Good morning, everyone, thank you for joining us for the first annual SVB MoffettNathanson TMT Conference. Thank you to those who are joining via the web as well. I am delighted to have T-Mobile with us this morning. This is, I think this would be the tenth consecutive media and communications summit for MoffettNathanson, it's the tenth appearance for T-Mobile. Really delighted to have you here this morning, Peter. I wanna start with the mobile market and the market growth rate. I think it's been certainly a topic of interest of mine, but I think increasingly a topic of interest for the whole market as they focus on particularly of subscribers. First, what's your assessment of why the market has grown so much faster than population growth rate over the last five years?
Perfect. Well, first off, thank you for having us. Again, Craig, it's always a pleasure to be here. Let me do the 30-second spiel of legalese. I may make forward-looking statements, probably will, and of course, I might reference non-GAAP, probably will. Please look at our SEC filings for all the risks and uncertainties in GAAP and non-GAAP reconciliations. Look, I think it's been an interesting few years, and there's an element of this which is explainable, and then there's still an element I think that's hard to really pin down. I mean, certainly during the pendency of the pandemic, you saw core connectivity become even more important than it was before. You did see a demographic, age demographic expansion, both up and down the age brackets. You saw new business formation come in.
Of course, you saw stimulus money. That helped. I think you saw, certainly towards the tail end of it, much more multi-line and business, you know, CL lines, where I think businesses, particularly with a more remote workforce than perhaps in the past, need more reliable connections, more secure connections that they can apply their policies to. You see a bit of that. Of course, you've seen, you know, an industry-wide transition from prepaid into postpaid. You know, certainly a catalyst for cable's growth in that regard. That explains quite a bit of, I think, what we saw, there's still a question around, okay, but it's hard to explain the totality of the industry growth with just those factors. That's a question that I think we can't answer either, right?
You look at port, non-port ratios, you kinda see what cable's doing, and it's hard to ascertain what really happened there.
Is it your assessment, though, that whatever was the cause of why it was growing so quickly, that now it's starting to decelerate back towards something that's at least a little more reasonable?
Yeah, it's very much what we said would happen. We started to see it in the tail end of last year, which in a period, by the way, you saw T-Mobile deliver, you know, some of our two best quarters since the merger itself. We do anticipate that, much like we said at year-end earnings, that probably this year in the postpaid phone category, you'll see an industry-wide of maybe 7 million-8 million, so down from the roughly 9.3 million of last year. We'd anticipate over time, you know, this thing would go closer to population growth. One of the things that I remember, and I know you know this well, is everybody seems very hyper-focused on postpaid phone.
Certainly with the advent of 5G, and we can talk about the use cases a little bit later, there's so many other connectivity plays that certainly aren't as valuable from a CLV perspective as a, as a core postpaid phone consumer, but are very accretive in totality, to the industry as a whole. You know, we capture our lion's share of that as well.
I wanna get to some of those, the reason I'm drilling down on the postpaid phone question, or I always tend to think of it as just total phone, whether it's postpaid or prepaid. The phones question is because it is still an area where everyone feels it is imperative for every company to make its subscriber numbers. Yet, it does appear that that's starting to become harder to visualize how that happens. Verizon yesterday on the stage estimated that the growth rate of the market would fall down to 5 or 6 million postpaid phones. If the cable industry is taking $3 million, and you're taking $2.5 million-$3 million, there's nothing left for anyone else, and yet everyone else is saying they're gonna grow 1 million subscribers each. The numbers, it's getting harder to see how the numbers add up.
I'm wondering in that environment where... I guess I'm thinking particularly about Verizon and AT&T more than cable, where there is a tendency to get hypercompetitive about, or hyperaggressive about handset promotions. How do you respond to that without getting dragged into the mud of suddenly having to offer these kinda crazy promotions just to keep the industry at equilibrium?
Yeah. Well, a few things. One is this industry, as you know, has been promotionally intensive for a very long time, and it can manifest itself differently, whether it's rate plans or devices. From a device side, it's been there for a while, since AT&T really brought back the subsidy model, and cable has been hyperaggressive with their, you know, first-line free exploding promotions. I think for us, what we look at is what's the differentiation of what we provide. Again, the industry did start slowing, much as we predicted in the second half of last year, and you saw us deliver the best quarter since the merger.
Really that's a result of where we are at this moment in time, both from a best value play, which we've had for a long time and will continue to jealously guard the customer value proposition and the perception that comes with it. Now having arrived at the station at the best network, much as for a long time we said the 5G leadership, which is durable, will translate into overall network leadership, and we're here. Couple those two things, which I know you've highlighted in many of your writings, it's probably the first time in this industry that you'll ever see this false trade-off gone. Now you have the best value in the form of price and the best product in the form of network, and that gives you a very, very distinct, durable advantage.
We also have under-penetrated segments that we're going after and quite successfully, and I know we'll get into some of those, whether it's smaller markets in rural areas, whether it's, you know, in enterprise and government and the success that we've had there. Also now with this network piece, where we've been traditionally strong, the top 100 markets, we're seeing continued growth come from prime network seekers. That's another opportunity. Of course, you know, what 5G brought in the form of broadband and fixed wireless has been a tremendous play for us as well. I think it's just a matter of stepping back, and you know, this is a company that always delivers on its commitments to the market.
Based on all of those factors, the under-penetrated segments, what we've seen dynamics play out in Q1, and what we anticipate for the rest of the year, that gave us the confidence to actually raise our postpaid net add, our total postpaid net add guidance at the end of Q1.
I wanna drill down on those because you articulated them exactly the way I sort of set them up here, which is I think about your... First, there's the two opportunities that you talk about most frequently, the smaller rural markets and the SMB and commercial segment. There's also, maybe just to start, there is the premium network market. Are there any stats or anything quantitative you can share with us, like your market share in 5G devices versus 4G devices that are in the market or something like that sort of provide evidence that the market understands the network advantage that you've got in 5G?
Maybe a couple things I would say. When you look at the, again, the top 100 markets, where in many of those markets, we're in a 40% market share. We arrived there over time because of the customer value proposition, and that's just the honest truth. You had a lot of value seekers come to T-Mobile. We started to see that shift as we've arrived to the best network station, and you start seeing more and more continued growth, continued account switching. You know, when you look at our total postpaid net account growth, it's very much spread across all of the segments that we're looking at, whether it's smaller markets in rural areas or, in this case, the prime top 100 markets. We're continuing to see many more prime consumers who are looking for just network. Above all else, they will trade off value for network.
We're starting to see that continued growth come in as our network equities with the consumer segment continue to increase. From a postpaid phone perspective, you know, we're near 60% penetration on 5G devices. That's another reason for why we believe our upgrade rate is where it is, because as you meet customers with 5G-enabled handsets and this 5G network, they can actually experience what true 5G is versus just having a handset and not really getting that. Now that's another rationale for why the upgrade rate is where it is currently. We're really meeting market demand. I couldn't be more pleased with what we're seeing.
It's an area that we weren't talking about a year or two ago, this top 100 markets and how do we see continued growth from the individuals in the consumer space who are looking for network above all else, that has certainly started to manifest itself.
So, then to drill down on that question, you said 40% share-
In some of it, yeah.
in some of or all of the top?
No, some of. It varies...
Some of.
You know, you take certainly.
In some markets, you're 40% share. Is it fair to say that you are gaining share in across the top 100-
Yes
that you're still gaining share?
Absolutely, yeah.
Obviously, that index is higher than your overall market share.
Yeah, the blend, yes, absolutely.
In urban.
As we continue to grow in the smaller markets as well.
Even in the places where you over-index, you're still gaining share.
Yes.
In the places where you under-index, you've said, you have a goal of getting to 20% share in each of rural and SMB. That would still be under-indexing relative to your average market share, but more importantly, significantly under-indexing relative to your urban share, which would suggest that those may not be hyper-aggressive goals. Can you talk about the progress of getting to those goals of 20? Especially, let's think about them sequentially, first in rural.
Yeah, you know, the way we categorize the markets, as you say, you know, the top 100 markets and then smaller markets in rural areas, this is for consumers. That's as we categorize it, about 40% of the total population. We break that down into 775 markets. You've got your top 100, then you've got your next 775 markets. That's where our aspirations that we laid out at Analyst Day were to reach 20% market share by the end of 2025. We're well on our way. I think we shared in Q1 that we're now at about a 16.5% blended penetration. The way we approach each one of those markets is, of course, it starts with the network build.
As we again, we categorize levels of network readiness, and it goes to license to play, which is the network is competitive in that area. That's when we start bringing in distribution and start seeing, you know, the SOPs and the SOGAs come in. Then ultimately, we'll graduate those markets into what we call license to win, which is, you know, the network is just far and above better than the competitive set. Where we're at now is about.
Just to make sure I understand that.
Yes.
That is a sequence of the 600 MHz low-band for coverage, followed by the mid-band for filling in the denser areas of what are generally otherwise relatively less dense areas, but still have their denser parts. Then the license to win is when you bring in the 2.5 GHz?
No, it's not necessarily just driven based on band. I mean, first off, it's more in the mid-band layer with the Ultra Capacity 5G network as we play it. It's more than just, you know, the dense urban areas. I mean, we're at 275 million covered pops with the mid-band layer. You know, more than Verizon and AT&T have stated goals to reach in two years. It's really about more than just here's the dense urban core of that area. Some of these cities, by the way, aren't small cities, right?
Yeah.
I mean, it's large markets, just not the top 100. It's about what about the county area? What about the key roads that connect it, right? It's this concept that we've introduced now and spoken more about customer-driven coverage. Beyond just pops, it's really where do customers tell you very data-informed, deeply data-informed process of where the critical connectivity is, beyond just the pop of where people live, where do they need connectivity? That's how as we start seeing the markets play out, it's more driven by do we have the right coverage? Certainly, do we have the right capacity in the core denser areas, but do we have the right coverage beyond just that to be competitive? That's when we bring in the distribution.
You come in with the stores.
We come in with the stores or national retail partnerships, depends on, you know, what the market is. We're certainly the progression after that is to get to license to win. The 2/3 of markets that we're playing at right now in that smaller markets rural areas is the combination of this license to play and license to win. That's where we're seeing in those 2/3, where we're in, you know, the upper 30% of SoPs and SOGAs.
Presumably, the license to win markets are further along-
Yes.
in the progression than the license to play.
Yes. Yes. Absolutely.
What about in the Small Medium Business segment?
Well, so the play in Enterprise and Government, it's certainly small and medium businesses is a big part of the T-Mobile for Business group. The under-penetration that we had was in Enterprise and Government, where we said we're gonna go from, you know, basically a single-digit penetration at the time of Analyst Day, again, to 20% aspirations by the end of 2025. You've seen the success. I mean, we've talked about the success of the plays in Enterprise and Government, where Enterprise and Government buys a lot differently than the consumer set, right? It's, many times we've said our network equities with consumers continue to increase, while Verizon's go down. They're still above us, so there's still more room to run for us. Enterprise and Government tests before they actually purchase.
It's very much a where the network, is it gonna work for them, where they need it, how they need it? Do we have the advanced capabilities? Do we have the, certainly the customer service experience? That has driven a lot of the growth and acceleration in the, in the T-Mobile for Business group.
What's the sales cycle in that? Is that testing period a year long before they tend to make a decision? Is it six months? I'm sure there's variance, but I'm wondering if there's a sort of a lag between the achievement of network milestones before it actually starts to show up in that segment.
It's tremendously varied, you know, and it certainly depends on where that large enterprise or government is and their purchasing decisions. This is another exciting space where it's way more than just postpaid phone. Certainly postpaid phone is an important category here. But, you know, at large enterprise and government, the CLVs of postpaid phone are not at the CLVs of consumer postpaid phone. What is there is you have a lot of value creation with all the other connected devices as well. That's probably been the most exciting part of this network story, as you have, you know, a 5G network with low-band that's 98% of Americans reach and 275 million pops with the Ultra Capacity mid-band layer. That's what enterprises are looking for. You see, again, they test, and it could be varied.
Some test for three months, some test for six, some are ready to test quicker, and it's just a faster cycle. You're seeing not only that we're meeting their needs from a postpaid phone perspective, but we're meeting their needs with other connected areas. Whether that's been, I've spoken before about the airline industry, where we now have practically all of the majors, and it goes beyond just, again, phones, but actually being able to displace Wi-Fi with other 5G connected devices for underwing operations in that regard. Actually a TAM expansion for the entire industry from 5G. We just had AAA do a very much a torture test.
As you can imagine, AAA is kind of out there everywhere helping everybody, and they did a very lengthy torture test to say who's the provider that can get them connectivity everywhere where they need it. The VA is another government entity we just announced. The sales cycle can be varied, and the beauty of all these names that you hear us make wins and inroads into is that typically you land that relationship, and then it expands over time. You can continue to win more business, whether that's postpaid phone or whether that's as they need other connected devices. That's, that's the fabulous part.
Is it typically an RFP-driven process?
Yeah.
Where there's an invitation to...
Yes.
Because if I think about the sales pipeline, is it something that you can track to say we are currently invited to 80% of RFP processes where historically we were invited to 60 or some metric like that allows you to sort of track the progress?
Very much is. It's RFP driven, it's of course funnel driven. It's how do you get the CIOs and individuals to come to our executive briefing centers and show them actually the capabilities and how those capabilities can solve problems far beyond just, again, postpaid phone connectivity for them. We monitor a lot of those trends and in all those cases, you know, again, the word of mouth is spreading, the capability is spreading. In the past, if we're all honest with ourselves on how we arrived at a single digit market share in that space long ago, was T-Mobile was the stalking horse in RFPs, right? You were just trying to get some pricing relief from AT&T or Verizon. That started shifting once we started seeing the network build out, and it's completely shifted now.
In fact, of course, there's some enterprise and government entities that'll continue to buy on price, price, and that is the end of it. Many, many more are actually buying and selecting T-Mobile, not because we're the cheapest. In fact, in some of these cases, we're not the cheapest. Because of the network capabilities that we can bring that others cannot.
You mentioned before some of the non-phone opportunities. The ones that have gotten the most attention over the last few years, as the 5G opportunities are probably private networks, and mobile edge compute and maybe a beginning of a smattering of IoT types of applications. Can you talk about those? The sense is they've taken longer to materialize than people had hoped and are maybe a bit smaller than people had hoped. Although that may just be a timing issue.
Yeah, absolutely. Well, it's not a surprise to us because as you remember at our Analyst Day, what we said about everybody talking all the buzzwords around private networks and MEC, and that's gonna be the and some included it in their plans for $1 billion-plus opportunities. We knew... I can't help myself sometimes. We knew it would come. But to what extent and what form it takes, we never knew that. So we didn't actually include it in our Analyst Day outlook. As those opportunities arise, and some of them are coming, I mean, we have private networks in place that are revenue-generating. They're not massive yet. Again, I think these are a lot of use cases that then other enterprises are looking at.
From an IoT perspective, I mean, we see a lot of success there. Again, we have UPS from an IoT perspective. We just reached an agreement with Oracle to expand some IoT. You saw some of the fun stuff we're doing with like SailGP, right? You see a lot of opportunity because of what this network can provide in the IoT space. In some cases, it's also because of the pairing with Deutsche Telekom. We introduced T-IoT, which is an ability for multinational organizations to actually get connectivity, not just in the U.S., but also in all of the DT countries, have a single pane of glass. Those are value propositions that others can't necessarily match.
Upside to the plan as it, and if it materializes from a private network perspective, we've done some interesting things like with hybrid networks, because we don't believe the future is necessarily all just private network driven. You're gonna need a smattering of solutions, whether it's all the way from public networks to a hybrid to private.
You're in the enviable position of not having to earn a return on having spent $50 billion on C-band spectrum.
That's not what I feel.
Um .
I have to earn a return.
Um, but, but-
Not on 50.
Not on $50 billion of C-band. What's the TAM expansion out of all of this in your mind, and is it sufficient for the industry to earn a return on $100 billion of C-band spectrum plus tens of billions of dollars of network expansion, in radios and infrastructure to support a bunch of opportunities that I think at this point, we're all scratching our heads over? Sure, they're starting to show some promise, but that's a big nut, right?
Yeah. No, well, it is. I don't think they had a choice, right? I mean, you saw what happened with the merger, and you saw our ability to quickly roll out the network that we did, as well as the spectrum bandwidth that we did and are continuing for the benefit of consumers. They didn't have a choice. Let me maybe contextualize it in the form of how we look at 5G and all of the investment that we've done in the network and building it out. There are use cases that are here and now. certainly things like our ability to upsell into our highest tiered rate plans, whether that was Magenta MAX before or Go5G Plus now, and the capacity that the network and 5G actually generates allows that. That's one way to think about the monetization opportunity.
The second for us, in particular with the fallow capacity model, is fixed wireless. I mean, we have a business now, that at the end of the last quarter is 3.2 million subs generating ARPUs near postpaid phone levels. That's been an amazing opportunity to monetize. Yes, all of these other things are coming. There's no doubt. There's so much R&D money being spent into the wearables category, other connected devices. Those things will come. I think, that'll be an interesting play for the industry in total. Like I said, in the business and enterprise space, we're starting to see displacement of, for example, Wi-Fi based solutions, because you can bring more security, better connectivity without handoffs. That's an interesting TAM expansion. Is that gonna, you know, pay off all $50 billion of their investment? No.
It's just another area that does. All of these things, I think, accrete up to a very interesting opportunity for the industry, and of course, us very uniquely positioned in there and demonstrating it.
It's a lot easier when in retrospect, it's sort of extraordinary that what you paid for all of Sprint with more spectrum than anyone got in the C-band auction was half of what Verizon alone paid for C-band. In retrospect, that looks like an extraordinarily attractive acquisition of spectrum, let alone the customers that you got out of that relationship. You mentioned fixed wireless. I'm gonna come back to that in a second, but I wanna drill down on what you said about the new plans that you've introduced, 'cause you've introduced the Go5G plans.
I think it's fair to say that at least compared to the Magenta plans that used to run with a third free line, this is something of a price increase, with a clear trade-off, however, that now you're subsidizing devices more frequently. You used to run your Forever Upgrade program with iPhones. Postpaid upgrade rates across the industry are down and yours are down, I think the most despite running shorter or running shorter EIP terms. Talk about that, if you will. What are you seeing with respect to customers holding on to their devices, and what made you decide that there is at least a meaningful segment that says we really need to refresh devices every two years?
Well, it's two things. First off, Go5G Plus sits alongside Magenta MAX, and as similarly to where Go5G sits alongside Magenta. Those plans continue to exist. What we did was, as you saw, the natural flow in customer demand, quite a different approach, you know, the Un-carrier approach to customers. As you have 60% of your new customers self-selecting into your highest tier rate plan, that tells you something. That's where we saw the opportunity to say, "Well, let's take the power of the network and add even a little bit more, pack in some value, and of course, the promise that you will have same as new." That doesn't mean a fully subsidized phone necessarily. It just means you'll have the same as new customers coming in. That's the value proposition here.
Put it alongside our Magenta plans and allow customers to continue to self-select. We're seeing, you know, great traction, and the combined Go5G Plus and Magenta MAX attach rates are right where they were for just Magenta MAX, of course, you know, skewing again to Go5G Plus. That's the market and consumers telling you that they value the network proposition that we have, the value proposition that we have and are selecting into there. From an upgrade rate perspective, a couple things have happened for us. One, we had a lot of postpaid upgrade pull forward with the Sprint network transition that happened last year. Naturally, you know, that pulled forward some upgrades that probably would've happened this year.
I see this year being a lower upgrade rate cycle for us, so we'll probably even see less equipment revenue than we did last year, which is fine. As we all know, that's not where margins happen in this industry. It's service revenue. We're meeting customers where they wanna be met from a demand perspective. Again, I think it comes down to customers on our 5G network, and we said, you know, we have about 60% of the postpaid phone base with a 5G device, are actually getting a 5G mid-band experience. So they're able to feel the power of this network and don't need to upgrade as frequently. There's definitely, on an industry-wide perspective, a different dynamic happening.
I mean, it's interesting to see AT&T's customers have a 50% higher likelihood and propensity and desire to switch, except they've been locked into three-year agreements, and similarly with Verizon. I can see the play why when your only proposition is device subsidies. Of course, you wanna lock in customers, and then you can make your unilateral price increases on them and that's why you have such a high, you know, propensity to switch of that customer base, which is why we introduced with the Go5G Plus the concept of Phone Freedom, and how do we actually create a vehicle for those unsatisfied AT&T customers to come over and take their 5G handset and actually use it on a network that can deliver.
Is there anything you can share with us about the early reaction you've had to those, to the new plans?
I will say we're very pleased with the early reaction, but, you know, it's early, and so I'm not ready to share anything yet.
I'll put you on the spot a little bit because it's still quite new, but Verizon introduced what they described as a, not just a set of pricing plans, but I think they would describe it more, more grandly as a sort of reorientation of their entire consumer unit around these new plans. What's your first day competitive analysis of those plans, and how do you think you and the industry respond?
Well, we're very comfortable with our strategy and the plans that we just put in place, and, that's in reaction to what customers were telling us. I, you know, I don't know. It's really hard for me to fathom how they sat around for probably months and, you know, said they were gonna have this major announcement and then can't really tell you, is it a price increase? Is it a price decrease? Is it a? What's happening here? I really don't know. I let them continue on with that proposition. It's still, when you look at it on a comparative basis, you know, whether it's that entry-level plan compared to T-Mobile Essentials, you get a better value on T-Mobile.
That's basically what we always look at is how do we ensure that we keep this customer value proposition and the fame for customer value that we're known for while continuing to increase our network equities. We always look at it on a relative basis. Do we feel the value is here? We absolutely do. You know, good luck to them. Again, this industry is always competitive. The more you get customers talking and considering switching, because obviously not all Americans think about this category like, you know, I do every single day. But when they do, and you start creating a moment of switching consideration, we're the beneficiary of that. Happy to have it.
It certainly seems from the outside looking in that your new plans, irrespective— Obviously, you didn't know where Verizon was going to come out, but you had a long, long history of AT&T running very aggressive handset promotions to the point where it had become clear they weren't going to stop. Is it fair to say that that was an important part of the handset renewal part of the Go5G plans that you introduced that you have now neutralized that free handset for anyone from AT&T?
Yeah, we're always looking at, again, it's a matter of, based on what the competitive dynamics are in the industry, and sometimes they manifest themselves differently. As we said, sometimes it's on the service rate plan perspective, sometimes it's in the device side. How do we make sure that we're offering a value proposition that customers, you know, will flock to? Now, it doesn't mean necessarily that we need to match on every single element. You know, AT&T, as they brought back device subsidies a little while back now, you know, when you don't have the network to compete on and you don't have the value proposition beyond subsidies, I understand why they did what they did, again, to lock customers down and then do price increases on them.
We have a lot more to the value proposition than just a device subsidy. That's why, first, you've seen us be very rational from, like, an upgrade perspective and what we've done on the retention side. If customers choose this plan, you know, they'll have that option. That doesn't mean as you bring customers on board to these plans, you typically never see if you're switching three lines that you actually take advantage of device subsidies on all three lines, right? You always have to think about these headline numbers that you see are quite different than what the actual dollars spent from a device subsidy perspective are.
Is it fair to assume that the customer lifetime value proposition for the account, is improved even though because essentially you've taken ARPU higher?
Yeah.
You've taken subsidy higher, but you've probably also extended customer life and the net of all of that is an improvement to customer lifetime value?
Yeah. You're absolutely right. Importantly also, because we launched it with Phone Freedom and the Go Back Guarantee, is that we're stimulating more switching as well into T-Mobile.
I know as much as the industry loves to talk about ARPA, I'm still an old ARPU guy, so forgive me that I'm still focused on ARPU. You saw better than expected ARPU growth last year, but what looked like I mean, I remember at your guidance back in your Analyst Day, it had been for something slightly below 0. It then looked like it was gonna switch to 1% positive maybe. Now it's kind of moderated again. Where are we in that? remind us again, was that driven by rate plan mapping for the Sprint customers, and 55+ lines and that sort of thing? How did we get to the ARPU dynamics that we're seeing right now, and where should we think ARPU goes from here for you guys?
Yeah. Well, I love that you're an ARPU guy, but, you know, as we've said, we are really focused from an enterprise value creation on accounts and ARPA expansion over time. You know, our guidance continues to be that we anticipate ARPA expansion of about 1% this year relative to last. The problem with ARPU is that it's very much a, a single unit rate-driven metric and doesn't necessarily represent what you're doing from a value creation. Some of the things that you mentioned are exactly those. For example, you know, our ability to go into the 55 plus segment with a segmented strategy there that results in lower ARPUs than what our blended average is, but actually higher CLVs. Those customers tend to be more prime. They tend to have longer tenure. They tend to have lower servicing costs.
While if you were hyper-focused on an ARPU dynamic, you'd say, "Well, that's not good. Those customers have a slightly lower ARPU than the blended basis," but the actual customer CLV is higher than the blended basis. Similarly, in the enterprise and government space, I mean, yes, those customers, because of the nature of how much they're buying, have a lower ARPU, but create tremendous CLV perspective. You also see, you know, with our ability to take a fixed wireless proposition and our postpaid phone proposition, you know, that's something that you would then allocate from a rev rec perspective between the two. That might put an ARPU pressure relative to what the, you know, the average baseline is, but you brought on an account that's actually very ARPA accretive and very CLV accretive to the enterprise as a whole.
That's why we're just not hyper-focused on ARPU, but it really is an ARPA play. We continue, as I've said before, to anticipate ARPU to be essentially flat sequentially. I mean, is there some upside opportunity later? Yes, potentially some upside opportunity with things like Go5G Plus. That's a front book change. It's not a let's go, you know, unilaterally lock customers and put price increases on them. It's really an ARPU to land and expand strategy for us.
Do you think just given the network improvements that you've had, even if I just think of them on a relative basis, the network improvements you've had, do you think that the value differential or price differential that you've got between AT&T and Verizon narrows over the next five years, which is to say you can now recoup some of that as in higher pricing because your network is better, or do you continue to say, "I wanna keep that differential and take it as faster market share growth instead?
Yeah. Certainly for now, the strategy is to keep a value differential. Yes, network equities are continuing to increase, and we're starting to see more and more, as we spoke about earlier, network seekers come to T-Mobile. We want to, for now, jealously guard the customer value proposition because what it does is it creates switching, and it allows us to capture a significant amount of true switchers, as, you know, shown by postpaid net accounts. Not everybody discloses postpaid net accounts, but you see what we're able to capture from a true account switching perspective that you can then expand, again, that ARPA strategy. For now, we're looking to really maintain that customer value differential and the proposition. That can come in the form of different things than just pricing, right?
It's what we actually pack into the plans, some of which actually aren't that expensive to T-Mobile because of our unique place. You know, Mobile Without Borders and the ability for travelers, particularly with our relationships with Deutsche Telekom, that's one of the best-kept secrets for travelers, and we still get so many notes from customers once they understand what that value that we can bring is relative to, you know, getting massive roaming bills if you're traveling Europe, for example. It's about a value pack plan, not just price, but value differential and everything we're able to pack in there.
How do cable operators factor into that? They're pricing so aggressively, as you've said, like free is an easy way to gain customers.
Mm-hmm.
They are now out with offers that for a lot of lines are free. You've seen that in the industry before.
Yeah.
Does that really inform the way you think about your pricing strategy, though? Are they starting to affect the way the big three price?
Certainly not for us. I mean, they've been in the run rate for a while. Yes, one could argue, particularly with Charter, that they've gone very deep into this first-line free exploding promotion. We still maintain what we're seeing from an info perspective is that most of this is coming from Verizon in the prepaid space. We think we're very well positioned for value seekers. We're very well positioned with T-Mobile Essentials, for example, or very low price plans that allow us to compete there. Also, as we talked about on our Q1 call, is a lot of this hasn't seemed to impacted the incumbents from a nets perspective.
It's hard to understand because the port/non-port ratios change so dramatically, the majority of, for example, Charter's growth has been in the non-port space, which could make sense if you're really pulling out of, out of prepaid, but it has certainly hasn't impacted our growth and our ability to actually translate that growth into industry-leading profitability and service revenue. That's the most important play on this. Like, they've been in the run rate. We're continuing to be very confident in our play because it is the value proposition, the network proposition, these differentiated market opportunities. You saw that play out in Q1. We showed the industry-leading postpaid service revenue growth, and we arrived at the station with what we promised at Analyst Day, which is the ability to convert that service revenue into free cash flow.
We're at the highest conversion in the industry of service revenue to free cash flow. Remember, free cash flow continues to expand beyond this year for us.
The reason I brought up the cable operators is because their offers are now very much converged offers, at least in the eyes of the consumer of offering them together as a bundle. Your fixed wireless business, would you describe that as it is part of a convergent strategy for T-Mobile, or is it part of a capacity utilization strategy where I can pick up some extra money, but I'm not fundamentally pivoting the company towards selling a bundle of fixed and mobile together?
Yeah. It's, it's not a convergence strategy in that we haven't seen evidence in the US at least, that convergence is anything more from a cable perspective than a discount. We already have customer value leadership in the industry and great low price plans for true just value seekers. For us, fixed wireless was really an ability to monetize the massive excess capacity we're creating with this network and create very high margin accretive customers now, you know, at $3.2 million as of the end of last quarter, again, with ARPU profiles, since you're an ARPU guy, that are near postpaid phone levels. Yet the equipment, the handset, you know, equivalent, the CPE is much lower priced, and it just provides a great value prop for customers. For us, it's a how do you monetize very smartly excess capacity in the network.
The usage, though, is typically 50 times or so.
Yeah.
-a postpaid customer. Mike, on your conference call, said that as you think about your runway to the 7 million-8 million that you talked about, that additional capital investment may be required to go beyond that. Can you talk about that? How likely is it that fixed wireless becomes a driver of incremental capital spending? How do you think about the ROI for that investment?
It's something that we're investigating. It's not necessarily that it will happen, but if there are smart ways for us to utilize our spectrum assets for the benefit of consumers in an ROI-accretive way, again, a way that would be accretive to what we put out at Analyst Day. If we're gonna put any capital investment in the space, it has to come with returns that are in excess of what we put out at Analyst Day. It's areas we're investigating, whether it's usage of millimeter wave, whether it's, you know, something different from a network perspective that you can do a more simple point-to-multipoint architecture. You know, we have a lot of spectrum assets we can put to work for the benefit of consumers. Of course, as you'd expect, we're investigating it.
There's no conclusions drawn in that regard, and if we did that, it would have to be accretive to what we've done.
I wanna finish with a few big picture questions. It's been, what, three years since the Sprint merger. You've continued to gain share in mobile, now we're also seeing real cash flow generation that you promised. That has unlocked the buybacks, which are running ahead of your plan, which I think you have said $60 billion through 2025. Are there any potential investment opportunities that would change that trajectory? I'm thinking probably the obvious one would be spectrum that would say, "Here's an opportunity for us to meaningfully invest," it's going to mean a divergence from that $60 billion target.
Well, spectrum is an interesting one, but we have made room for spectrum in the plan. Even when we said, you know, there's a potential of up to $60 billion in share buybacks or capital returns, you know, as you saw, I mean, we played in C-band smartly, we played in 3G, 4G, 5G smartly, we had our Columbia Capital pending purchase that's out there. We played in Auction 108 smartly, and none of that has impacted, you know, the potential of up to $60 billion. Whether there'd be another opportunity, well, you'd expect us to be looking at those, but right now there's really nothing significant that we see on the horizon.
To the extent there's something that does come to play that could be a higher, you know, enterprise value creation formula than some portion of the share buybacks, of course we'd investigate it. We're not there yet. The beauty of it is, again, as you said, is it's up to $60 billion through the end of 2025. And 2026, 2027, which seems to be coming faster than, you know, I anticipated, we're sitting here in 2023, is, this cash flow generation machine just continues on with continued growth and aspirations there.
One of the most common topics in the hallways here of the conference off the stage is what happens to Dish Network, where you have a upcoming spectrum transaction with them that I'll invite you to just talk about a little bit. Also, there may be an opportunity for spectrum from Sprint to be available on the market. I mean, from Dish to be available on the market. Can you just talk about that and how, as an observer of the developments at Dish, T-Mobile is sort of positioning to say there may what those opportunities might be?
Yeah. Well, as regarding our 800 MHz potential transaction, that really sits in Charlie's court. He has the option. He has to decide what to do with it, and we're there to, you know, fulfill the obligations based on whatever he decides.
Can you share what your expectation is for what happens there?
Well, remember, what we put in Analyst Day is that we assumed no proceeds from this transaction. To the extent that there are proceeds, and if Charlie does exercise his option, then that's upside from a cash perspective and gives us strategic optionality there. In regards to DISH itself, you know, I, we're here to be a continued partner to DISH. We're here to support them. We obviously have an MVNO relationship with DISH and, you know, I would have to leave everything else for Charlie to comment on. DISH is a great fourth player right now, again, you know, with the network partnership that we have as they continue to build out and, you know, I think Charlie's gonna make a run at it.
I'll finish up with a question that I'm sure you think about every day, and that is that with success comes higher expectations.
Yeah.
With a higher stock price over these last few years comes higher expectations. Where are the places where you think expectations are still too low? I'm not talking about this year's guidance. I'm thinking as you think longer term, for why the stock price isn't higher, what are the places that you think the market is missing for the long-term trajectory of this business?
I think there's a few, and you alluded to some of them earlier. You know, when you think about our under-penetrated growth opportunities, whether that's enterprise, government or 40% of the population in smaller markets or rural areas or even top 100 and the, you know, the greatness that we're seeing with network seekers starting to come to T-Mobile in and of itself for network is there's no reason we can't run beyond 20%, you know, penetration rates in those areas. I think there's upside there for continued growth beyond what we gave in 25.
There's also that free cash flow machine that continues to generate, and as you think about this company from a free cash flow perspective, that's one place I think, you know, many investors I'm hearing from are saying, you know, when you think about the share buybacks, the free cash flow generation, and as you think about the company and the value that it's creating from a free cash flow perspective, that continues on beyond 2026 with more growth aspirations on the top line, that's probably the place where I get most excited about.
Our job is to continue to grow, go beyond those 20% penetration rates, maintain what is now that, you know, the highest conversion of service revenue into free cash flow, because that's the ultimate value creation for a company, whether that's in the form then of shareholder returns, whether that's in the form of additional investment opportunities. You know, when you're rolling in that $18+ billion a year free cash flow generation, it's a great place to be. That gives you a lot of strategic alternatives.
Is there any appetite for a regular dividend, or do you think that return of cash through share repurchases is a more attractive route?
I think certainly for now, return through share repurchases makes a lot of sense. You know, in the future, I don't know. Of course, all of that would be subject to board discussions and deliberations, but you know, the beauty of it is we have a business that's tremendously healthy. We're here delivering against those free cash flow goals, and that allows us all of those opportunities in the future.
Well, I thank you for being here. As I said, 10 years running. I hope it's another 10 years. I really enjoy these conversations. Thank you very much.
Thank you so much, Craig. Thank you.
Thanks. All right. Well done.