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T-MOBILE US, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations
[October 28, 2014]

T-MOBILE US, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations


(Edgar Glimpses Via Acquire Media NewsEdge) Cautionary Statement Regarding Forward-Looking Statements Certain statements in this report include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, including information concerning our possible or assumed future results of operations, are forward-looking statements. These forward-looking statements are generally identified by the words "anticipates," "believes," "estimates," "expects," or similar expressions.



Forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties and may cause actual results to differ materially from the forward-looking statements. The following important factors could affect future results and cause those results to differ materially from those expressed in the forward-looking statements: • adverse conditions in the U.S. and international economies or disruptions to the credit and financial markets; • competition in the wireless services market; • the ability to complete and realize expected synergies and other benefits of acquisitions; • the inability to implement our business strategies or ability to fund our wireless operations, including payment for additional spectrum, network upgrades, and technological advancements; • the ability to renew our spectrum licenses on attractive terms or acquire new spectrum licenses; • the ability to manage growth in wireless data services, including network quality and acquisition of adequate spectrum licenses at reasonable costs and terms; • material changes in available technology; • the timing, scope and financial impact of our deployment of advanced network technology; • the impact on our networks and business from major technology equipment failures; • breaches of network or information technology security, natural disasters or terrorist attacks or existing or future litigation and any resulting financial impact not covered by insurance; • any changes in the regulatory environments in which we operate, including any increase in restrictions on the ability to operate our networks; • any disruption of our key suppliers' provisioning of products or services; • material adverse changes in labor matters, including labor negotiations or additional organizing activity, and any resulting financial and/or operational impact; • changes in accounting assumptions that regulatory agencies, including the Securities and Exchange Commission ("SEC"), may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings; and, • changes in tax laws, regulations and existing standards and the resolution of disputes with any taxing jurisdictions.

Additional information concerning these and other risk factors is contained in the Risk Factors included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013.


You should carefully read and consider the cautionary statements contained or referred to in this section in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf, and all future written and oral forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statements.

Except as expressly stated, the financial condition and results of operations discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") are those of T-Mobile.

Investors and others should note that we announce material financial and operational information to our investors using our investor relations website, press releases, SEC filings and public conference calls and webcasts. T-Mobile intends to also use @TMobileIR and @JohnLegere, which Mr. Legere also uses as a means for personal communications and observations, as a means of disclosing information about the company, its services and other matters and for complying with its disclosure obligations under Regulation FD. The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these social media channels in addition to following the company's press releases, SEC filings and public conference calls and webcasts. The social media channels that T-Mobile intends to use as a means of disclosing the information described above may be updated from time to time as listed on the Company's investor relations website.

24-------------------------------------------------------------------------------- Table of Contents Overview The MD&A is intended to provide a reader of our financial statements with a narrative explanation from the perspective of management of our financial condition, results of operations, liquidity and certain other factors that may affect future results. The MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements included in Part II, Item 8 of our Form 10-K for the year ended December 31, 2013. Unless expressly stated otherwise, the comparisons presented in this MD&A refer to the same period in the prior year. T-Mobile's MD&A is presented in the following sections: • Financial Highlights • Other Highlights • Results of Operations • Performance Measures • Liquidity and Capital Resources • Contractual Obligations • Off-Balance Sheet Arrangements • Related Party Transactions • Critical Accounting Policies and Estimates • Recently Issued Accounting Standards Financial Highlights • Service revenues increased 11% to $5.7 billion for the three months ended September 30, 2014, compared to $5.1 billion for the same period in 2013.

Service revenues increased 19% to $16.5 billion for the nine months ended September 30, 2014, compared to $13.9 billion for the same period in 2013.

• Total net customer additions were 2,345,000 for the three months ended September 30, 2014, an increase compared to 1,023,000 for the same period in 2013. Total net customer additions were 6,206,000 for the nine months ended September 30, 2014, compared to 2,732,000 for the same period in 2013.

• Branded postpaid phone churn was 1.6% for the three months ended September 30, 2014, a 10 basis point improvement compared to 1.7% for the same period in 2013. Branded postpaid phone churn was 1.5% for the nine months ended September 30, 2014, a 20 basis point improvement compared to 1.7% for the same period in 2013.

• Adjusted EBITDA was $1.3 billion for the three months ended September 30, 2014, compared to $1.3 billion for the same period in 2013. Adjusted EBITDA was $3.9 billion for the nine months ended September 30, 2014, compared to $3.6 billion for the same period in 2013.

• Cash capital expenditures for property and equipment were $3.0 billion for the nine months ended September 30, 2014, compared to $3.1 billion for the same period in 2013.

Comparability of results in this Form 10-Q for the nine months ended September 30, 2014 and 2013 is affected by the inclusion of MetroPCS results after the completion of the business combination on April 30, 2013.

Other Highlights Un-carrier value proposition - In 2014, we have continued to aggressively address customer pain points with the launch of the following phases of our Un-carrier value proposition: • Contract Freedom - In January 2014, we launched phase 4.0, which reimburses customers' early termination fees ("ETF") when they switch from other carriers and trade in their eligible device.

• Abolish Overages - Beginning in May 2014, we abolished domestic overage charges for all customers on our consumer plans.

• T-Mobile Test Drive - In June 2014, we launched phase 5.0, which allows consumers to test our network and an Apple® iPhone® 5s with unlimited nationwide service for seven days at no charge.

• Music Freedom - In June 2014, we launched phase 6.0, which allows customers to stream music from popular music services without it counting against their data allotment. Additionally, we launched Rhapsody unRadio, which is available to our customers at no additional cost or a discounted price.

• Wi-Fi Un-leashed - In September 2014, we launched phase 7.0 to provide Wi-Fi calling and texting for Simple Choice customers on capable smartphones. In addition, we unveiled the T-Mobile Personal CellSpot™, a new device 25-------------------------------------------------------------------------------- Table of Contents which provides customers with greater coverage in their home. Finally, through a new partnership with Gogo®, customers with compatible devices can send and receive unlimited text, picture messages and receive visual voicemails on any Gogo-equipped U.S.-based flight for free.

Spectrum purchases - In 2014, we entered into agreements with various companies for the acquisition of 700 MHz A-Block, AWS and PCS spectrum licenses with an estimated aggregate fair value of approximately $0.4 billion, which cover more than 28 million people, for cash and the exchange of certain AWS and PCS spectrum licenses, which cover approximately 6 million people. The transactions, which are subject to regulatory approval and other customary closing conditions, are expected to close during the fourth quarter of 2014 and first quarter of 2015. In November 2013 and January 2014, we entered into agreements with Verizon for the acquisition of 700 MHz A-Block, AWS and PCS spectrum licenses in exchange for cash and the exchange of certain AWS and PCS spectrum licenses.

These transactions further enhance our portfolio of U.S. nationwide broadband spectrum and enable the expansion of LTE coverage to new markets. Upon closing of the transactions in April 2014, we received 700 MHz A-Block, AWS and PCS spectrum licenses and transferred certain AWS and PCS spectrum licenses. See Note 2 - Acquisitions and Other Transactions of the Notes to the Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Form 10-Q for more information.

Factoring arrangement - In February 2014, we entered into a two-year factoring arrangement to sell certain service accounts receivable on a revolving basis with a maximum funding limit of $500 million, subject to change upon notification to certain third parties. See Note 2 - Acquisitions and Other Transactions of the Notes to the Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Form 10-Q for more information.

Debt issuances - In September 2014, we completed an offering of new senior unsecured notes in aggregate principal amounts of $3.0 billion. In October 2014, a portion of the proceeds from the issuance of the notes were used to redeem the 7.875% senior unsecured notes due in 2018. See Note 2 - Acquisitions and Other Transactions of the Notes to the Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Form 10-Q for more information.

26-------------------------------------------------------------------------------- Table of Contents Results of Operations Set forth below is a summary of consolidated results: Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2014 2013 % Change 2014 2013 % Change Revenues Branded postpaid revenues $ 3,670 $ 3,302 11 % $ 10,628 $ 9,849 8 % Branded prepaid revenues 1,790 1,594 12 % 5,174 3,339 55 % Wholesale revenues 171 157 9 % 517 449 15 % Roaming and other service revenues 53 85 (38 )% 186 262 (29 )% Total service revenues 5,684 5,138 11 % 16,505 13,899 19 % Equipment sales 1,561 1,467 6 % 4,609 3,452 34 % Other revenues 105 83 27 % 296 242 22 % Total revenues 7,350 6,688 10 % 21,410 17,593 22 % Operating expenses Cost of services, exclusive of depreciation and amortization shown separately below 1,488 1,444 3 % 4,405 3,880 14 % Cost of equipment sales 2,308 2,015 15 % 6,809 4,837 41 % Selling, general and administrative 2,283 1,933 18 % 6,530 5,286 24 % Depreciation and amortization 1,138 987 15 % 3,322 2,630 26 % Cost of MetroPCS business combination 97 12 NM 131 51 NM Gains on disposal of spectrum licenses (13 ) - NM (770 ) - NM Other, net - - NM - 52 NM Total operating expenses 7,301 6,391 14 % 20,427 16,736 22 % Operating income 49 297 (84 )% 983 857 15 % Other income (expense) Interest expense to affiliates (83 ) (183 ) (55 )% (186 ) (586 ) (68 )% Interest expense (260 ) (151 ) 72 % (807 ) (311 ) NM Interest income 97 50 94 % 255 125 104 % Other income (expense), net (14 ) (7 ) NM (32 ) 105 NM Total other expense, net (260 ) (291 ) (11 )% (770 ) (667 ) 15 % Income (loss) before income taxes (211 ) 6 NM 213 190 12 % Income tax expense (benefit) (117 ) 42 NM 67 135 (50 )% Net income (loss) $ (94 ) $ (36 ) NM $ 146 $ 55 NM NM - Not Meaningful Revenues Branded postpaid revenues increased $368 million, or 11%, for the three months ended and $779 million, or 8%, for the nine months ended September 30, 2014, compared to the same periods in 2013. The increases were primarily attributable to growth in the number of average branded postpaid customers driven by the strong response to our Un-carrier value proposition, promotions for services and devices, and increases from customer adoption of upgrade and insurance programs.

These increases were partially offset by lower branded postpaid phone average revenue per user ("ARPU"). See "Performance Measures" for a description of ARPU.

Branded postpaid phone ARPU was negatively impacted by continued growth of our Value and Simple Choice ("Simple Choice") plans, which have lower monthly service charges compared to traditional bundled plans. Branded postpaid customers on Simple Choice plans increased over the past twelve months to 84% of the branded postpaid customer base as of September 30, 2014, compared to 61% as of September 30, 2013.

Branded prepaid revenues increased $196 million, or 12%, for the three months ended and $1.8 billion, or 55%, for the nine months ended September 30, 2014, compared to the same periods in 2013. The increase for the nine months ended September 30, 2014 was primarily due to the inclusion of MetroPCS operating results following the business combination in April 2013. Additional increases were driven by growth of the customer base from the expansion of the MetroPCS brand and an increase in promotional activities for the three months ended and nine months ended September 30, 2014.

Wholesale revenues increased $14 million, or 9%, for the three months ended and $68 million, or 15%, for the nine months ended September 30, 2014, compared to the same periods in 2013. The increases were primarily attributable to growth of the 27-------------------------------------------------------------------------------- Table of Contents average number of Mobile Virtual Network Operator ("MVNO") customers due to growth in the monthly plans, including data, offered by our MVNO partners.

Roaming and other service revenues decreased $32 million, or 38%, for the three months ended and $76 million, or 29%, for the nine months ended September 30, 2014, compared to the same periods in 2013, primarily due to a decline in ETFs following our introduction of the no annual service contract feature of the Simple Choice plan launched in March 2013 and lower roaming revenues.

Equipment sales increased $94 million, or 6%, for the three months ended and $1.2 billion, or 34%, for the nine months ended September 30, 2014, compared to the same periods in 2013. The increases were primarily attributable to significant growth in the number of devices sold due to higher customer additions and higher device upgrade volumes, including JUMP! redemptions. The volume of device sales increased 21% and 55% for the three and nine months ended September 30, 2014, respectively, compared to the same periods in 2013. The increases were partially offset by reductions to equipment sales revenues from the reimbursement of other carriers' ETFs and a lower average revenue per unit sold. Additionally, the inclusion of MetroPCS operating results following the business combination in April 2013 contributed to the increase for the entire nine months ended September 30, 2014.

We financed $1.3 billion of equipment sales revenues through EIP during the three months ended September 30, 2014, an increase from $1.0 billion in the same period in 2013, resulting from growth of our Simple Choice plans. Additionally, customers had associated EIP billings of $967 million in the three months ended September 30, 2014, compared to $435 million in the same period in 2013. During the nine months ended September 30, 2014, we financed $3.9 billion of equipment sales revenues through EIP, an increase from $2.1 billion in the nine months ended September 30, 2013. Additionally, customers had associated EIP billings of $2.4 billion in the nine months ended September 30, 2014, compared to $943 million in the nine months ended September 30, 2013.

Other revenues increased $22 million, or 27%, for the three months ended and $54 million, or 22%, for the nine months ended September 30, 2014, compared to the same periods in 2013. The increases were primarily due to higher co-location rental income from leasing space on T-Mobile-owned wireless communication towers to third parties and higher lease income associated with spectrum license lease agreements.

Operating Expenses Cost of services increased $44 million, or 3%, for the three months ended and $525 million, or 14%, for the nine months ended September 30, 2014, compared to the same periods in 2013. The increase for the nine months ended September 30, 2014 was primarily due to inclusion of MetroPCS operating results for the entire period. Additionally, higher lease expense primarily relating to spectrum license lease agreements contributed to the increases for the three and nine months ended September 30, 2014.

Cost of equipment sales increased $293 million, or 15%, for the three months ended and $2.0 billion, or 41%, for the nine months ended September 30, 2014, compared to the same periods in 2013. The increases were primarily attributable to significant growth in the number of devices sold due to higher customer additions and higher device upgrade volumes, including JUMP! redemptions. The volume of device sales increased 21% and 55% for the three and nine months ended September 30, 2014, respectively, compared to the same periods in 2013. These increases were partially offset by a lower average cost of each device.

Additionally, the inclusion of MetroPCS operating results following the business combination in April 2013 contributed to the increase for the entire nine months ended September 30, 2014.

Selling, general and administrative increased $350 million, or 18%, for the three months ended and $1.2 billion, or 24%, for the nine months ended September 30, 2014, compared to the same periods in 2013. The increases were primarily due to higher employee-related costs as a result of increases in the number of retail and customer support employees, higher commissions driven by increased gross customer additions and higher promotional costs. Additionally, the inclusion of MetroPCS operating results following the business combination in April 2013 and higher stock-based compensation contributed to the increase for the entire nine months ended September 30, 2014.

Depreciation and amortization increased $151 million, or 15%, for the three months ended and $692 million, or 26%, for the nine months ended September 30, 2014, compared to the same periods in 2013. The increases in depreciation and amortization were primarily associated with the build out of the T-Mobile LTE network, which increased the depreciable base. Additionally, the inclusion of MetroPCS operating results following the business combination in April 2013, including accelerated depreciation related to the decommissioning of the MetroPCS CDMA network, contributed to the increase for the entire nine months ended September 30, 2014.

28-------------------------------------------------------------------------------- Table of Contents Cost of MetroPCS business combination of $97 million and $131 million for the three and nine months ended September 30, 2014, respectively, reflect network decommissioning costs associated with the business combination. In July 2014, we began decommissioning the MetroPCS CDMA network and certain other redundant network cell sites. Network decommissioning costs, which are excluded from Adjusted EBITDA, primarily relate to the acceleration of lease costs for cell sites that would have otherwise been recognized as cost of services over the remaining lease term had we not decommissioned the cell sites. We expect to incur additional network decommissioning costs of between $150 million and $200 million in the fourth quarter of 2014. See Note 2 - Acquisitions and Other Transactions of the Notes to the Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Form 10-Q for more information. Cost of MetroPCS business combination were $12 million and $51 million for the three and nine months ended September 30, 2013, respectively, reflect personnel-related costs and professional services costs associated with the business combination Gains on disposal of spectrum licenses for the three and nine months ended September 30, 2014 primarily consisted of non-cash gains from spectrum license transactions with Verizon. See Note 2 - Acquisitions and Other Transactions of the Notes to the Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Form 10-Q for more information.

Other Income (Expense) Interest expense to affiliates decreased $100 million, or 55%, for the three months ended and $400 million, or 68%, for the nine months ended September 30, 2014, compared to the same periods in 2013. The decreases were primarily due to lower debt balances with Deutsche Telekom in 2014, resulting from the recapitalization of T-Mobile prior to the business combination in April 2013 and Deutsche Telekom's sale of non-reset notes in the aggregate principal amount of $5.6 billion in October 2013. To a lesser extent, the decreases for the nine months ended September 30, 2014 were impacted by fair value adjustments related to embedded derivative instruments associated with the senior reset notes issued to Deutsche Telekom in the recapitalization.

Interest expense increased $109 million, or 72%, for the three months ended and $496 million for the nine months ended September 30, 2014, compared to the same periods in 2013. The increases were primarily the result of senior notes issued in 2013, the assumption of MetroPCS long-term debt in connection with the business combination in April 2013, the reclassification of non-reset notes from long-term debt to affiliates to long-term debt following Deutsche Telekom's sale of the non-reset notes in October 2013, and to a lesser extent, the issuance of new senior unsecured notes in September 2014.

Interest income increased $47 million, or 94%, for the three months ended and $130 million, or 104%, for the nine months ended September 30, 2014, compared to the same periods in 2013. The increases were primarily the result of significant growth in devices financed through EIP. Deferred interest associated with EIP receivables is imputed at the time of sale and then recognized over the financed installment term.

Other income (expense), net decreased $7 million for the three months ended and $137 million for the nine months ended September 30, 2014, compared to the same periods in 2013. The decrease for the nine months ended September 30, 2014 was primarily due to the recognition of foreign currency translation gains in 2013 related to the retirement of derivative instruments prior to the business combination in April 2013.

Income Taxes Income tax expense (benefit) decreased $159 million for the three months ended and $68 million for the nine months ended September 30, 2014, compared to the same periods in 2013. The decreases were primarily due to fluctuations in pre-tax income and changes in Puerto Rico taxes.

Guarantor Subsidiaries Pursuant to the applicable indentures and supplemental indentures, the long-term debt, excluding capital leases, are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by T-Mobile ("Parent") and certain of T-Mobile USA's ("Issuer") 100% owned subsidiaries ("Guarantor Subsidiaries"). In 2014, T-Mobile entered into a two-year factoring arrangement to sell certain service accounts receivable on a revolving basis. In connection with the factoring arrangement, the Company formed the Factoring SPE, which is included in the Non-Guarantor Subsidiaries condensed consolidating financial information.

The financial condition of the Parent, Issuer and Guarantor Subsidiaries was substantially similar to the Company's consolidated financial condition.

Additionally, the results of operations of the Parent, Issuer and Guarantor Subsidiaries were substantially similar to the Company's consolidated results of operations. The change in the financial condition of the Non- 29-------------------------------------------------------------------------------- Table of Contents Guarantor Subsidiaries was primarily due to the inclusion of the net assets and results of operations of the Factoring SPE as a result of the factoring arrangement. As of September 30, 2014 and December 31, 2013, the most significant components of the financial condition of the Non-Guarantor Subsidiaries were property and equipment of $534 million and $595 million, respectively, long-term financial obligations of $2.1 billion and $2.1 billion, respectively, and stockholders' deficit of $1.2 billion and $1.3 billion, respectively. The most significant components of the results of operations of our Non-Guarantor Subsidiaries for the three and nine months ended September 30, 2014 were service revenues of $346 million and $934 million, respectively, offset by costs of equipment sales of $209 million and $554 million, respectively, resulting in a net comprehensive loss of $24 million and $54 million, respectively. Similarly, for the three and nine months ended September 30, 2013, service revenues of $219 million and $586 million, respectively, were offset by costs of equipment sales of $155 million and $406 million, respectively, resulting in a net comprehensive loss of $16 million and $36 million, respectively.

Performance Measures In managing our business and assessing financial performance, we supplement the information provided by the financial statements with other operating or statistical data and non-GAAP financial measures. These operating and financial measures are utilized by our management to evaluate our operating performance and, in certain cases, our ability to meet liquidity requirements. Although companies in the wireless industry may not define each of these measures in precisely the same way, we believe that these measures facilitate key operating performance comparisons with other companies in the wireless industry.

Total Customers A customer is generally defined as a SIM card with a unique T-Mobile identity number which is associated with an account that generates revenue. Branded customers generally include customers that are qualified either for postpaid service, where they generally pay after incurring service, or prepaid service, where they generally pay in advance. Wholesale customers include Machine-to-Machine ("M2M") and MVNO customers that operate on our network, but are managed by wholesale partners.

The following table sets forth the number of ending customers: September 30, June 30, December 31, (in thousands) 2014 2014 2013 Customers, end of period Branded postpaid phone customers 24,807 23,633 21,797 Branded postpaid mobile broadband customers 1,102 897 502 Total branded postpaid customers 25,909 24,530 22,299 Branded prepaid customers 16,050 15,639 15,072 Total branded customers 41,959 40,169 37,371 M2M customers 4,269 4,047 3,602 MVNO customers 6,662 6,329 5,711 Total wholesale customers 10,931 10,376 9,313 Total customers, end of period 52,890 50,545 46,684 30-------------------------------------------------------------------------------- Table of Contents The following table sets forth the number of net customer additions (losses): Three Months Ended Nine Months Ended September September 30, 30, (in thousands) 2014 2013 2014 2013 Net customer additions (losses) Branded postpaid phone customers 1,175 643 3,010 1,138 Branded postpaid mobile broadband customers 204 5 600 (1 ) Total branded postpaid customers 1,379 648 3,610 1,137 Branded prepaid customers 411 24 978 216 Total branded customers 1,790 672 4,588 1,353 M2M customers 222 7 667 340 MVNO customers 333 344 951 1,039 Total wholesale customers 555 351 1,618 1,379 Total net customer additions 2,345 1,023 6,206 2,732 Acquired customers - - - 8,918 Net customer additions for the three months ended September 30, 2014 were 2,345,000, compared to net customer additions of 1,023,000 in the same period in 2013. Net customer additions for the nine months ended September 30, 2014 were 6,206,000, compared to net customer additions of 2,732,000 in the same period in 2013. As of September 30, 2014, we had approximately 52.9 million customers, a 13% increase from the customer total as of December 31, 2013. The increases were the result of growth in all customer categories, as described below.

Branded Customers Branded postpaid phone net customer additions were 1,175,000 for the three months ended September 30, 2014, compared to branded postpaid phone net customer additions of 643,000 for the same period in 2013. Branded postpaid phone net customer additions were 3,010,000 for the nine months ended September 30, 2014, compared to branded postpaid phone net customer additions of 1,138,000 for the same period in 2013. The increases in customer development were attributable to increased new customer activations and improved branded postpaid phone churn.

Growth in branded postpaid phone gross customer additions resulted primarily from strong customer response to our Un-carrier value proposition and promotions for services and devices.

Branded postpaid mobile broadband net customer additions were 204,000 for the three months ended September 30, 2014, compared to branded postpaid mobile broadband net customer additions of 5,000 for the same period in 2013. Branded postpaid mobile broadband net customer additions were 600,000 for the nine months ended September 30, 2014, compared to branded postpaid mobile broadband net customer losses of 1,000 for the same period in 2013. The increases resulted from positive customer response to promotions for mobile broadband services, including "Operation Tablet Freedom" launched in April 2014.

Branded prepaid net customer additions were 411,000 for the three months ended September 30, 2014, compared to branded prepaid net customer additions of 24,000 for the same period in 2013. Branded prepaid net customer additions were 978,000 for the nine months ended September 30, 2014, compared to branded prepaid net customer additions of 216,000 for the same period in 2013. The increases were attributable to higher branded prepaid gross customer additions primarily due to the growth and expansion of the MetroPCS brand following the MetroPCS business combination, including the launch into additional markets.

Wholesale Wholesale net customer additions were 555,000 for the three months ended September 30, 2014, compared to wholesale net customer additions of 351,000 for the same period in 2013. Wholesale net customer additions were 1,618,000 for the nine months ended September 30, 2014, compared to wholesale net customer additions of 1,379,000 for the same period in 2013. The increases were primarily attributable to growth in monthly plans offered by our MVNO partners. MVNO partners often have relationships with multiple carriers and through steering their business towards carriers offering promotions can impact specific carriers' results.

31-------------------------------------------------------------------------------- Table of Contents Churn Churn represents the number of customers whose service was discontinued as a percentage of the average number of customers during the specified period. The number of customers whose service was discontinued is presented net of customers that subsequently have their service restored. We believe that churn provides management with useful information to evaluate customer retention and loyalty.

Three Months Ended September 30, Nine Months Ended September 30, 2014 2013 2014 2013 Branded postpaid phone churn 1.6 % 1.7 % 1.5 % 1.7 % Branded prepaid churn 4.8 % 5.0 % 4.5 % 5.5 % Branded postpaid phone churn was 1.6% for the three months ended September 30, 2014, compared to 1.7% for the same period in 2013. Branded postpaid phone churn was 1.5% for the nine months ended September 30, 2014, compared to 1.7% for the same period in 2013. The improvements were impacted by the continued success of our Un-carrier value proposition and the introduction of popular devices during 2013 and 2014, including the Apple iPhone.

Branded prepaid churn was 4.8% for the three months ended September 30, 2014, compared to 5.0% for the same period in 2013. Branded prepaid churn was 4.5% for the nine months ended September 30, 2014, compared to 5.5% for the same period in 2013. The improvements were impacted positively by the inclusion and growth of MetroPCS customers, which represent the largest portion of the branded prepaid customer base and have lower rates of churn than T-Mobile branded prepaid customers.

Average Revenue Per User ("ARPU") and Average Billings Per User ("ABPU") ARPU represents the average monthly service revenue earned from customers. We believe ARPU provides management, investors and analysts with useful information to assess our per-customer service revenue realization, assist in forecasting our future service revenues, and evaluate the average monthly service revenues generated from our customer base. Branded postpaid phone ARPU excludes mobile broadband customers and related revenues.

ABPU represents the average monthly branded postpaid customer billings. We believe ABPU provides management, investors and analysts with useful information to evaluate average per-branded postpaid customer billings as it approximates the estimated cash collections, including equipment installments, from our customers each month.

32-------------------------------------------------------------------------------- Table of Contents The following tables illustrate the calculation of ARPU and ABPU and reconciles these measures to the related service revenues, which we consider to be the most directly comparable GAAP financial measure to ARPU and ABPU: Three Months Ended September 30, Nine Months Ended September 30, (in millions, except average number of customers, ARPU and ABPU) 2014 2013 2014 2013 Calculation of Branded Postpaid Phone ARPU: Branded postpaid service revenues $ 3,670 $ 3,302 $ 10,628 $ 9,849 Less: Branded postpaid mobile broadband revenues (68 ) (41 ) (169 ) (127 ) Branded postpaid phone service revenues $ 3,602 $ 3,261 $ 10,459 $ 9,722 Divided by: Average number of branded postpaid phone customers (in thousands) and number of months in period 24,091 20,657 23,302 20,115 Branded postpaid phone ARPU $ 49.84 $ 52.62 $ 49.87 $ 53.70 Calculation of Branded Postpaid ABPU: Branded postpaid service revenues $ 3,670 $ 3,302 $ 10,628 $ 9,849 Add: EIP billings 967 435 2,434 943 Total billings for branded postpaid customers $ 4,637 $ 3,737 $ 13,062 $ 10,792 Divided by: Average number of branded postpaid customers (in thousands) and number of months in period 25,095 21,084 24,054 20,542 Branded postpaid ABPU $ 61.59 $ 59.08 $ 60.34 $ 58.38 Calculation of Branded Prepaid ARPU: Branded prepaid service revenues $ 1,790 $ 1,594 $ 5,174 $ 3,339 Divided by: Average number of branded prepaid customers (in thousands) and number of months in period 15,875 14,877 15,555 10,905 Branded prepaid ARPU $ 37.59 $ 35.71 $ 36.96 $ 34.02 Branded postpaid phone ARPU decreased $2.78, or 5%, for the three months ended and $3.83, or 7%, for the nine months ended September 30, 2014, compared to the same periods in 2013. The decreases were primarily due to the continued growth of customers on Simple Choice plans, which have lower monthly service charges compared to traditional bundled plans and promotions for services, including the "4 for $100" offer. Branded postpaid customers on Simple Choice plans represented 84% of branded postpaid customers as of September 30, 2014, compared to 61% of branded postpaid customers as of September 30, 2013.

Branded postpaid ABPU increased $2.51, or 4%, for the three months ended and $1.96, or 3%, for the nine months ended September 30, 2014, compared to the same periods in 2013. The increases were primarily due to growth in our EIP billings on a per user basis, offset in part by lower branded postpaid phone ARPU.

Branded prepaid ARPU increased $1.88, or 5%, for the three months ended and $2.94, or 9%, for the nine months ended September 30, 2014, compared to the same periods in 2013. The increases were primarily due to the inclusion and growth of the MetroPCS customer base, which generate higher ARPU than the rest of T-Mobile's branded prepaid customer base.

Adjusted EBITDA Adjusted EBITDA represents earnings before interest expense (net of interest income), tax, depreciation, amortization, stock-based compensation and expenses not reflective of T-Mobile's ongoing operating performance. Adjusted EBITDA margin is Adjusted EBITDA divided by service revenues.

Adjusted EBITDA is a non-GAAP financial measure utilized by our management to monitor the financial performance of our operations. We use Adjusted EBITDA internally as a metric to evaluate and compensate our personnel and management for their performance, and as a benchmark to evaluate our operating performance in comparison to our competitors. Management also uses Adjusted EBITDA to measure our ability to provide cash flows to meet future debt services, capital expenditures and working capital requirements, and fund future growth. We believe analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate overall operating performance and facilitates comparisons with other wireless communications companies. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for income from operations, net income, or any other measure of financial performance reported in accordance with GAAP.

33-------------------------------------------------------------------------------- Table of Contents The following table illustrates the calculation of Adjusted EBITDA and reconciles Adjusted EBITDA to net income (loss) which we consider to be the most directly comparable GAAP financial measure to Adjusted EBITDA: Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2014 2013 2014 2013 Net income (loss) $ (94 ) $ (36 ) $ 146 $ 55 Adjustments: Interest expense to affiliates 83 183 186 586 Interest expense 260 151 807 311 Interest income (97 ) (50 ) (255 ) (125 ) Other expense (income), net 14 7 32 (105 ) Income tax expense (benefit) (117 ) 42 67 135 Operating income 49 297 983 857 Depreciation and amortization 1,138 987 3,322 2,630 Cost of MetroPCS business combination 97 12 131 51 Stock-based compensation 45 48 157 54 Gains on disposal of spectrum licenses (1) 11 - (720 ) - Other, net (1) 6 - 12 54 Adjusted EBITDA $ 1,346 $ 1,344 $ 3,885 $ 3,646 Adjusted EBITDA margin 24 % 26 % 24 % 26 % (1) Gains on disposal of spectrum licenses and other, net transactions may not agree in total to the gains on disposal of spectrum licenses and other, net in the condensed consolidated statements of comprehensive income (loss) primarily due to certain routine operating activities, such as insignificant routine spectrum license exchanges that would be expected to reoccur, and are therefore included in Adjusted EBITDA.

Adjusted EBITDA was consistent for the three months ended and increased 7% for the nine months ended September 30, 2014, compared to the same periods in 2013.

Adjusted EBITDA for the nine months ended September 30, 2014 was positively impacted by increased branded postpaid revenues resulting from growth in the branded postpaid customer base due to positive customer response to our Un-carrier value proposition as well as the inclusion of MetroPCS operating results for the entire period compared to the prior year. These increases were offset by higher selling, general and administrative expenses and losses on equipment sales for the nine months ended September 30, 2014.

Liquidity and Capital Resources Our principal sources of liquidity are our cash and cash equivalents and cash generated from operations, proceeds from the sale of certain service receivables related to a factoring arrangement, financing arrangements which effectively extend payment terms, issuance of long-term debt and issuance of common stock in connection with public offerings. As of September 30, 2014, our cash and cash equivalents were $5.8 billion. In addition, we have entered into an unsecured revolving credit facility with Deutsche Telekom that allows for up to $500 million in borrowings. We expect our current sources of funding to be sufficient to meet the anticipated liquidity requirements of the Company in the next 12 months and intend to use our current sources of funding for general corporate purposes, including capital investments, enhancing our financial flexibility and opportunistically acquiring additional spectrum in private party transactions and government auctions. We may seek to raise additional debt or equity capital to the extent our projections regarding our liquidity requirements change or on an opportunistic basis when there are favorable market conditions. Further, we may consider entering into factoring arrangements to sell certain EIP receivables as an additional source of liquidity.

Prior to the completion of the business combination with MetroPCS on April 30, 2013, our sources of liquidity were cash and cash equivalents and short-term investments with Deutsche Telekom included in accounts receivable from affiliates, and cash generated from operations.

In January 2014, we entered into agreements with Verizon for the acquisition of 700 MHz A-Block spectrum licenses for cash and the transfer of certain AWS and PCS spectrum licenses. Upon closing the transaction in April 2014, we paid Verizon $2.4 billion with cash on hand and transferred certain AWS and PCS spectrum licenses.

In February 2014, we entered into a two-year factoring arrangement to sell certain receivables on a revolving basis as an additional source of liquidity.

The factoring arrangement has a maximum funding limit of $500 million, subject to change upon notification to certain third parties. We sold receivables related to the factoring arrangement for net cash proceeds of $456 million for the nine months ended September 30, 2014. See Note 2 - Acquisitions and Other Transactions of the Notes to the 34-------------------------------------------------------------------------------- Table of Contents Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Form 10-Q for more information on the factoring arrangement.

In September 2014, we completed an offering of new senior unsecured notes in aggregate principal amounts of $3.0 billion. In October 2014, a portion of the proceeds from the issuance of the notes were used to redeem senior unsecured notes of $1.0 billion with a higher interest rate. See Note 2 - Acquisitions and Other Transactions and Note 8 - Subsequent Events of the Notes to the Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Form 10-Q for more information.

In October 2014, a refundable deposit of $0.4 billion was made to a third party in connection with a potential asset purchase.

The indentures governing the long-term debt, excluding capital leases, contain covenants that, among other things, limit our ability to: incur more debt; pay dividends and make distributions; make certain investments; repurchase stock; create liens or other encumbrances; enter into transactions with affiliates; enter into transactions that restrict dividends or distributions from subsidiaries; and merge, consolidate, or sell, or otherwise dispose of, substantially all of their assets. Certain provisions of each of the indentures and the supplemental indentures relating to the long-term debt restrict the ability of the Issuer to loan funds or make payments to the Parent. However, the Issuer is allowed to make certain permitted payments to the Parent under the terms of each of the indentures and the supplemental indentures relating to the long-term debt. As of September 30, 2014, we were in compliance with all restrictive debt covenants.

Capital Expenditures Our liquidity requirements have been driven primarily by capital expenditures for spectrum licenses and the construction, expansion and upgrading of our network infrastructure.

Property and equipment capital expenditures for the nine months ended September 30, 2014 and 2013 primarily relate to our network modernization and deployment of 4G LTE. We expect cash capital expenditures for property and equipment to be in the range of $4.3 billion to $4.6 billion for the year ending December 31, 2014. This does not include purchases of spectrum licenses, including the acquisition of 700 MHz A-Block spectrum licenses from Verizon.

Cash Flows The following table shows cash flow information: Nine Months Ended September 30, (in millions) 2014 2013 Net cash provided by operating activities $ 2,791 $ 2,541 Net cash used in investing activities (5,440 ) (868 ) Net cash provided by financing activities 2,545 298 The historical cash flows of T-Mobile USA should not be considered representative of the anticipated cash flows of T-Mobile US, Inc., the combined company resulting from the business combination on April 30, 2013.

Operating Activities Cash provided by operating activities was $2.8 billion for the nine months ended September 30, 2014, compared to $2.5 billion for the same period in 2013. The increase in cash flow provided by operating activities was driven by several factors. Our operating income, exclusive of non-cash items such as depreciation and amortization and gains from spectrum license transactions, increased compared to the same period in the prior year. This was primarily a result of increases in branded postpaid revenues due to customer growth partially offset by higher selling, general and administrative costs. Net changes in working capital decreased slightly due to increases in EIP receivables. This was offset in part by proceeds from the sales of receivables related to the factoring arrangement and increases in accounts payable and accrued liabilities due in part to timing of vendor payments.

Investing Activities Cash used in investing activities was $5.4 billion for the nine months ended September 30, 2014, compared to $0.9 billion for the same period in 2013. For the nine months ended September 30, 2014, cash used in investing activities primarily consisted of purchases of property and equipment of $3.0 billion as a result of our network modernization and deployment timing of 4G 35-------------------------------------------------------------------------------- Table of Contents LTE and purchases of intangible assets of $2.4 billion relating to the acquisition of 700 MHz A-Block spectrum licenses. For the nine months ended September 30, 2013, cash used in investing activities primarily consisted of purchases of property and equipment of $3.1 billion as a result of our network modernization and deployment timing of 4G LTE. This was partially offset by cash and cash equivalents acquired in the business combination with MetroPCS of $2.1 billion and the settlement of a short-term loan receivable, net with Deutsche Telekom of $300 million.

Financing Activities Cash provided by financing activities was $2.5 billion for the nine months ended September 30, 2014, compared to $0.3 billion for the same period in 2013. The increase was primarily due to net proceeds of $3.0 billion from the issuance of long-term debt for the nine months ended September 30, 2014, compared to net proceeds of $0.5 billion for the same period in 2013.

Contractual Obligations In September 2014, the Company issued $1.3 billion of 6.000% Senior Notes due 2023 and $1.7 billion of 6.375% Senior Notes due 2025. In October 2014, a portion of the proceeds from the issuance of the notes were used to redeem the $1.0 billion of 7.875% Senior Notes due 2018. See Note 2 - Acquisitions and Other Transactions and Note 8 - Subsequent Events of the Notes to the Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Form 10-Q for more information.

Off-Balance Sheet Arrangements In February 2014, T-Mobile entered into a two-year factoring arrangement to sell certain service accounts receivable on a revolving basis as an additional source of liquidity. As of September 30, 2014, T-Mobile derecognized net receivables of $719 million upon sale through the factoring arrangement. See Note 2 - Acquisitions and Other Transactions of the Notes to the Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Form 10-Q for more information on the factoring arrangement.

Related Party Transactions There have been no material changes in our related party transactions as previously disclosed in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2013.

Disclosure of Iranian Activities under Section 13(r) of the Securities Exchange Act of 1934 Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Securities Exchange Act of 1934, as amended ("Exchange Act"). Section 13(r) requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction. Disclosure is required even where the activities, transactions or dealings are conducted outside the U.S. by non-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law.

As of the date of this report, we are not aware of any activity, transaction or dealing by us or any of our affiliates for the three months ended September 30, 2014 that requires disclosure in this report under Section 13(r) of the Exchange Act, except as set forth below with respect to affiliates that we do not control and that are our affiliates solely due to their common control with Deutsche Telekom. We have relied upon Deutsche Telekom for information regarding their activities, transactions and dealings.

Deutsche Telekom, through certain of its non-U.S. subsidiaries, is party to roaming and interconnect agreements with the following mobile and fixed line telecommunication providers in Iran, some of which are or may be government-controlled entities: Gostaresh Ertebatat Taliya, Irancell Telecommunications Services Company, Telecommunication Kish Company, Mobile Telecommunication Company of Iran, and Telecommunication Infrastructure Company of Iran. For the three months ended September 30, 2014, gross revenues of all Deutsche Telekom affiliates generated by roaming and interconnection traffic with Iran were less than $1 million and estimated net profits were less than $1 million.

36-------------------------------------------------------------------------------- Table of Contents In addition, Deutsche Telekom, through certain of its non-U.S. subsidiaries, operating a fixed line network in their respective European home countries (in particular Germany), provides telecommunications services in the ordinary course of business to the Embassy of Iran in those European countries. Gross revenues and net profits related to such activities recorded from these non-U.S.

subsidiaries for the three months ended September 30, 2014 were less than $0.1 million. We understand that Deutsche Telekom intends to continue these activities.

Critical Accounting Policies and Estimates Preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. There have been no material changes to the critical accounting policies and estimates as previously disclosed in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2013.

Recently Issued Accounting Standards See Note 1 - Basis of Presentation of the Notes to the Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Form 10-Q for more information on the recently issued accounting standards.

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