T-Mobile US, Inc. (NASDAQ:TMUS) 2023 UBS Global Media & Communications Conference Call December 5, 2023 9:45 AM ET

Company Participants

Mike Sievert - President & Chief Executive Officer

Conference Call Participants

John Hodulik - UBS

John Hodulik

Okay, great. We'll get started. I'm John Hodulik from the communications team here at UBS Research. And I'm happy to welcome this morning, Mike Sievert, the President and CEO of T-Mobile. Mike, thanks for being here. Thanks for doing this.

Mike Sievert

Thanks for having us at this in-house conference center. I guess you're capturing synergies here. [Indiscernible].

John Hodulik

So, great to have you. And we've got about 35 minutes for Q&A. I've got a list of questions that I want to run through.

Mike Sievert

Jump right in. My lawyers would like me to point out that I might make forward-looking statements and actual results might differ and you can learn about our risk factors by looking online.

Question-and-Answer Session

Q - John Hodulik

Perfect. I've got 2 questions here. We've also got the iPad if anybody in the audience has some questions they want to lob in. I can work them into the conversation. This time of year, we always start off with a question about '24, just how you're thinking of the company's positioning and what the priorities are for next year?

Mike Sievert

Yes, it is that time of year. Our business John is incredibly simple. And so the priorities for next year are incredibly simple. Take share, continue to take share at our historic rates translate that share taking into cash flow production for our shareholders and continue to make smart investments for the future. And that's what's working about this business model and it really is working in a significant way. You've seen in 2023, we're just -- and I'm sure we'll get a chance to talk more about this. We're coming off the 4 quarters in our storied 10-year growth run that are the greatest growth quarters ever in our history is right now.

And so obviously, we've got a formula here that's really resonating as we've -- we're out there marketing this world's best 5G network. And it's to focus on continuing that story, continue taking share, mining those underrepresented segments, having our unique value proposition resonate with more and more people, translate that into outsized cash flow growth and cash production per service revenue dollar which is the best in the industry and make smart investments for the future.

John Hodulik

How would you characterize the competitive backdrop that we're seeing? And maybe translate that into sort of the promotions we saw on Black Friday. I mean how does it seem like as we stand here looking out into '24 versus where we were in '23?

Mike Sievert

Healthy and vibrant; this is a highly competitive industry but it's also a very valuable industry. Cash production in this industry is much higher than 5 years ago or 10 years ago. And people that side our industries sometimes forget that this is an industry producing enormous value today in the same time period that people wonder if it's too competitive -- we like it competitive. It's incredibly competitive. And in that context, we're delivering outsized results that, as I said, outpaced to any point in our history. But what's interesting is the customer is also winning. So it's not just the industry that's winning. The customer is winning. I mean, customers are getting service that is 4x faster than just 5 years ago, on average across this entire industry. And they're taking 3x more data all against the backdrop that in T-Mobile's case is about the same monthly revenue per customer. And that means that the per unit cost of a transmission of a gigabyte is falling through the floor. While the industry produces all-time record cash flows.

So the customer is winning the industry is winning. That's the 5G dividend that everybody has been looking for. It's right there in front of our face. And so obviously, we're very happy with the development. This industry continues to look from a consumer standpoint, very resilient. Everybody reports that they're not seeing early signs of stress. Growth continues to come in at modest rates that look very sustainable. In the holiday, we saw another round of typical intense competition.

John Hodulik

And how is T-Mobile position sort of for Black Friday and the holiday promotions? I mean was the performance of the company what you expected or the promotion that you saw from some of your competitors sort of in line?

Mike Sievert

Both are right on track. Everything we saw looked consistent with our expectations, our own performance consistent with our expectations. It's all unfolding really, really nicely. And you saw some of that in the confidence in our guide that we continue to expect 3 million postpaid phone net additions this year are more against the backdrop, if you look at Q3, service revenues for us were up nearly 4%. Postpaid service revenues, up 6%. That's where most of the value creation is by far, industry-leading. EBITDA up 12% year-over-year for T-Mobile in Q3 and of course, cash flow up almost 2x on track for 75% year-over-year cash flow performance. So, everything that we indicated earlier would unfold, as we said at the end of Q3 continues to be on track.

John Hodulik

It is amazing. You guys gave guidance a long time I forget how long the Analyst Day was.

Mike Sievert

Spring of 2021.

John Hodulik

And it's all on track. I mean it's -- people seem to tweak guidance on a quarter-to-quarter basis these days and you guys have some guidance out here for another year, that seems to be tracking the plant. Since you guys gave that guidance, it does seem like the competition from Cable [ph] has increased pretty meaningfully, right? These guys are adding a ton of subs. It seems as if Comcast, in particular, is leaning in this quarter. How should we think of how these competitors entering the scene sort of impact the model?

Mike Sievert

Think of it as fully in the run rate, right? I mean cable, a lot of people; I guess the premise of your question is, is cable, the bogeyman that's coming. I'd say that the bogeyman that came 5 years ago. They're fully in the run rate at this point. And if anything, it gets a little harder as things go along. So you might see promotions but that's because they're trying to outrun their own churn as they get bigger. And that's just a normal dynamic of a subscription business. And so everything that's happening there looks to us very much run rate-- and of course, you see that in that time period, you talked about "unexpected competition from cable. "I don't really view it that way. I mean it was unexpected for us 5 years ago. I don't know if you remember, we were out there going out. They'll never make it in this industry. But obviously, they made it in this industry. So we were wrong 5 years ago. But since then, we've been right. What we've expected from them, they've essentially delivered and you see it fully in the run rate. And again, our periods of greatest growth ever in our history and value production from that growth has been in the last 12 months during this time period that some say cables is ruining everything.

John Hodulik

And it doesn't seem to be affecting, I mean they're putting up some big subscriber numbers but it doesn't seem to be affecting your subscriber growth somehow. And maybe that's a big as part of the story of the sort of above average market growth that we've seen. But I mean, as you think about competition from cable, does it affect your ability to price? As you -- or to sort of attract new subscribers?

Mike Sievert

Not at all. I mean over the last 2 quarters, the last 2 quarters, T-Mobile has taken roughly 40% share of overall postpaid net additions, including cable. And so like I said, they're fully in the run rate. We don't set our game plan based on what they're doing. What they do is reasonably consistent. Where they compete is reasonably consistent and we continue to be focused on our game plan which is working beautifully. So it's I mean they're a real vibrant player in the market. I'm not discounting their contribution and that they're building a business for themselves. It's just not affecting our game plan anymore.

John Hodulik

Got it. Turning to a couple of the sort of value drivers of the traditional wireless space, first of all, ARPU. ARPU has been relatively flat but you've had a lot of success in moving customers into higher-value tiers that come with higher prices. How much more room do you have to push that in '24?

Mike Sievert

We think a lot. On the front book coming in, as we've disclosed recently, better than 60% of customers are choosing Go5G Plus or better. And that's kind of the benchmark of our most popular plans that we're focused on. Those plans are a little more expensive than their predecessors, the Magenta Max plans and customers get way more. And again, what we're seeing with customers switching to T-Mobile is they're switching to us because they want the best 5G network. And when they get here, they want rate plans that unleash that network for them. They want more of what T-Mobile has to offer and that is fantastic as a trend, because it means we don't have to go back into the back book the way others have with as extensive of pricing actions.

That being said, this is a business about flows. And so this is not a new phenomenon anymore. We were talking about 60% run rates at the top of our book a year ago. And so that starts to penetrate slowly over time the base. So that's a wonderful trend for us. We should be thoughtful and patient and not jilted into that future but what you see is rising customer value. Right at the time that some people look at this industry and say, well, how is customer value being destroyed? It's the exact opposite trend that's happening. And we like the rate and pace of it. So we're very comfortable with this strategy.

John Hodulik

And people on those higher rate plans they use a lot more data than people in lower rate plans? And then is there -- are there any other KPIs? Is there lower churn? Is there lower just anything about that sort of cohort in that high?

Mike Sievert

Yes. They use a lot more data which is great. That's what we built this network for. And we designed this network to see mobile usage during the planning horizon, move from back around the time of our merger, it was in the low double digits of gigs per month and we designed this network to see it run to something like 80 gigs per customer per month. And that's the kind of capacity that we're ready to serve. And so for us, it's a competitive advantage to be able to serve customers the data they're looking for from their 5G smartphones, because it's something that there's some disparity in all the providers' ability to support that kind of throughput. Right?

John Hodulik

And I'll get to some of the sort of spectrum issues in the network that allows you to drive that plan for 80 gig per month. But sticking with ARPU, pricing power is another issue outside from the change in the tiering. How much pricing power would you say? You guys have made some pricing moves, Verizon, there's been some other in the industries as you look out into '24, is there still room to make some targeted pricing changes?

Mike Sievert

We'll see. I mean, like I said, I like the way it's all working right now. And if we're if we watch that dynamic unfold, you'll see that Go5G Plus or better, continue to penetrate more and more portions of the base just organically and so that's really good. We're obviously always looking for opportunities to be able to present the customer with more for more. And what we're finding is the T-Mobile customer base is pretty interested in that. There's also opportunities for us to optimize our cost structure and revenue structure here and there and we take those opportunities if we think they'll be well accepted by customers.

And so one of the things that's, I think, different about us and you mentioned it when you said that we're on track for essentially every single thing we talked about in our Analyst Day 2.5 years ago, is that we try to be very planful and data-driven. We try to be highly analytical. I mean I don't put promises out there that aren't backed by some amount of deep thought and in many cases, in-market testing. And so we try things a lot. We will push and see what customers will accept and what they'll highly value and what will allow them to continue deepening their relationship with T-Mobile.

John Hodulik

Another thing that certainly we didn't anticipate when you guys -- at your Analyst Day when you guys gave all that information or all that forward-looking. It is just how low upgrades would -- I mean maybe there's good guys and there's bad guys, just how low upgrades would get? I mean over the last few quarters, we've been very surprised at just how low -- really everybody's numbers are. How is that -- I would say, one, how is that impacting your business? And two, do you think that, that's sort of something that can persist for a while?

Mike Sievert

Yes. I think it's been in the run rate long enough now that it's sort of a new normal. And how it's affecting the business is essentially offsetting -- partially offsetting a bad guy which is the cost per upgrade is a lot higher than we have trend. And so one of the places where competition has gone over the past few years is to the cost of device subsidies. And that's a lot higher than it was, for example, 3 years ago. And -- but on the other hand, upgrades are much lower; and so that's -- that all works out fine. That compared that in addition to other things that have gone differently than planned. We captured synergies bigger and faster than we planned. We built a home Internet business bigger and faster than we planned. ARPU trends are a little better than planned and then there's these 2 dynamics on subsidies, upgrade rates being lower but cost per upgrade being higher. Flush all that out and we're -- from a P&L standpoint, right on track to where we said we would be.

John Hodulik

And does that also help in churn? I mean it seems certainly in the past, when people are making a new decision to get a new phone, there's more likelihood that they would shop around and potentially look for a new service provider.

Mike Sievert

What you want is simultaneously the lowest churn and the lowest upgrade rates. And that's incredibly hard to accomplish. And for example, in Q2, we had the lowest churn in the industry and by far the lowest upgrade rates. And so what that means is you're not over investing in upgrades for people that wouldn't value them because an upgrade is a retention mechanism. And if you can have the lowest churn and the lowest upgrade, that's a trifecta. That means you're placing those upgrades right with the people who value them most surgically. And for us, as a data-driven company, an analytical company, that was a massive first-time accomplishment for us that I hope to be able to come back and repeat many times in the future.

And what was funny, it was a little disconcerting is that we announced that quarter in Q2 and then people said, well, T-Mobile missed on total revenues? Because remember, the service revenue growth beat expectations but the delta up to total revenue the equipment revenue. I'm like, right, that's because we didn't do all the upgrades and then on second -- and then they looked at closer and they're like, yes, right, that's actually excellent. But that first read for a minute when you release is because above service revenues is all just those phone sales that they're money losing. You don't want more of that. You want as little of that as possible.

John Hodulik

Right.

Mike Sievert

With great retention; you want as much of that as is necessary to drive great retention.

John Hodulik

And that's obviously one of the biggest value drivers of the business is the churn. And the churn has come way down. And like you said, leading the industry in the second quarter. I mean is there room to drive that down even further given where upgrades are what you're seeing in terms of lead of intensity?

Mike Sievert

Absolutely. I mean in Q3, we had the lowest churn ever for a Q3 in our history. And yet our company is pacing this year. I could get this wrong. It's all -- you can all look it up but our companies pacing this year to lose something like 8 million postpaid customers with the lowest churn in our history. Millions and millions of people are still falling down an accident chain and eventually throwing their hands up and leaving T-Mobile. Now we're about as good as it gets in this Q2, we had the best churn in the industry; and yet millions of people leave. And the answer is yes. I mean, millions less should be leaving. When you join T-Mobile, it should be -- we should be in a position to serve your wireless needs for life and every single one of those defections is regretted and avoidable. And so it's an -- this winning customers for life, earning their relationship for life is an absolute passion at T-Mobile, top to bottom and we think there's lots of room to run.

John Hodulik

So now I'm going to shift to the network. And then from there, that I'll set up questions about some of your growth areas like rural and business and fixed wireless as well. So first of all, you talked about the 5G dividend. We're still in the early days of 5G at this -- I would say, at this stage. And -- how would you characterize the evolution of the sort of 5G ecosystem? Is it a sort of a bigger deal or a smaller deal than expected? I mean, I think, again, going back maybe to the Analyst Day or even 5 years ago, I think people expected a lot of sort of mobile edge compute, network slicing apps that you couldn't use on 4G on 5G. But I mean how would you say that the 5G ecosystem has been evolving?

Mike Sievert

I think it's generally on track, although it's on track from expectations in our company that I think we're reasonably realistic. I mean we weren't -- although we were very excited about leading 5G network deployment and you heard a lot of squawking from us about that as we hit all these early milestones and all the industry first. What you didn't hear from us was lots of sort of breathless prediction that the whole world would change because of 5G. We understood that it's just a faster network.

Now one thing that I think is interesting is that we did expect module prices to come down faster and whether it's the pandemic, whether it's geopolitics or other things, module prices, those very low-cost 5G modules have taken a little longer. And that is one of the things that will catalyze lots of hardware innovation.

John Hodulik

When you say modules, you're talking about the actual equipment or the volume?

Mike Sievert

Yes. I mean people expected lots of 5G devices, all kinds of things in your life with 5G built in and that requires very low-cost modules and those have been more -- a little slower and coming down for all the reasons I said. Nobody predicted the pandemic. And certainly, the geopolitical issues have delayed some of that innovation. So -- but it's coming and we're 3 years into a 10 to perhaps 15-year 5G cycle. And so we see a lot of that innovation absolutely in the pipeline. And what is happening, as I mentioned, is that in the massive business that is here, it has turned out to be remarkably resilient. I don't think many people predicted the kind of ongoing high-end growth we've seen in the United States in the 5G smartphone marketplace.

And again, customers are experiencing 3x more data as -- I'm not talking about T-Mobile as an industry. 3x more data than 5 years ago at 4x greater speeds with the price per unit falling through the floor. And units aren't becoming less valuable. I mean a gig of data being moved is still worth what it was 5 years ago. I mean, it's still the same amount of video that hasn't changed, right? So this is an incredibly per unit deflationary market to the benefit of consumers and businesses while the industry is realizing higher cash flows than at any point in our history. And that, as I mentioned earlier, that is all because of the innovation of 5G.

John Hodulik

AT&T made an announcement yesterday, we had John Stankey here this morning about ORAN. And over the next -- I forgot the time frame, they're going to shift a lot of their traffic. I think you said 70% over to ORAN infrastructure. Is that part of the sort of road map for T-Mobile?

Mike Sievert

I think generally, people have presumed that kind of the deverticalization of the industry is just a matter of time that you want to be able to smartly buy different components up and down the stack. And that's certainly our hope and expectation. Now for us, we really deeply value our partnerships with both Nokia and Ericsson and see it as an advantage that we can buy up and down the stack from multiple partners. We also think it's very good that the Western world has 2 global leaders in this space, etcetera. So, we're very comfortable with our relationships and highly value those deep partnerships that we have with both Ericsson and Nokia.

John Hodulik

Makes sense. Let's talk about some of the spectrum you guys hold and are deploying and potentially selling. So first, starting off with the 2.5, obviously came with the Sprint transaction. Where are you in terms of deploying it both in terms of the sort of breadth and depth and sort of how has that changed the game for you?

Mike Sievert

Back to those promises of the merger. I don't really think most people believed us when we said we could blanket this country with mid-band 5G by 2023. And we did -- 2 months ahead of schedule, we hit 300 million people covered by our ultra-capacity 5G. That's mid-band 5G with an average of 155 megahertz deployed already of dedicated 5G. That is just astonishing; this is a big, big country. It's 3x more land mass to go from 100 million POPs to 200 million POPs. It's 3x again to go from 200 million POPs to 300 million POPs. So we cover 300 million POPs with mid-band 5G and with 155 megahertz. We had said we'd get to 200 megahertz around the end of this year. And that's -- the plant is in the ground already for that. So that's also done.

Now it will be at our convenience, whether we actually switch from LTE to 5G and we'll follow the volume trends there. But with the plants in the ground, that's just a configuration. So we can move to 200 megahertz or north cell-by-cell, sector by sector based on where the demand is between LTE and 5G. So those missions are accomplished. And it's just a huge, huge advantage. I mean, this has been a historic multiyear effort, 6 long years of our lives to leapfrog everybody from dead last in the 4G LTE era to first and best in 5G. And it's a massive long-term durable advantage now that, that plant is in the ground.

And you see it in our P&L. We said years ago, we were going to pull some capital forward to get this done because we had the wherewithal to get it done at pace and we felt there'd be advantages to do that. And we did it. And now we have an outlook for the next several years that is highly capital efficient as a result because again, the plants in the ground. And we have lots more room to run on spectrum we can build. I mean, we're far from done. But this looks like a business model that will be able to deliver against our aspirations in a reasonably capital-efficient way over the next many years.

John Hodulik

Makes sense. So turning to some of those other spectrum bands. We were talking earlier, the 600 megahertz, you guys have effectively aggregated a big chunk of the 600 megahertz just recently signed a transaction to fill in some spots with Comcast, I think, first on a lease basis and maybe sort of lease to own. Just what does that band do for the business?

Mike Sievert

It's critical. We've been talking about our spectrum strategy since, again, at the beginning of that 6-year journey -- when we laid out our merger vision and the layer cake strategy. And we've always felt that 5G would unfold principally in the mid-band and that it would be best supported by a dedicated 5G layer at low band. And we're the only ones that really pursued that strategy. And so now virtually everywhere you go, we're able to offer multiple carrier aggregation. So your phone is simultaneously attaching to the 600 megahertz and the 2.5 gigahertz in the rest of our mid-band spectrum, 1.9 [ph] -- this is incredibly powerful and it's a stand-alone 5G capability because what it does is it essentially increases the ring from each 1 of our towers. And that's really, really important for our overall competitiveness.

In general, with that carrier aggregation, the uplink is provided by the low band and the downlink is provided by the mid-band. And so really important that we have adequate supply of both to be able to continue this incredible advantage that we have on the network side. So it's not just about building the plant. It's not just about having the right spectrum. It's also about deploying the right technologies that allow you to take advantage of all that stuff, the way we have with our first of its kind 4-way carrier aggregation technology. So a long way of saying it's really important. And we realized early the value of it. We got our company ready to play. It was the first major auction win really of our history was that 600 megahertz auction. And we've been trying to smartly buy it ever since then.

And by the way, it's not just low band. In our opinion, it's also the best low band, meaning it reaches further from towers. It penetrates buildings better. It comes in big contiguous blocks, it's perfectly tailor-made for a 5G layer cake network.

John Hodulik

Right, a couple of other bands. First of all, you guys have the -- you bought some C-band spectrum is 3, 4, 5 and you guys have been talking about deploying that sort of on an as-needed basis once the dual radios are available. Is that still the strategy? And what do you think the timing for them?

Mike Sievert

Yes. Well, first of all, dual radios are available. So that's great. And it's important -- the others had -- were -- they had no choice. They had to jump out before that was the case. And so for us, we had the ability to be able to hold until we have that. But we also hold until we need it. And so as I said, we're at 155 nationwide and mid-band; we're going to 200 [ph] here very quickly. That's plenty for the moment. Our plant is in place across 300 million. So within the capital envelope, we've been talking about that kind of $9 billion to $10 billion a year we've got plenty of room to be able to get this deployed before customers need it from a capacity standpoint. And we'll just be really smart about how we do that and where we do that and data-led.

John Hodulik

Got it. Okay. Last on what has been a very sort of focused strategy or spectrum section here is the 800 megahertz spectrum. Obviously, you've got -- you can pick that up from the Nextel transaction years ago. And then now it's on the block and you have a potential deal with DISH and that's been extended. But tell me where you are with that and sort of the potential paths this could go?

Mike Sievert

Yes. Well, just as a reminder to everybody, the divestiture of 800 was a condition of the merger. And so this was part of our original agreement with the Department of Justice and DISH. And DISH did not execute against that along the time lines that we expected and we entered into a discussion with them and ultimately arrived at a deal with the Department of Justice and DISH earlier this year that trades essentially more certainty for us for more time for DISH. And it's a nice win-win for everybody involved. And so the way the deal works now is DISH has until April 1, 2024 and -- to execute their transaction. They've already sent us a non-refundable $100 million deposit against that transaction. If they fail to close as expected; and I do think their plans are sincere here.

The question is affordability, etcetera. Then we've already been authorized by the DOJ to conduct an auction for that spectrum. We're not required to sell it below the reserve price but we're fully authorized to conduct that. And in fact, we're authorized to conduct it in advance, if we'd like. So what's nice is everything is put to bed on this transaction. And we have certainty now that should we choose, we can execute either a transaction with DISH at their option or an auction and have this done in the first half of 2024. That's just a great spot to be.

John Hodulik

Got it. We now turning to some of the growth drivers now that we sort of have a better understanding of where you are from a network standpoint. Fixed wireless has obviously been a focus. It gets a lot of attention here, both because of the wireless providers and because of the cable providers. How -- I would say, talk about the product, what it means in terms of your portfolio and sort of how much runway do you have given that sort of long-term requirement that you guys laid out of 80 gigs per month per sub on the mobile side?

Mike Sievert

Well, that's actually been one of the inputs that was in the design of our fixed wireless plan. And so just to remind everybody, this is essentially a plan that looked at our nationwide mobile network. It looked at our ongoing expected share taking on that network. It looked at the ongoing expected growth in usage per smartphone on that network and it identified sectors all across the nation by the thousands that no amount of normal smartphone usage would soak up the capacity on that particular sector. And on those particular sectors, we have approved applicants for home broadband use. That's the premise on which we are now the fifth largest ISP in the nation and by far, the fastest growing for 4 quarters in a row.

It's essentially about monetizing planned excess capacity on our mobile network. And it's just a beautiful strategy. And it's working at least as well as we expected. I would -- some would say better. I'd say no. I mean, actually, I'd love to take credit for its going better than expected. It's just essentially right on track. The only reason it's better than expected is that when we laid out these plans for our high-speed Internet business, nobody believed us. We said we'd be right here by now. It is just nobody believed it.

John Hodulik

We believe you.

Mike Sievert

We're right on track. We're really not ahead of schedule. I mean you could say if you were to take our roughly 0.5 million net adds quarter and our plan to get to 7 million to 8 million by the end of 2025. You could say we're a little ahead of schedule. And because of that -- and because the TAM on this business opportunity is reasonably finite. You might see us experimenting with rate versus volume kind of dynamics over this next year because we want to make sure that we add the most possible value of the company within this reasonably finite TAM. So you might see some of that which could affect the 500,000 quarterly run rate but that would be a net positive.

John Hodulik

So it's just going beautifully. Yes. I mean that's in keeping with the broadband market, right? The broadband is still a product in the U.S. with that consumer and I think video, where consumers expect price increases almost every year. So you're just staying within that and envelope by moving

Mike Sievert

What's happening that I'm particularly proud of is that the churn is falling and the Net Promoter Scores are some of the very best in the industry, 30 points higher than typical cable, higher than typical fiber, 1 of the best in the overall country. And so this is a product that I think has surprised a lot of people and it's really a showcase of what 5G, especially if you can allow me, the world's best 5G can do. Right?

John Hodulik

So you mentioned the guidance, the 7 million to 8 million sub guide. It does seem -- certainly at this pace and even if you slow down a little bit, you'll hit that number. I mean, I guess, aside 0from asking you to change guidance here on the stage. I mean how much capacity do you have in the network to -- how many subs are talk about the potential capacity and the potential size of this business as we look out a number of years?

Mike Sievert

Yes. We've always said we saw it as about 7 million to 8 million homes and that's still the case. Some people discount what we say, maybe there's a tiny bit of room there but it's in that area code. And -- but on the other hand, we're also evaluating whether a capital burdened wireless strategy will work. This is a sort of a capital free wireless, almost capital free but certainly at the Rand level capital-free strategy. We're looking at whether or not a capital burden strategy would work to take us further in the TAM. We have to be really thoughtful about that. And so far, we have not cracked the code on that in terms of a business that we think would be a great return. But there's lots of movement in that space, lots of technologies emerging, some of them nonstandard space, other things that might become available to us.

So we're working that really hard haven't concluded that there's a scalable strategy there beyond what we're doing. And of course, we're also looking at fiber. And I've been pretty clear about the trials that we've been doing and some of the wholesale partnerships that we've established and that may be another way for us to continue to extend the addressable market well beyond this initial 5G wireless market; if we can find the right win-win there.

John Hodulik

On both of those, first of all, the capital burden fixed wireless. Are you talking about sort of adding infrastructure to do -- to sort of extend the capacity of the network, say, through small cells or cell splitting or something, are you talking about sort of putting mass on buildings and taking an MDU approach, maybe using some of your millimeter wave spectrum to do something that's a little bit sort of non-mobile fixed wireless?

Mike Sievert

I was talking about both or either. And neither so far -- neither so far is something that is immediately obvious that it would be a high return but in both of those areas, both kind of the millimeter wave and small cell as well as kind of maybe mid-band but with standards or non-standards based technologies, all that stuff we're looking at. They're different from each other and we haven't drawn any conclusions yet.

John Hodulik

And similarly, on the fiber to the home, you've had these pilot programs. Any early learnings you can talk about? I mean, are you getting better wireless penetration in those markets? I'd imagine you're selling a converged product mean what

Mike Sievert

I'd say time goes on our confidence in our ability to execute in this space is rising. And that's good, not just because of those trials but also because of our persistent success in 5G home Internet. And all that is showing that our team knows how to execute in this space. We know how to not just acquire customers but care for them which is really important. It's not as easy as it looks. It's different than the wireless business that our brand resonates that our distribution is relevant, that our digital assets are working. And so it gives us confidence that there could be a business here that could generate a return. And what's interesting is we've never and I think I've said this before, we've never looked at this really as a defensive play. And that's part of why we've been somewhat patient. People said, "Mike, you've started talking about this like a year ago."

And we have -- we can afford to be patient because our model works so well. And we're only going to plunge into this space if, a, it doesn't really change who we are. If it's capital-light and smart and it's something that we can make money at because we think it would be a business that would be incremental versus something we do for some kind of defensive, fend off the convergence bogeyman kind of story. That's just not something we're deeply concerned about.

John Hodulik

Got you. I do want to touch on the world. Obviously, that's been a nice source of growth for you guys. Maybe just give us an update on where you are in terms of getting the spectrum out there, getting the distribution out there and penetrating those rural markets?

Mike Sievert

We hit a giant milestone in Q3. I mentioned it during our earnings but it didn't get much comment upon which is that -- because we've been the share-taking leader for many years in the top 100 markets. That's part of what fuels our growth. For the first time ever in our history, in Q3, we were the share-taking leader in smaller markets in rural areas. This is 40% of the country. And we took the #1 position of share of portends in Q3. And -- and that is a major milestone. Remember, at our Analyst Day in '21, when we laid out our aspirations here, we were nobodies in smaller market in rural areas and said we could maybe get to a 20% share by 2025.

At last disclosure which was a quarter or 2 ago, we were at 16.5% share and we are taking share now at pace. And that's, by the way, not just in the places where we're competing. Remember, we stratify the 775 markets and classify them based on how much competition we're bringing in those spaces and some we haven't gotten to yet, some we've gotten too lightly and some were deeply competing in. This is across the blended entirety of smaller markets in rural areas. We are now the share-taking leader as of Q3.

John Hodulik

Finishing off, you touched on CapEx, the $9 billion to $10 billion level. I mean is that a sustainable level sort of going forward even with these other potential growth initiatives? And then sort of how should we think of the company's use of excess cash in terms of new growth and sort of other options, including the buyback?

Mike Sievert

Based on the promises we've made on value creation, revenue and EBITDA, that does look like the right capital picture. And now I can't say we wouldn't come back and say, "Hey, we're going to actually increase capital and increase our aspirations." Maybe we will, we'll see. But that looks like the right area code to us to accomplish everything we've set out to accomplish. And that's mostly because, again and thank you, our investors have been very patient, we've spent a lot of money over the past 5 years, a lot of money building the world's best 5G plant and it's time to be able to enjoy having that in the ground and be able to realize the benefits of that. So that's just money already spent.

In terms of capital return, is such an exciting story. I mean we are in the middle -- we just authorized our second big tranche of shareholder returns, $19 billion, including our first ever dividend, $3 billion of that on an annualized basis [ph]. Again, it's mostly favoring buybacks because we're a growth company. But there is a first time ever dividend that we indicated we would expect to grow on an annualized basis. That's just so exciting to be able to see the cash production of this business. Again, this year, free cash flow tracking to 75% year-over-year growth.

John Hodulik

Yes, it's been fantastic. Well, Mike, thanks for being here. Really appreciate it.

Mike Sievert

Thanks for having me. Appreciate it.