T-Mobile US, Inc. (NASDAQ:TMUS) Citi’s 2023 Communications, Media & Entertainment Conference January 4, 2023 6:15 PM ET
Company Participants
Peter Osvaldik – Chief Financial Officer
Conference Call Participants
Michael Rollins – Citi
Michael Rollins
Well, good afternoon and for those on our streaming site, welcome back to Citi’s 2023 Communications, Media & Entertainment Conference. For those of you I haven’t met, I’m Mike Rollins and I cover communications services and infrastructure for Citi Research. Before we get started, I’d like to mention that we do have disclosure is available at the registration desk and on the Citi Velocity page from which we’re streaming the audio. We’re also going to look to incorporate your questions in today’s discussion.
So if you’re here with us today, we have a microphone in the back and if you raise your hand later during our discussion, I will try to get back to you. If you’re streaming, you can enter the questions directly into the box on the page and we are going to continue the tradition of using live surveys and so they are completely anonymous. We’re just going to share the full aggregation of the responses and you can access that here with the QR codes that you can see on the placards and on the boards here and on the site it should come up as we’re discussing the live polls and you can enter your responses that way.
So with all of that out of the way, I’d like to welcome back Peter Osvaldik, CFO of T-Mobile. Peter thanks for being with us.
Peter Osvaldik
Mike, it’s just such a pleasure to be back here again and I’m looking forward to the conference and what a beautiful place. And let me start with the legalese, so today I may make forward-looking statements subject to risks and uncertainties, and refer to our SEC filings as well as non-GAAP metrics, and all the reconciliations are there for you.
So with that out of the way, I’m just excited to get to discuss 2023 and beyond.
Michael Rollins
So you’ve got some news out after the close. We’ll get to that in just a moment. Before we get there, though, just set us up at a high level in terms of how T-Mobile is thinking about the strategic and operating priorities for 2023 and how they might be different than 2022.
Peter Osvaldik
Really, it’s a continuation of what we’ve been doing to date Mike, and that is to continue to drive industry-leading customer growth and doing it in a profitable accretive way. And when you kind of double click down on that, the first stage in that is continuing this Un-carrier journey that we’ve been on of being able for the first time ever in this industry to bring in the same company the best network and the best value and drive that proposition in. And so of course, that starts with the network, and we’re going to continue the evolution.
We’ve been ahead on 5G for quite a bit of time now. That’s going to continue to be a durable 5G lead. But what’s more and more interesting is as 5G becomes the G that 5G network leadership is translating into overall network leadership. So we’re going to continue on that journey much as we have been in 2023.
The second is really working on our differentiated growth opportunities, and you’ve heard us talk about these time and time again, but we’re going to continue to focus in on those that’s top 100 network seekers, for the first time ever because of this network, being able to drive network seekers to T-Mobile, even in the markets where we have a leading market share because of the value proposition that we’ve been able to bring over many years.
Second is smaller markets and rural areas, 40% of the population where we’ve made significant inroads and we’ll continue to work there. T-Mobile for business, I’m excited to dive a little bit deeper into all of these, but has been on a great journey in Q4 had another great set of results for T-Mobile for business, and of course, fixed wireless or high speed internet as we like to call it, where we delivered yet again in Q4 tremendous adds right at the pace that we wanted to be and will continue into 2023.
And the last, really the last piece of the integration in 2023 to be able to set up not only what we think will be the world’s most successful telecommunications merger in history, but to be able to get to full synergy run rate in 2024. Well, that’s really it.
Michael Rollins
Great. So let’s jump into the fourth quarter results. So you shared some metrics, maybe share some highlights and maybe get some context of what drove your performance during the fourth quarter?
Peter Osvaldik
Yes. Well, it continues to be, as I said, at the highest level, it is the ability to bring the best network and the best value. And bringing those together as well as leveraging these underpenetrated markets that we have is what drove the growth. And what’s interesting at a high level the industry, certainly Q4 to Q4 in 2022, we’ve started to see some of the normalization from those very high peak levels of growth in 2021 and we saw that happen in Q3. Certainly based on consensus for everybody and our own internal projections, we’ll see a continued decline in net add growth vis-a-vis Q4 of 2021 and Q4 of this year.
But despite all that, what we just delivered in Q4 was actually our highest postpaid phone additions since the merger, 927,000 postpaid phone net additions for the quarter and 1.8 million total postpaid connections. And we’ll get into how important in the era of 5G is growth beyond just postpaid phone, 314,000 net account editions. Remember that the true measure of switching we delivered yet another tremendous quarter there and 524,000 high speed internet connections. So continuing on the journey, that has just really taken off this year in a phenomenal way.
Michael Rollins
You know, there was questions as we were exiting the fourth quarter, whether inventory constraints of smartphones would hold back sales in the quarter. Did you see any of that? Is there some spillover effect that investors should expect for T-Mobile in the first quarter?
Peter Osvaldik
Yes. Certainly what we saw was during the quarter, I mean well documented some shortages and issues with some of the higher end handsets, but by the time you got towards the end of the quarter, we saw a lot of that normalize. Did it probably have a little bit of impact? You know, being the switcher taker in the industry probably impacts us more than perhaps others. So in the period of the quarter, maybe there was a little bit of an impact. I don’t anticipate there was a lot of spillover because a lot of that got healthy by the end of the quarter.
Michael Rollins
And so things of backlogs and those types of things are more normal…?
Peter Osvaldik
More normalized now, yes.
Michael Rollins
And how do you rate the overall quality of the volume? Like if you look at the rate plan mix on Magenta MAX and you look at it relative to the last few quarters or what’s in the base, can you help us appreciate the quality of these adds coming in?
Peter Osvaldik
Yes. Well that’s just such a fundamental aspect of how we approach every single quarter as I said, all year and what our priority continues to be into 2023 is not only driving industry-leading growth, but also making sure that that’s done in a profitable accretive way. Every single quarter you can drive more gross adds and hence more net adds, but you’re doing it at much less CLV on a per customer basis. So that’s not our goal. Our goal is always, this is the growth that we want to deliver and make sure that we’re do doing it in a very accretive, profitable way and that’s how we approached Q4 as well. And certainly being able to deliver a now record Q4 postpaid phone churn number helped that number and helped that balance as well. But that’s how we think about the growth.
Magenta MAX continues to be tremendously strong. In Q3 we talked about of new accounts coming in, it was at above 60% near to above 60% that continues into Q4. In terms of the base, in Q3 we were just shy of 20% and we’ll disclose more towards earnings, but we continue to see strength. And one of the interesting things, we launched a 4 for 100 promotion, and what we saw there is exactly what we thought we would see. It drove incremental traffic to the digital properties into the stores. But once people got into the stores, and once their consideration is set and they see the value prop of the network and the value prop of Magenta MAX, we saw tremendous conversion into higher tier rate plans. In fact, that 4 for 100 mix loading, that represented less than 1% of our activations in Q4. So you just saw how people came in. It drove the traffic, drove the demand, the interest, but then stepped up into higher tier rate plans.
Michael Rollins
Are you ready for our first survey question?
Peter Osvaldik
Absolutely.
Michael Rollins
So first survey question coming up. How many postpaid phone subscribers will T-Mobile add in 2023? 1.5 million or less, 1.5 million to 2 million, 2 million to 2.5 million, 2.5 million to 3 million and over 3 million? So we’ll come back and see what our audience thinks. But before we get there, and of course Peter, we’re going to welcome your opinion on this. But before we get there, are you seeing any changes to the competitive landscape? You talked about churn coming down, so maybe talk about competition, cable, dish, and how that’s — how that is or isn’t affecting what you’re seeing on the churn side.
Peter Osvaldik
Yes. Well certainly you see seasonality from a promotional intensity perspective. Q4 is always promotionally more intensive around the holidays to drive switching. And the competitive intensity really continues at the same level we’ve seen, whether it’s cable, whether it’s the other competitors. They’ve been in the run rate, they’ve been doing things. The difference for us is that because again, we’re driving this 5G network that’s leading to overall network leadership, and it’s becoming slowly and consumer perception, it’s changing. Over the course since the merger, we’ve changed the perception of Verizon’s network leadership and the consumer space by half, we’ve cut that by half, and we’re rapidly approaching the point where consumers believe that this is the best network. Business customers buy differently. We’ve spoken about that. They actually test, and we’re seeing a lot more traction there.
So this actuality of the network is now translating into perception. That combined with these underpenetrated markets is what gives us a differentiated opportunity. And why even in the face of more normalization from the period of very high net adds that we saw in 2021 and we think postpaid switching is probably down about 5% to 6% relative to last year. Again, net adds we project will be down relative to last year’s high, and yet we just delivered our best postpaid phone quarter since the merger and delivered the lowest churn. And that is because it’s really the value proposition and the network proposition. So that’s how we approached it and its growth across all of the growth segments that we’ve talked about. That’s why we’re in a very differentiated place. And we expect 2023 will continue to see normalization of net add growth, but we continue to be positioned in a way that allows us to compete and deliver industry-leading growth in a profitable way despite that happening.
Michael Rollins
Let’s see the results of our survey. So 8%, 1.5 million or less; 17%, 1.5 million to 2 million; 33%, 2 million to 2.5 million; 29%, 2.5 million to 3 million; and 13% over 3 million.
Peter Osvaldik
Excellent.
Michael Rollins
How do you feel about that?
Peter Osvaldik
Well, great set of results. Of course, we’ll guide on customers in a few weeks here when we come to yearend earnings, but I couldn’t be more pleased with 2022 at 3.1 million postpaid phone net additions in the quarter or in a year, sorry.
Michael Rollins
How, how when you said growth could normalize in 2023, what does that mean for industry postpaid phone net adds, like what’s the baseline that kind of T-mobile is thinking about for normalization?
Peter Osvaldik
You know, we run obviously as you’d expect a plethora of scenarios and our job is to really think about sensitivities and what do we see the industry’s doing. You are probably going to see somewhere in the order of 9 million this year. We think it’s going to be lower than that. There again, we’ve probably weighted certain scenarios. So I don’t have a pinpoint number that we said that’s the number because we look at multiple scenarios, but I think it’s going to be lower than that.
Michael Rollins
One of the things that’s really evolved this year for T-Mobile was ARPU growth and as you look at the Magenta metrics you were sharing with us earlier, can ARPU grow again in 2023? And is there anything on the integration side or other factors that might affect that?
Peter Osvaldik
Well, from an integration perspective, as you know, we did the vast majority of our rate plan mapping, and that was really in an effort to get the Sprint customer base mapped into rate plans that then could be part of this streaming conversion and we can get into kind of the last stages of integration a little bit later. There’s a little bit left to do with some bespoke business plans that will be a little bit of a headwind to ARPU, but it’s very immaterial.
More importantly for us, as we’ve been saying for a while, we are here to capture the switcher relationships, and you saw that in Q4 and of course full 2022 postpaid net account additions. And, but more importantly, in the 5G world, with the opening of more connected devices with high speed internet or fixed wireless our focus has been drive the account switchers in and then expand ARPA and because ARPU becomes a mix driven metric.
For example, the more success we see in large enterprise and government, of course, naturally they tend to have lower per unit ARPUs, but they have high CLVs. And so while you may have more success there in a quarter versus the last, that may have ARPU impacts, but our focus is service revenue growth through both industry-leading customer growth as well as accounts and ARPA growth. That’s what we’re focused on.
Michael Rollins
And as you look at the account growth that you were describing earlier, are there any of the underpenetrated segments that you’ve detailed today and in the past that really stand out was it rural, was it business, certain things that just really stood out in terms of the success of the quarter?
Peter Osvaldik
No. The beauty of it is, it’s execution across all of those fronts. So we continue to see between top 100 and smaller markets and rural areas, in Q3 we said it was roughly split 50-50 from an net account addition, and we continue to see about equal metrics in Q4. You have high speed internet only, which is not only just a way to bring in bundled products and bring in and pull through phone, but a way, especially in smaller markets and rural areas as the network is being built out and really coming in with a differentiated product, a way to change people’s perceptions really quickly about the product. So we do have a slew of high speed internet only accounts that then opens up the opportunity to sell phone into.
And then T-Mobile for business just continued to have a great Q4 and Q3. We mentioned that both from a postpaid phone and net account, or postpaid phone addition perspective, as well as a postpaid phone churn perspective Q3 was one of our best quarters ever. And on both of those metrics, Q4 was better than q3. So that growth there in T-Mobile for business continues to do really well and across all the segments, micro, SMB, enterprise, government, everywhere we’re focused. So it’s — that’s the beauty of the machine and why despite maybe normalization from the high, again, why we have a differentiated opportunity to continue to grow at very profitable levels in an outsized manner.
Michael Rollins
Are you ready for our second survey?
Peter Osvaldik
Absolutely.
Michael Rollins
All right, let’s go to the polls. So, and we’re going to come back to the subject in a few minutes. So how many fixed wireless broadband subscribers will T-Mobile add in 2023, 1 million or less; 1 million to 1.5 million; 1.5 million to 2 million; 2 million to 2.5 million; or over 2.5 million? And we’ll see how people respond to that. But before we get to fixed wireless, you mentioned the integration and maybe getting any of these last phases, what’s entailed in these last phases and what does that mean for the pacing of synergy realization?
Peter Osvaldik
Well, first I’d be remiss not to brag just for a second about the team and what they’ve done. I mean, we’ve already announced it, obviously, but getting the cell site decommissioning done, not only ahead of schedule, so about a year ahead of the original merger plan and about three months ahead of where we thought we would be, even when we gave Analyst Day guidance, was just a phenomenal success. And doing it in the backdrop of the churn figures that we delivered is probably the most impressive thing that the team, Neville and Olaf and team have done spectacular work there cross-functionally.
So that’s really to me the number one thing and something to be tremendously proud of. What remains, as we’ve said is predominantly billing conversion. And the way we designed this integration from the onset is we disconnected the network migration from the billing migration, from the brand migration, and we effectively mapped or groomed customers to their destination rate plans.
We talked a little bit earlier, there’s still a little bit of work to do on the small subset of business bespoke plans on the Sprint biller, but we’ll get through those. And then as we’re building the functionality in the Magenta biller to match the functionality in the Sprint biller, and what we then have is basically very seamless, what we call streaming conversion of the accounts, and they go from one biller to the other. You get a, hey, welcome, now you’re part of the T-Mobile biller, and it’s very seamless to the customer, which is in an effort to make sure that we’re not driving irritants in churn that’s already happening at pace. And we anticipate as we finalize all the build of the capabilities, that will be the last big piece that’s done at the end of 2023.
There’s other smaller things. With the biller migration, you get the full suite of customer care that we have. Not everything is built into the Sprint biller, and of course we’re going to get through the balance of the least device constructs onto our EIP financing constructs, which is more customer friendly. But that’s, that’s basically it and it’s been just a tremendous success. We anticipate wrapping this up in 2023 and can’t be more proud of the team.
Michael Rollins
So given what you’re describing on the synergies being ahead of schedule, and I think in the past the management team has also talked about being ahead, what does that mean for the multi-year financial guidance? Does that mean that that puts T-Mobile in a position to outperform those original multi-year expectations?
Peter Osvaldik
Well, again, we’re on track to deliver the increased 7.5 billion run rate synergies and do that in 2024. What we saw in 2022 was that ability to quicken the network decommissioning gave us in year benefit and you know, that flowed obviously in Q2 and Q3 to the bottom line. And because we are three months ahead of schedule, we’ll get a benefit in 2022. But exiting 2022, we effectively thought we’d be in the same kind of exit run rate space. So for 2023, we think it’s going to be exactly where we anticipate, and we’ll guide this as part of earnings for where we think synergies are going to be on our path again to the 7.5 billion in 2024.
Michael Rollins
What’s happening on the macro front in terms of, are you seeing any changes in customer behavior, tier downs, changes in payment behavior, anything that give you some indications of a changing economic climate?
Peter Osvaldik
From a customer perspective of course the period of the pandemic and the stimulus funds brought involve churn and bad debt levels across the industry to phenomenally low levels. I mean things we hadn’t seen before. We had mentioned on the Q3 call, what we saw was a return of involve churn to pre-pandemic levels, and we continue to see that. In fact, Q4 was just a touch better than Q3. So we’re not seeing anything there, remember, and these were pre-pandemic levels for us in the 2019 timeframe that were kind of our best in company history.
So we’re seeing a return to that. We continue to see about that level. We certainly aren’t seeing anything with respect to rate plan migrations. We talked about the Magenta MAX take rate continues to be tremendously high. So all of that seems, right, of course we’re very cautious about this and looking at this every single day. We have as many times we’ve talked before because of our history and ability to work with variable income customers in a way that others probably don’t. That said, throughout the balance of the last couple years because of the network and because of what we’ve built, we’ve also attracted a tremendously higher amount of prime consumers into the base.
So it’s an improvement in terms of the prime consumer mix. It’s our ability to work with variable income consumers, and then we’ve seen exactly what we thought last quarter, which is, yes, kind of where we turn to that pre pandemic level but nothing worse.
Michael Rollins
What about on the cost side and inflation side? How are you managing that? Is that an incremental headwind in 2023?
Peter Osvaldik
Well, this is another place where we’re a little bit differentiated in and in the biggest areas of cost in the business, we’ve been able, before this macroeconomic and inflationary environment hit, we’re able to secure long-term agreements. And we needed to do that as part of the merger, both with our OEMs as we went through a very massive network rollout and CapEx is going to step down in 2023 relative to 2022, which was the peak here for us, as we had said. So we locked those down. We locked our two big tower vendors down into long-term agreements with just tremendous rates including escalators in one case that actually escalate down and a period when inflation was low and so those are probably contracts that wouldn’t be able to be executed today. All of our debt is fixed rate.
You know, a lot of our energy contracts are in PPAs and BPPAs about two-thirds of them, so that effectively locks them. But of course we’ve seen it and we’ve talked about it. We’ve seen it on the edges. We’ve seen it with labor. We’ve seen it with bad debt. We’ve seen it with some of the smaller component vendors that we didn’t have in long-term arrangements, but that’s all embedded in the guide that we had given for 2022. And while of course on the edges it’s a headwind for 2023 for us because of that ability to lock those big vendors down. I don’t see it as a big headwind for us.
Michael Rollins
Just a follow up to this and then we’ll get into the fixed wireless discussion. So previously in the multi-year guide, I think the objective was to get CapEx to $9 billion to $10 billion in 2023, but you had strong growth, not just in mobile, but in fixed. So does the demand environment and the revenue growth that you’ve experienced impact how you look at CapEx for 2023?
Peter Osvaldik
Well, I’m going to resist the temptation to give you all the guidance for 2023. But on the CapEx range, we currently still see the 9 to 10 range as being the right range for 2023. Again, we hit — you saw us pull forward from outer years into 2022, some of the network build and deliver on just tremendous results 260 million covered pops on mid band and now 323 million on low band 5G. So that’s been an incredible result and we’re going to see that step down. That was the peak here of intensity. We’re now on our way to achieve, roughly that 300 million covered pops on mid band in an approach that’s very customer driven. Customer driven coverage is what we’re saying, but 9 to 10 feels like the right range currently.
Michael Rollins
So let’s go to the survey results and move over to fixed wireless. So in terms of the number of new subscribers at T-Mobile can add in 2023, 3% is a 1 million or less; 24% is 1 million to 1.5 million; 48% is 1.5 million to 2 million; and 24% is 2 million to 2.5 million. And so maybe talk about what’s driving your fixed wireless growth right now and how you see the opportunity to continue to increase subscriptions for this business?
Peter Osvaldik
Yes, absolutely. So as you know, for us the model is a little bit different with fixed wireless. It’s an excess capacity model because of the massive amount of network capacity that’s being built here and we’ve used many different analogies. My favorite one from Neville is the expressway analogy where we went from one lane and we’re on our way to a 14-lane highway, we’re now at about 7. We’re about halfway through that, when you think about both the breadth of what we’ve rolled out, but also the depth of spectrum. We’re at about 120 megahertz rolled out of mid band spectrum right now on our way to 200 megahertz by the end of 2023. So that creates a tremendous amount of capacity, an amount of capacity that’s just not even with our projected growth in postpaid phone and other connected devices, growth in terms of the subscriber growth as well as the per unit growth in data.
And we had long ago pre-merger hypothesized how much data growth on a per device unit was going to go and it’s going about how we anticipated. So we look at every sector on our site, on a sector-by-sector basis we’re modeling out what the projected growth is from postpaid phones, which is, what we’re protecting at all costs. It’s our highest CLV product. And looking at all the other connected devices and saying all of that cannot fill up the capacity that we’re generating. That’s when we’re approving, households in those sectors to sell fixed wireless. So there’s a couple of things that are happening. One is more of the network and more of the spectrum is being rolled out. So that’s going to continue to increase the amount of available homes that are able to purchase the product and that’s going to happen throughout 2023 and beyond as this build continues.
The other is we’re seeing growth across the board. I mean we — it’s definitely been majority consumer for us at the moment, but business continues to increase their growth of the high speed internet product. We’re seeing it spread across rural and urban. Again, I would suspect the mix will shift a little bit more to the rural and suburban or the smaller markets and rural areas as that network build continues to progress there. But that demand is fabulous on this product. You know, when you look at the NPS scores, yes, there’s a number of them out there, I’ll quote HarrisX for a moment, which puts us 30 points above cable and even 10 points above fiber. And so you’re seeing the tremendous demand.
And we did something fun as you would expect, we always try things and this is a growing business. And one of the things we tried in Q4 given the holiday season and the promotional side of it is our $25 bundled offer. And again, much like on the postpaid phone side from the HSI side, it was a small minority of activations that actually took that $25 rate plan. And the hypothesis on the test was, could we pull through more phones as well?
So we have a certain flow of high speed internet only accounts that presents great opportunity for sales in the future. Well we tested this, again small minority of activations actually landed on that $25 rate plan, but we did see some interesting incremental phone pull through. So the demand for the product is really strong. The NPS scores prove that out. And as more capacity continues to build, this is right about the pace that we want to be in that 500,000 market quarter.
Michael Rollins
Well, that rolls right into our next survey question and so I’m going to ask our audience, does T-Mobile need to incrementally invest in fixed and mobile convergence? And the choices are, nope. T-Mobile should remain a wireless pure play for connectivity. Yes, T-Mobile should invest in greenfield fiber access, including the bead program. Yes, T-Mobile should partner and invest with regional telcos, or yes, T-Mobile should begin purchasing regional cable operators. We’re going go to the polls, but before we get to this topic let’s touch on prepaid. What’s going on in the prepaid segment, both in terms of the retail business, and then what do you see on the wholesale side in terms of, do you have more visibility with the roll off of TracFone and Dish?
Peter Osvaldik
Yes, well let’s start with prepaid. At an industry level, certainly prepaid has been more challenged in 2022 and year-over-year we think Q4 will be down from an industry perspective, from a switcher perspective, close to 30%. Despite that we have one of the largest prepaid brands, we continue to show growth. And you saw that with our Q4 results. We had a fabulous year of growth. We had our lowest year of prepaid churn in the company’s history. So we’re very pleased with how Metro is going despite what’s happening there. And I think, you see cable’s success. It’s a little hard to dissect their postpaid phones because what they disclose is total postpaid, not actually postpaid phone, but as we’ve said before, we’re forecasting that certainly Charter will probably have its best quarter ever. But most of that flow seems to be coming from Verizon and prepaid.
And I think when you look at their pricing constructs, it’s very analogous sometimes to prepaid. So I think as an industry, that’s where prepaid is seeing some flow share go. There’s definitely flow share from prepaid into postpaid as well. Although for us, prepaid to postpaid migrations were actually down year-over-year. So we delivered that 927 at despite actually being lower. So I think that’s what’s happening in the prepaid market, but we continue to be very pleased with what we’re seeing with Metro by T-Mobile as well as some of the T-Mobile connect brands.
On the wholesale front, our strategy has always been and will continue to be finding partners that complement us, right? We’re not interested in just competing in the same places. Do they have a different customer segment that perhaps they can bring a differentiated strength to? Do they have different distribution? That’s how we approach and think about wholesale relationships.
On the revenue side, for TracFone that 750 million that we referenced back on Analyst Day, we had assumed would be and we still expect will be effectively gone by the end of 2023. And then with Dish you saw us enter into a multi-year agreement that has revenue minimums, albeit at lower levels than what we had forecasted at Analyst Day. And, no changes there since we had spoken about that in the last couple of quarters.
Michael Rollins
So let’s go to our survey responses and 42% of our respondents said no, you should stay a wireless pure play 19% actually. So the next three responses are split almost evenly at 19% between the greenfield fiber access, partnering and investing with regional telcos, and beginning to purchase regional cable operations. How are you looking at the importance and or urgency of having a greater fixed to mobile converged offer in the marketplace?
Peter Osvaldik
Well and you sort of asked about it in two different ways and we think about it in two. One is we’re continuing on our path of fixed wireless and high speed internet and achieving that 7 million, 8 million target. And again, that’s right around this 500,000 run rate, we’re on pace and that’s our goal and that’s embedded in the Analyst Day plans. We have spoken about looking at, are there circumstances under which we might invest incremental CapEx for incremental fixed wireless customers? All of that would have to be accretive to what we gave you at Analyst Day. And that’s something we’re investigating but have no conclusions for.
With respect to fiber it’s really the same as we’ve been saying for the last couple quarters. We’re open-minded, we’re open-minded in terms of would there be a way for our brand, our distribution, our customer relationships to create a value proposition there that might make sense from an investment perspective, whether it’s partnerships or direct investments? Again, that would have to be accretive to what we gave at Analyst Day, but we’ve made no decisions there at all. But as you’d expect, we’re investigating it. That’s what you do as pay us for as a management team is to make sure we’re looking across the horizon and making the right decision. And what that is, it could be pure play, it could be a little bit of investment, it could be nothing. I don’t know. We’re looking at that, no conclusions yet.
Michael Rollins
What’s the — when you look at those possibilities, what’s the end goal? Is it just to simply sell more wireless or there’s some other opportunities that you’re looking at in terms of testing this fiber model?
Peter Osvaldik
Again, I think your hypothesis that we’re much further along in the process than we are because we’re just looking at things and understanding. For example, one of the things you could ask yourself is with your brand, with your distribution, with your customer relationships, could you achieve higher penetration rates than a standalone fiber player? Maybe, maybe not, right? You’d have to convince yourself of that. So that’s something you could look at potentially. But again, these are things, we’re looking at a high level. We have some fiber pilots as you know. So we’re understanding some of the dynamics there, but those are the things you’d look at.
Michael Rollins
And when you think about capacity, whether it’s for mobile, whether it’s for fixed wireless, so when you started the process C-band wasn’t out there, CBRS wasn’t out there, right? So there’s more spectrum that’s out there now. Maybe millimeter wave, it was I’m not sure if that was a defined part of the opportunity. Is there a much more expansive opportunity for T-Mobile in fixed wireless because of the deeper spectrum position you had today relative to when you started the merger?
Peter Osvaldik
Potentially, again right now our focus is build out all the tremendous capacity because as you said, it was always Neville’s famous layer cake, but millimeter wave was always going to have a place in very dense urban environments or venues. I’m not interested in spending. I don’t know how many billions of dollars of CapEx to put millimeter wave nodes everywhere and drive 1% of my traffic on it. That’s not what the strategy is. It’s not efficient. I can’t help myself sometimes, sorry. But the focus really is how do we drive this plethora of spectrum out there for the benefit of the consumer bridging the digital divide, driving these underpenetrated growth opportunities for us?
And then if it makes sense to incrementally invest CapEx densify maybe with C-band which we bought some of in very dense urban environments where it makes sense to deploy potentially over and above our 2.5 portfolio maybe. But again, all of that would have to be incremental to what we’ve given you at Analyst Day in terms of targets and service revenue, free cash flows, et cetera.
Michael Rollins
Last survey of the afternoon, how much do you expect for T-Mobile share repurchases in 2023, 10 billion or less; 10 billion to 15 billion or over 15 billion? So we’ll go to the polls on that. Before we just talk about capital allocation in terms of free cash flow or buybacks, any updates just in terms of how T-Mobile is viewing target leverage levels?
Peter Osvaldik
There’s really no update, very consistent. We believe the right place for us to be is in that mid two space and in the midterm itself. So that’s the focus and the goal. It’s completely consistent with where we are from an IG perspective. You’ve seen us diversify some of our funding sources that you’d expect. We entered the asset backed security market with our equipment installment plan receivables. So it continues to be, we want to stay at a very healthy level of leverage. We’re continuing to grow as a company. We continue to see the free cash flow generation potential that we laid out at Analyst Day, but it’s always going to be with a healthy leverage mindset.
Michael Rollins
We’ve got our results in and so 10% is 10 billion or less; 60% is 10 billion to 15 billion; and 30% is over 15 billion. So just a couple of questions on this, how does the rate environment, just higher rates affect the pacing of share repurchases if at all? And is there any updates from the guidance that you gave for fourth quarter in terms of share purchases?
Peter Osvaldik
Well, I think in terms of guidance on share repurchases, we’ll probably update you, as part of or actually on results we’ll update you as part of earnings. In terms of what’s been authorized, continues to be an authorization of up to 14 billion through Q3 of next year. Anything beyond that would have to be authorized by the Board. We still see confidence in the path of up to 60 billion, which is based off what we expect from a leverage perspective. From a free cash flow generation perspective we continue to have line of sight to that. But anything beyond the 14 billion would be at the Board’s discretion. And I’ll update you on actual’s as to what we’ve, repurchased. You heard us through October 20th have 1.5 billion. We had been authorized for up to 3 billion in 2022. We’ll give you actuals a little bit later.
I don’t want to get into the, like the day-to-day of, how we’re thinking about share repurchases and volumes. Of course, you have to factor in the rate environment, right. Now I would tell you where the rate environment sits currently vis-à-vis what we believe the shareholder return potential is and where we think the stock price is going based on our belief in the trajectory of the business. It continues from our perspective to make sense to do, but if certainly if interest rates get to some sky high amount, you always have to factor that calculus in.
Michael Rollins
And when you say 14 billion through third quarter of next year, you’re referring to 2023?
Peter Osvaldik
Yes, that was the, it was the — the Board authorization was up to 14 billion through the end of Q3 of 2023. And that was inclusive of the up to 3 billion in 2022.
Michael Rollins
And then just a last question, how do you think about dividends versus repurchases? Is that something that you’re thinking more about in terms of creating just a regular dividend distribution for investors?
Peter Osvaldik
Yes, it’s something we’ve talked about. We think right now, this form of shareholder return makes sense for us. We continue to be a very high growth company that continues to be our aspiration into 2023 strategically and beyond and delivering on the commitments that we’ve given you. Is there a potential in the future? Maybe for a dividend type of structure, but we have to see how things evolve. Of course, that would be fully at the discretion of the Board, but for now, the share repurchase path we think makes a lot of sense and that’s how we’re going to continue for the time being.
Michael Rollins
Well, thanks for sharing your time with us today.
Peter Osvaldik
Thank you so much, Mike.
Michael Rollins
Thank you.
Question-and-Answer Session
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