Business Strategy and Outlook Michael Hodel, CF A, Analyst, 18 February 2020 With the Sprint acquisition poised to close, we believe T -Mobile is positioned to reach a sustainable place in the industry , where it is able to fund investments needed to remain competitive while generating acceptable returns on capital. The integration of the two businesses will take time, though, presenting potential bumps in the road. Over the past five years, T -Mobile has expanded its postpaid phone customer base nearly 60% while the rest of the industry has posted virtually no growth. The firm’ s relatively simple network architecture and spectrum holdings enabled it to upgrade to L TE technology efficiently and effectively while its innovative service offerings and marketing have attracted customers from other carriers. Growing scale and support from parent Deutsche T elekom have enabled T -Mobile to invest in new assets, which it has done smartly , in our view The firm largely sat out the overhyped A WS-3 spectrum auction, for example, saving its resources to later acquire low-frequency licences. This move has enabled T -Mobile to expand geographic coverage, improving service and increasing its addressable market. Even with its enhanced scale, however , T -Mobile trails A T&T and V erizon by a wide margin: these rivals’ retail customer bases are roughly 30% and 55% larger , respectively Given that T -Mobile generally prices its services at a discount to its larger rivals, it has delivered inferior returns on capital. Adding Sprint’ s postpaid customer base (the prepaid business is being sold to Dish) will leave the combined customer base slightly larger than A T&T’ s. Sprint’ s customers are already the least loyal in the business, however , and have generally been highly price sensitive. While T -Mobile’ s recent track record is solid, retaining the bulk of Sprint customers as they transition to a new network could prove challenging, tempering our enthusiasm. Analyst Note Michael Hodel, CF A, Analyst, 07 August 2020 Though the Sprint integration and pandemic made for messy results, T -Mobile appears to have performed well Important Disclosure: The conduct of Morningstar’ s analysts is governed by Code of Ethics/Code of Conduct Policy , Personal Security T rading Policy (or an equivalent of), and Investment Research Policy For information regarding conflicts of interest, please visit http://global.morningstar .com/equitydisclosures T -Mobile Posts Solid, if Messy , Q2 Results Amid the Pandemic and Sprint Integration Bulls Say O After five years of unprecedented success, T - Mobile has the wind at its back. The firm’ s reputation with consumers is as strong as ever and its network is delivering service that at least matches the other carriers. O As T -Mobile takes share, including among business customers, its finances will continue to improve. Free cash flow is already solidly positive, providing the ability to return capital to shareholders. O The Sprint merger promises to catapult T -Mobile to the top of the industry , with ample scale to compete and a spectrum portfolio no other carrier can match. Bears Say O T -Mobile is enjoying a brief moment in the sun as it milks the later stages of the 4G L TE technology cycle. As the race to 5G heats up, the firm will need to step up investments, pressuring cash flow , or fall behind the industry leaders. O Even if 5G isn’ t a big deal, T -Mobile’ s network will eventually struggle under the weight of customer growth, forcing it to invest more. Recent spectrum purchases have enabled broader coverage, but without adding much capacity O If the Sprint deal fails, T -Mobile will be stuck as a subscale, disadvantaged carrier Morningstar Pillars Analyst Quantitative Economic Moat None Narrow V aluation QQ Overvalued Uncertainty High Medium Financial Health — Moderate Current 5-Yr A vg Sector Country Price/Quant Fair V alue 1.11 1.00 0.84 0.83 Price/Earnings 26.6 42.0 15.3 20.1 Forward P/E 38.2 — 14.6 13.9 Price/Cash Flow 13.3 8.1 6.0 13.1 Price/Free Cash Flow — 302.4 15.6 19.5 T railing Dividend Y ield% — — 4.22 2.35 during the second quarter The firm added 253,000 net postpaid phone customers during the quarter , somewhat better than either V erizon or A T&T , but the carriers are treating nonpaying customers who remain connected under the FCC’ s "Keep Americans Connected" pledge differently Management’ s outlook for the remainder of 2020 lines up reasonably well with our expectations, except for forecast net postpaid customer growth. It seems the firm expects to retain more Sprint customers than we had assumed, though it also wrote down the Sprint customer base far more than we expected as part of bringing the two firms’ accounting policies into alignment. At this point, we don’ t expect to materially change our $89 fair value estimate and we view the shares as modestly overvalued. The most striking figure in T -Mobile’ s earnings release was postpaid phone customer defections, which came in at 0.80% per month. W e estimate the combined Sprint/T -Mobile endured postpaid phone churn of about 1.2% a year ago. While the pandemic has caused customer activity to slow across carriers, the drop at T -Mobile is impressive, placing the firm on par with A T&T despite the inheritance of Sprint’ s less loyal customers. However , T -Mobile only removed 90,000 nonpaying, but still connected, customers from its base, about a quarter as many as A T&T V erizon appears to have kept all of these customers in its reported numbers, resulting a dramatic reduction in monthly postpaid phone churn (0.58%). T -Mobile also may have benefited from the cleanup of Sprint’ s customer numbers. The firm scrubbed about 900,000 customers (1.3% of total) from its reported figures. While we expect T -Mobile will build strong customer momentum over the coming quarters, we believe it’ s premature to draw conclusions about how the customer base will look once the dust around the Sprint transaction fully settles. Economic Moat Michael Hodel, Analyst, 21 February 2020 T -Mobile US operates at a cost disadvantage relative to larger rivals V erizon and A T&T , in our view , a position that precludes us from awarding the firm a moat despite strong efficient scale attributes in the wireless industry The Source: Morningstar Equity Research Source: Morningstar Undervalued Fairly V alued Overvalued Quantitative V aluation i USA TMUS Morningstar Equity Analyst Report | Report as of 07 Aug 2020 06:40, UTC | Page 1 of 15 T -Mobile US Inc TMUS (XNAS) Morningstar Rating Last Price Fair V alue Estimate Price/Fair V alue T railing Dividend Y ield % Forward Dividend Y ield % Market Cap (Bil) Industry Stewardship 06 Aug 2020 21:46, UTC 06 Aug 2020 21 Feb 2020 15:29, UTC 06 Aug 2020 06 Aug 2020 06 Aug 2020 QQ 108.10 USD 89.00 USD 1.21 — 0.00 136.05 T elecom Services Standard © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law , Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner , without the prior written consent of Morningstar Investment research is produced and issued by subsidiaries of Morningstar , Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. T o order reprints, call +1 312-696-6100. T o license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. ? firm’ s cost position has improved markedly over the past five years, but it doesn’ t yet earn returns on capital that exceed our estimate of its cost of capital. W e expect the Sprint merger will go a long way toward solidifying T -Mobile’ s position within a healthier industry structure, but several potential developments could derail these efforts over the next decade, limiting our confidence. T -Mobile’ s turnaround over the past several years in among the most impressive we’ve seen in the global telecom industry When the merger with MetroPCS closed in 2013, the firm’ s network lagged V erizon's and A T&T's and its reputation with consumers was weak, leading to rapid customer losses. Since then, the firm has masterfully integrated the two businesses, pursued additional high-quality spectrum, and deployed new wireless technologies. As a result, its network performance has improved dramatically , providing both better geographic coverage and capacity , meeting a higher proportion of customer needs in more places. Paired with network improvements, the firm has marketed its services brilliantly , in our view , carving out a position in opposition to other providers as the "uncarrier ." Unique service offerings that remove perceived customer pain points without dramatically changing the economics of the business have bolstered this market perception. Customer growth is the clearest evidence of T -Mobile’ s success. Since the end of 2013, the U.S. wireless industry has added about 22 million postpaid phone customers and T -Mobile has captured about 85% of that growth, leaving rivals to trade share amongst themselves. The firm now claims about 18% of the postpaid phone market, up from 11% at the end of 2013. T -Mobile also expanded the MetroPCS prepaid brand across the country , increasing the size of this customer base by about one third. W e estimate that T -Mobile’ s total share of the retail wireless market, in terms of customers served, now stands at 20% versus 13% at the end of 2013. While T -Mobile’ s scale gains have been impressive, they’ve come at a cost. Investments in spectrum and network equipment have increased its invested capital Close Competitors Currency (Mil) Market Cap TTM Sales Operating Margin TTM/PE V erizon Communications Inc VZ USD 239,304 129,726 22.24 12.52 A T&T Inc T USD 212,610 175,138 16.07 18.18 Comcast Corp CMCSA USD 195,834 105,549 19.03 17.21 base more than $20 billion since the 2013 Metro merger , or about 60%, and we suspect that figure is understated somewhat due to heavy depreciation expense in recent years. The increase in invested capital has nearly matching the 70% increase in revenue during this period. However , increased scale has made T -Mobile far more efficient, turning it from a cash burner to substantial cash generator over the past five years, removing questions about its viability Although scale has improved dramatically , T -Mobile still trails V erizon and A T&T by a wide margin. In the postpaid business, A T&T’ s phone customer base remains nearly 60% larger V erizon’ s is more than twice as big. A T&T and V erizon also tend to serve higher -end customers, including business accounts, meaning the revenue gap is even larger While a larger customer base does require incremental investment in network capacity and overhead expenses, a significant portion of costs are either fixed or more efficiently absorbed as network utilization reaches optimal levels in more locations. For example, we estimate that V erizon Wireless spends more on advertising than T -Mobile but T -Mobile spends about 30% more on a per -customer basis. Sprint is even worse off, spending about 60% more per customer Given that the companies target roughly the same nationwide population, this advantage is significant for the larger carriers. T -Mobile and Sprint will also have the opportunity to cut significantly from their combined advertising budget over the next several years. From a network standpoint, we calculate that A T&T and V erizon actually spend more per retail customer on new equipment than T -Mobile. However , the larger carriers operate their networks more efficiently day in and day out. While accounting differences exist, V erizon reports network operating expenses equal to about 14% of services revenue versus about 19% at T -Mobile and nearly 30% at Sprint. T -Mobile and Sprint likewise have a huge opportunity to reduce network operating costs, but the combined firm will inherit a complex web of tower leases, radio frequency deployments, technology elements, backhaul agreements, and customer bases accustomed to their current service levels. Eliminating costs will require a balancing act that will likely take several years to fully execute. W e expect the combined company will continue to earn returns on capital below its cost of capital for at least the first two years after the merger Until we have a sense of how well the merger is progressing, we won’ t Morningstar Equity Analyst Report |Page 2 of 15 T -Mobile US Inc TMUS (XNAS) Morningstar Rating Last Price Fair V alue Estimate Price/Fair V alue T railing Dividend Y ield % Forward Dividend Y ield % Market Cap (Bil) Industry Stewardship 06 Aug 2020 21:46, UTC 06 Aug 2020 21 Feb 2020 15:29, UTC 06 Aug 2020 06 Aug 2020 06 Aug 2020 QQ 108.10 USD 89.00 USD 1.21 — 0.00 136.05 T elecom Services Standard © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law , Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner , without the prior written consent of Morningstar Investment research is produced and issued by subsidiaries of Morningstar , Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. T o order reprints, call +1 312-696-6100. T o license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. ? consider moving T -Mobile to a narrow-moat rating. The benefits of fixed-cost leverage and the difficulty of providing a differentiated wireless offering create an efficient scale advantage in the wireless industry The massive consolidation across the industry over the past 15 years and the inability of several interested parties, including Dish Network and Comcast, to effectively enter the market provide evidence of efficient scale. W e believe the attempt to merge T -Mobile and Sprint, nearly a decade in the making, reflects both firms' belief that their only other option is to risk significant damage to the wireless industry , through potentially semipermanent discounting, to gain the needed share to earn acceptable returns on capital. W e expect that combining Sprint and T -Mobile will leave the industry in a much healthier long-term position. Even if prices don’ t rise materially as a result of the merger , an industry with three rather than four major players should operate more efficiently as customers stick with their carriers longer , all else equal. Fair V alue & Profit Drivers Michael Hodel, Analyst, 21 February 2020 W e are decreasing our fair value estimate to $89 per share from $91 based on the final terms of the T -Mobile deal and our assumption that the merger will close shortly W e further assume that SoftBank has a 50% change of recouping the T -Mobile shares it will forfeit as a concession to put a new merger agreement in place. W e expect the combined firm will generate about $75 billion in revenue during 2020, down from $77 billion in 2019, reflecting postpaid customer growth offset by the sale of Sprint’ s prepaid business to Dish. Beyond 2020, we assume that T -Mobile’ s integration efforts are successful, with customer churn steadily declining from the blended levels the combined firm has posted recently W e further assume that the firm is able to attract new customers, though with revenue per customer growing only modestly due to T -Mobile’ s promises to regulators and competitive pressure. As a result, we forecast wireless service revenue will grow about 4% annually through 2024. The combined firm will likely report relatively weak margins in 2020 as it ramps up integration efforts. W e peg the combined firm’ s EBITDA margin at about 30% in 2019. Over the next couple years, W e expect this margin will dip into the mid- to upper -20% range including integration costs, then expanding to about 34% by 2024 as integration costs fade and savings roll in. While this margin expansion may not seem impressive, we’ve assumed T -Mobile moves away from the phone leasing model. Adjusted for this shift, we’ve assumed 9 percentage points of margin expansion, with the firm gaining network, marketing and overhead savings. W e expect heavy capital spending over the next three years, hitting more than 20% of service revenue, to bring the two networks together W e then expect capital spending to moderate, holding between $10 billion-$11 billion per year thereafter , similar to amounts V erizon has reported in recent years. Risk & Uncertainty Michael Hodel, Analyst, 21 February 2020 The largest uncertainty facing T -Mobile over the next cpuple of years will likely be the Sprint integration. Combining two very large firms with vastly different cultures, different networks, and different approaches to the network without alienating a significant number of customers could prove very challenging. T -Mobile also faces uncertainty around the pace of technological change. The development of 5G technology could force T -Mobile to invest far more aggressively than it currently plans or engineer its network in an inefficient manner , relying heavily on third parties for infrastructure. A challenging Sprint integration and accelerating shift to dense 5G networks could quickly strain T -Mobile’ s resources. The combined firm will start life with nearly $70 billion in debt, which could limit flexibility to tackle numerous initiatives at once. Advancing technology could also enable new firms to more easily enter the wireless market. The large cable companies have already deployed Wi-Fi networks throughout their respective footprints, which 5G may nicely augment. In addition, the FCC plans to continue making more spectrum available for both licensed and unlicensed use. A flood of new spectrum available could drive down prices, further easing entry into the wireless business. New competition could dramatically slow T -Mobile’ s momentum in the market, causing it to fail to gain the scale needed to compete long term. Stewardship Michael Hodel, Analyst, 18 February 2020 Morningstar Equity Analyst Report |Page 3 of 15 T -Mobile US Inc TMUS (XNAS) Morningstar Rating Last Price Fair V alue Estimate Price/Fair V alue T railing Dividend Y ield % Forward Dividend Y ield % Market Cap (Bil) Industry Stewardship 06 Aug 2020 21:46, UTC 06 Aug 2020 21 Feb 2020 15:29, UTC 06 Aug 2020 06 Aug 2020 06 Aug 2020 QQ 108.10 USD 89.00 USD 1.21 — 0.00 136.05 T elecom Services Standard © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law , Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner , without the prior written consent of Morningstar Investment research is produced and issued by subsidiaries of Morningstar , Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. T o order reprints, call +1 312-696-6100. T o license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. ? W e rate T -Mobile’ s stewardship as Standard. The firm has showed good discipline on several occasions over the past five years, including its limited participation in the A WS-3 spectrum auction and its pursuit of a merger with Sprint. Per the merger proxy , Sprint and its controlling shareholder Softbank demanded a valuation at least equal to the relative trading prices of the two companies’ shares throughout 2017. T -Mobile correctly asserted that Sprint’ s share price reflected a significant takeover premium and chose to walk away from negotiations late in the year After a steady decline in Sprint’ s share price, T -Mobile was able to reach a far more favorable agreement in April 2018. W e suspect T -Mobile will push for an even more favorable deal with the original merger agreement allowed to expire in late 2019 and Sprint’ s performance continuing to flag. Deutsche T elekom was the sole owner of T -Mobile USA, the firm that merged with MetroPCS to create T -Mobile US. The German carrier currently holds 63% of T -Mobile’ s shares, a percentage that has slowly drifted lower as new shares have been issued to employees, partially offset by buybacks in 2018. Deutsche T elekom clearly controls T -Mobile’ s strategic direction, appointing the majority of the firm’ s 12 directors, with its CEO T imotheus Hoettges serving as chairman. Deutsche T elekom is also T -Mobile’ s largest creditor , supplying more than half of the firm’ s debt, excluding tower obligations. This position is a double-edge sword for minority shareholders, in our view On the one hand, Deutsche T elekom’ s financial support has enabled T -Mobile to maintain ready access to capital, providing the flexibility to pursue low-frequency spectrum needed to improve network coverage. On the other hand, Deutsche T elekom’ s interests as a creditor might not always line up with those of shareholders. As T -Mobile’ s financial condition has improved, however , this concern has diminished. The majority of T -Mobile’ s executive ranks hail from the Deutsche T elekom/T -Mobile USA, including CEO John Legere, who plans to leave the top role at the end of April 2020. Legere was previously CEO of Global Crossing, a firm he led out of the telecom bubble more than a decade ago and then sold to Level 3 Communications in 2011. His personality permeates the firm’ s culture. Michael Sievert, who has emerged as Legere’ s second-in-command, will replace him as CEO. Sievert received a promotion in 2015 to COO from CMO and a seat on the T -Mobile board in 2018. Sievert has extensive technology and telecom experience, previously spending time at Clearwire, A T&T Wireless, Microsoft, and a handful of startups. Sievert will continue to lead the combined T -Mobile/Sprint. After the deal closes, Deutsche T elekom will own 42% of the combined firm and have the right to vote Softbank’ s 27% stake, giving the German company control. Minority investors will own 31% of the combined firm. Deutsche T elekom will appoint nine of the new firm’ s 14 directors, who will be joined by CEO Legere. Softbank will appoint the remaining four directors, including Softbank chairman Masayoshi Son. Hoettges will continue as the new firm’ s chairman. W e suspect Deutsche T elekom will be content to hold its stake in T -Mobile. The firm negotiated for the right to vote Softbank’ s share, at least in part, so that it could continue consolidating T -Mobile’ s results in its own financial statements. T -Mobile has been an important growth driver for Deutsche T elekom recently W e wouldn’ t be surprised to see at least one more large, strategic move in the future, though. Specifically , we think the firm would benefit from a presence in the fixed-line market. T -Mobile hired Sunit Patel away from CenturyLink/Level 3 to head the Sprint integration effort. Given Patel’ s background, a second act integrating fixed-line assets would make sense. Morningstar Equity Analyst Report |Page 4 of 15 T -Mobile US Inc TMUS (XNAS) Morningstar Rating Last Price Fair V alue Estimate Price/Fair V alue T railing Dividend Y ield % Forward Dividend Y ield % Market Cap (Bil) Industry Stewardship 06 Aug 2020 21:46, UTC 06 Aug 2020 21 Feb 2020 15:29, UTC 06 Aug 2020 06 Aug 2020 06 Aug 2020 QQ 108.10 USD 89.00 USD 1.21 — 0.00 136.05 T elecom Services Standard © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law , Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner , without the prior written consent of Morningstar Investment research is produced and issued by subsidiaries of Morningstar , Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. T o order reprints, call +1 312-696-6100. T o license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. ? Analyst Notes Archive T -Mobile Gains Share, Remains Confident in the Sprint Deal; Shares Fairly V alued Michael Hodel, Analyst, 06 February 2020 T -Mobile’ s fourth-quarter results reflected the strong continued customer growth the firm previously disclosed. Unsurprisingly , management also remains confident that the Sprint merger will ultimately win approval. Regarding the merger terms, which are potentially up for renegotiation following expiration of the current agreement late last year , T -Mobile indicated that any change in the share exchange ratio would likely be hammered out quickly once the deal gains approval. Management also introduced standalone 2020 expectations, calling for another year of strong customer growth, somewhat disappointing margin expansion, and a modest, but still surprising, drop in network capital spending. W e don’ t plan to materially change our T -Mobile fair value estimate, leaving the shares roughly fairly valued. T otal revenue increased 3.8% during the quarter , with wireless service revenue up a robust 6.3%, in line with recent quarters. T -Mobile added 1 million postpaid wireless phone customers during the quarter , down slightly versus a year ago. The firm’ s portion of industrywide postpaid customer growth has drifted slightly lower over the past couple of quarters as V erizon and the cable firms have gotten more aggressive, but it continues to take more share than any other carrier Revenue per postpaid phone customer declined a bit more than 1% year over year , worse than we’d expected. However , revenue per postpaid account increased 2% versus a year ago as customers continue to adopt new data devices. The reported EBITDA margin expanded one percentage point year over year to 25.3%, with solid cost control across all expense categories. Network operating expense was surprisingly low during the quarter; we expect this expense will ratchet higher as the firm adds more sites to its network over time. W e expect slowing customer growth, especially relative to T -Mobile’ s size, will more than offset this pressure, however Sprint and T -Mobile Beat the States; Now W e Need a Price Michael Hodel, Analyst, 11 February 2020 Judge V ictor Marrero has sided with Sprint and T -Mobile in their battle with several states' attorneys general over the firms’ proposed merger Assuming the states don’ t appeal the verdict, the merger has now cleared all significant legal and regulatory hurdles, allowing Sprint shareholders to breathe a huge sigh of relief. However , one glaring detail remains outstanding: the share exchange ratio. The original deal, which expired last year , called for Sprint shareholders to receive 0.103 T -Mobile shares for each Sprint share. As of market close on Feb. 10, Sprint was trading at a value equal to 0.057 T -Mobile shares. With the initial moves in the shares following the judge’ s ruling, that ratio stands at about 0.088, leaving Sprint shares nearly 15% below the original deal price. Sprint’ s fortunes have diverged significantly from T -Mobile’ s in the nearly two years since the merger terms were originally struck. Sprint’ s net debt load has increased by nearly $2 billion while T -Mobile’ s has declined by $1.4 billion. Accounting for this differential by transferring $3.4 billion of value to T -Mobile shareholders would bring the exchange ratio down to around 0.90. More critically , Sprint’ s postpaid phone customer base is smaller than two years ago while T -Mobile’ s is 18% larger , and the trajectories of the two businesses remain starkly different. W e expect Sprint will be compelled to accept a lower exchange ratio at or below the level current market prices imply For T -Mobile, cutting the exchange ratio to the current market level would push our fair value estimate for the firm, following the Sprint merger , up by about 5% to nearly $90 per share. This value is also about 10% higher than our current standalone fair value estimate that assumes a 75% change of the deal closing (and which we will be increasing to reflect higher odds of the deal closing). Given T -Mobile’ s negotiating leverage in this situation, we’d much prefer to hold that firm’ s shares over Sprint. Sprint Minority Shareholders Make Out Favorably As SoftBank Surrenders T -Mobile Shares Michael Hodel, Analyst, 21 February 2020 SoftBank and Deutsche T elekom have reached an odd new agreement in the merger of T -Mobile and Sprint. W e expected T -Mobile and DT , its largest shareholder , to garner more favorable deal terms given Sprint’ s struggles since the merger was first announced nearly two years ago. Our previous fair value estimates for the two firms Morningstar Equity Analyst Report |Page 5 of 15 T -Mobile US Inc TMUS (XNAS) Morningstar Rating Last Price Fair V alue Estimate Price/Fair V alue T railing Dividend Y ield % Forward Dividend Y ield % Market Cap (Bil) Industry Stewardship 06 Aug 2020 21:46, UTC 06 Aug 2020 21 Feb 2020 15:29, UTC 06 Aug 2020 06 Aug 2020 06 Aug 2020 QQ 108.10 USD 89.00 USD 1.21 — 0.00 136.05 T elecom Services Standard © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law , Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner , without the prior written consent of Morningstar Investment research is produced and issued by subsidiaries of Morningstar , Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. T o order reprints, call +1 312-696-6100. T o license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. ? assumed Sprint shareholders would receive 0.09 T -Mobile shares for each Sprint share, down from the original 0.103 shares. Our assumption proved correct, sort of. Sprint majority shareholder SoftBank will forfeit 48.8 million T -Mobile shares after the merger closes, effectively leaving the firm with 0.088 T -Mobile shares for each of its Sprint shares. Sprint minority shareholders will continue to receive 0.103 T -Mobile shares. This combination moves the share exchange ratio, in total, down to 0.091, roughly in line with our assumption. However , SoftBank can reclaim the 48.8 million shares if T -Mobile’ s stock price exceeds certain levels (essentially $150 per share) over the next roughly six years. It’ s an interesting structure: If T -Mobile struggles, at least the firm will have fewer shares outstanding down the road. If it is reasonably successful, generating high-single-digit stock returns over the next few years, SoftBank will skim off some of that success. The bottom line is that the new deal has value for T -Mobile relative to the original agreement, but slightly less than we had assumed. W e’ve lowered our fair value estimate to $89 from $91 as a result. Sprint minority shareholders, on the other hand, make out significantly better than we’d assumed. Our Sprint fair value estimate moves to $9.10 from $8.20. T -Mobile Locks In Financing at Attractive Rates Michael Hodel, Analyst, 03 April 2020 The new T -Mobile wasted no time in obtaining permanent financing for the Sprint transaction, agreeing to sell $19 billion of senior secured bonds a day after the deal closed. The firm appears to have obtained attractive rates despite the massive size of the placement and the current market turmoil, with maturities ranging from 5 to 30 years. The 10-year notes ($7 billion of the total) carry a coupon of 3.875%, a spread of about 3.25 percentage points above the 10-year T reasury rate. While T -Mobile has obtained more favorable spreads in the past, the absolute cost is hard to beat. The firm’ s last offering of 10-year senior notes in 2018 priced only 2.1 percentage points over T reasuries but still carried a 4.75% coupon. The latest offering also compares reasonably well to V erizon, which issued 10-year notes with a 3.15% coupon two weeks ago. The debt offering takes financing uncertainty off the table, allowing T -Mobile to focus on the challenge of integrating Sprint over the next couple of years. The issue size, which equates to about half of Sprint’ s total debt load as of the end of 2019, should allow T -Mobile to repay roughly $11 billion of debt coming due through 2021 and simplify its capital structure. W e continue to believe T -Mobile warrants a no-moat rating, but we also believe the Sprint deal places it on a path to countering the scale disadvantages it has faced versus A T&T and V erizon. The shares are modestly undervalued relative to our $89 fair value estimate, but we’d prefer other telecom names at current valuations, including Comcast and A T&T T -Mobile Customer Growth Slips as Sprint Integration Ramps; Shares Fairly V alued Michael Hodel, Analyst, 07 May 2020 Soft customer growth marked T -Mobile’ s first quarter of 2020, its last without Sprint. The firm added 452,000 net postpaid phone customers, its slowest pace in seven years. With Sprint disclosing that it lost 348,000 postpaid phone customers during the quarter , the combined firm added 104,000, including 78,000 under Sprint’ s prepaid brands. Management expects to add 0-150,000 net postpaid customers (phones and data devices) as a combined company during the second quarter , down from 1.2 million combined the year before. T -Mobile has a lot on its plate, closing and now integrating the Sprint merger while dealing with COVID-19, so we aren’ t surprised to see a period of relative weakness. W e don’ t expect to materially change our $89 fair value estimate and we view the shares as fairly valued. As with rivals A T&T and V erizon, T -Mobile saw customer defections (churn) decline versus a year ago as customer activity slowed dramatically in March. Management cited the firm’ s position as a share gainer as a reason for the weakness in net customer additions—with fewer customers changing carriers, it had fewer opportunities to win new accounts. While perhaps true, T -Mobile also won a smaller share of new customer decisions during the quarter than it has in the past. While A T&T and V erizon added 2%-3% fewer gross postpaid phone customers than a year ago, T -Mobile was down 9%. Postpaid phone gross additions across the industry were likely roughly flat year over year , with the three major cable companies taking share. T -Mobile and Sprint were the most impacted this quarter T -Mobile also lost 128,000 net prepaid customers, its first quarterly loss since 2013. T otal service revenue increased 5.3% year over year , modestly slower than the 6.3% pace set in 2019, as Morningstar Equity Analyst Report |Page 6 of 15 T -Mobile US Inc TMUS (XNAS) Morningstar Rating Last Price Fair V alue Estimate Price/Fair V alue T railing Dividend Y ield % Forward Dividend Y ield % Market Cap (Bil) Industry Stewardship 06 Aug 2020 21:46, UTC 06 Aug 2020 21 Feb 2020 15:29, UTC 06 Aug 2020 06 Aug 2020 06 Aug 2020 QQ 108.10 USD 89.00 USD 1.21 — 0.00 136.05 T elecom Services Standard © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law , Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner , without the prior written consent of Morningstar Investment research is produced and issued by subsidiaries of Morningstar , Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. T o order reprints, call +1 312-696-6100. T o license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. ? prepaid revenue declined