Brett Feldman: If you want to mind, if I guess as a churn follow-up question. Where are you in understanding the churn profile of your fixed wireless base, either just as a stand-alone broadband customer or perhaps the impact it has on your mobile churn to the extent of bundle with mobile.
Mike Sievert: We’re really happy with it. What we do with any business is we age it into cohorts and look at it sort of based on people that have been with us 1.5 years, people that have just been with us a few weeks. And what you see is what you — exactly what you would expect, which is the more aged cohorts are settling into a beautiful pattern. We have the youngest broadband base in the industry because we went from nothing to 2.5 million subscribers all in the last few months. And so, we have to really break it down to understand it. And when we do, we’re very pleased. And one of the things that happens as a dynamic on this business is that the barriers to trial, therefore, the cost to us of encouraging that trial are totally different than wireline.
We’re not sending some drug — some truck to your house to dig ditches or drill holes in the side of your house and all kinds of cost. We’re letting you take home a modem and router and give it a shot. And if you love it, you wind up sticking with it. And if not, there’s sort of a no harm, no file relationship. This is, let’s try it again in a year that wasn’t perfect for you right now because we’re pouring capacity into this network. And as long as we treat customers really well and they gave this a shot, and we were transparent with them that as to whether or not it would work. The vast majority will keep it, but the small portion of people that don’t, doesn’t really wind up costing us anything. So, the dynamics of early churn in a business like this are totally different than traditional broadband is one of the things that makes it a better business model.
Operator: Our next question comes from David Barden with Bank of America. You may proceed with your question.
David Barden: So, I guess the first question would be for Peter. If you could kind of kind of step us through the guidance and the changes from the Analyst Day outlook from $28 billion to $29 billion, what’s changed to move your midpoint expectations up? And then from the free cash flow or original guidance of $13 billion to $14 billion, what’s moved your midpoint down? And what are moving parts in between those two things? And the second question would be, Mike, what would be your appetite to proactively reach out to SoftBank within the confines of the stock buyback program and clean up this $48.8 million share issue that seems to be keeping for whatever reason, and I understand the lockup and it seems to be keeping T-Mobile stock from going north of $150 million. Is there an appetite to just get rid of that and just make sure that, that’s not a headwind for the stock on a go-forward basis?
Mike Sievert: Those are both great questions, Dave. Let’s start with EBITDA and cash flow. As you could just eliminate all the headwinds and tailwinds since the early 2021 kind of give us a high level.
Peter Osvaldik: Yes.
Mike Sievert: But we’re the only still talking about our 2021 guidance. And we’re talking about pulling into the stations and beating it. And that should say a lot about our business plan and the integrity of it. But it is actually quite different than what we were expecting in terms of some of the shaping of it inside. Peter, maybe you can give some color.
Peter Osvaldik: Absolutely, when I just think, Dave, back to Analyst Day and what’s happened since then, you’ve certainly seen a tremendous amount of incremental profitable growth than what we see. And you saw the ARPA trajectory grow you’ve seen high-speed Internet and the tremendous growth that we’ve had there and the ability to accelerate synergies. On the flip side, of course, the world has changed a lot since then, and inflation is one of the elements, that’s impacted a lot of companies. For us, we’ve been a lot more insulated than others, and we’ve talked before around why that is with our ability early on after the merger to walk down major categories of costs during a time when the negotiation looks a lot different in low interest rate environments and low inflation rate environment.
So, there’s a lot of the kind of puts and takes and why you see us now being able and confident to express a guy that’s actually above Analyst Day. When I think about just the shaping of the core EBITDA throughout the course of the year, what you’re going to have, of course, is continued profitable growth and continued synergy unlock. And one of the things that’s assumed in the core EBITDA guide is the wireline sale close somewhere around midyear and that’s a little bit of a drag on core EBITDA. So as I think about like Q1 probably in the approximately 6.9 range and then continued unlock throughout the course of the year on core EBITDA. And then how I think about from there to free cash flow, really free cash flow in 2023 as a few onetime items that you need to consider.
And first and foremost is we’re actually now in ’23 achieving what we’ve been talking about for a long time now, which is the highest conversion of service revenue to free cash flow in the industry, despite these kind of few onetime things that I’ll highlight. One is merger-related expenses, and I spoke in the prepared remarks around $1.5 billion to $2 billion. And that’s a little bit higher than we assumed at Analyst Day in terms of total merger-related expenses by about $400 million, and that gives you now an incremental unlock up to $8 billion of total run rate synergies. So, that’s one — the other is a 21 cyber event. And remember, you saw us take a lot of the expense-related charges in 2022, but we anticipate the cash flow associated with the class action settlement to outflow in ’23.
And then the last again is related to wireline, where as you recall, we have an IT related take-or-pay agreement. The first year after close is $350 million and then tapers down significantly from there. And so, we’re assuming about half of that flowing into ’23. So that’s how you kind of take core EBITDA down to free cash flow guide. And hopefully, that answered almost all the puts and takes.
Mike Sievert: I just love the question, by the way, Dave, because our guide on cash flow for next year is to have 75% year-on-year growth. And you’re like, right. We have just a little low respect. And the answer is I hope so. Let’s see what happens. So when you had a second question about SoftBank. Obviously, we know the SoftBank guys very well. We talked a lot, we’re in constant communication. But I wouldn’t say there’s a deal imminent. And there’s a reason for that, which is people on both sides of a potential transaction, believe that we’re moving past 150 anyway. And so, they don’t have a lot of incentive to give us a deal or a discount because they think they’re getting this event we’ve always planned for it. We’ve always believed the average analyst target is 170 on this business.
If you look at our rapidly expanding cash flow profile and the durability of our growth strategy, we think this event is probably coming. So, it doesn’t feel like it feels like for us, we would want to discount it, we were going to take that out and they look at it and say, “Yes, but why would I give you a discount and so there’s — that’s a little bit of color on it. So I wouldn’t say a transaction is imminent, but I wouldn’t say it’s impossible either. I think the operator cut you off. But yes, we know and thank you for that — great. And so looking over, if we look at the Twitter, Bill Hull always has some great questions. T-Mobile, John Fryer, Mike Katz, state of prepaid for T-Mobile competitors, including MVNOs. And T-Mobile was the only net positive on prepaid, others had losses.
What’s going on with prepaid and also what’s going on with the MVNO market. Since it includes the MVNO market, I’ll actually switch to Mike Katz you can tell us a little bit about what’s happening in prepaid.
Mike Sievert: Yes. Like Mike said, we’re really excited about what happened in prepaid. We were the only one with positive gains. And I think most importantly, we have and continue to have the number one brand in prepay with Metro. And we see the Metro growth being a big tailwind for us. We also have a really healthy and robust MVNO set of partnerships, including big exclusive partners that also had significant growth over the course of ’22 and in Q4. And we’ve got a diverse set of partners that both focus in unique distribution that we don’t always fully reach with the T-Mobile brand and unique segments that also sometimes are underrepresented with the T-Mobile brand. So, we feel really good about the portfolio of products and brands that are reaching the prepaid market.
I find it particularly gratifying that in an environment where there’s lots of transference from prepaid to postpaid going on and which has lasted longer than most people predicted it would last. Our prepaid brand continues to be the strongest in the market and the only one that grew this quarter. That’s fantastic because you have seen lots of momentum across the industry from prepaid to postpaid because of the economic times. People are qualifying for postpaid and continue to do so to the premise of the earlier question about what we’re seeing in the macroeconomic environment. And yet our prepaid brand remains this strong. The lowest churn ever in our history on prepaid and the lowest in the industry was in 2022. And so this is a business where — that has a great bond with its customers.
They stick with it for a long time. They love Metro by T-Mobile, and it’s a real source of strength. Jud, is that — does that take us to the end of the program?
