...Here we go, now with T-Mobile, and that's very exciting, so obviously, Mike and Peter, we welcome them today. We are grateful for them to come for this occasion, and we are obviously very grateful also to them, what they are contributing to the success of Deutsche Telekom, and you've heard them at their Capital Markets Day about one month ago. Great messages. Today, because they have already had their Capital Markets Day, we'll want to give more room to Q&A, so their presentation will be compact and a bit tighter, but I'm sure that's in your interest, so with that, I welcome Mike and Peter. Great to have you here.
All right. Okay. Well, Peter and I are well aware that we're what stands between you and your bratwurst and beer or whatever it is that is gonna go down in the after-party later, that Hannes has prepared for us. It's an honor to be invited here to participate in DT Capital Markets Day. Let me just start by asking a question to pick up on something Hannes said. How many of you viewed at least part of the TMUS Capital Markets Day? Just a show of hands. Okay. All right. Nearly everyone. So what I thought would be the best use of time is just to slowly clear every slide and say the exact same things over again. No.
In fact, what I thought we would do is slide over some of the key messages, and as Hannes said, Peter and I just want to get to your questions and really have a discussion. There were probably things that were left unsaid you'd like to get to. But I do want to start with just a reiteration of the key messages that we communicated three weeks ago. You know, it really starts with this one, number five. We aspire in our Challenger to Champion business plan to outgrow everyone. But we aspire to do that now as a scaled operator, one of the biggest and most successful in the world, and that's the trick. How do you outgrow everyone when you're already big? Because that's different from the prior eras, where we were a challenger punching up at the maws of giants.
So that's what this plan is about. It's about double-clicking on the things that are working, but also further extending our lead in things like network and technology. And it's about adding a new layer to our customer first ethos that has always made the Un-carrier special. In this era of AI, customer love at scale looks different, and we spent a lot of our time really focusing on how T-Mobile is transforming left to right into a deeply data-informed, AI-enabled, digital-first company, so that we can demonstrate what the Un-carrier's customer love looks like at scale by creating bespoke experiences for every customer, and that's a huge part of our future. Outsized growth runway. You know, when we laid out our Capital Markets Day aspirations a few years ago, we talked about under-penetrated segments, but there was no evidence for you that we could do it.
Now, three years later, we've got the points on the scoreboard, so we can drive right these strategies with under-penetrated segments, now with the backing of the evidence behind us that our strategies work. Technology leadership. We intend to not just defend our world-leading 5G network and our advantage versus competitors in the U.S., we intend to further extend it, and we'll talk to you about that today, and hopefully, what you'll take away, and hopefully what you took away from our Capital Markets Day, is one of the reasons we can do this is our team and our culture and our focus on reliable performance for you, quarter after quarter, year after year.
Now, if you look back at the 2021 commitments that we made in the very beginning of 2021 , just as we were beginning our integration work for the historic merger of T-Mobile and Sprint that created this version of our company. We said then, when there wasn't a lot of evidence that we could do it, that we would build the world's best 5G network, that we would leapfrog everyone from dead last in the 4G LTE era to first and best in the 5G era, and translate that into commercial success, and I'm pleased to say we've done it. Second, we said that we would establish, thanks to that leading 5G broadband... That leading broadband, 5G network, we would establish a leading broadband business with millions of customers at a time when we had approximately zero 5G home broadband customers.
Now, approximately 6 million customers, and recently extended our goal to 12 million customers. We said we'd get after smaller markets in rural areas where T-Mobile has never effectively competed, and as well as enterprise customers and other important under-penetrated segments, and we've done it. The evidence is in. We've not only done those things, but translated them into outsized growth with 2020- 2023 EBITDA growth 32%, 4x our nearest competitor. So the flywheel for us looks pretty simple. Investments at TMUS are about investments in customers, putting them first, treating them right, changing the rules of the industry in their favor as the Un-carrier, but also investments in a truly differentiated network.
Because the success we've created with this network is the realization of an ambition that we could become the first company ever in the history of our industry to simultaneously be able to offer the best value and the best network. That's never been done before, and that results in outsized customer growth. The customers come to us, 12 million customers on postpaid phones during this planning time horizon. And if we run the company well, that translates into outsized financial performance, some of which we do what with? We plow right back in to the customer differentiation that got us here in the first place. As it relates to 2024 , we remain on track for all of the ambitions that we expressed to you after beating the high end of our guidance for 2023 .
I think if you look at U.S. competitors, we're the only ones still talking about and being willing to be held accountable in 2024 to 2021 Capital Markets Day aspirations. So let's look forward. As I mentioned, we call this next business plan Challenger to Champion, and the reason we do that is because, as I said, our aspiration is to outgrow everyone by being the customer champion, but we understand that the circumstances of that have changed. What challengers do is change the rules made by other people. What challengers do is disrupt other people's businesses to try and gain. We understand that now, with our scale, in order to continue outperforming everyone, we have to be willing to disrupt our own.
And in this era of data and AI, we have the perfect tools in our hands to be able to do that faster and better than our competitors. And one of the principal places we expect to do that is in further extending our network lead, the source of so much of our success. Now, we continue to have the best assets in the space, and that's very important. Not only the most and the best 5G spectrum dedicated to 5G nationwide, but also the densest grid on which that spectrum is deployed, as well as the only true multi-layer 5G spectrum strategy in the country. We also at pace roll out new technologies faster than our competitors, implementing advanced things like nationwide Standalone 5G core, which allows multiple carrier aggregation, Massive MIMO, the kinds of things...
Nationwide 5G New Radio, Voice over New Radio technologies. Those are the kinds of things that allow us, essentially, to squeeze more performance out of every band of spectrum and out of every capital dollar. And we align with the industry's leaders as to where the technology is going. We've called the ball correctly on how 5G would unfold, and because of that, we're farther and farther ahead of our competitors. People wondered when Verizon and AT&T, after being sort of forced to spend so much on C-band to catch up with us, once they rolled out that C-band, you know, would we lose our advantage? And in fact, now that they've rolled it all out, our advantage is further ahead than it's ever been.
In fact, the 2.5x performance relative to them, that the average T-Mobile customer experiences nationwide, is the widest margin of performance superiority we've ever had versus our benchmark competitors, even though they've rolled out their spectrum nationally. And then finally, purpose-built for customers, and this is one of the areas where data and AI is a difference maker for us. At our Capital Markets Day, I unveiled to you what Customer-Driven Coverage is all about. We've been talking about it for over a year, but we unveiled what it is, which is an advanced AI algorithm that, for the first time at scale, allows our teams and our engineers to simultaneously train AI on network data and customer data to be able to maximize the performance for customers.
And this informs now the capital choices that we make to build new network, to upgrade the network, so that we can understand how every action we take affects customer success. Now, give you an example of this. This is just about long-term builds. We're just in the hurricane season. As you saw, Helene came through a couple of weeks ago. Right now, as we speak, Milton is raging across Florida. In North Carolina, in the immediate aftermath of Helene, we had about 4% of our towers out of commission after rushing in with a thousand generators and getting it down to 4%. And during that time, those remaining 4%, just unreachable by roads, knocked out bridges, building tops, can't take generators, other issues that take a little longer to resolve.
During that time, only 1% of our customers didn't have good signal, but 4% of our towers were out. Because, again, Customer-Driven Coverage, looking at these 165 m wide hex bins in real time, allows us the telemetry to see who's connected and who's not. Our advanced self-configuring network capabilities allow us to do automated tilting and automated powering up of low-band capabilities from further away towers to reach each customer with lighter signal than they would have had without the storm, but with signal, so they can get those essential messages out, receive the phone calls, tell their loved ones they're okay, or get help if they're not. That's the kind of thing that Customer-Driven Coverage and the era of AI can accomplish.
Now, this is also about building a digital relationship, because creating customer love at scale means graduating from the era of the Un-carrier that was all about treating everybody the same, because now there's so much that we have to offer. We've delivered 25 or so Un-carrier moves over the past 12 years. There's so much that differentiates T-Mobile, and our job is to make sure to connect every customer with the exact success journey that will maximize their happiness with T-Mobile service. And the centerpiece of this is T-Life, our new flagship app that will eventually replace every single consumer-facing app we have. It will reach 40 million active users this calendar year. It's currently well past 30 million, and it allows us to do so much more than simply serve their account needs.
T-Life is becoming a lifestyle brand for people to manage their Magenta Status benefits, to check in on their T-Mobile Tuesdays, to track their family and be able to keep their kids safe, to prevent scams and unwanted spam calls, and so many other things that make digital life better. And we're seeing already the results of this having T-Life in customers' hands. We expressed at Capital Markets Day an aspiration that we would achieve 100% of customer upgrades digitally in this planning horizon, as well as the majority of activations coming in digitally. Now, earlier, somebody asked, "Aren't we, as an industry, laggards in this space?" And the answer, as Tim said, is, yeah, we are, and you should view that as the good news.
There's a tailwind on our business that when we lead this industry worldwide in digital adoption, we'll only be doing some things that other industries have already done, and there's a reason for our laggardness. It's not that we haven't paid attention to this. It's that there's aspects of our offers that are too, in the opinion of customers, that are too complicated for digital, and that's why the era of AI makes a difference. If there's one thing that AI is great at, as we all know, it's making the complicated, simple, and helping you understand vast amounts of complicated information, putting it right in front of you in three or four bullet points.
This is a catalyst for us to be able to use T-Life with customer-facing AI tools to unlock digital transactions, starting with 100% of upgrades and an aspiration for half or more of all activations. Now, we also expressed an aspiration, for you that we would reduce human-to-human customer service interactions in our retail stores and our customer experience centers by 75% from 2022 through our planning period. We're well on our way, by the way, and this is again, not by just putting bots up to solve problems and take away your interaction with people, but to prevent your problems in the first place. To use real-time, AI-driven data to make sure that those problems don't happen.
A huge part of Customer-Driven Coverage is to figure out what problems might happen and to prevent them, so that network issues don't crop up. Or if network issues do crop up, to be able to give you real-time information about why, so that you go away happy. You know? I mean, if the government tears out your street and gives you... and it's pothole-filled street, and it's got no curbs, and the new one is shiny, and it's beautiful, and it has curbs, that's a good deal for you. But not if they forgot to tell you it was gonna happen, and you can't get home for two weeks while they're working on it, you know? And so a big piece of this is just arming our people to give the right information to customers. If they call and say, "Look, my signal's weak.
It used to be strong. What's going on?" And we can, in real time, interrogate the network with advanced AI capabilities and say, "What's happening is you're served by three sites. One of them is undergoing an upgrade. That'll be done a week from Thursday. And when it's done, not only will your service be as strong as before, it'll be much higher capacity, a week from Thursday. Any other questions?" "No." No, that, that customer will go away happy because of the AI tools that have transformed how we interact.
Now, a huge piece of this plan is not only taking these AI tools to make our network more advanced, as well as to transform how we deliver customer love at scale, but it's also to help us continue to double down on the advantages that have gotten us this far: best network, best value, and the best customer experience, so that we can drive the growth in all of these underpenetrated segments, and that's what Peter will talk about.
All right. Thank you so much, Mike. Thank you for the time and allowing us to speak here today. So let me just recap for you what we spoke about at our Capital Markets Day and how we plan to sustain what we've delivered to date in industry-leading, postpaid customer growth every year during the pendency of this plan. And it begins with our focus on switching. And not uncoincidentally, if you look at the vast majority of things that drive customer switching in the U.S. market are network, value, and experiences. And this just happens to coincide with our unique and differentiated strategy of delivering the best network, the best experience, and the best value. And there's been a lot of question around, hey, 2021 was a peak year for industry postpaid phone net adds in the U.S., and it's moderated every year since then.
But for these highest-value switching accounts in postpaid, the inverse is true. They've actually increased every year since that peak of total net adds, and have now are 8% higher in 2023 than they were in 2021, and continue to grow. These are the highest-value customers. You attract the account, and then you expand that relationship via ARPA growth. As the relationship grows, it drives significant value. And of course, we're applying this best network, best experience, and best value approach, as Mike said, to our segments. And you've heard us speak a lot about in the consumer segment, really initially in our 2021 Capital Markets Day, we were focused on smaller markets in rural areas. It was a strategic idea that has now been transformed into a tailwind of durable growth....
In fact, Q2 2024, just this last completed quarter, was our highest win share to date, significantly above our market share, while at the same time, also, we've grown our Net Promoter Score and are significantly above the competition. So this formula continues to drive durable growth and a long-run opportunity there. One thing we didn't talk about in 2021 was our top 100 markets. We had a long-established foothold in top 100 markets, based primarily on our value leadership. And if you double-click, and we gave a little bit more detail into those top 100 markets, and there's durable growth across all three of them. Beginning with our 40% of the top 100 markets, where we actually are number one in terms of share of households built on value leadership.
But we've now seen with the network and what's happened with the network and the subsequent change in consumer network equities, that is continuing to fuel growth even in those areas. Going down to the bottom 30% of these top 100 markets, where we're actually number three, they tend to behave very much like those smaller markets in rural areas, and that same investment in network distribution and the brand is fueling growth there. So we see both of these categories now as long-run, sustainable growth areas in the consumer space. Similarly, in T-Mobile for Business, where this was an idea and has also grown into a durable source of growth across large enterprises, across government, and across SMB.
And this is driven not only by, again, this best network, best value formula, particularly in the smaller side of SMB, but in what we previewed, which is this move from SIMs to solutions. Where it's really about taking this network advantage and unique capabilities that we have and unique partnerships that we have, and not going into large enterprises and government and saying, "Hey, I'm trying to get your phone connectivity, and I'll just beat the procurement office price of whoever else you got." But as Tim spoke earlier today, actually solving problems for them, whether that was unique things like T-IoT, actually a partnership with DT to provide unique multinational solutions around IoT products. MultiLine, which is an offering that we put out there to solve regulatory issues, primarily in the financial space, or what we've done recently, commercialized slicing.
Network slicing enabled by that 5G core, including what we just announced at Capital Markets Day around T-Priority for first responders. And when you become a trusted solutions provider, that tailwind brings you that traditional postpaid business and that growth that we've seen. And this is an area we believe will continue to have double-digit service revenue CAGRs for us. But it's not all about mobile, of course. Three weeks ago at CMD, we talked about now growing our 5G home broadband base to 12 million customers by 2028, and that's fueled primarily by these four elements here: advanced network technologies, which Mike spoke about, our ongoing 5G spectrum deployment, including the ability to put quickly to work things like the incremental 2.5 GHz that we received in Auction 108.
Precision marketing, continuing to evolve, being data-driven and targeting eligible customers under this fallow capacity model to drive incremental conversion of those eligible customers into subscribers. We spoke about CPE advancements like 8Rx routers, which not only drive more speed, but also better capacity and better performance as you get further from the cell. Yet, the cost curves on those have come to the point where they're equal to our prior gen routers, so driving more incremental capacity there. I think what's very interesting about this space is just what you've seen. There were questions around: Is this a durable product? Well, I can answer that for you. Absolutely. Customers can answer that for you via NPS scores and what you've seen happen in terms of the actual performance of the product. Our 5G network download speeds are very similar to average cable-wired speeds.
Since we launched this 5G home broadband product, speeds on it have increased 3x . Even as you heard Mike say, usage is 500 gigs a month and growing 10%, much like we predicted. While simultaneously you increase speeds there, you saw mobile speeds increase significantly, including, most recently now, 2.5x the download speeds of our competitors. All right, and you know, of course, that we also supplement that with our ambitions around fiber, including our recently announced JVs to acquire Lumos and Metronet. It's really a few fundamental beliefs here. We can put a great product out there to customers that's very complementary to our 5G home broadband product.
We can do it in a very profitable way as we target passing 12 million-15 million homes by 2030, and we can do it in a way that drives returns that are incremental above what a pure financial investor can do because of the embedded unique advantages that we have, including the brand, our customer relationships, and the 5G home broadband business itself, that, as Mike said, is now over 6 million customers and has over a million customers on a waiting list. It's a phenomenal win-win that we believe will generate IRRs of 20% or above. And all of this taken together, of course, results in, very exciting to me, outsized financial growth.
We spoke about service revenues and our now ambition to actually accelerate service revenue growth from 4% to 5% CAGRs through 2027, including continued strong postpaid growth of 6%. Our Core EBITDA growth CAGR of 7%, even as we move past merger synergies, those are offset, they are created by obviously the incremental service revenue growth on your fixed cost base, the marginal benefit of that, as well as tremendous efficiencies, both in the network as well as through customer experience changes, as Mike spoke about, in digitalization. And when you couple that profitability growth with Core EBITDA, with our CapEx of $9-10 billion, we foresee an Adjusted Free Cash Flow in 2027 of now between $18 billion-19 billion, including the fact that in 2027, we will be a full cash taxpayer.
In that $18 billion-$19 billion, you have $5 billion of projected cash federal income taxes that are absorbed in there, and that generates a free cash flow margin of 25%, far and away the best in the industry. That is the true measure of value creation, your ability to convert service revenue dollars, take out all the noise between competitors of CapEx, OpEx, into true free cash flow. What are we gonna do with all of that free cash flow? It creates a compelling envelope, and I think the most important message here is that we're gonna approach the allocation like we have very consistently with our capital allocation methodology. We maintain a leverage ratio of around 2.5x net debt, Core Adjusted EBITDA, U.S. GAAP, with the flexibility to deliver.
We're gonna continue to invest fully in the core business to drive and fuel this outsized growth. We'll opportunistically invest in spectrum or accretive M&A, much like we have done in the past, and we'll return the balance to stockholders via a balanced approach of dividends and share buybacks, and we spoke about what, you know, what our initial allocation view of this $80 billion envelope is. It's $10 billion to fund announced strategic investments, inclusive of spectrum, Lumos, Metronet, up to $50 billion in stockholder returns. That's in addition to the $25.1 billion we had done through the date of Capital Markets Day, incremental to that amount, and smartly retaining flexibility in the form of $20 billion to apply anywhere in the capital allocation framework.
Looking, of course, first for potential value-creating investments in the form of spectrum or M&A, potential delevering, or potentially additional stockholder returns. I couldn't be honestly more excited about what this plan, what this team creates, how we're able to translate these strategies into actual results quarter by quarter, and what that unlocks for us and you as the shareholders. And so with that, let me turn it back over to Mike to wrap us up.
Okay. So as you heard from Peter, the promises of Challenger to Champion are that we will outgrow everyone every year, that we will accelerate service revenue growth to 5%. Postpaid service revenue growth will continue to be 6%, meaning more nominal growth than ever before on a higher base. EBITDA growth, 7%, cash flow growth, 8%, all by doubling down on tried-and-true proven strategies, but adding to it advanced technology capabilities that we've demonstrated we can move faster and better on, and of course, transforming our customer experience, what it means to be the Un-carrier, what it means to deliver customer love at scale in the era of AI and digitalization. That's the plan. We're confident in it, we're excited about it, and hopefully, you are, too. And Hannes, we'd love to take questions.
Great. Amazing story, amazing ambition, so it's very exciting. So, obviously, we have now half an hour for M&A, Q&A. Nice one.
For M&A.
Nice one!
Let's do it.
Good one. Okay, no Freudian intentions here, or non-intentions. Okay, so can everybody just please do one question the first round, and then if we have time, we do another one. So, Mathieu, we have you.
Yes.
Mm-hmm.
Good afternoon. Mathieu Robilliard from Barclays. Thanks for the presentation. Actually, I wanted to dive on something on AI, since I assume that in the U.S., you're probably ahead of us in terms of the development, usage, et cetera. You flagged the impact of AI in terms of improving the network efficiency and also improving the customer experience. But something we never heard, at least in Europe, is whether AI could drive traffic growth, 'cause obviously, that could be something that benefits your industry for the core product. I'm not talking about selling other services related to AI. Are you already seeing some of that at this stage, or do you expect it to happen in the next few years?
It's a great question, and it's a big piece of it. You saw Peter very quickly talked about something we call precision marketing, and this is really about applying the most advanced capabilities we know how to do to take our digital marketing to the next level. We're so excited about this area, that we're actually turning it into a business. So not only do we see the opportunity to apply advanced AI models to meet customers right where they want to be met, with the right message to be able to get their upgrade or their sale, this is about customer journey optimization with the power of the vast amount of data that we have. Remember, most of our marketing is to our existing customers. But in addition, we see an opportunity to use that same capability to grow a new business serving marketers.
We disclosed at Capital Markets Day, we have a billion-dollar business right now in serving marketers and called T-Ads and associated businesses within our company, and we see an opportunity for significant growth there. This morning, we were reminded that this brand is one of the most respected in the world. In the U.S., this marketing team is one of the most respected in the country, and we're one of the biggest, top five marketer in many categories, top twenty overall. And so when we're able to apply these capabilities in some of the ways you saw us talk about in our keynote with some of the world's best thinkers, we not only can do a better job marketing and therefore drive the top line, but we can actually create associated business lines as well. That's all in the aspiration set.
Now, one thing I wanna remind you about the aspiration set, there's a mismatch between the goals we've given you and the key indicators we've given you, so make sure you understand that. So in other words, when we grow our T-Ads business by a lot, or when we achieve 75% reduction in customer service, person-to-person interactions, or when we achieve 100% upgrades of the majority of activations in digital and the associated changes in the retail footprint size, some amount of that would be incremental to the financial KPIs that we gave you of 5% acceleration, in service revenue CAGR, 6% postpaid, 7% Core Adjusted EBITDA growth, et cetera, so.
Sorry, if I can just follow up. The question is also: Do you see traffic in your network? Do you see that AI will drive more usage of mobile data? Mobile-
I'm sorry. I misunderstood that part.
I misspoke.
Absolutely. And here's why. Every major... Think about this, every major innovation we've ever been through has started with text, right? Do you remember-- How many of you were around when the, you know, internet started? You had a 300 baud modem, and you could see the text flying across your s- No, no one? Okay. Yeah, I'm feeling kinda old. You could see the text flying across your screen at the beginning of the internet. You could, you know, so much of telephony began with simple T9 texting as we moved into the data era in mobile phones. AI is the same. I mean, ChatGPT came out in 2022, and, you know, blew all of our minds, but it's basically text, and text isn't a big payload on the network.
What's happening in AI is the same thing that's happened to all the rest of the big discontinuous innovations that have come, which is it's transforming itself into a deeply immersive experience. And as it does that, the potential for network payloads are enormous. And so, you know, I think a world where we carry technology with us, that's actively monitoring the world around us and helping us navigate that world in real time with AI processing, that's a powerful world that is gonna require massive payload of traffic on our network. What I would like is somebody walks up to me for it to remind me your name and how we know each other. I would love it. If it just whispers in my ear, I would love that.
But think about the power of the network payloads that would be required with an always-on world perceiving uplink to the internet that's being processed in real time. One of the things that we disclosed at our Capital Markets Day in my chat with Jensen Huang is that we are investing in AI-RAN. And one of the reasons why we're doing that is that we see this payload coming, and not only do we think there's an opportunity for traffic on our network, we actually think there's an opportunity for data processing near the customers.
We think AI will unfold such that there will be a useful middle point between AI that gets processed and inferences that get processed on your device, which is gonna be the best for real-time, but more limited in capability because of the finite data set you can carry with you, and cloud computing of AI, which is the kind that you became familiar with before in ChatGPT. So real-time processing of near to the customer cloud AI workloads, the kind that you could take advantage of if you've built an AI- RAN infrastructure, could be a future business for us beyond the planning horizon.
Excellent. I think, Josh, and...
Thanks. It's Josh Mills here from BNP Paribas Exane. So you created your brand and a huge amount of value by being a disruptor, but as you've kind of walked us through, as you go from being a Challenger to C hampion, the risk of being disrupted in turn is gonna go up as well. So I wanted to ask, where do you think the biggest risk of being disrupted in the U.S. market comes from today? Is it convergence taking off, cable-cutting prices on MVNO services, or maybe fiber expansion potentially eating into your 12 million FWA target customer base?
If any of those risks were to materialize, do you think your current business plan has enough fiber in the home, fiber to the home in it, to use the technology as a defensive measure as well as an offensive one, as it is being used today? Thanks.
Yeah, that's a great question. I would say it's pretty clear from our business plan that our bet is that convergence, as people understand it in some markets like Europe, will happen differently in the U.S., and I wanna just sort of share some stats. First of all, convergence has happened in the U.S. and is in the run rate, and that's not something a lot of investors have really stopped to think about. Has happened. In fact, 85% of American consumers today have the choice of getting their mobile phone service from the same provider as their home broadband service, 85%. That was also true five years ago. It's fully in the run rate.
Our bet, because of lots of factors around how hard it is to cover the U.S. with mobile service, that there is no path for anyone to have nationwide home broadband service. These kinds of factors make mobile a highly considered sale against the backdrop of a European market, where, for a lot of consumers, any SIM will be fine. That has never been, and I don't predict it will be, a core consumer behavior in the U.S. It really matters. It's a considered sale. Who is your wireless provider? And you can see that in the low, low churn rates that happen in the U.S. Structurally, years ago, the U.S. carriers decided to roll phone service in with the phones, and that means that your mobile service, you know, also includes a multiyear contract to pay for your phone.
These kinds of things create sort of structural barriers to switching. What we know is that when you have several services, churn is lower. That's always been true, and broadband is just one of many services that can have that dynamic. Just having a family plan versus a single line can have that dynamic. Having a tablet in addition to your single line, can have that dynamic, or a device for your car, or an additional software service from us, all of which can have that dynamic. Similarly, the people who see convergence rolling out and having sort of structural advantages for those offering the converged services, are kind of missing, I think, a kind of causality versus correlation observation.
Like, for example, I recently heard one of my benchmark competitors say that their churn for mobile service is lower in the places where they have fiber. And we looked at it and said, "Oh, but our churn is also lower in the places where they have fiber." So in other words, like, be cynical about the causality of some of these statistics. And, you know, the market's very, very different in the U.S. Why we're interested in fiber is because we think we can build a great product and generate a superior return by virtue of the things, the capability and the know-how, and the embedded investments we've spent years building. They give us a leg up on a purely disinterested financial investor.
So we think we can generate a superior return, 20% or better, as Peter disclosed to you again a few minutes ago, because we've got that great brand and that distribution, the capabilities, the know-how, a scaled, 5G broadband operation we can piggyback on top of, et cetera. We are not doing fiber to defend our mobile business.
Okay, so next, let's have Akhil, please.
Yeah, hi. Thanks for taking the question. It's Akhil from JPMorgan. Mike, maybe if I can follow up on the comments you just gave on fiber. I think you've been pretty clear on it not being a defensive requirement. You've been pretty clear on your view on convergence. But you've also been pretty clear on the return opportunity, which at 20% is obviously very attractive. So I guess I just wanted to challenge, what would it take for you to want to scale that bigger? Because it's a very large TAM, there's a very big opportunity, potentially. What are the measures, metrics, things we should think about as we think about your journey into the fiber market? And I guess the question is, you know, what would make you want to go bigger? Thanks.
Yeah, and I want to bring my friend Peter into the conversation here because I think it's important to understand some of the drivers.
Yeah.
But I'll just kind of start it by repeating something we've said publicly before, which is we're open to more, but I don't see anything imminent. We're not working on anything right now that we judge to be high likelihood. We're patient. Patience so far has proven to be a great strategy for us because the deals we came out with are deals we're extremely proud of, win-wins for everybody involved. So I wouldn't be counting on something from us soon, but we're open-minded about it. And we've already shown our hand a little bit as to the kinds of things that we prefer.
Yeah. Yeah, exactly. I mean, you've, you've seen us really focus on, number one, pure play fiber, a simple, elegant complement to the pure play mobile side of the house. We look at what are the management teams doing? How capable are they of scaling, growing? Do they fit into the culture of this champion era as we move to the champion era? And also, the economics have to work, right? So I mean, fundamentally, that's kind of where it starts, but it's those kind of three core elements that we're looking to, in addition to other things as well, that really will drive as we continue to look across the space, does something make sense or not? And I, I'd add probably one more thing to the last category that you spoke about, Mike, which is very interesting.
Since convergence has been here in the U.S. for five years, you might ask yourself, "Well, how have you performed in those markets?" And what's interesting is we have deeper penetration. Our account, share of households, is actually higher in areas where there is fiber versus where there isn't fiber.
Faster growing.
And faster growing, so.
We're doing better in mobile where the other guys have fiber. By the way, that reminds me that I really like the structure of these transactions as well. Not that, not that it's a requirement, but you look at something like Metronet, where we're with KKR, or Lumos, where we're with EQT. $1 of equity from us is matched by $1 of equity from them, but then you can expect leverage of about $3 additional dollars. So in other words, we're getting $5 of firepower to rapidly build out and for every dollar we put in, and yet we get 100% of the branded opportunity, right? So T-Fiber is the brand we'll be going to market with across all of the footprint of these partnerships.
And so, you know, this is a great way for us to add ourselves to the equation, help partners be successful, but also get way more firepower for every dollar of our capital.
Okay, Robert?
... Robert from Deutsche Bank. One, it's another question on fiber, actually. Sorry for that. But one other way of addressing the fiber opportunity could be you parlay your 10 million- 15 million home coverage into a bilateral deal with other fiber providers. Is that interesting to you, or do you see it where you have fiber, you want to dominate rather than sharing economics, but also expanding your footprint with others?
There's a lot to that question. I would say it wouldn't be that productive to get into hypotheticals, but we're pretty open-minded as to how to think about this. Within that context, I know you're not asking about this, but we're less excited about models where we're not the go-to-market brand. So we really want T-Fiber to be the go-to-market brand. So sort of sharing that with lots of others in an open model, I just think makes it a lot harder to be able to build a scaled operation. We're open to that, but it's less attractive to us. As it relates to, you know, kind of go-to-market partnerships and things like that, you know, I'd never say never.
Excellent. Steve?
Thanks. Yes, Steve Malcolm from Redburn Atlantic. I probably guessed the answer to this as optimistic Americans versus a pessimistic Scot, but it... The complexity is kind of a double-edged sword, I always think, in telcos, that, you know, in some ways it's defensive because customers end up, you know, paying for stuff they don't necessarily need, you know, and it maybe stops new entrants coming in. So the comments you make on AI, I find kind of interesting. Are there any areas where it concerns you at all that, you know, customers have better information, that they may end up paying for stuff that they don't need? They may upgrade more quickly because maybe they qualify for phones, they weren't aware that they qualified for a new phone.
You know, the upgrade cycle has obviously been very low in the States for two or three years now, so everyone's obviously very excited. Are there any risks at all, you know, that better information damages part of your business, or you kind of feel that you've got all the safeguards you need in place to deal with that?
The thing about... You're getting at a really important point, and the thing about, for example, our partnership with OpenAI to create IntentCX, is that we, for the first time, can deeply train models, not just on the dataset that we have, but the specific objectives we're trying to accomplish. And that's a bit of a breakthrough. So if we're able to train it on what we're trying to accomplish and show it success models, then it's less likely to be able to steer customers down a path that's contrary to their success or to our objectives. But that's something we've got to really have our eyes open to, for sure.
But it-
We love transparency.
Yes.
I mean, one of the things we do now, in fact, we're very excited about educating customers more about the value actually packed into our plans. And one of the ways we've grown differentially than others, the way we've grown ARPA, is actually customers self-selecting up the rate plan because they more and more understand all the incremental value beyond just the core connectivity. What is the device upgrade benefit? What are streaming benefits that we provide? Connectivity, you know, in the sky, so to speak. And so as we've been able to educate consumers even more, that's how we continue to see this approximately 60% uptake on our top-tier plans with new accounts coming in. So that's why I think transparency for us has always been a ticket to actually showing customers they get more value.
Is it possible that could sort of increase the upgrade cycle, and would that be something that worried you, or are you happy with a sort of slightly faster upgrade cycle because you could maybe win share from your competitors more quickly in that environment, or?
It depends on how well placed it is for the customer, and this is where bespoke treatment has the potential to be so much more powerful than one size fits all. For some customers, we want you to upgrade soon, because for a variety of reasons, we believe if we don't put a great phone in your hand, you know, you're leaving. For other customers, they... Look, they don't, they just, they don't want it. And right now, we pay extremely motivated human beings to sell you an upgrade if you show up in our retail store. Let's say you come in for one, but you're a family of four, like, the incentives are there to try to put four in your hand. Well, you might be actually pretty happy with three of those. You could stretch that out till next year.
AI knows these things, and, you know, and it's harder to choreograph something like that with people. Now, on the other hand, it's easier to choreograph with people, the idea of getting 60% on our best plans, you know, so we have to, you know, digital, powered by AI, has to meet that and then exceed that threshold, you know, and that, that'll take some doing.
Polo ?
Hi, it's Polo Tang from UBS. Just had a question in terms of the $20 billion of free cash flow headroom. So how should we think about the order of priority in terms of, you know, use of that headroom? So does the $20 billion assume you'll acquire more spectrum, or does it relate to the cost of buying out partners in your fiber JVs? So can you maybe just give us some color in terms of use of that cash or headroom?
Yeah, that's hard to answer because we didn't create an order, and I didn't mean to imply one with the way the bullets were ordered on the slide either. It's gonna be reactive. We don't know what opportunity could come our way. I mean, one of the things we saw as we looked back, but sort of informed this $20 billion, is looking back and saying: Look at the opportunities that came to us vis-a-vis spectrum, whether that was auctions or private transactions like we've done with Columbia Capital and recently closed on a portion of that, or what we've done with Mint and Ultra and bringing them into the family, creating long-term value.
You know, with respect to whether we would use it for de-levering, that's gonna be very much dependent on, you know, what is the external economic environment look like to us? Looking like it's getting better at the moment, that's fine. So it really is strategic flexibility, not any sort of order in mind of, you know, we're gonna look for this, and if that doesn't exist, then we'll hold on to it.
Great. Adam, sir?
... Thank you. It's Adam Fox-Rumley from HSBC. I wanted to ask you a question about the share buyback, please. You were buying your stock back at a hundred and forty. Right now, you're at two hundred and twelve. So is there any framework through which you're assessing the attractiveness of buying your own shares? Thanks.
Yeah. Yeah, absolutely. We, as a management team and as a board, absolutely look at, you know, what do we believe the intrinsic value of this company is, and those are things that inform, you know, what the share buyback looks like. I'm not gonna get in, can't get into details, obviously, in terms of how we structure it specifically, but it's absolutely something we look at as a team and the board looks at in making the decisions around shareholder returns, and we are actively in the marketplace, as to your point, you know, buying back shares.
David?
Thank you. I hope this works. It's David from Bank of America. It's another one on AI, but you guys have really focused in on this, and as has the rest of the presentation today, I think. I guess we're still in... When we talk about AI, there is still this differentiation, quite a lot of it's still algorithmic, for sure, and then you've got the whole GenAI dynamic. And it seems to me that although it's the latest paradigm of computing, it still relies on the original paradigm, which is the kind of garbage in, garbage out, and what you need to make GenAI work best and train it best is clean data, ideally cloud-based. And I guess my question to you is, you know, I see T-Mobile US, you did the massive deal with Sprint.
You've acquired Mint, a couple of other transactions. How clean is the data set? 'Cause it seems to me, and I say this with all due respect, but there's a lot of companies saying, "We'll improve customer service with AI," but the ones who are gonna win are probably the guys who've got the cleanest data set. So can you give us any indication on that?
Spot on. That's a great observation. I can tell you that, it took us almost two years to unveil our Challenger to Champion business plan to you after beginning our transformation, and the reason is, when we began our transformation at the very beginning of 2023, late 2022, our data estate was a mess, and so what we had to do first was put our heads down. Before running our mouths about a new business plan that was based on digitalization, was to put our heads down and quietly think through, you know, how we change our infrastructure and our entire way of thinking. Our data had never met our other data. So in other words, like, we have incredible network data, but it had never met our customer data.
So you could see what was happening in the network, but not to who, and then you couldn't correlate that to the customer's subsequent success or not with T-Mobile, or correlate it to billing data as to whether or not they're retrenching from their plans, deleting things, adding things, slowing down on payments, or in fact, churning away. And so now we can train. All that stuff is in one place, at Microsoft Azure. We're able to train AI looking left to right across the data pools, and we're, you know, gaining insights for the first time that we were never able to gain.
And Customer-Driven Coverage is an example of that, that I, you know, reminded us about today, where we're able to see in tiny 165 m hex bins, not just everything that the network, that happened in the network, but to who and what happens to those people as a function of those specific network experiences in that tiny location. It's incredibly powerful. And, you know, we weren't ready to talk about it before because we just had... Our data estate was a mess. Now, I'm not gonna declare it's, like, done. Like, there's a lot of work left to do, but, we waited until we had line of sight to be able to execute on these strategies to bring you a Capital Markets Day that we're willing to sign up for, that we can go do.
Andrew?
Yeah, Andrew Beale from Arete Research. Just wanted to come back to that convergence causality debate, if you don't mind. I mean, I guess, you know, you're saying you have low churn where they have fiber, which is interesting. I mean, is that, is that typically because these are metro areas where your network's been good for a while, and the network perception lag has caught up? Is it because, you know, Verizon's built fiber and has taken their share from AT&T and vice versa? Is it because the demographics are different because, you know, they're better markets for fiber builds? I mean, you know, what does the data actually tell you?
When you look at the AT&T claims about their 500 basis points of higher share in their conversion markets and fiber markets, what does that tell you about the performance elsewhere, and does that give you any concerns about market diversity?
First of all, I believe the claims are... I, I've heard from our competitors. I don't have any reason to believe that they're trying to deceive anybody. And so if they're seeing 500 basis points higher share where they have fiber, all I'm saying is, it's not coming from us. And, you know, and it... This is a very dynamic and competitive place, and so perhaps the other guy has significantly lower share, and those two have historically traded versus each other. We, we kind of have operated for this last decade in a bit of a class of our own, and that's increasingly true as we're able to offer people value and network.
And there's big tailwinds on our business on this network piece because most Americans, if asked, "Quick, who's the best network in the country?" wouldn't yet say T-Mobile, but most rigorous analysts that look at the actual quantitative network facts would say, in fact, virtually everyone would say, we do have the best network. And so this is a brand reputation opportunity and tailwind for ongoing growth in the top 100 markets. Now, Peter rightly said, we didn't actually talk a lot about the top 100 markets before, but a lot of those were number one, but growing. So what's interesting is we are not just sitting around trying to defend our castle. We're growing in the places of our historic strength. Why? Because in those places, we got to that leadership position without most people believing we were the best network.
We got there for other reasons, value and customer experience as the Un-carrier. But now we have a new tailwind in that people are waking up to the fact that we have the strongest network. And some of these, to your point about the selection, the audience selection, some of these are places where people care the most about that, and they overlap with people who buy fiber. You see what I mean? And so that's a great thing for our story, 'cause the same people that are willing to go through the hassle of disconnecting another service to get fiber are the people who want the best mobile network, which we increasingly are gaining fame for.
So that's a tailwind in our business that has nothing to do with convergence, and they will make most of the time, in fact, right now, 95% of the time, each of these decisions independently.
James?
Yes, sir. Thank you very much. James Ratzer from New Street Research. So we've heard quite a bit of discussion today about fiber assets, but what I'd love to get your views on is the kind of long-term viability of cable as a fixed line infrastructure, and in particular, you know, over the three-year business plan you've set out, do you see any scenario in which buying cable assets could enhance your fixed strategy?
Well, you know, it wouldn't be appropriate to speculate on a hypothetical like that, but I, when I look at cable, I think two things. One, they have the most scale and reach by a lot in the US. They claim that they have reasonably cost-effective ways to continue to get better and better service as the years unfold. And three, they're getting squeezed, and they're getting squeezed by fiber from the top and by fixed wireless, principally from T-Mobile, from the other direction, and that's put a little pressure on this question. How it'll all unfold, I don't want to speculate on it.
You know, but some people question over the long haul, as fiber becomes more pervasive, as it becomes more normalized across every neighborhood and market and town in this country, that it'll continue to gain popularity. And then they'll be faced with a question on whether or not to kind of rethink the CapEx envelope entirely. You know, when 5G came, you saw our principal wireless competitors. I mean, they really did have to throw up their hands and say, "All right, we gotta do a do-over on this spectrum thing," and spent just tens of billions of dollars to try to catch us because we called the ball correctly on 5G. And you know, we don't know what'll unfold in cable, but you know, I wouldn't be surprised if at some point there was a capital surprise.
Ottavio?
Unfortunately, I have to go back to the fiber questions. Talking about the numbers, you effectively project this 20%. Just a clarification, it's for the equity investment, not for the underlying business. It's just for your investments.
Yeah, it's for our investment, inclusive of the RetailC o. Remember, we get all of the retail subscribers on the go-to-market strategy, as well as our returns on the JV itself.
The second one is pretty straightforward. On the Metronet, at the closing, you put $4.9 billion, a significant portion will be for the retail customers. But as Mike has clarified, that is a multiple effect because you got your equity partner put in another matching your equity injection, another 6% from the debt. For a business plan that's going to be rolled out of six years, why you put all this cash right away? Why you don't wait until you put in installments? I think it's, you, you're pretty good on investing in cash while you locked into a JV, and it will be deployed over six years' time.
The beauty of the structure was, to your point, it includes a number of things, including investment into the JV, the InfraC o itself, buying the customers, and there's a significant portion of customers not appropriate to comment on them until we close, as well as some pre-funding, but not fully pre-funding the plan, but allowing them to continue what has been the most successful private fiber build engine in the U.S. and not starve them for cash. It's not as if we, you know, if we had thought about let's tail this out over a period, what we didn't want to do is slow down that machine.
In fact, during this period, we actually believe, according to the plan, and we may choose to do something different with it, that we would have over $1 billion in dividends coming back to us a little bit later in the period as we get towards that 6.5 million households passed in 2030. It really is funding what is a significant engine build right now, and they need it now, as well as funding, of course, the customer purchase.
You make a good point, though. I wouldn't fight you on the point that that would be preferable. You know, we love this deal, and sometimes in a deal, you know, you meet the partner where they are, and net-net, you know, we're really happy with how this landed, but I hear your point on that, very much so. By the way, a piece of news on Metronet I recently heard earlier this week is that we've cleared the DOJ hurdle with no second letter request, so that's nice to see. You can add that to Lumos, which received that milestone before, so it gives us. There's more to accomplish on getting these closed, but it gives us nice confidence we remain very much on track for the closing that we had talked about previously.
Excellent. Congratulations, and thank you so much. And thank you all for the good questions and the good answers. And with that, I think we come to the end of your session.
All right.
Thanks so much for coming.
After the marketing piece, enjoy your bratwurst and beer, you guys.
Well, we have one-
Thanks for having us.
We have one more hurdle to clear. So you weren't actually the one between us and the final. No, there's one more. Okay, guys, well done.