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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon. Following opening remarks, the Earnings Call will be open for questions. [Operator Instructions] I would now like to turn the conference over to Mr. Jud Henry, Senior Vice President and Head of Investor Relations for T-Mobile U.S. Please go ahead, sir.
Welcome to the T-Mobile's fourth quarter and full year 2020 earnings call. On the call today are Mike Sievert, our President and CEO; Peter Osvaldik our CFO; Neville Ray our President of Technology; Matt Staneff, our Chief Marketing Officer, as well as other members of the senior leadership team.
During this call, we will make forward-looking statements, which involve a number of risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. We provide a comprehensive list of risks factors in our SEC filings, which I encourage you to review.
Our earnings release, investor tax book and other documents related to our Q4, and full year 2020 results as well as reconciliations between our GAAP and non-GAAP results, we discuss on this call, can be found on the quarterly results section of the Investor Relations website. Please note that we expect to file our annual report on Form 10-K later this month, final completion of our first year-end audit following our merger with Sprint.
Results prior to the second quarter earnings materials represent the historical results standalone T-Mobile. Prior to our merger with Sprint, I will also note, that we will not comment directly or indirectly on the SEC's ongoing C-band auction, C-band spectrum or the post auction market structure.
Likewise, we look forward to having a great discussion with you around our merger synergies and future business trends at our upcoming Analyst Day, and we focus today's Q&A on our 2020 results and guidance for 2021.
With that, let me turn it over to Mike.
Hey, Jud. Hi, everybody. We are coming to you live, from our Bellevue, Washington offices today, we have some amazing results to cover, and we're going to jump right in. I did plan this call to be a little bit shorter than usual to respect to your time, mindful that we're going to be seeing it for a much more in-depth discussion at our Analyst Day coming up just next month, our whole team is really looking forward to being with you.
But today, we are so excited to share our Q4 and full year 2020 results. And with results like these, I never get tired of hosting these calls and talking about our business because as it turns out, 2020 was T-Mobile's best year ever across our major customer and financial metrics, not just because we're bigger now after our merger, but because of how our team delivered, and we kept up this year with a very strong Q4, meeting expectations and showing that we have momentum on our side.
So, our business is well positioned for success in 2021 and more importantly beyond. From network to synergies, to operations and new investment areas, T-Mobile showed again this quarter, that we're positioned to win.
Those of you that follow us, know that we are focused on three core ambitions; First, continuing to profitably outgrow the competition. Second, delivering bigger than expected merger synergies, faster than anticipated to drive scale and enterprise value. And third, making the decisions and investments to drive the long-term growth and the exciting cash generation potential of this company.
As you look at our full year and Q4 results, gets clear that we're doing exactly that. And the thesis for our company has never been more clear. We're very rapidly leaping ahead of the pack on network, with the best assets, the best team and the most loved brand in our space. Let me play our cards right, T-Mobile is positioned to stay ahead in the 5G race for years to come.
This quarter showcased a few key points, that are important to understand when you look at T-Mobile and when you look at the whole competitive landscape. First, we delivered the highest postpaid customer growth in our history in 2020. Finishing on top of the pack again in Q4, while simultaneously delivering strong service revenue, EBITDA and cash flow. Look across the major players in this industry. And you'll note that only T-Mobile delivered significant growth in customers and profitability.
Second point, T-Mobile delivered the industry's best churn on our flagship T-Mobile brand. And we did it by delivering the best-in-class experiences across network, value and customer service. Just let that sync in for just a second, the best churn in the industry. Although we don't normally report on T-Mobile brand specific churn.
I did want to make that point clear. T-Mobile went from worst to first on turn with our winning formula. And that formula was only getting better as we pull away from the pack on 5G and more customers begin to care about that. And here's the point, we know how to apply that same formula to our much higher churning Sprint branded customers, creating a big potential tailwind on future performance once this integration is substantially complete.
Third key point, our growth and profitability are fueled by the rapid unlocking of synergies, which we are achieving faster than expected, as today's numbers made very clear. And finally, these synergies have helped us deliver the nation's fastest biggest and most available 5G network, which is going to inform the competitive landscape for years to come. So, let's dive into these just a little bit.
As you saw in January, when we shared our early customer results, we ended 2020 as the clear growth leader and wireless, profitably taking share again, despite all the complexities of our merger. In fact, we delivered our highest ever total postpaid net adds of $5.5 million, and we grew our postpaid phone base by an estimated $2.2 million and industry best.
We did all that and still delivered strong financials building upon our improved scale from the merger, with over $50 billion in service revenue growing year-over-year, when our peers were relatively flat, and growing to $24.6 billion of adjusted EBITDA. In a quarter when Verizon sacrifice to growth for profitability and AT&T sacrificed profit growth for customer growth, only T-Mobile delivered customer growth and profitability growth, beating consensus on both.
And with our guidance that Peter will share in a moment, it looks like only T-Mobile is expected to deliver both again, in meaningful ways again, this year. Churn, as I mentioned, we also didn't miss a beat on churn. Our total postpaid phone churn across all brands was essentially flat year-over-year for both the full year and the fourth quarter compared to standalone T-Mobile a year ago. This is including the legacy Sprint customers that were turning it over 2% this time a year ago in Q4.
And as I said, postpaid phone churn for our branded T-Mobile base was the lowest of all national carriers. And company record low for Q4, a reflection of genuine customer loyalty that's earned by giving customers the best network and the best value with great customer experiences, something that the Un-carrier is truly famous for. And as we continue to integrate, we're bringing more of that same T-Mobile experience directly to our Sprint customers.
As we saw in Q4, others may try to buy customer loyalty, because they see what we see, we're pulling ahead of the pack on network, and we're about to take all their customers. But unfortunately, their results show that it's painfully expensive and ultimately just a band-aid, some mask to real drivers of why customers eventually leave. The fact is there are no shortcuts to creating genuine loyalty, and sustainably low churn. And I'm confident we'll see all of this play out down the road.
And while we're talking about great customer experiences, just today, J.D. Power recognized T-Mobile for the Best Customer Care in wireless for about 21st time, and the 7th time in a row. Meaning we've earned more top honors than any other wireless provider in the history of their study. As you've heard me say before, T-Mobile now has the scale and the resources to do something that's never truly been done before, offer customers the best value and the best network.
Perceived network quality was the moat around the Verizon and AT&T castles that allowed them to overcharge customers for years. But T-Mobile is freeing customers across the country from having to compromise. This evolution creates a path to penetrate further into prime customers and businesses that require the highest quality network experience and it creates compelling reasons for them to adopt more premium plans.
One of the reasons all of this works is that only T-Mobile is operating in a synergy backed model, which allows us to simultaneously deliver customer and profit growth, while also investing big in the business. Let me say this, our national capital plan may be ambitious, but it's known, and it's supported by our massive synergies. We'll talk about this more next month, I expect.
Let's talk about those synergies for a minute. We delivered $1.3 billion in run rate synergies in 2020. That's more than we guided last quarter and well ahead of our plan. This progress includes the start of our customer migration work, something that's key to unlocking synergies, and we already have over 4 million Sprint customers moved over to the T-Mobile network.
I also told you that we expected synergies in 2021 to be more than double what they were in 2020. While we still expect it to double and thence, as we now expect to realize $2.7 billion to $3.0 billion in run rate synergies in 2021. These synergies allow us to make smart investments in the future. And that starts with the network.
Only T-Mobile offers the fastest, biggest and most available 5G network in America. The country has never seen anything like this network build. We're tracking ahead of schedule and the results are clearly beginning to differentiate, not just on 5G but on network performance overall. To have the best network you have to win across both coverage and capacity.
T-Mobile's extended range 5G now delivers 5G coverage across 1.6 million square miles reaching 280 million people, offering nearly 2.5 times more geographic coverage than AT&T and nearly four times that of Verizon's so called nationwide 5G.
And we're also expanding our Ultra Capacity 5G at an unprecedented pace. This is where you see truly game changing speeds and capabilities enabled by the bigger channels of spectrum, found in mid band and millimeter wave. We brought Ultra Capacity 5G to 106 million people last year, 50 times more than Verizon's Ultra Wideband just crushing our goals. And now we're on to our next audacious goal to cover 200 million people nationwide by the end of this year.
For a number of reasons, getting to 200 million is a much taller challenge, but we plan to the biggest network factory this country has ever seen. And we're up to the test. This is important. We're now running a huge deployment machine at pace with a proven rollout model, something that takes a long time to ramp, a process we started way back in early 2018.
I expect we'll be talking more about this advantage next month also. And third parties are seeing the results. Just last week, new independent data from Open Signal was released and it's based on billions of measurements from real customers. And it proves T-Mobile customers get the fastest 5G download speeds, fastest 5G upload speeds and they get a 5G signal more often than anyone else.
And of course, you'll see these advantages in our marketing and messaging, including with our latest Superbowl message this weekend. Actually, I think the perception battle is the biggest one. We're all over. This team operates and executes. And our goal is to not miss opportunities. For example, we're increasing our specialized sales force and building tailored products for large enterprise and government, we see room to run here.
We've competed mostly on price in the past if we're honest. And now we have a premium product that's increasingly the catalyst for our wins. On the consumer side, we're planning to add significantly more points of distribution and thousands of sales and service agents to reach beyond urban areas where we have historically had our big success.
We have a multiyear expansion plan to bring real competition and a quality service to 50 million U.S. households in smaller markets where our market share is currently only half of what our national market share is. This is a huge opportunity to bring our Un-carrier story to more of America. And we'll soon roll out our 5G home broadband offerings to bring critical connectivity to rural parts of this country and actual competition to the cable operator.
All of these opportunities are built on our game changing Ultra Capacity 5G that we are rapidly expanding across the country, further distancing ourselves from the competition every day. So, these are just a few things to whet your appetite. We'll dive deeper into each of these opportunities next month when you can hear directly from the leaders who are driving these growth areas.
So hopefully, you get the idea that this team believes T-Mobile is well positioned. We will expand our front in Un-carrier strategy and capitalize on our emerging network leadership, our customer loving brand and our new scale as we tackle the challenges and opportunities that are ahead. As I said earlier, this wasn't just another great year T-Mobile.
It was our best year yet, we delivered the highest postpaid customer growth in our history, while simultaneously delivering strong revenue, EBITDA, and cash flow growth. Only T-Mobile delivered significant growth in customers and profitability, fueled by the rapid and faster than expected unlocking of synergies. And only T-Mobile can say that we offer the nation's fastest, biggest, and most available 5G network.
And we did all this, while navigating a pandemic that made us rethink how to best serve our customers and protect our employees and in only the first nine months after the merger. Great work by an amazing team. And you know what, we're just getting started. So, let me turn it over to Peter to take us through the financials and our guidance. Peter, take it away.
Thanks Mike. As you can tell we're fired up, we finished the year with exceptionally strong results and there is no doubt we're entering 2021 with great momentum. After writing our second half guidance on our Q3 earnings call, we executed on our winning playbook and beat expectations yet again in Q4, so let's jump right in.
Service revenues grew to $14.2 billion driven primarily by our continued growth in postpaid customers. Cost of services of $3.8 billion reflects the accelerated volume of site uprights to support the rapid deployments of our 5G network as well as over $500 million in merger related cost as we continue our network integration. SG&A expenses of $4.8 billion included over a $150 million in merger related cost as we advanced our integration efforts and included benefits from increased synergy realization.
Net income of $750 million and diluted earnings per share of $0.60 were both better than consensus expectations and included merger related costs of $506 million or $0.40 per share in Q4 on an after-tax basis. Adjusted EBITDA amounted to over $6.7 billion ahead of our guidance and consensus expectations and included lease revenues of $1.2 billion.
Our pretax merger related costs which are excluded from adjusted EBITDA were $686 million. Net cash provided by operating activities totaled $3.5 billion driven by our strong operating performance while cash purchases of property and equipments including satellite interest amounted to $3.8 billion as we accelerated the build-out of our nationwide 5G network.
Free cash flow which was fully burdened by merger related costs of $583 million amounted to $476 million, an increase over Q3 even while funding our accelerated network investments. Postpaid ARPA or average revenue per accounts amounted to a $133.08 while postpaid phone ARPU was $47.86 as we continue to grow the number of customers per account and ARPU was in line with our Q2 ARPU as we had previously guided.
A big shout out to our teams for great execution all around to deliver strong results in a very challenging year. Okay, let's talk about how this momentum carries into 2021 which is a peak investment year from an OpEx and EBITDA perspective while simultaneously delivering on our promise of continued profitable growth.
We expect total postpaid net additions to be between $4.0 million and $4.7 million reflecting our continued focus on profitable growth despite the ongoing COVID-19 impact on the switching environment. Going forward, we will focus our guidance and discussion of results on core adjusted EBITDA for improved clarity and transparency, given that we have deemphasized leasing as part of our value proposition.
And I know it is how many of you look at our results since the merger already. We expect core adjusted EBITDA in 2021 to be between $22.6 billion and $23.1 billion. This is based on adjusted EBITDA that is expected to be in the range of $26.5 billion to $27.0 billion and includes leasing revenues of $3.8 billion to $4.0 billion.
A strong year-over-year increase in core adjusted EBITDA reflects the expected growth in customers and service revenue as well as an expected increase in synergies partially offset by our investments to unlock profitable growth factors and an expectation of decreased switching activity driving higher customer acquisition expenses compared to 2020.
Core adjusted EBITDA for 2021 also includes the full year impact of the non-cash expense from our master lease agreement with American tower. We call, this is the straight-line accounting impact resulting from the long-term nature of the agreement, which generates cash savings from day one, while allowing for full flexibility for network deployments. Merger related costs not included in adjusted or core adjusted EBITDA are expected to be between $2.5 billion and $3.0 billion before taxes primarily driven by network activities.
Cash purchases of property and equipment, including capitalized interest are expected to be between $11.7 billion and $12.0 billion as we continue the robust pace of our 5G deployment and network integration, while also realizing procurement savings from our increased scale, enabling our investment dollars to go further.
Net cash provided by operating activities, including payments for merger related costs is expected to be in the range of $13.0 billion to $13.5 billion. And importantly, this figure excludes proceeds related to the beneficial interest in securitization transactions, which is expected to be approximately $3.7 billion to $3.9 billion and as classified and investing activities for accounting purposes.
Together, this results in expected free cash flow, including payments for merger related costs to be in the range of $4.9 billion to $5.4 billion, reflecting its growth in the strong cash flow generation capabilities of this business, even with higher levels of investments, and does not assume any material net cash inflows from securitization. We also expect our full year effective tax rate to be between 24% and 26%.
And lastly, we delivered $1.3 billion in synergies in 2020 and we should expect synergies in 2021 to between $2.7 billion and $3.0 billion. Breaking down 2020 we realized approximately $700 million in network synergies primarily from avoided new site builds and early decommissioning. At the same time, we realized about $600 million from streamline marketing efforts under one flagship brand, expedited retail rationalization, and move quickly to evolve our organizational structure.
As we look to 2021, synergies are likely to be fairly evenly split between network related and SG&A related savings, with roughly two-thirds coming from cost reductions and roughly one-third from avoided costs that are not reflected in run rate, P&L trends, similar to 2020. Altogether, we expect 2021 to be another year of profitable growth and free cash flow expansion, while continuing to invest in our network and the business to unlock significant expansion and future free cash flow that is so exciting.
And I must mention ongoing work done to significantly improve our capital structure and strengthen the balance sheet. Last month, we issued 3 billion of unsecured notes that set a record low yields for five-year, eight year and 10-year tranches in the high yield market, including issuing 10-year secured notes below 3%. We will provide updated color around synergies, mid and long-term guidance, as well as a strategic overview of the business at our Analyst Day next month. And we can't wait to have a great discussion.
And before we open it up for questions about our 2020 results and our 2021 guidance, just a reminder that we're currently in a quiet period for Auction 107 and will therefore not make any comments related to that. All right, let's get to your questions. You can ask questions via phone or via Twitter. We'll start with the question on the phone. Operator, first question please?
Thank you. [Operator Instructions] Our first question will come from Philip Cusick with JP Morgan.
Hey guys, thanks a lot. One for Mike, one for Pete. Mike, can you talk about your customer strategy, this year I see aggressive two-year free line offers in the market and that should help units. How should we think about that going after accounts as well? And then second for Pete. Maybe dig into the guide with double the synergies and a similar mix of cost reductions year-over-year versus avoidance. I think people wonder why it can't be better. Thank you.
Hey Phil, thanks. You're a little muddled there, I think the first part of you're asking about the competitive environment and customer growth and account growth. We really like what we see. And we probably aren't surprised to hear that, because our model is proven over and over again to be flexible.
And in times when there's incredibly intense competitive pressure, we find a way. And at times, when there's a more muted switching environment, we find a way. And that's what we're doing. And that's what you see in this very ambitious guide that we put in front of people today, with all the normal and usual caveats.
So, we're really excited. And obviously, what we are expecting to see will be the 2021 year that hopefully transitions us back out by the end, some of the dynamics that have dominated the competitive landscape in '20 due to COVID-19, muted switching your challenged payment environments, recessionary circumstances, et cetera.
We'll have to see how it goes. But the thing you should take, I think competence in is that our plan is nimble and flexible. And we're able to call the audibles as we see them. As you saw with three quarters of very, very strong performance that we just kept off since the pandemic begin. Now I think you were going to turn to Peter as well, for the second piece. I'll switch over to Peter.
Yeah, thank you, Mike. And yeah, Phil you're a little muffled there. I think you were asking about EBITDA, as well as synergy capture, and whether both could be better is that, hopefully that's right.
So, let's start with synergy. And we're trading $2.7 billion to $3.0 billion. Now remember, with nine months ago is when we closed this merger, and to already be delivering much faster than we anticipated $1.3 billion in 2020 alone and the guide 2.7 to 3.0 in 2021 it's just showing actually the rapid pace of what's happening here.
And if you remember, it's a multi-phased approach. And the vast majority of the synergies still come from network and decommissioning of the sell side, somebody associated backhaul leases, et cetera. And the first step in that just to build the anchor network, and you see the rapid pace that Neville and his team are just dominating the delivery, the ramp up of the machine that's going to flow all the way through 2021.
That part is what unlocks then the ongoing migration of customer traffic and customers on to the anchor network. And then of course, we can realize all those synergies on the back end. So, I've got to tell you, I'm fundamentally extremely excited about the $2.7 billion to $3.0 billion in synergies for 2021 as well as the rapid pace on the network piece, which really sets us up for the back end there.
In regards to EBITDA, again, let me give you a little more color. First, as you know, we were the only major carrier to show meaningful growth when comparing 2022 to proforma 2019. And our '21 guide highlights our commitment to the three priorities of profitably acquiring the competition, unlocking synergies bigger and faster, and investing in our business to set us up for the long-term growth and free cash flow generation.
And the first in context is a couple of things that we want to highlight when thinking about 2020 and 2021. First, as you know, 2020, that's slightly over $500 million of COVID related costs, which were excluded from adjusted EBITDA with the majority of those now being part of the run rate of the business.
2021 also has a higher non-cash straight line lease expense associated with that agreement with American Tower, an agreement that has significant positive NPV cash savings from day one, and operational flexibility for Neville and his team to continue the rapid pace that he's deployed on.
We also anticipate, as Mike said, a gradual return to higher switching in 2021, which comes with higher upfront sales expenses, of course, as the share taker in the industry, but also sets us up for that customer lifetime value benefit to the enterprise value of this business. And we're doing all of those things, and growing core EBITDA year-over-year, while we make investments in 2021, to enable their long-term success of the company.
We heard about it from the network perspectives, you heard Mike talk about an enterprise as well as distribution expansion to capitalize on the network. So if you consider all of those factors, it makes the guided core adjusted EBITDA that much more compelling, and highlights the success of a profitable growth and synergy backed model we are executing on, which is also beginning to deliver on the free cash flow unlock promise of the business, as you can see from that element of our guidance.
So hopefully I captured all your questions. And I got that right. That's a new strategy if you come in model of Un-carrier we just start talking about whatever we want to say.
Thanks for all that. All right.
All right. Operator, let's go back at the queue.
Certainly. Our next question comes from John Hodulik with UBS.
Great. Thanks to you guys for giving guidance [Indiscernible] hey. I guess first follow-up, any way you can sort of size each one of those categories that Peter gave at distribution, to call in the $500 million for the COVID cost. But just to give in some sort of relative important spend on each one of those items, I think will help a lot. And maybe Matt you can talk about how guys are after for maybe better growth in '22? And what we can expect from Q2 and the benefits from that?
And then secondly, a couple of questions. Just can you talk a little bit about the competitive environment and what you expect in '21 in either basis or the guidance, especially in the last week we heard contract talk about MVNO grooming and leading them to the wireless market obviously competitors are very competitive. Just how do you expect to see the competitive markets embark as we go to '21?
That sounds great. I'm going to get Peter in a minute to second to unpack that. So, Peter, think about that EBITDA question and I'm going to go straight to math there because I think, John this competitive environment something really should double click into and there are some things to say about Sprint churn as a tailwind, there's also some things to say about looking at the totality of our competitive environment across Verizon and AT&T.
So, Matt why don't you pick up here?
Yeah, I'll take that. Thanks Mike and John. So, it's actually 2021 and I think what the important thing to do is go maybe take a year back and look at year ago. Reflects that a year ago in Q4, we had a competitive environment. We had one competitor taking a lot of nets, one competitor taking not that many nets and we fast forward a year in Q4 and we saw them flipped.
But in totality, John, the amount of nets being produced in the competitive environment more or less the same. And so, to what Mike's been saying what we've been saying it's what we anticipated is a robust competitive environment that's evolving and changing with certain carriers taking more or less share and that's continuing to grow through that as we navigate that reflects in the model to really lead it.
The other piece of the question when you look at where we've guided in '21, what the next phase of our integration is with Sprint is really churn. It's a churn story. We are yet to start to get to work. Have really doing what we did on the T-Mobile branded business, going from worst to first on churn with our Sprint business. That's in front of us. We've gotten something taken care with the brand transition, stores and sales and growth value.
We're starting to get into the space followed by the work on the network, delivering the entire value proposition in the Sprint base and so we see that as we start to move forward. It's not going to happen overnight. So, we're really going to get to work and I feel great about our recipe to deliver great churn into this front base. So that's where you're going to see some of that as well.
It's really important to get that message. I mean, people had said, what's going on? Isn't somebody moving? What about AT&T aren't they producing more nets now and what you just heard from Matt is that some total of phone net adds from AT&T and Verizon was the same discussed Q4 in the prior year. And so those two kinds of tend to go back and forth. And at any given quarter, there's just dynamics.
AT&T is allowing a surprising amount of money, missed big on EBITDA and to some short-term customer loyalty things if you want to call their net to be generous. Verizon on the other hand, they didn't spend this much, and therefore, they didn't have the same kind of nets. I don't know what they're doing. And they might have been - they might have blown all the money, paying room metrics to tell them they're having the 5G mix.
Because it feels good for them. So, I don't know where that money went. But it wasn't being clubbed to the same extent into net adds and so they beep on earnings but missed on that. So just goes back and forth. Doesn't change our game plan at all. Our game plan is to continue driving genuine loyalty as you see in our T-Mobile brand as the lowest churning brand in the industry and then reapply that same playbook on the Sprint customers.
And that's just such an exciting tailwind for our business. Now before we move on, I know you asked a question about EBITDA from Peter. So, let's switch over to Peter as well.
Yeah, thank you John. I'm not going to be able to guide to every one of those elements quantitatively but we did highlight a couple of them. Again, the $500 million of COVID related cost, vast majority of loans return to run rate of the business. And we talked a little bit about some incremental debt from the key premier connect the pledge in Q2 that was a very small component to lead so the vast majority of those target million are run rate cost in the business now.
Now on American Tower, I think we talked about at least a couple hundred million drag from 2020 to 2021. But it's hard, it depends on how quickly and variability builds and what the priorities are there that could create some variability there. But that's how I think about, the least conceptually magnitude survives. And then you get into the other elements, the switching cost, the selling cost as well as the investments.
And as Mike said that depends on what the environment looks like in front of us, and of course what we do every quarters, what we do best, best in the industry, we delivered profitable growth and meet or exceed our expectations that we put out therefore you and we adjust and that's what we're going to do here. But I can't breakout the individual components probably further than that for you, John.
Okay, thank you.
Operator, let's go back to the phones, and then I'll ask my team here for one or two that if you feel like we need to hit, it will be widely appreciated to be heard by others on the call, I will go to Twitter as well. So, take a look at those and see if you want to see one of those.
Janice, I'll sign that to you, if you want. Operator?
Thank you, sir. Our next question comes from Jonathan Chaplin with New Street.
Thanks. One for Peter and one for Neville. For Peter, I'm wondering if you could characterize your approach to setting guidance and how it might be different from Braxton, since this is our first guidance under the Osvaldik regime and particularly interested in the net add guidance, which about double the average guidance that you guys have set for net adds for the last five years.
And did you seem to beat that by sort of 50% to a 100%? And so, I'm looking at the net add guidance and thinking if this is a backstream guide, the real number could be something a little crazy. And then for Neville, are we still looking at 200 million pops covered by the end of the year with fast 5G on 2.5 gigahertz or it looks like things moved a little bit faster than expected in 4Q with CapEx deployment, could you exceed that? Thanks.
Let's start with Peter. Right. But yeah, well, let me start with that.
How does the Osvaldik regime operate, Peter?
Well, let me tell you this, Jonathan. It actually isn't the first time you're hearing it. You heard me give guidance on Q3 as well and of Q2, actually second half guidance and then updated that in Q3. And look where we came in, all right, which is again, what our commitments always is, is to profitably outgrow the competition and deliver against what we put out there.
But I love how you're asking me about 4.0 million to 4.7 million postpaid net add guidance next year and getting excited about it. Because what, if you look at 2020, that guy did midpoint is over twice what AT&T did in total postpaid and almost three times what Verizon did. So that's the guidance. That's the excitement here.
There's a couple of factors to play out in front of us, as we said. One of those is what is that return to in the switching environment. We obviously are still impacted by COVID. And the question is, how fast does that come in? That will change the playbook for us as we said. You saw us deliver in Q3, saw us deliver in Q4, and that's our commitment in the future. But how we do it and how we go about it is in reaction to what's happening in the marketplace at the moment in time.
So, look, be excited about the guide because it's an amazing guide from 4 to 4.7 on postpaid nets and similarly on adjusted EBITDA, as we talked about.
Peter, if I can just follow up on that quickly, if switching activity doesn't come back as you expect, can you still hit the guide?
Yeah, look, Jonathan. Our commitment and you saw us do it in Q2, Q3 and Q4 is again to profitably outgrow the competition and deliver on what we put out there to you. So, that's probably the philosophy but you should think of when you think of myself and Mike and how this team operates. And you saw it executed on and probably the most challenged switching environment that you could have imagined in Q2, Q3, as well as Q4 of this year.
And so, I can't predict the COVID future, I wish I could get it all rid of it for all of us so that we can get out there and start living. But I can't. But I can tell you we're going to adapt and we're going to deliver. And that's the commitment to have from us.
Thanks, Peter. That's great.
So, let me pick up Jonathan. Well, man, I love the question, great so and before we go to 200 million this year, just got to celebrate the 100 million that we secured in 2020. 100 million, 106 million people covered with Ultra Capacity mid-band 5G. And just to do the competitive comparison that you've helped us with, it's about 50 times, 50 times the Verizon high-capacity footprint, which is pretty stunning. It's almost embarrassing when you think about it.
So, love your question, because even though we have a huge lead, you're asking, can we get even further in front of our competition, and do more than we've said, we'll do it in '21. Obviously, we're going to push on every target, Jonathan. But I'll tell you this, the most exciting thing for me in '20 and Mike referenced this in his comments is the fact that we build an incredible network machine in 2020. And we have to build an upgrade a lot more sites in '21 to get to that 200 million covered people with the Ultra Capacity.
So, we have the machine, we have the resources, the supply chain, the commitments, and we have the processes. And so, this machine is moving at real place 200 million people covered, is counted with Ultra Capacity is going to be a huge lead against what our competition has talked about, or said they can do. So, we'll keep pushing on it.
But I'm super excited to be able to sit here with high confidence, and talk about delivering a nationwide high capacity, high, high-capacity network in the coming 11 months on top of a coverage network, which just blows the competition away. Our extended range, 5G capability there, Mike mentioned this again, more coverage on 5G than AT&T and Verizon combined.
You have to let that sync in a little bit to really understand the position that we're in. And on top of that coverage layer, now we can add and pile on this mid band asset. So, tremendously excited about the progress we made in 2020, but we're just getting started on this thing. So, it's going to be a really fun year in '21.
I talked about this a little bit in my remarks. But I just want to underscore how remarkable it is the rate and pace that we're operating at right now. Because it's a real competitive differentiator. And this isn't something Neville and team are, they're doing something that's never been done before operating at this scale.
It was many, many thousands of sites that had to be touched and upgraded with advanced 5G technology to get us to that a 106 million, let alone the 280 million people that are covered by extended range 5G. But that's now moving to tens of thousands of sites in 2021. Tens of thousands of macro sites with Ultra Capacity 5G. It's a massive undertaking.
And we started it way back in 2018, planning and citing, permitting, design, in order to create a contiguous leading network. And it's not something that can be created overnight. As I said, it's a real advantage. I think we're going to probably have an opportunity to talk a lot more about. So, terrific. Let's go back to the phones.
Thank you. Our next phone question will come from Craig Moffett with MoffettNathanson.
Two questions, if I could. First Peter, I'm going to steal a little thunder probably from your Analyst Day. As I think about longer term margins, there are some differences between your business and say Verizon's or AT&T's and that you tend to lease more backhaul rather than own it. You have lower industry - sorry lower retail prices. How do you think about the long-term margin potential of the business relative to your peers?
And then, Mike, I wonder if you could just update us a bit on your progress in the areas where you have traditionally under indexed the Business Services market or business wireless market and then their rural markets? And where you've been growing? How can you give us some progress metrics, I guess, in those areas?
Yeah, sounds good. And you're right, Craig, we're going to double click into both of those, as I said in my remarks next month. And I will give Peter a chance to respond if he wants to steal his own thunder from next month.
But, as we've said, for a long time we see fantastic cash production from this model at the margin rates that we already communicated we aspire to. We don't have to achieve the margin rates that Verizon has. In fact, your question is premised on the idea that they'll be able to hang on to that and that, I don't know that that's the case either. I don't know where theirs is going.
I know ours is going up. And the cash production that we're able to produce in this business model, with the margin rates that we've aspired to are just phenomenal and so exciting, and create a very, very valuable enterprise. And, there are differences in our model, and one of them is the internal growth rate.
And so, when you think about our faster growth and the investments in present periods to get there, there will be differences between how we pursue our business plan and theirs, and it shows that we're more bullish because we have better assets and therefore are willing to invest in a longer tail and a better terminal value. And that's going to be experienced in this five-year planning horizon as one of the big differences.
But, Peter, why don't we go to you and then Matt, I'll turn to you on the how are we doing on things like prime and small-town rural businesses? So, Peter, anything you want add?
Thanks, Mike. Yeah, and I don't want to steal all my own thunder from Analyst Day, because Craig, I want you to come and attend, so I can't do that right this moment. But I think everything that Matt and Mike talked about earlier, and what Mike just expressed now from margin perspective, is exactly that.
If our plan doesn't predicate that we need to get through a Verizon level margin, and one could really question whether they will be able to maintain it when you have the combination of the premium product in the form of our network, and the premium value, how they're going to be able to justify that with their customers? But that's not what we're here to do.
We're here to continue to profitably outgrow, and yeah, there's some incremental costs in the short run that come with that, particularly on the sales side, as you accrue much higher terminal value for doing that. And then you did talk about some of those structural differences, which are absolutely key, and come out in CapEx versus OpEx as you see.
So that's why it's so important and exciting to think about what the ultimate free cash flow generation of this business is, which really takes out some of those differentials and focuses on the cash productivity. So, really excited to highlight and update some of these figures for you next month. I'm looking forward to doing that.
Thank you.
And Matt?
Yeah. Craig, that's a great question. As Mike said, we're going to dive deeper into an Analyst Day, but just a couple things, one is an overlooked part of our record results we had this year was success in business, in particular, in education and public sector.
And one thing that you should know about our business, and we keep saying is we're nimble and we're flexible, and we show up and solve needs, when people have it. That's partly why we're able to do things through Project 10 million, delivering solutions for kids that have to deal with a pandemic. And what's great about that, on the backside of it, is it opened up a lot of doors, but today, we're answering our call, in part because of the network perception, it's still lagging reality.
But now that we're in the door, proving how fast and nimble we can help serve businesses in public sector, we have more and more culture rings. So, we're seeing great progress in this area. When you talk about rules on the heels of levels build out on extended range 5G, I think that's one of the big things that's going to be a paradigm shifter this year is when you take the performance that we're seeing from the Ultra Capacity network.
And the speeds and the experience consumers have and bring it into rule and bring it to prime consumers. It's a game changer. And it's going to be another vector for us to continue to accelerate growth going forward as we move up market into prime customers who require the best of the best network. To-date, we have not had that we're going to get that very quickly on the heels of this build. So, we see a lot of upside going forward into these areas.
And hopefully, roger that, if I can be a little bit around your question. Can you give us more insights on consumer versus business? Businesses, both are killing it. Our big opportunity and in consumer right now, we're ahead of this in small town rural, where as I said, in my prepared remarks, we have half our national market share. And this is a huge swath of the country. So big, big potential tailwinds there.
And in business, we posted double-digit growth, which, look, I mean, everybody's got a smartphone already. So, when you've got a business that's posting double-digit growth, it's because you're winning share. And as I said, in my remarks, we're winning share not just as a price cut now, please throw us a little piece so you can reply to your AT&T deal. We're winning strategic accounts, the whole account. And that's, and we're winning it based on our quality. And that's just a game changer. So very excited about what the potential could hold there.
Diana Gilbert's on Twitter asks, do customers really understand the value of 5G? Or is there confusion over it? And also, she asked separately, what are the some of the use cases coming? No, they don't really yet. And it's a great question. Right now, something I think if you look at the country, something like low-double-digits of consumers with super phones have switched to 5G already that means most people it's just a twinkle in their eye.
And 2021 is the year when FOMO unfolds. And you've got people, that you know who've got an incredible phone that works 10 times faster than yours. And they're able to do things with it that you can't and you start to say I need me some of that. And you start to realize that when you get it from T-Mobile, it's for real. It doesn't just work on certain street corners or when the leaves aren't out or you have a suction cup device to put in your window or whatever.
It works across 200 million people, which is the goal we've articulated for this year with our highest capacity variant Ultra Capacity 5G. But to your point, it's not just going to be about smartphones, and I'm not going to get into it today. I'm sorry, it's a great question but we see lots of potential. And this is analogous to when 4G started.
And we didn't see everything that would unfold in 4G with the digital lifestyles, mobile first digital lifestyles that we now lead. But similarly, with 5G, which is an even bigger, more discontinuous innovation. We're going to see hardware and software innovations that transform how we live our lives on the go. And the question will be, what kind of a network capability will those innovators develop to?
And we're convinced that it has to be a capability more like ours, that's widely available than that's available in isolated spots. And so, that's a really exciting thing that I'll get into in a little more detail another time. But thanks for those questions. And let's go back to the operator.
Thank you. Our next question comes from Michael Rollins with Citi.
Thanks, and good afternoon. Two questions if I could. First, you mentioned the growth that's embedded in the guidance for 2021. But given all the moving pieces, in revenue, you had a wholesale business, you picked up a Sprint prepaid business that left you. You talked about the COVID cost.
Can you help level set what the right comfortable on a full year proforma basis should be for like the key metrics like service revenue and core EBITDA just so we could better understand what kind of growth rates are within the 2021 guidance? And then secondly, you mentioned the improvement in the T-Mobile heritage churn.
And, as you delved into that performance, I was curious if there are any specific factors that you think had maybe an outsized contribution whether it's certain networks tax for those customers, whether it's the bundling of content, or other Un-carrier initiatives that you employed over the last few years? Thanks.
We'll start with the second one, and then flip over to Peter, who will probably give you at least a qualitative if not quantitative answer. You know there's so many factors into this, but I don't know Matt, do you want to jump in?
Yeah, Mike kind of hit it a little bit in the remarks. I mean, there's three things that really matter here. The value proposition you get, it's the network. And it's how about customer service works. And when you look at what we're delivering with this network, one thing that we also know, is perception lags reality.
And what I can tell you our T-Mobile customers are seeing today is the reality of this network we have. And you see it, and how sticky they are in churn. We also announced these records on JD Power Awards. Seven in a row, 21 total, we're killing it in customer service. What Un-carrier move was that? Team of experts. It took us years to craft that and get it right. But you can just see what happens when it's right.
And by the way, that's not yet at the Sprint base. We're working through that that center plan to bring it forward. So those are some big dimensions that we look to that are structural, as we talked about, to really deliver this value proposition to our customers. Genuine customer loyalty takes time. Yeah. So proforma comparisons Peter, one of the things we said in our remarks is we're the only ones that posted genuine growth in service revenues and EBITDA.
And we stand behind that, it gets a little gooey when you try and get to the math behind it, to try and unpack it for you, but it's significant growth. Peter, do you want to at least give a qualitative picture?
Absolutely. Thanks, Mike. And thank you, Mike, for the question. If I would look at it, we do provide disclosures in the fact book that attempt to do a good proforma, particularly on adjusted EBITDA, and you can look at lease revenues there as well. So, look at that in the fact book.
But I would say if you add all that up, and you can do that math from fact book, core EBITDA is about $22 billion for 2020. And remember, that includes having excluded the 500 plus million of COVID costs and the benefits from a lower switcher environment that we saw in 2020. So, that's one way to look at it. And then when you put it in that context, the guide is pretty exciting.
As I said, that shows the significant 2020 to 2021 core EBITDA growth, despite factoring in those things like the COVID costs, the non-cash straight line lease expense, as well as the projected higher switching costs that we would see being the industry share taker, as we hoped switching picks up over the course of the year with COVID.
So, that's probably where I would point you to is on the fact book, but I can tell you, if you look at it, that way, you can see the growth, even despite the investments that we're making that'll set us up for the discussion that we'll have hopefully next month.
And soon we have this problem, we'll about to start round tripping ourselves in this company which is exciting. Did you have one follow-up?
Yeah, I was just saying thank you, for taking the questions.
Okay. Thanks then. All right, let's go back to the phone. Operator?
Absolutely, our next question will come from Simon Flannery with Morgan Stanley.
Great, good evening. Peter, I just wanted to confirm that Shentel is not in your guidance and perhaps any color you could give on the transaction and the synergy educational opportunities there? And then any updates on the 4G home broadband, how that's going, any subscriber numbers or adoption rates customer set scores, something to cheer on that?
Yeah, well let me start. Absolutely on Shentel, we're certainly looking forward to taking the next steps here, finalizing the purchase agreement and getting through the close and starting to do the same network integration, customer integration as we have with Sprint, so we just see it as part of the bigger picture, very pleased that we're getting to that point.
Shentel in our best estimates, is included in the guidance that we provided. Of course, you'll than see once we close some geography changes, between wholesale service revenue up into our service revenue and customer geography changes which will be of course as we always are very transparent to when we close the transaction. But it is included in there, I am very excited to take the next steps there and welcome those customers into the T-Mobile family.
Peter you, and as I see you're out there. Do you want to comment on the transaction?
Yeah, I just repeat what Peter said, look, we're excited to get past the appraisal phase and we're absolutely looking forward to moving on with concluding a purchase and sale agreement, filing all the appropriate regulatory papers, getting regulatory approval, and we looking for hopefully looking for close sometime in Q2.
And Simon, quickly on home Internet, yeah, thanks for bringing that up. I mentioned a little bit in my remarks, we're really excited. We're in pilot phase right now. We quietly moved from LTE pilot to 5G pilot. That was an exciting milestone in this pilot.
And part of what we're doing here is we're just taking our time and making sure that we put together the experience space that we need. And that means supply chain, it means customer experience, it means really being able to create a quality service. And so far, we really like what we're seeing. So, as this network capacity starts to really hit its pace in 2021, we've got a big opportunity to get commercial and to really go out there and start attracting customers in bigger numbers.
The results so far with customers we have attracted, we're delighted with and customers are, too. So, that's going really, really well. This is a chance to bring real competition to this space. And our business plan relies on it, we've got a pretty significant set of aspirations in our multi-year outlook here. So, I'm excited to talk more about that, when the time is right.
Now, it'll probably be more when we're ready to announce it as a true non-pilot commercial offering. But thanks for bringing that up. Very, very excited. Okay. Operator, let's go to the phone and it's now the top of the hour, and I think this will be our last question. We said we'd keep it to the hour. So last question, please.
Thank you. That question will come from Brett Feldman with Goldman Sachs.
Hey, thanks for taking the question, two actually. So, on your postpaid net add guidance of 4 million to 4.7 million, also can you give us some thoughts around how you expect that to break out between phones and other devices? And one of the reasons I'm asking is, I'm wondering if there's any headwinds we should be anticipating? So, for example, because we might have to use a tablet net add because we did last year when there was an education surge that probably helped you out a bit.
And then Mike as you said, the vast number of consumers probably don't appreciate 5G yet because they don't have it. So, my question is for Neville. Among the customers in your network who do have 5G and to access 5G, do you see evidence in their usage patterns that they actually do appreciate it, particularly when they're in the ultra-light band coverage? So, for example, are they streaming more or they doing more 4K or they actually using apps that maybe they don't typically use in the 4G network? Thank you.
They do speed tests a lot. That we know. But let's talk about the guidance. Peter, why don't you talk about postpaid versus postpaid phones? And I have a feeling it's going to be kind of a non-answer, but let's give it our best shot.
Well, thanks for that preview, Mike and Brett for questions embedded in there. One was 2020 to 2021 and you did see us absolutely dominate in that educational arena, the public and educational space and the delivery of 2020 was amazing. And so, as we flip into 2021, that probably won't be as big of an opportunity, as we saw in 2020. And that's embedded in their guidance as well.
Now as regarding the breakout of phones versus others, we're not providing that breakout, but what I will say is we have a commitment as we continue to highlight of being the industry postpaid phone leader from a growth perspective. So, think about it with respect to that, that's my - Mike my non-answer, answer. So, thank you for that.
That's pretty good. All right. And Neville, you get the last word on 5G.
Super quick for me. So, Brett, yeah, we are seeing more usage on our 5G customers, and so the number is up probably early running 15% something like that, which is a great start. I'd say on top of Mike's comment, one thing that our customers do talk about when they are on our mid band 5G network, the Ultra Capacity network, they do talk about those speeds, and they're blown away, and they're excited. So, go look at our Twitter accounts and see how excited customers are by the speeds they're seeing.
And we talked about speeds on that mid band layer getting to 300 megabits per second. They're pretty damn close to that now. And I'll just give you a quick shout out for Super Bowl this weekend down in Tampa. We've got 80 megahertz of 5G on hundreds of mid band sites, a mix of 60 and 80 megahertz in speeds down there. And north of 500 megabits per second, on average, actually sometimes go north of 600. So yeah, folks are talking about it, they're excited about it, and usage is starting to climb.
Just one additional point we're seeing is an emerging excitement, it's always been there. But perhaps even more coming to the fore around mobile gaming. We're just hearing so much about it. I think when I talk about innovators, hardware and software developers seeing this technology and seeing business models, I think gaming is a place to keep an eye on.
Definitely you're seeing video consumption, especially high-def video consumption take-off, because that's not something thanks to Ben John years ago, our customers were really habituated around. So, you see that taken off. But keep your eye on mobile gaming, I think you're going to find that 5G with its low latencies and very high capacity is something that is definitely attracting developers, which means, it's going to attract consumers.
So, I think that's the show. You guys, thank you so much for tuning in again. Hopefully you can send our excitement this business is firing on all cylinders. We appreciate you and I don't normally get to say this, we'll see you next month. Thanks, everybody.
Thank you. And ladies and gentlemen, this concludes the T-Mobile U.S. fourth quarter 2020 earnings call. If you have any further questions, you may contact the Investor Relations or media departments. Thank you for your participation. You may now disconnect and have a pleasant day.