T-Mobile US has raised its mid-term growth guidance, saying it sees greater-than-expected synergies from the merger with Sprint and new growth opportunities in 5G, rural markets and the B2B segment. The company presented the new financial targets and its market expansion plans at an analysts meeting.
Under the new outlook, merger synergies are estimated at over USD 70 billion, up more than 60 percent from the company's original guidance of USD 43 billion. The amount is expected to double this year to USD 2.7-3.0 billion from USD 1.3 billion achieved in 2020. T-Mobile expects total run rate cost synergies to reach USD 7.5 billion per year, driven by greater efficiencies in site costs and marketing expenses, along with additional IT savings.
The forecast for service revenues in 2023 was increased by USD 1.5 billion to USD 61-62 billion from the original guidance. Long-term, service revenue is expected to be over USD 70 billion by 2026. Core adjusted EBITDA is expected to grow to USD 28-29 billion in 2023, or USD 2.5 billion more than previously expected at the midpoint, and top USD 36 billion by 2026.
Free cash flow is estimated at USD 13-14 billion in 2023, up by USD 3 billion from the earlier outlook at the time of the merger, and is expected to be more than USD 18 billion by 2026. This is supported by a scaled back capex budget of USD 9-10 billion per year from 2023, down from USD 9-12 billion planned previously. T-Mobile said this leaves it with room to spend up to USD 60 billion on shareholder returns in the period 2023-2026.
Rural expansion with 5G home internet
To achieve the growth, the operator outlined several areas where it plans expansion. Notably it's 5G fixed-wireless service launched for businesses this month will expand in the next month to consumers. Its initial home broadband pilot had over 100,000 customers, exceeding expectations, and the aim is to sign up 7-8 million within five years.
T-Mobile sees an opportunity to grow its market share especially in rural areas with packages of mobile, home broadband and related 5G products. The improved quality of the 5G network should allow it to expand the categories of services and products it sells to all customers.
The operator estimates it has a market share only in the low teens with around 50 million US households in smaller markets and rural areas. This is equal to almost 40 percent of all households in America. The company's low market share likely dates from its legacy focus on urban areas, and it promised regulators at the time of the Sprint merger to invest more in rural parts of the country. The aim is to increase the market share to near 20 percent in these areas over the next five years.
Hundreds of new stores will be opened in small towns and communities over next five years, including over 200 new stores this year, and the company is also expanding distribution at Best Buy and Walmart stores. In addition, it will introduce Metro by T-Mobile products in T-Mobile stores in rural America to expand its prepaid reach and plans to open around 500 new Metro by T-Mobile branded and multi-carrier stores this year to reach new consumers.
T-Mobile is also putting a special focus on the former Sprint customers, to ensure they don't churn to other operators. Its 'Team of Experts' (TEX) approach will be brought to millions of legacy Sprint customers this year, to improve their experience as they transition to T-Mobile. Early Net Promoter Scores from the initial group of Sprint customers that have completed a full transition are nearly 100 percent higher (or 20 points higher) than those who have not migrated, T-Mobile said.
Bigger business share
The other potential growth area is the business market, where T-Mobile has already launched several major campaigns in the past year. The company aims to double its market share in the large enterprise and government space from less than 10 percent currently to 20 percent within five years.
The 5G network is considered key to supporting the growth plans. T-Mobile underlines how it already provides extensive high-speed coverage compared to rivals, and did not need to overspend in the recent C-band auction as it already has significant mid-band holdings. 5G service based on the 600 MHz band is already available to 287 million people across 1.6 million square miles, and the extra 40 MHz bought in the auction across top markets will further boost capacity. Its 'Ultra Capacity 5G' service, which uses 2.5 GHz or mmWave frequencies, is expected to grow coverage from 150 million to 200 million people by year-end.
