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On this episode of Yahoo Finance Presents, T-Mobile CEO and President Mike Sievert sat down with Yahoo Finance's Brian Sozzi to discuss the company's latest earnings report. Sievert discusses the network's push for widespread 5G, phone promotions and inventory amid an industry wide shortage, and what the future will hold for T-Mobile's success.
BRIAN SOZZI: Mike, always nice to see you. Thanks for taking some time here. I thought you would find this humorous. About seven minutes before your earnings call started, AT&T, they sent an email out explaining that they had better postpaid net adds and churn than you in the quarter. How would you respond to them?
MIKE SIEVERT: Well, look, everybody appears to be growing. I think the big question for investors is who has the sustainable growth strategy that's going to be able to reliably deliver growth over time. But just to set the record straight on this quarter, T-Mobile delivered the best overall postpaid nets in the industry, the best postpaid service revenues in the industry, the best core EBITDA growth in the industry, and the best cash flow growth in the industry.
So, I know our competitors will cherry pick around and find someplace they won, but the top line and the bottom line are where it counts. And T-Mobile delivered the outpacing growth again this quarter, just like we have on postpaid nets and service revenues every quarter since this merger got completed.
BRIAN SOZZI: I figured you'd find that one funny. It's not often you get an email blast from an AT&T before someone else's earnings call. But let me ask you on the state of the industry, competitive industry right now, lots of new iPhones out there, a lot of big deals. I mean, how intense is it out there ahead of the holiday shopping season?
MIKE SIEVERT: Well, it is very competitive. And you know what? We like it that way. You're right, the emphasis is on phones right now and you see our competitors doing phone promotions. But I think that's basically to buy themselves time while they sell off media assets and try to come up with a plan.
What you don't see from our competitors is real opportunity to run in terms of big under-penetrated segments or a strategy to lead on product, like we have with our 5G leadership. And so, what we're doing when we focus on phone promotions isn't really about a holiday season, it's about a once in a decade opportunity to move people from 4G to 5G.
5G, where we lead. To move people from a 4G phone that works about the same on all the major providers to a 5G phone that works way, way better at T-Mobile because of our multiyear advantage in the 5G race. And so, that's a strategic opportunity for us that's really important at this stage in our evolution.
BRIAN SOZZI: Do you think the discounting is going to pick up into year end?
MIKE SIEVERT: Well, I don't know. What happens at T-Mobile is we pay for the discounts as we go along. We charge them to our P&L by and large with very little amortization from our balance sheet. The other guys are racking up, AT&T in particular, racking up billions of dollars onto their balance sheet that will affect future P&Ls.
And so, everybody accounts for this differently. And that's why what you have to look at is top line service revenue growth on the postpaid side and bottom line cash flow production from that service revenue growth. And we reiterated our guide today, not only to increase '21 cash flows, but reiterated a 45% cager in the three year period from '21 on cash flow growth. That's because of the strength of this hand of cards we have as the best 5G network combined with the best value.
BRIAN SOZZI: Don't steal my thunder just yet, Mike. I want to talk about your Alo Care, but I want to stay on the iPhones. I mean, there is no hiding that it is hard to get iPhones right now just given the supply chain bottlenecks. How does your inventory of phones look like right now?
MIKE SIEVERT: Looks pretty good. We don't see a material impact to our business in Q4 from supply. Now, will we get every color we wanted and every model in every store? There could be issues. But as we look at it-- and we've talked very closely with our major partners, like Apple and Samsung, we see supply, generally, that we'll need in order to deliver the numbers that we outlook to Wall Street today.
BRIAN SOZZI: Does 5G still matter?
MIKE SIEVERT: It matters more than ever. The great question six, 12 months ago was does anybody care. But now, the market is finally starting to take notice. Our Magenta Max customers, more than half our new customers are picking Magenta Max. And you know what they're using on 5G phones? 35 gigs a month.
Magenta Max customers don't go into a building and look for a Wi-Fi hotspot or beg people for their Wi-Fi passwords, they provide the Wi-Fi. Their connections probably faster than the Wi-Fi in that building. And so, it's really interesting that customers are waking up and realizing the first killer app of the 5G era is the smartphone working faster and at higher capacities and higher data allowances than ever before.
BRIAN SOZZI: One thing that has been really true to your story this year is these consistent beaten raises where you come out and beat on earnings and raise your outlook. Why are you so confident right now in your outlook?
MIKE SIEVERT: Well, because we're not lurching around from promotion to promotion and changing our strategy every three months, like you see in this sector. We have a consistent strategy that we outlined when we created this new company, and we're executing on it.
As the carrier, we are tackling the biggest pain point in this industry. That age-old choice that people have to make between do they want a great deal or do they want the best network. Now we are poised to deliver them both. And we're not changing our game plan every three months, our heads down focused on executing, integrating these companies in a more compressed time frame than we promised, and delivering those great benefits to customers on the Magenta side once they migrate. And the underlying performance of our Magenta business tells us to keep right on going with this strategy.
BRIAN SOZZI: Where have you been most surprised in terms of cost savings with when you are in there integrating these Sprint assets? I mean, you're out here again today raising your free cash flow outlook, also raising the synergies from this Sprint merger. We've talked a ton about this. But again, another quarter where you're out here seeing more cost savings.
MIKE SIEVERT: The biggest surprise is the pace. We're moving this much quicker and into a more compressed time period than we had planned. This was meant to be a four, perhaps, four and 1/2 year integration on certain aspects. Three years in others. And yet, here we are positioned to potentially finish the whole thing in three years.
And that means that the overall benefit to our business come sooner, the magnitude of that benefit may be greater, and the customers get those benefits sooner too, which is so important. Our Sprint customers have had to endure a lot, and they've shown a lot of patience to Sprint over the years. And we want them to have the benefits of Magenta as soon as they possibly can.
BRIAN SOZZI: I'm going to put my former stock analyst hat on here, Mike. Can you continue to beat and raise in 2022?
MIKE SIEVERT: Well, here's the thing, we have big under-penetrated segments. 40% of this country is smaller markets in rural areas where we have a share in the low teens. In the top 50 markets, we're number one. We're number one on the strength of an un-carrier strategy that we are now taking for the first time to smaller markets in rural areas where we're way under penetrated, where the other guys are overcharging everybody, and have no plans to deliver high capacity 5G networks anytime soon. Not even with C-band.
And so we're going after it. Enterprise, we're a 10 share in Enterprise. Enterprise is a growing segment. 90% of the customers are with the other guys who, again, have been taking advantage of that situation. So we're growing into these new areas. Home broadband, I expect that we'll be at 500,000 customers by the end of this year on home broadband on our way to 7,000,000 to 8,000,000 in this planning horizon. We're bringing real choice into the cable market with a 5G alternative. And we're doing it faster than our competitors. And so all that matters when it comes to growth trajectories that could affect '22 to '23 and '24.
BRIAN SOZZI: You talked a little bit about this, Mike, on the earnings call about the hack that occurred over the summer. What's the state of your business internally? What investments have you put in place to prevent that from happening again?
MIKE SIEVERT: Well, the first thing we did was brought in outside experts from Mandiant and KPMG to work with our expert team to close down the trajectories of that attack and to step back and make sure that we take a comprehensive view to the risk profile of the company. We've brought in some of the world's experts to do that.
The second thing I did was elevate the Office of the cyber transformation office. We created something completely new, made it a direct report to me, and brought the cybersecurity team into it so that they would have the wherewithal in the company to look at any issue they need to, to make sure that we become best in class.
We know after this attack that we are now burdened with not just being good at cybersecurity, but being second to none. And that's the goal that we've established for our team.
BRIAN SOZZI: Do you think the brand has been hurt or tarnished at all because of this?
MIKE SIEVERT: Well, it certainly affected Q3 numbers, as we talked about back in Q3. People took a pause, particularly on the enterprise side, to make sure to get their questions answered about cybersecurity. But as I mentioned earlier today with investors, it looked to us like that went back to more of a normal run rate on consumer and business by late in the third quarter. And we entered the Q4 time period with nice momentum.
BRIAN SOZZI: All right. Well, we always appreciate you giving it to us straight. T-Mobile CEO, Mike Sievert, always good to see you. Good luck this Black Friday.
MIKE SIEVERT: Thanks, Brian.