in the space.

The second part of your question relates to our view on upgrades.

And net-net, we're actually excited about the handset innovations that are coming in the upcoming era.

Mike talked a little bit about more affordables, the differentiation between smartphones is becoming increasingly difficult, but in 2017 --

In 2017 we have a couple of very significant things coming.

The 10th anniversary of the iPhone, which Apple is very tight-lipped about innovations they're bringing to the market, but I think all expectation is that's going to be a very significant step-up in functionality and form that will certainly drive switching or reinvestment in your certain carrier during the upcoming year.

Then we also have Samsung coming out with another iteration of the note.

I think by all accounts that was one of the most exciting true smartphones with that type of screen size out there, and it's a shame what happened, but they will certainly be back, and be back very, very strong in the upcoming year, as well as all the other things from a handset standpoint.

So net-net our expectation is the same overall rate of upgrades as a percent of the base for 2017.

So Braxton, just a follow-up on that.

The EIP versus leasing shouldn't impact that?

Not necessarily.

During 2016 we were pretty much all new customers on EIP flow.

You can tell by the guidance that we've given for leasing that's more run rate with existing people on leasing, and not assuming a lot of additional lease for new customer flow coming in.

But it's still a tool in our toolbox.

And we can obviously pivot as we see necessary in the marketplace.

But that's definitely not the assumption in the guidance.

Okay.

We're going to take one more question, Operator, and then we're going to run over to CNBC and go from there.

Next to Matthew Niknam at Deutsche Bank.

Thank you for getting me on.

Just two real quickly.

Number one, on network payload, you have talked in the past about after launching Ben John throttling video at 480p there was a net payload reduction.

Just wondering how that has been trending in recent months.

And then just on prepaid, maybe for John or Mike, becoming an increasingly competitive space, more subsidies on phones, ARPUs we see, rate plans or promotions continuing to get more aggressive, how do you win profitably there in the current environment?

Thanks.

Let's go backwards.

I guess Mike and I can comment up front.

The prepaid environment becoming competitive, I think what you mean by that is some of our competitors have realized that there's nothing that they can do enough on the postpaid side to grow their revenue stream when they're declining significantly.

I mean, if you have 368,000 postpaid nets with a declining ARPU, but you lose 1.3 to 1.4 million customers, 501,000 in the same quarter on the prepaid side, and versus a player like ourselves who we've gained 5.1 million prepaid nets over the last three years, and 2.5 million this year, and had a stable to increasing ARPU.

This is an extremely profitable business, and by getting highly competitive you mean quarter after quarter we hear the same, "We're going to come back in this business" by the same group that two years ago said they were going to have the number one or two network by now.

So we don't see it or hear it.

And in the meantime, if you do the store count, by the end of this year MetroPCS will have 10,000 doors.

So it's kind of a hard thing to catch up to, but I don't know if you want to comment.

Right.

It's pretty simple.

In order to win in this space you have high ARPUs, low churn, reasonable acquisition costs.

If you look at our business we fit the bill to the T. And it's fascinating.

It's sort of an under-appreciated part of our business.

We look at things like what kind of performance do we get on investments and sales and marketing.

We call it return on CPGA.

We look at how much margin is created.

On those two important measures which are perhaps the most important comparators, our prepaid business performs as well as our post paid business so it's very fascinating.

CLVs are less on a per customer basis, so it takes more customers to get there, and we have more customers.

We are simultaneously the largest and the fastest growing in the space.

That's very difficult to achieve.

It's a testament to the team, to the model.

We're very, very proud of that business and how it contributes.

Remember, for three years, we have separately and simultaneously grown both.

I think what you have seen is companies that flip one way or the other.

So AT&T had a reasonable prepaid growth of subscribers last quarter, but they haven't added a postpaid subscriber since Q2 of 2014.

And then you have Sprint who over-heavy focuses on thinking that if they post some postpaid numbers that the world will come to a stop and love them, is really bleeding on the prepaid side and now figuring out how to pivot.

It's difficult but proven that you can do both at the same time.

And remember, the ARPUs, especially on MetroPCS, are very profitable and very strong and very consistent.

Was there a second part?

There was a second part on the 480p optimization and the benefits that delivered to the network.

We said day one when we activated Ben John it was about 10%.

It's probably in the 12% to 14% rate to date.

I don't have the precise math in my head but somewhere in that range.

So that's great.

I think obviously that experience has been a tremendous one as Mike outlined for our customers.

We're 480p delivery to their phones is appropriate, delivers a great viewing experience.

But obviously the video optimization is a great benefit to the network but as I talked at the beginning, one of the earlier questions, we've been adding a very large volume of capacity to the network for all the different means I outlined over the next 12 to 18 months.

A good place to be, and video optimization is there, and as Mike outlined, we're going to have an HD option there for customers, too.

Got it.

Thank you very much.

Well, thanks, everyone, for tuning in.

We look forward to speaking to you again next quarter, and again, Happy Valentine's Day.

Ladies and gentlemen, this concludes the T-Mobile US fourth quarter and full-year 2016 conference call.

If you have any further questions you may contact the Investor Relations and media departments.

Thank you for your participation.

You may now disconnect, and have a pleasant day.