So there’s lots of opportunity there. As it relates to your first question around, is this the first of many, et cetera? Look, we don’t have anything to say about that other than our strategy is to opportunistically find ways that are very capital light, very smart to put our brand in this space, and we’ve done that here. And we think this will lead to millions of homes passed and that’s a great place for us to be. We’re going to continue to learn, grow, expand, and we’re open-minded about this, but we’re not interested in any wholesale changes that basically change who we are. No big on balance sheet acquisitions are currently being examined. You know, it’s not something that — we know our investors like our fast, efficient, capital efficient, high capital return strategy, and we have no intentions of changing all that.
That being said, if we can lay track for the long-term in a very capital efficient way, we’re open-minded, and we really like this model that we’ve struck with EQT and Lumos and can’t wait to get started and get this approved through the regulatory bodies and begin to see build out accelerate.
John Hodulik: Thanks Mike.
Mike Sievert: You bet.
Jud Henry: All right, great. Operator, next question please.
Operator:
Moffett:
MoffettNathanson:
Craig Moffett: All right, thank you. And first, Jud, thank you and congratulations, but thank you for all those 40 some odd quarters of your able support and help and congratulations to Kathy if she’s on the call. A question about ACP, just because that’s the obligatory topic this quarter, can you just talk about what you expect with ACP? How you think that might affect your business, especially perhaps your prepaid business, but whether you think it will have an impact on your postpaid business as well? And you just introduced a plan where you no longer do credit checks, which I think with a head scratcher, to me just coming right before the expiry of ACP. I wonder if you could just talk about how you plan to sort of ensure that ACP customers without government support won’t upend that kind of an offer.
Mike Sievert: Well, let’s start out with Mike Katz so we can disentangle some of these offers for you, because there could be some misunderstanding out there. And then we’ll go to Peter and talk about the financial, what we see in the financial picture as it relates to the expected turndown of ACP.
Michael Katz: Yes, thanks. Thanks, Craig. First, to answer the first part of your question on what our expectations are with ACP at this point we’re expecting that the program funding is going to end and the impact of that is fully contemplated in the guidance that Peter talked about and shared earlier. And as a reminder, I think it’s important to contextualize how T-Mobile has participated in the ACP program. First of all, we have not participated in any form in postpaid across any products. It’s nonexistent in our postpaid business. We have a small amount. I think we’ve said a couple hundred thousand inside of our prepaid, our owned prepaid portfolio. And the vast amount of our participation is inside wholesale via wholesale partners that we work with.
So just to contextualize where our participation is. That being said, we are both in the small amount that we have in our own prepaid business, but also with our wholesale partners, working with them on communication and plans to help those customers transition. We think wireless is not a category that customers are going to walk away from. So these customers need another alternative and we’re working closely with the partners and with the customers to find them another alternative, whether it’s other plans or other programs like Lifeline, so we’re deep in doing that. And look, we think if you look at T-Mobile, and Mike talked a lot about our passion around and focus around guarding our value position and the brands in our portfolio, like Metro and soon to be Mint, these are all value brands that are focused on delivering value.
And we think that’s a great opportunity both to help customers inside of our wholesale partners to transition, but honestly, customers that also may feel stranded from competitors to come to find a value to continue their wireless services. So I hope that’s helpful for the question you’re answering.
Peter Osvaldik: Yes, and let me maybe add to that just a little bit on your other questions Craig and I think Mike really highlighted our thinking around this. Well, of course, it’s in front of us more so than behind us. No new activations as of February, but it’s in front of us. But we think it’s fully baked into the guidance range that we gave you, the range of outcomes that we anticipate. And when we think about, you asked about the no credit check, and I can tell you one, we continue to see very healthy levels of bad debt. We continue to actually be the leader compared to our peers in terms of bad debt as a percentage of total revenue. So we’re very happy with what we see there. We’re always testing and trying new things.
For example, we have a way and an ability for prepaid customers who have a certain number of on-time payments to graduate into postpaid without an incremental credit check. And that’s because we have data and know exactly how those customers behave over time and what the really data informed credit risk around those consumers are. So we’re always going to be testing around the edges what is really beneficial for consumers while being very thoughtful around, of course, risk protection for the entity. And that’s why we sit at the bad debt rates that we do.
Mike Sievert: And that’s not new. We’ve had that program in place for many years.
Peter Osvaldik: Of course, absolutely.
Mike Sievert: Good. Thanks, Craig.
Craig Moffett: Is there any risk, though that ACP customers who’ve been essentially getting their bills paid by the government and therefore have good credit histories might be higher credit risk as ACP ends?
Mike Sievert: Yes, yes, absolutely. You’re absolutely right and that’s thoughtful around it. Remember, as Mike Katz said, the amount of ACP customers that are sitting in our prepaid base in Metro is very small, so that’s a very small expense.
Peter Osvaldik: And the amount in the postpaid base is zero.
Michael Katz: Zero. Postpaid is absolutely zero for us and so it’s really finding products and you saw us probably launch out there some ways to help consumers and think about, can you get into other programs like T-Mobile Connect, or other low cost opportunities or Lifeline type of constructs. So look, we’re going to be very thoughtful around making sure customers in this critical category stay connected while being, of course, very thoughtful around the risk profile to T-Mobile.
Mike Sievert: As Mike pointed out, it’s not just our customers that are facing this, everybody else is, but we’ve got this incredible portfolio of brands that are famous for value, and we’re going to make sure that those brands are in front of people because we’re going to stand up and serve them at a time when they might find that they need a new offer and we will be there with incredible offers for them.
Craig Moffett: Thank you.
Mike Sievert: You bet. Operator.
Jud Henry: Operator, next question, please.
Operator: And the next question comes from Jonathan Chaplin with New Street Research. Please go ahead.
Jonathan Chaplin: Thanks Guys. Congratulations to Jud and Kathy. That’s fantastic news. Since it’s Jud’s last call, I’ve got nine questions to ask. I’ll try and consolidate them. So, Mike, I’m wondering if you can give us just an update on the sort of the fiber strategies that you’re collecting together in aggregate. So you’ve announced so far pilot the Lumos deal. I think there are deals out there with Tillman, Intrepid and Sifi [ph]. When you put all of those together, how many homes passed does it amount to? And for the Lumos deal specifically, how much cash is EQT putting in? We’re just trying to get a sense of the total capitalization here and then how much comes from incremental, incremental debt. And then my last question on this is, how do you fit?
All of the deals that we’ve heard about so far seem to be focused on guys building new infrastructure. How do you think about those sorts of assets versus partnering with guys who have existing copper infrastructure that they’re upgrading? Thank you.
Peter Osvaldik: You bet. We won’t be able to give you too much on sort of broad strategy here, other than the fact that we’re opportunistic, the strategies we’ve employed so far, both across wholesale, which we got started on in a very small way already, as well as this new partnership, are about putting the T-Mobile brand and team to work selling a fiber product that complements our wildly successful 5G product. And to us that’s a great strategy because we believe we have an opportunity to generate superior returns than a purely disinterested investor could do by virtue of our assets and our know how. And we’ve proven that know how to ourselves through our success with 5G home Internet. You think about our incredible distribution, our leading brand, our tens of millions of customers, our incredible team.
We have very insightful data that our customers give us permission to use to put relevant offers about their T-Mobile experience in front of them. These are all advantages that a purely financial or disinterested investor wouldn’t have. And so when we look at this area and say, can we extract a return that’s better than others, could we have some confidence? And so we think about it from that opportunistic standpoint, not from a convergence, defensive standpoint. We believe that our T-Mobile offers stand tall and stand alone and don’t “need convergence”. We just think that this is a place where we can make customers happy and generate a superior financial return, and that it complements a leadership product that we already have out there.
Beyond that, I can’t say much more about the strategy other than what I said earlier. We like this partnership. We’re very excited about where it could go. Maybe Peter can comment on the capital structure. But one of the things I do like about it is that we decided, as we formed this, to fund it and give it the wherewithal with some additional debt, to have everything it needs from an equity standpoint to get to the 3.5 million homes passed, which we think is a nice threshold for us. It’ll be a multi-state footprint, it’ll be big enough to matter, and of course that will be through a combination of debt and equity.
Peter Osvaldik: Yes, and again, Jon, we can’t give you all the details because we have counterparties involved in this. First, it is a 50-50 joint venture. It will be unconsolidated for us, so it’s an equity method investment for us. So everybody kind of captures that fine point. And then, as Mike said there it’s, given that it’s a 50-50, there will be obviously cash infusion from EQT as the partner in this as well. And when you think about that incremental $500 million, for example, that would be an equivalent cash infusion from EQT. And there is, given this is an infrastructure and a great anchor tenant in the form of T-Mobile having the retail customers, there is an ability to also lever the entity up. And the overarching thought process is about a maximum of two to one debt to equity ratio, but it’ll be based on what the funding needs of the entity actually is to get to that 3.5 million.
Jonathan Chaplin: One quick follow up, Peter, if I can. You mentioned at the beginning that you sort of set capital aside for things like this in 2024. You haven’t used up that whole sort of reservoir of capital yet. If you look at what’s left there, is it more directed towards fiber transactions like this or spectrum like, how do you sort of balance between those two assets?
Peter Osvaldik: It really is looking at what the best return profile for T-Mobile is. And sometimes, as you know, spectrum opportunities may come up, they may not come up. We could have some of the two 2.5 gig leased spectrum come up, and we have rights of first refusal around those. So it’s still a balance. We don’t have line of sight to how we would use every dollar of what’s still remaining in that bucket. But as opportunities come up, we’re going to tumble it through the normal capital allocation thought process that we have that we’ve described very many times. And that’s exactly how you think we should think about it.
Mike Sievert: And nor should we. Right? So, I mean, one of the reasons why we were this transparent, maybe unusually transparent with you, is that we wanted you to know that we could, in the normal course, pursue opportunities and yet still honor our stockholder return ambitions. And we wanted to make it clear that nothing has changed in that. And that’s why we put an envelope out there at the beginning, so that you would have confidence that whether it was spectrum partnerships like this, other things that we would see where we could use our know how and embedded assets to be able to extract a superior financial return and delight customers, that we would have the wherewithal to seize those things within that range. So we’re really pleased to have been able to bring this one to fruition and can’t wait to get started once we get approval.
