Good afternoon. Welcome to the T-Mobile US third quarter 2019 earnings call. Following opening remarks, the earnings call will be open for questions via the conference line or via Twitter. For those of you on the line, please press the star followed by the one on your phone. Those interested in submitting questions during the earnings call can do so also by sending a tweet to @TMobileIR or @JohnLegere using #TMUS. 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.
Yes. Thank you. Welcome to T-Mobile's third quarter 2019 earnings call. With me today are John Legere, our CEO, Mike Sievert, our President and COO, Braxton Carter, our CFO, and other members of the senior leadership team. Let me just read the disclaimer. During this call, we will make forward-looking statements that include projections and statements about our future financial and operating results, our plans, the benefit we expect to receive from the proposed merger with Sprint, and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of our management and are subject to significant risks and uncertainties outside of our control that could cause our actual results to differ materially, including the risk factors set forth in our annual report on Form 10-K and our quarterly report on Form 10-Q.
Reconciliations between GAAP and the non-GAAP results we discuss on this call can be found in the Quarterly Results section of the Investor Relations page of our website. In addition, in connection with the proposed transactions, on July 30th, 2018, we filed a registration statement on Form S-4 with the SEC related to the merger. The registration statement became effective on October 29th, 2018, and is available on the new T-Mobile website. It contains important information about T-Mobile and Sprint, the merger, and related matters. With that, let me turn it over to John Legere.
Okay. Thank you for that rousing open, Nils. Good afternoon, everyone. Welcome to T-Mobile's third quarter 2019 earnings call and Twitter conference. We're coming to you live from Bellevue, Washington. We've got a lot to cover today. You can see from the results that we just put out that we have not skipped a beat. We delivered another blockbuster quarter in Q3. We maintained our incredible momentum and posted record service revenues. In addition, we delivered a number of Q3 records, including record low branded postpaid phone churn, total revenues, adjusted EBITDA, net income, and free cash flow. We'll talk about these incredible Q3 results in a minute. First, let me give you a quick update on our merger with Sprint. We are very pleased that after an exhaustive review of the facts, the Federal Communications Commission voted to approve the merger on October 16th.
Both expert agencies, the FCC and the DOJ, have validated the merits of a T-Mobile and Sprint combination. As we work through the final steps of closing our merger, we remain convinced that the merits of the deal are even more true today. It's important to point out that the target synergies, profitability, and long-term cash generation have not changed for new T-Mobile. We continue to expect that the merger will deliver more than $43 billion in synergy while almost tripling our total spectrum holdings in low and mid-band. This positions new T-Mobile to become the nationwide leader in 5G, leapfrogging the competition in network capability and customer experience. This network capability will enable us to supercharge the Un-carrier strategy and aggressively take share from the predatory incumbents.
New T-Mobile will support the creation of thousands of new jobs across America, net positive from day one, and deliver lower prices and unrivaled value on the nation's best network, transforming our customers' lives in ways we can't even imagine. While closing the deal has taken longer than planned, the silver lining is that we have had more time to prepare for the coming integration. We have detailed integration plans. We are preparing to start deploying Sprint's 2.5 GHz spectrum soon after closing. We're working hard to complete the final steps for the merger. We remain confident and optimistic.
In addition to the majority vote from the FCC, we received clearance for the merger from the DOJ in late July upon entering into a consent decree that included the divestiture of all of Sprint's prepaid businesses and Sprint's 800 megahertz spectrum assets to Dish, as well as supporting Dish's rapid entry into the wireless market. The DOJ consent decree is still subject to the final Tunney Act review, as most of you know. Earlier this month, the State of Florida joined the DOJ settlement, and Mississippi and Colorado came off the state AG complaint. In total, 19 state governments, state AGs, governments, and/or PUCs have now expressed their support for the merger, highlighting benefits such as increased competition, rural coverage, jobs, affordability, and new wireless competition for fixed broadband access. On that note, 18 of 19 PUCs have given this deal the green light.
We have a lot of leaders that recognize the benefits of this transaction will deliver for consumers in their state and beyond. As you know, the state AG trial is set to begin on December 9th. In the meantime, we continue to be open to and are having many discussions with the state AGs. We now expect the merger will be permitted to close in early 2020. Let me dive into these blockbuster Q3 results. First, let's talk customers. 1.7 million total net customers joined the Un-carrier movement in Q3, up 117,000 year-over-year. That makes 26 quarters in a row that we have had more than 1 million total net customer adds per quarter. We added 754,000 branded postpaid phone customers and continued to lead the industry in postpaid phone growth by a wide margin.
We delivered these great results despite this being another competitive quarter in the marketplace. Wireless customers want to do business with a company that treats them right and changes the rules of the industry in their favor. This shows up clearly in our churn numbers as customers are coming and staying longer than ever before. We had a record low Q3 branded postpaid phone churn of 0.89%, down 13 basis points year-over-year. Not only is this a record low for Q3, we also beat AT&T for a fourth quarter in a row. Our overall postpaid churn was 1.04%, which was also a record low for Q3 and was the best in the industry. We beat Verizon for a third quarter in a row and AT&T for a fifth quarter in a row.
We had strong branded postpaid net customer additions of 1.1 million, supported by continued strong growth in postpaid other customers. Branded prepaid net customer additions were 62,000, up from 35,000 in Q3 2018. Next, I've got to highlight our record financial results. Service revenues hit all-time record highs, reaching $8.6 billion, growing 6% year-over-year. Branded postpaid revenues grew 10% year-over-year. Total revenues grew 2% year-over-year to $11.1 billion, a record high for Q3, despite lower equipment sales. We hit a Q3 record high adjusted EBITDA of $3.4 billion, up 5% year-over-year. Net income was $870 million, a Q3 record high, up 9% year-over-year, and fully diluted EPS came in at $1.01, also up 9% year-over-year.
Net cash provided by operating activities was $1.7 billion, and free cash flow was $1.1 billion, both Q3 record highs, up 91% and 27% year-over-year. Okay, let's talk network for a moment. You may have heard the news that Neville announced last week, that he and his engineering team have been running at an incredible pace, building out our initial layer for 5G. In fact, we announced that we are accelerating the build-out and plan to launch our foundational layer of 5G nationwide this year. Our 600 MHz spectrum will be the foundation for our 5G network, and it's live in nearly 8,300 cities and towns in 48 states and Puerto Rico. This deployment covers 1.4 million square miles and 200 million pops today.
We now have thousands of 5G-ready towers and cell sites capable of lighting up 5G on our 600 MHz spectrum, and no other 5G signal will be as strong or as reliable. More than 26 million devices that are 600 MHz-compatible are already on our network today. We plan to launch 5G on 600 MHz on a nationwide footprint of more than 200 million pops with compatible smartphones, including the recently announced exclusive OnePlus 7T Pro 5G McLaren later this year. This network will be the foundational 5G coverage layer for new T-Mobile, part of the overall layer cake of available low, mid, and high-band spectrum for 5G that will be a game changer for consumers.
New T-Mobile's nationwide 5G will be able to cover more people in more places and work indoors and out, unlike Verizon and AT&T's current 5G networks, which can be blocked by things like walls, glass, and leaves. This is all while we continue to expand our 4G LTE network coverage and deliver industry-leading performance. We've caught up to AT&T and Verizon and now have 326 million Americans covered with 4G LTE, nearly 99% of the U.S. population. We now have 311 million Americans covered by low-band spectrum, both 600 MHz and 700 MHz combined. Needless to say, we continue to make great progress on our network and can't wait to get 5G into the hands of consumers.
We've spent the better part of the last seven years changing wireless for good, and with the network capabilities of new T-Mobile, we're going to take Un-carrier to an entirely new level. I think it's time we start sharing some of what we mean by next level. I won't say any more today, but please mark November 7th on your calendars because we are going to announce our first Un-carrier move for the new T-Mobile, sharing some of our plans and commitments for the future. That's right, new T-Mobile, Un-carrier 1.0, November 7th. Stay tuned. Okay, to wrap up, I couldn't be more excited about our performance this quarter. We continue to work toward closing our merger with Sprint and do so without skipping a beat in our business performance.
Q3 2019 was another blockbuster quarter for T-Mobile, and our unprecedented momentum continues as we gain postpaid phone share and deliver record financial results. Our increased guidance shows that we remain confident in our outlook for 2019. Circle November 7 on your calendar. You won't want to miss it. Okay, time to ask CFO Braxton Carter to take us through the financials and our guidance for the remainder of the year. Braxton?
Thanks, John. I continue to be so excited about the prospects for new T-Mobile, as well as our continued operational excellence. Let me get into some of the financial details of the quarter. Net income amounted to a Q3 record of $870 million, and diluted earnings per share was $1.01, both up 9% year-over-year. Net income benefited from higher operating income and lower interest expense. The effective tax rate amounted to 27% for Q3. For 2019 as a whole, we continue to expect an effective tax rate in the range of 25%-26%. Note that net income and EPS were fully burdened in the third quarter by the Sprint merger-related costs of $128 million and $0.15 per share after taxes, respectively. These costs, $159 million before taxes, are excluded from adjusted EBITDA.
Adjusted EBITDA amounted to a Q3 record of $3.4 billion, up 5%, included leasing revenues of $142 million versus $176 million in the prior year. Recall that Adjusted EBITDA in Q3 2018 benefited from $138 million of hurricane-related reimbursements, net of costs. The Adjusted EBITDA performance is a reflection of strong cost management, especially for SG&A. Cost of services as a percentage of service revenues increased by just 50 basis points year-over-year, despite the continued rapid rollout of 600 MHz spectrum. As expected, there was a significant sequential ramp in cost of services due to this rollout. SG&A as a percentage of service revenues decreased by 30 basis points year-over-year, despite the increase in merger-related costs.
Excluding the Sprint merger-related costs, SG&A decreased by 150 basis points year-over-year, despite the headwind of $83 million from the amortization of commissions from the new revenue recognition standard relative to last year. Free cash flow increased by 27% year-over-year to $1.1 billion, due to a 91% increase in net cash provided by operating activities, partially offset by an 11% increase in cash CapEx to $1.5 billion. Free cash flow in Q3 included $124 million of merger-related payments. Excluding these merger-related payments, free cash flow would have been $1.3 billion. Branded postpaid phone ARPU amounted to $46.22 in Q3, essentially flat both sequentially and year-over-year. We expect branded postpaid phone ARPU in full year 2019 to be down approximately 0.7%-0.9% compared to full year 2018 within our generally stable envelope. This implies a sequential and year-over-year decline for Q4 2019.
This decrease is driven in part by a reduction in the non-cash, non-reoccurring benefit related to Data Stash, as the majority of impacted customers have transitioned to unlimited plans. In terms of customer quality, our results from the third quarter continue to be outstanding. Total bad debt, expense, and losses from sales of receivables were $102 million, or 9.92% of total revenues, compared to $128 million or 1.18% of total revenues in the third quarter of 2018. Bad debt in the third quarter included certain one-time benefits, and we expect a seasonal uptick in the fourth quarter. Now let me get to our 2019 guidance. We expect branded postpaid net customer additions to be between 4.1 million and 4.3 million, up significantly from the prior guidance of 3.5 million-4.0 million.
This guidance takes into account our long-term strategy to balance growth and profitability, a continuation of the lower switcher volume we've seen in recent quarters, and our pursuit of growth adjacencies. We expect adjusted EBITDA to be in the range of $13.1 billion-$13.3 billion, increasing the midpoint from our prior guidance range of $12.9 billion-$3.3 billion. This guidance takes into account leasing revenues of $550 million-$600 million in 2019, unchanged from prior guidance. It also takes into account our network expansion, in particular, the 600 MHz and 5G rollouts. Pre-close Sprint merger-related costs before taxes are expected to be between $125 million-$150 million in the fourth quarter. These costs will again be excluded from adjusted EBITDA but will impact net income and cash flows.
We now target cash CapEx of $5.9 billion-$6 billion, up $200 million-$300 million from the high end of our prior guidance range. This includes capitalized interest, which is now expected to amount to approximately $450 million in 2019. The higher CapEx guidance reflects our rapid rollout of 600 MHz spectrum, setting the foundation for our accelerated plans to launch the first nationwide 5G network with more than 200 million pops later this year. We continue to expect free cash flow to increase at a three-year CAGR of 46%-48% from full year 2016 to full year 2019, unchanged from the prior range, even with a step-up in cash CapEx. The CAGR for the underlying net cash provided by operating activities is now expected to be 36%-37%, up from 33%-35%.
Our free cash flow CAGR guidance does not assume any material cash inflows from securitization going forward, and it excludes payments for merger-related costs. Now let's get to your questions. Please note that we cannot answer any questions related to the upcoming millimeter wave auction, that's Auction 103, due to the quiet period around this auction. You can ask questions via phone or via Twitter, and we'll start with a question on the phone. Operator, first question, please.
Thank you, sir. Again, to ask a question via the phone, please press star one. We'll take our first question from Michael Rollins of Citi.
Thanks. Two questions. First, can you talk a little bit more about the sales productivity in the quarter, and if you're seeing anything different in terms of where the customers are coming from or what types of plans that they're taking? Secondly, with regards to the process with the state AGs, are there a couple of common pushbacks or concerns that you're learning about across the states that are involved with the litigation, and is there an opportunity for the Un-carrier 1.0 for the new T-Mobile to potentially address some of those questions or concerns? Thanks.
Sure. I want to take the productivity question first.
Absolutely. I'll jump in with just a quick overview, Mike. No big changes here. What's going on is you're seeing our continued progress into the suburbs, into prime suburban families, into greenfield towns, and into segments like older Americans, like military. That has been a trend for the last two or three quarters, and you saw that continue. You also saw record low Q3 churn. As John said in his comments, this quarter, we were not only at the best levels we've ever seen for a Q3. Our overall postpaid churn, when you look at the whole postpaid business, which is not something we normally disclose, we focus more on phones, was the lowest in the industry again. Lower than Verizon, lower than AT&T.
That takes some pressure off the activation engine, and you can see that start to translate into efficiencies in our business, which is terrific to see. This morning, we doubled down on that same strategy, this time with a breakthrough new offer for first responders. It follows our very successful mold of really focusing on military, which we've been at for quite a few quarters now, and really winning hearts and minds, and I think doing great work for military families and saving them an incredible amount of money. Today, we turn our attention with that same kind of value proposition that can really make a difference for families, for first responders. We're really excited about that. It's a continuation of our strategy of doing well by doing good. That's the first one.
Yeah, on the second question, I can tell you it's been a fascinating year and a half, whether it's been in Congress or the Senate or FCC and the DOJ, and now the state attorney generals. We violently agree on all the things that are important. All the things that are important for the states and violently agree of what the new T-Mobile can do. If you think about the federal agencies that have now approved, the expert agencies that have approved this deal, it's been about ensuring 5G investment and 5G build in rural coverage and broadband competition, concerns about pricing, concerns about the low end of the market.
What we've been able to do, as you've seen recently with both Colorado and Mississippi, is once you speak to these individual attorneys general about their state and the things that are important to them, they see that what they're concerned about is committed to nationally and can be tailored for them. Been very good discussions, and we continue to have those. They continue to center around 5G and the build and pricing and around Dish as a competitive player, which certainly we have been very aggressive with the consent decree on positioning for that. We feel very good about the conversations and where they're headed, and we feel very good and confident either in the process of a settlement or in going to trial and having the case seen well.
To your point, certainly the kinds of things that the new T-Mobile will signal that we will do, whether it be an Un-carrier move or the plans that we'll start to unveil, they are very powerful items of discussion with the states as well because they answer the main question. It's all coming together in that fashion. Stay tuned. Good discussions continue. As I said, we remain very optimistic and confident about the creation of the new T-Mobile. Yeah, I think November 7th might add a little bit to the conversation.
Thank you.
Mike?
Thank you. We'll take our next question from Simon Flannery of Morgan Stanley.
Great. Thanks very much. A question on the 600 build out. I'm not sure if Neville's on, just you've done $200 million. I think Braxton had referred to CapEx being front-end loaded. What's the pacing from here to get to 250 and more over the next few quarters? Is this something where it's going to be slower to go, how should we think about the expectation there? Mike, coming back to your comments on the first responder, could you just size that opportunity for us, what you have today and what you think the opportunity there is? Thank you.
Doesn't Neville at least get an attaboy for the 200 million miles way ahead of schedule?
He's already at 250, Neville.
Now the next goal is in my eyes. Yeah. No, thank you.
Congratulations, Neville.
Obviously, we're very pleased with the progress we've made on 600 MHz. It's really adding to this phenomenal low-band footprint that we've assembled over the last three to four years. John referenced it, 311 million people now covered with low-band. We continue to grow that number as we light up more and more of the 600 MHz. 26 million customers now with a 600 MHz phone in their hands, starting to really reap the benefits of a lot of new spectrum that we can bring to the U.S. consumer, both in LTE and 5G. As we said many times, this is the foundational layer of the layer cake with the new T-Mobile. As we combine with Sprint, it's critical to what we plan to do with that fabulous combination. Super excited about what we can bring. To your question, yeah, no slowdown on 600 MHz.
As we move into 2020, we obviously look to continue to build out that footprint across the nation. Remember, we have nationwide, fully coast to coast spectrum here that we can leverage, and it's a key part of the commitments that we've made to the FCC and many others in terms of our build-out of 5G services and LTE. Big push on rural for us within this footprint. We've been building this thing almost from the outside in because we have to clear broadcasters in the major metros that were sitting on that spectrum. Much of that work done now. We're ahead of the schedule materially compared to the original schedule that was put in place in partnership with the FCC three years ago. Real great benefit coming through, not just in metros, but across the country and specifically in rural. We're on it. We're building.
We're building now, we're building through the quarter, and we'll be back at it again in 2020.
Simon, Matt Staneff is here, our Chief Marketing Officer. Maybe Matt, you can talk a little bit more about the first responders offer.
Yeah, great. Hi, Simon. The way I like to think about the first responders offer is that we're approaching this the same way that we approached 55 plus and how we did military. They're both segments in the marketplace that we don't have large share coming in. In fact, we haven't had as robust an offering for first responders as we do now. Like we did with military, we came in with a very aggressive offer to serve those consumers in the marketplace way stronger and more compelling than what competition has. We expect to see similar results on it, albeit I will say there are less first responders in America than military and veterans. We won't see quite the same degree of business result on the whole, but to the segment, we expect to see similar outcomes.
Great. Thank you.
Thank you. We'll take our next question from Phil Cusick of JP Morgan.
Hey, guys. Thanks. Maybe we can talk about the network build a little further, Neville. Some of the tower companies have been saying that you guys have been pulling back, which doesn't seem to fit with the speed of your deployment and the higher CapEx. Can you try and square that for me, first of all? Can you give us any update on discussions with Dish around leasing that 600 MHz? How should we think about that going forward? Thank you.
Somebody want to take the Dish lease?
You do the first part.
Yeah. Phil, on 600, we're ahead of plan. We're very clearly ahead of the goals that we had at this point in time for the year. Any activity that's modifying or modulating in the field is just us working towards that capital envelope. You heard from Braxton, we're above plan on cash CapEx for the year. We've done a lot more than we planned to do inside 2019, and it just makes sense for us not to keep running at 1,000 miles an hour when we have these other considerations to take into account. I said we're still building. Delighted to be ahead of plan and delighted that we can light up what will be the first nationwide 5G network here in the U.S. before the end of the year.
That's a key opportunity for us as part of what we're going to do with the new T-Mobile here.
Yeah, let me add, Phil, you know our long-term philosophy is that we deliver on the commitments that we make to all of our stakeholders. Threading that needle on a year-after-year basis, while also trying to bring the goodness of the rollout of the 600 MHz as quickly as possible, has resulted in more of a front-end loading of CapEx. You'll see similar trends next year. We are super excited, and we'll roll out our full guidance for 2020 on our year-end earnings call. I would expect similar types of patterns, just as we're deploying 5G and getting all the goodness out of that $8 billion we have invested in the 600 MHz.
On the second part, as the consent decree and the items been disclosed cover, we are having discussions with Dish about the potential leasing of some of their 600 MHz spectrum. Frankly, it's a real opportunity for a win-win. I would almost call it found money. It's a chance potentially for a revenue stream for Dish before their spectrum is used. For us, it can have significant positive impacts to us, if the price is right, especially from a standpoint of migration. Never say never. One thing that we've become experts at in the last year is negotiating with Dish. It's a difficult process, but I think in this case, there's a real win-win possibility for both sides. With that said, we're not done yet, so we'll keep you posted, but it's a good opportunity that we're both interested in.
Thanks, guys.
Thank you. We'll take our next question from Jonathan Chaplin of New Street Research.
Thanks for taking the question. John, I think if you put your learnings on negotiating from Dish into a book, it'll become a bestseller. I think there'd be lots of avid readers of that. A question for Braxton, actually. With cost of service without the network investment you're making have been relatively flat. What's driving the increase in cost of service? Are you increasing your site count? Is it small cells? Is it amendments you're making on existing sites as you put 600 MHz up? Finally, what's the trajectory of that over the course of the next sort of two to three years? Is there another increase similar to what we've seen next year as you do 5G, and then it flattens out, or is it on a growing trajectory like this for a few years?
Yeah, it's a great question. To answer your question, it's a little bit of all that. What we've done over the last couple of years, and this isn't a new phenomena about the absolute dollar increases and the cost of services. We rolled out the full geography of the U.S., and got to equivalency with AT&T and Verizon on geographical footprint. Now we're rapidly rolling out the 600. Remember that Neville was visionary here once again and pushed the OEM, and the ecosystem to develop a dual-banded radio that could both address the 600 and address 5G with a software download as he was deploying the 600. We certainly have more work to do. You've heard the 200 million pops, which is base for nationwide coverage. Obviously we have the spectrum, we have the wherewithal. This rollout will continue in the upcoming year.
We'll give really detailed guidance just as we have on the cost of service on both of the last year-end calls. It's not a permanent step function change that's going to happen here when you're looking at year over year. We're in a period of unique investment, and I think we're doing it extremely efficiently and well thought out. I want to thank Neville for that too, because doing the 600 going back and overlaying 5G and climbing those towers again would have been a very expensive proposition.
I just pile on Jonathan, everything Braxton said. The key areas are mainly.
The visionary part
the visionary part that he mentioned to me. Yes. Can we say that again? The overlays, obviously, we're hanging new radio, that's a major driver of lease amendments and so on. We continue to do small cell work, material pace there. The other piece is we're upgrading our backhaul. We're building our connectivity here for a 5G world. We've done a lot of work to get ourselves ready, multi-gig circuits, making sure that our backhaul is there as the radio comes on board. As we combine with Sprint and create this enormous traffic and supply capability into the market, we need to make sure it's not just a radio story, it's also that we have the end-to-end capability. Backhaul's another piece of the play and making sure we're fully ready for the opportunity that we can bring now in 2020.
I'm glad you explained all that, Braxton and Neville, because I thought I heard somewhere in the original question, two words I've never heard used together, Neville and slow down. I don't think we'll ever hear those.
Thanks, guys.
Thanks, Jonathan.
We'll take our next question from Brett Feldman of Goldman Sachs.
Thanks for taking the question. You're obviously racing ahead of your competitors in terms of deploying 5G coverage. I'm curious, how do you plan to message the benefits of 5G to consumers? How is that going to change as you start to incorporate Sprint's deep spectrum portfolio? Ultimately, are you willing to offer consumers incentives to try 5G on T-Mobile? Thank you.
Just wanted to clarify. You said we're racing ahead of our competitors and deploying 5G coverage. Can we just correct? Did I hear that right?
Yeah.
Yeah. Actually, we've come up with a few ideas. First of all, we've decided to label it 5G E. We've decided that no matter where we deploy our 5G, we're refusing to show it in maps. Outside of those two innovative ways, yeah, Mike or Neville, do you want to.
Well, I'd say a couple of things. One is, I think you saw the power of when you can get your partners with the mainstream devices to adopt your technology, as we were just talking about responsively to the last question, how quickly that can benefit consumers. You're seeing that right now with the 600 MHz. We're delighted that our major partners with the big flagship devices were able to get our 600 MHz LTE technology on the devices last year. As a result, we now have 26 million people with that technology in their hands. I think that bodes very well for us as we think about a future in 5G, which again, we have a big opportunity to get the ecosystem aligned. I don't think it's going to take incentives to get people to try T-Mobile 5G.
They're going to move to it very enthusiastically. Our strategy is going to look, as John was just saying, our strategy is going to look so different from our competitors. In particular, Verizon is making a bet that people will want versions of 5G that work in some places, very limited places, and don't work in most places, versus a 5G that works nationwide and that we're willing to back with maps. That's the beginning of a journey to the premise of your question. When you combine it with where we're going in the new T-Mobile, the journey towards the only 5G network that is both broad, as we're talking about, that's nationwide and everywhere, and deep with transformational capacity and speeds that really can change the use cases for our consumers in very profound ways.
It's a little early to predict all the applications and innovations, but I can tell you one thing, as somebody that's been close to software, innovators are going to choose the network that's both broad and deep, that relies on having 5G everywhere. You're going to see use cases that are designed more to our way of thinking than to Verizon's way of thinking, which is that some people want 5G in a few places to be very high capacity, and everywhere else, you'll be relegated to LTE. I don't think that will inspire the same kind of mobile innovation that we're going to see the new T-Mobile network inspire.
I'm going to take one or two of the questions that are coming in, because one of them is staring me right in the face. Walt Piecyk, I have to say, I don't know why, but I'm looking at your new Twitter handle, @WaltLightShed, and I just keep thinking of @buzzlightyear. It's something. I don't know why. I think that's kind of cool, but I'm going to touch on one of your questions. There's a question that came in. No comment about extension of Sprint merger agreement in TMUS press release. It expires on Friday. I would give you this feedback, Walt, that Sprint and we are currently focused on working very diligently to complete the last remaining steps to be able to close the merger in early 2020. I think that says everything that we need to say about that date. Let's see.
Do you want to take Bill Ho's? Bill's been a diligent sender in of questions, It's about time we take one. It's an interesting question about prepaid.
One of the questions that Bill sent in is, for many quarters, prepaid seems to have lost its competitive edge and big growth. Talk about the landscape and any changes in prepaid strategy. I'll just say something brief, and if, Matt, if you want to pile on. It's not so much that prepaid has lost something. It's, I think, that postpaid has been growing at the expense of prepaid, and that's probably great for the industry overall. These things aren't really two different things. They're just two parts of one industry that has very positive trends that are fueled as much as anything else by the strong economic conditions that we're seeing. More people are qualifying for postpaid, and therefore, you're seeing postpaid grow at the expense of prepaid.
The other dynamic is we've seen over the last year and a half cable entrants have come in. They have also chipped away at the prepaid market and added to the postpaid side. Two years ago, there were no cable net adds. When you take cable and you add up the three major players, they had more net adds reliably than Verizon, the second most of anybody except T-Mobile. That's another dynamic that has caused postpaid to grow at the expense of prepaid. Matt, anything to add to the industry dynamic?
Yeah, the only thing I'll add on that, one, is we've been pretty consistently growing our prepaid business in the face of these things Mike talked about. Our strategy is one of competing in every market segment and consistently taking share there. The other thing that I'll expand on is that the other thing that's been occurring is this long credit expansion. Credit scores are at record highs. We know customers are continuing to seek things like device financing, et cetera. I believe we're well-positioned to continue to compete in this environment as well as if the environment changes in the prepaid space and postpaid.
Okay. Operator?
Thank you. We'll take our next question from Craig Moffett of MoffettNathanson.
Yeah, hi. Sprint was found by the FCC to have a large number of-
Craig, we lost you. I don't know if you're still there.
Mr. Moffett, are you still with us?
Okay. Let's go to the next one. We can come back to Craig if he comes back online.
I was really hoping to compliment Craig. Before I even got my second cup of coffee out this morning, he had already come up with the tagline for AT&T's earnings, which is, "Hope is not a strategy." I found that to be amazing, and I'm hoping that there's a similarly positively cynical thing that he's got in store for us. I would bet $50 he was on an AT&T phone when we just talked about that. Okay, we'll come back to an operator. I fear the next participant, but let's take the next question.
Yes, sir. We'll take our next question from Walter Piecyk of LightShed.
Thanks, John. I'm going to start with Neville. The deal obviously has taken a bit longer than we all had hoped, I guess. Around this time, I think we were all expecting you to be investing in that huge swath of 2.5 spectrum. If this thing continues to drag on into early 2020, or perhaps you have to look at a plan B if the deal isn't approved, where does that money go? Which spectrum bands do you think would be first up versus the 2.5? Obviously, you're going to continue to invest in the 600, but which other spectrum bands should we be looking at in terms of your mid-band investments?
I'm not sure my head even floats there, Walt. It's all about, there's only one plan that's combining with Sprint. As you said, time, in some ways, has been our friend here because my team is more prepared than ever to rapidly roll out the 2.5 GHz radio and spectrum that Sprint has. Long pole in the tent there was going to be jurisdictional processes. We're in a position with deal closure where we can start to rapidly deploy that spectrum. 600 MHz, as we've said, is the other, is the foundational layer. We've continued and will continue to work on our millimeter wave story. You know our spectrum mix and, as I said, it's all about combining with Sprint. That's all that sits in my head.
Got it. Then, Mike, 2014 was obviously a huge year. If you go back to kind of the growth adds, the ebb and the flow, in terms of some years you're growing, other years it's churn. Obviously, in the last year, there's been this great churn improvement, getting your churn below T. Obviously, you'll probably be under Verizon soon, but there's obviously some diminishing marginal returns in getting that churn lower. They can only get it so low. Should we look at 2020? You talked about this new T-Mobile Un-carrier thing. Should 2020 be a bigger gross add year, or should we think about lower postpaid phone net adds as far as a trajectory going forward, just given that you've kind of pulled the lever on churn as far as you can?
Well, we'll guide on 2020 at the appropriate time, just a couple of the broad trends, right? One, you're right. We've had some phenomenal tailwinds on churn. We now have churn that's better than AT&T's. Our churn's in line with Verizon's. If you look at total postpaid, it's actually below Verizon's. We're arriving at that industry best, that's not to suggest that the tailwinds are necessarily ebbing, we have to be aware we're arriving at industry best. Neville's at 200 million on 600. That leaves 100 and some million to go. A lot of customers, 26 million, have the handsets, a lot of customers don't. There's lots of benefit on the network side, lots of benefit on the customer experience side that we can continue to bring to the fore.
The other piece is that we're experiencing structural low industry churn, which is both good and bad. We see the good side of it in that we don't have to spend so heavily on activations as many activations, but on the other hand, it decreases our opportunity. The good news is that we have the chance to win one way or the other. Take a potential 2020 with a 5G super cycle of phones and elevated switching and elevated upgrades versus today. If that were to happen, there'd be more gross adds in the market. As you know, we are the net share winner in this market. If there aren't structural reductions in churn next year, we can look to other parts of the growth equation, like activations, because the two happen to go hand in hand.
The real question is: how do we compete in the competitive milieu? As you saw, we took 48% of postpaid phone net adds this quarter. As long as we can continue to manage both sides of the equation, churn and activations, then we'll be able to thrive, whether it's a low structural churn quarter or a higher structural churn quarter.
By the way, I just want to point out that while he's asking multiple questions on the call, Walt's typing in more questions online as well.
John, can I get one on the line, John? I wanted to sneak one last one on CPUC. If, let's say, you get New York and California on board, are you going to wait for the CPUC or just close before waiting for them?
Go ahead, David Miller.
Is my mic on? Yeah. Thanks for the question. No, we're confident that the CPUC approvals will be obtained in a timely fashion.
That was such a great lawyer hold time.
I'm not sure that answered the question, but okay. All right. Thanks.
All right. Thanks.
Well-
The timelines do look like they sort of line up.
Okay. I hear that Craig Moffett is back.
Yes, sir.
Operator.
We'll take our next question from Craig Moffett.
Verizon Wireless call dropped, sadly. I wanted to ask about Sprint. Sprint was found by the FCC to have a large number of fraudulent Lifeline accounts, and that could be as much as a $5,000 per account or per line penalty if it's found to be fraudulent, which I think could be up to about $4.5 billion. Have you learned anything new about the disposition of that inquiry at the FCC, and how might that in any way affect the merger if there is, in fact, a significant liability?
I think, Craig, what I'm going to have to say is that I'm not going to comment on another company's ongoing investigation that's not closed yet.
Can you just say, as a hypothetical, in the event that there is a liability, would it affect the merger in any way?
Yeah. I think I'm not going to comment on this topic. Apologize for that.
Okay. Fair enough.
Okay.
Thank you.
Hey, operator.
We'll take our next question from Kannan Venkateshwar of Barclays.
Thank you. I guess, a couple. First, when we look at the 5G-go-to-market strategy, there's been a lot of action recently around bundling video. Verizon, of course, announced a deal with Disney+. I think you guys have a deal with Quibi and Netflix. You've signed deals with Viacom. When you think about video as a part of your overall strategy, could you just expand on how you're thinking about it, the plans with Layer3 going forward, and how that fits broadly into your 5G strategy? Secondly, from a deal perspective, is there something that would cause you to renegotiate the price outside of the question that Craig just asked? Are there other variables worth thinking about from a price perspective when it comes to the Sprint deal? Thank you.
Let's do a couple things. I'll start that first comment, and then Mike can give a more substantive discussion about video. I'm glad you brought that up front because I would start by saying there is absolutely no comparison for an offer of one year of Disney versus a lifetime Netflix. Length isn't the same, value isn't the same, and certainly the substance of the offer isn't the same. I think it's not exactly something other than the vice president of copy and paste at Verizon looked over at our Netflix On Us success and did a horrific job of creating it. I don't know, last time I checked, nine out of 10 people that watch Disney cartoons don't make wireless decisions. The Little Mermaid will be a good one.
It's flattering nonetheless. We've seen this all throughout the Un-carrier journey, where we do something authentic, something bold, something permanent. It makes a big difference to people's lives, and then you see our competitors scramble to copy it, and that's certainly what you saw last week with Verizon. By the way, we think Disney+ looks like it's going to be a great service. This isn't a statement about Disney. This is a statement about how Verizon took something we're doing and did such a poor job copying it.
Well, it was by me.
We'll have to see what happens there. For us, it does indicate, as people start to copy our moves, that it shows that they understand that our moves are working. Since we made Netflix On Us one of our most famous Un-carrier moves a year and a half ago, it's been terrifically successful. It's something that our customers love and that they believe we have a role in their video life and in their mobile video subscriptions and in their consumption. To the premise of your question, that has emboldened us as we think about the next steps in the strategy. We announced a strategic partnership with Quibi, the initiative formed by Jeffrey Katzenberg, and led by Meg Whitman. We're very excited to be partnered with them.
You mentioned our Viacom partnership. There are plenty more opportunities because in this world, as it's changing, consumers are faced with a exciting world of OTT video, but a confusing one. We have shown through Netflix On Us that there's a role that they trust us to play in helping them choose, helping them authenticate, helping them pay for their video choices. We think we've got a great strategy here. It's going to be mobile-focused. It's based on taking our TVision brand and really helping customers make great choices in this area and bringing them great value. You see that right from the beginning of the strategy with Netflix On Us itself.
Yeah, on the second part, not being evasive, I'm sure you probably didn't expect us to really answer some of these questions. A couple of things are important with Sprint. We've been partners in this transaction for a long time, working side by side in a very cooperative way. We really are working diligently to close these final issues and get across the finish line and create the new T-Mobile. I would say that at any of these items that pop up, any of these deadlines, any of these issues that come up, as a partner, we have and will have discussions on the fairness associated with handling those. That's certainly not anything that we'll report on publicly. They've been a great partner. If there are issues that we need to work together, we'll work together with them to solve those.
If we do have any items to announce, you'll be the first to hear.
Thank you.
Thank you. We'll take our next question from Colby Synesael of Cowen.
Great. Thank you. Just one. Some of your competitors of late have been focusing on ARPU lift, whether that's come through other fees or it's come through the variety of different unlimited plans to which they offer. When I look at your ARPU, really the last few years, it continues to come down. How important or big of a focus is driving ARPU growth over the next year or so for you, and how might you be able to go about doing that? Thank you.
Yeah. Colby, the right way to look at this, we've talked about this numerous times in the past, is we're pursuing a strategy of generally stable ARPU, that's defined as plus to minus 1%. For the last two years, that's been minus 1%. We just gave guidance today that we're going to be less than minus 1% for this full year. It's a deliberate strategy. When we're doing things like segment penetration that might be dilutive to ARPU, but are increasing a higher CLV and NPV into the business, that's a trade-off well worth making. I think we've demonstrated over the years that our consistent balance between growth and profitability, and the generation of true significant ramping cash is really what drives the value here. If we were a scaled, predatory duopoly, yeah, that's probably what we'd be doing. That's not what we're doing.
We have amazing unlocks from a margin potential coming with continuing to scale this business organically or inorganically, and we're not going to stop. I mean, it's our long-term stated philosophy, and I'm very pleased and proud of the team, how they executed this year.
I think, Brett, we've made a brand on providing more for less and we are in the wireless industry. I believe we are the reason why the duopoly are not consistently raising price and ARPU at their leisure as they always did. Some of the things that you referred to, we will not do. We will not go add aimless taxes and fees simply to raise revenues, so ARPUs. No trickery like the big guys are doing. I think if you look at the cable industry, is an example of what happens when an industry is unchecked with the Un-carrier of the industry like we are. Pretty clearly, if you look at the results of those players, what they're doing is they're losing video customers, buying wireless customers, and gouging broadband customers, because in the broadband, they have no competition.
That's what it looks like when you play that game. We look forward to going into that industry as well. Our role in this industry here is to make sure that AT&T and Verizon just can't indiscriminately decide to raise ARPU. That's a role we'll play, much more focused on that. Okay. Operator, I think we probably have one more.
Thank you. We'll take our next question from Michael McCormack of Guggenheim Partners.
Hey, guys. Thanks. John, maybe just a quick comment. You mentioned the cable operators had pretty good results this quarter. Altice came out with a very low price point. How do you sort of view them as a competitor? Then I guess also on the competitive front, Verizon seems to have turned up the engine a bit, in 3Q, and best we can tell, 4Q seems like it's off to a pretty good start for them. Are you seeing any change there? Is their pricing going to create an impact on any other player in the marketplace to react to that? Thanks.
Yeah. I mean, there's a lot in what you said, right? Certainly, the market responded well to some of what they saw from the cable players. Just to point out a number or two, right? Charter had 276,000 net additions. They gained $192 million of revenue, but their EBITDA loss on that was $145 million, and the free cash flow loss was $256 million. That's what happened in their wireless. Of course, they were able to raise price on the broadband because of the lack of competition. Altice is too early to note, right? Their plans are targeted towards Optimum and Suddenlink customers, all 100 of them. There's a price associated with that customer base, slightly higher. We haven't seen that yet. Certainly, we have a partnership in the new T-Mobile with Altice that Sprint does have as well.
I think it's too early to call. One thing it's not too early to call is that both Comcast and Charter, and I assume Altice, have become significant factors in the wireless industry. Probably more so at the height of Verizon thus far. You could see, if you really dug deep into Verizon's earnings, most of their increase in revenue came from wholesale, which was probably driven by the success of their MVNO partners, the cable company. It's an interesting item. We ran right through this quarter. We take them very seriously. We think we've got some competitive advantages. On Altice, too early to tell, but we'll certainly keep an eye on it. Any more? That's great. Okay.
Okay. Well, thanks everyone for tuning in. We very much look forward to speaking with you at the end of next quarter in our full-year earnings. We'll talk to you then. Thank you. Operator?
Ladies and gentlemen, this concludes the T-Mobile US third quarter 2019 earnings 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.