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MarketScreener Homepage  >  Equities  >  Nasdaq  >  T-Mobile US    TMUS

T-MOBILE US

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T MOBILE US : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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08/06/2020 | 05:15pm EDT

Cautionary Statement Regarding Forward-Looking Statements


This Quarterly Report on Form 10-Q ("Form 10-Q") includes forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. All statements, other than statements of historical fact, including
information concerning our future results of operations, are forward-looking
statements. These forward-looking statements are generally identified by the
words "anticipate," "believe," "estimate," "expect," "intend," "may," "could" or
similar expressions. Forward-looking statements are based on current
expectations and assumptions, which are subject to risks and uncertainties that
may cause actual results to differ materially from the forward-looking
statements. The following important factors, along with the Risk Factors
included in Part II, Item 1A below, could affect future results and cause those
results to differ materially from those expressed in the forward-looking
statements:

•failure to realize the expected benefits and synergies of the merger (the
"Merger") with Sprint Corporation ("Sprint"), pursuant to the Business
Combination Agreement with Sprint and the other parties named therein (as
amended, the "Business Combination Agreement") and the other transactions
contemplated by the Business Combination Agreement (collectively, the
"Transactions") in the expected timeframes, in part or at all;
•adverse economic, political or market conditions in the U.S. and international
markets, including those caused by the COVID-19 pandemic, and the impact that
any of the foregoing may have on us and our customers and other stakeholders;
•costs of or difficulties in integrating Sprint's network and operations into
our network and operations, including intellectual property and communications
systems, administrative and information technology infrastructure and
accounting, financial reporting and internal control systems;
•changes in key customers, suppliers, employees or other business relationships
as a result of the consummation of the Transactions;
•the risk that our business, investor confidence in our financial results and
stock price may be adversely affected if our internal controls are not
effective;
•the risk of future material weaknesses resulting from the differences between
T-Mobile's and Sprint's internal controls environments as we work to integrate
and align policies and practices;
•the impacts of the actions we have taken and conditions we have agreed to in
connection with the regulatory proceedings and approvals of the Transactions
including the Prepaid Transaction (as defined in   Note 2 - Business
Combinations   of the Notes to the Condensed Consolidated Financial Statements)
the complaint and proposed final judgment (the "Consent Decree") agreed to by
us, Deutsche Telekom AG ("DT"), Sprint, SoftBank Group Corp. ("SoftBank") and
DISH Network Corporation ("DISH") with the U.S. District Court for the District
of Columbia, which was approved by the Court on April 1, 2020, the proposed
commitments filed with the Secretary of the FCC, which we announced on May 20,
2019, certain national security commitments and undertakings, and any other
commitments or undertakings entered into, including but not limited to those we
have made to certain states and nongovernmental organizations (collectively, the
"Government Commitments");
•the ongoing commercial and transition services arrangements that we entered
into with DISH in connection with such Prepaid Transaction, which we completed
on July 1, 2020 (collectively, the "Divestiture Transaction");
•the assumption of significant liabilities, including the liabilities of Sprint
in connection with, and significant costs, including financing costs, related to
the Transactions;
•our ability to make payments on debt or to repay existing or future
indebtedness when due or to comply with the covenants contained therein;
•adverse changes in the ratings of our debt securities or adverse conditions in
the credit markets;
•natural disasters, public health crises, including the COVID-19 pandemic,
terrorist attacks or similar incidents;
•competition, industry consolidation and changes in the market for wireless
services, which could negatively affect our ability to attract and retain
customers;
•the effects of any future merger, investment, or acquisition involving us, as
well as the effects of mergers, investments or acquisitions in the technology,
media and telecommunications industry;
•breaches of our and/or our third-party vendors' networks, information
technology and data security, resulting in unauthorized access to customer
confidential information;
•inability to implement and maintain effective cybersecurity measures over
critical business systems;
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•challenges in implementing our business strategies or funding our operations,
including payment for additional spectrum or network upgrades;
•the impact on our networks and business from major system and network failures;
•difficulties in managing growth in wireless data services, including network
quality;
•material changes in available technology and the effects of such changes,
including product substitutions and deployment costs and performance;
•the timing, scope and financial impact of our deployment of advanced network
and business technologies;
•the occurrence of high fraud rates related to device financing, customer credit
cards, dealers, subscriptions, or account take over fraud;
•our inability to retain and hire key personnel;
•any changes in the regulatory environments in which we operate, including any
increase in restrictions on the ability to operate our networks and changes in
data privacy laws;
•unfavorable outcomes of existing or future litigation or regulatory actions,
including litigation or regulatory actions related to the Transactions;
•the possibility that we may be unable to adequately protect our intellectual
property rights or be accused of infringing the intellectual property rights of
others;
•changes in tax laws, regulations and existing standards and the resolution of
disputes with any taxing jurisdictions;
•the possibility that we may be unable to renew our spectrum leases on
attractive terms or acquire new spectrum licenses or leases at reasonable costs
and terms;
•any disruption or failure of third parties (including key suppliers) to provide
products or services;
•material adverse changes in labor matters, including labor campaigns,
negotiations or additional organizing activity, and any resulting financial,
operational and/or reputational impact;
•changes in accounting assumptions that regulatory agencies, including the U.S.
Securities and Exchange Commission (the "SEC"), may require, which could result
in an impact on earnings; and
•interests of our significant stockholders that may differ from the interests of
other stockholders.

Given these risks and uncertainties, readers are cautioned not to place undue
reliance on such forward-looking statements. We undertake no obligation to
revise or publicly release the results of any revision to these forward-looking
statements, except as required by law. In this Form 10-Q, unless the context
indicates otherwise, references to "T-Mobile," "our Company," "the Company,"
"we," "our," and "us" refer to T-Mobile US, Inc. as a standalone company prior
to April 1, 2020, the date we completed the Merger with Sprint, and on and after
April 1, 2020, refer to the combined company as a result of the Merger.

Investors and others should note that we announce material financial and
operational information to our investors using our investor relations website,
press releases, SEC filings and public conference calls and webcasts. We intend
to also use certain social media accounts as means of disclosing information
about us and our services and for complying with our disclosure obligations
under Regulation FD (the @TMobileIR Twitter account
(https://twitter.com/TMobileIR) and the @MikeSievert Twitter
(https://twitter.com/MikeSievert) account, which Mr. Sievert also uses as a
means for personal communications and observations). The information we post
through these social media channels may be deemed material. Accordingly,
investors should monitor these social media channels in addition to following
our press releases, SEC filings and public conference calls and webcasts. The
social media channels that we intend to use as a means of disclosing the
information described above may be updated from time to time as listed on our
investor relations website.

Overview

The objectives of our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") are to provide users of our condensed consolidated financial statements with the following:


•A narrative explanation from the perspective of management of our financial
condition, results of operations, cash flows, liquidity and certain other
factors that may affect future results;
•Context to the financial statements; and
•Information that allows assessment of the likelihood that past performance is
indicative of future performance.

Our MD&A is performed on a consolidated basis and is inclusive of the results
and operations of Sprint prospectively from the close of our Merger on April 1,
2020. The Merger increased our customer base, enhanced our spectrum portfolio,
altered our
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product mix by increasing the portion of customers who finance their devices
with leasing programs and created redundancies within our network. We anticipate
an initial increase in our combined operating costs which we expect to decrease
as we realize synergies. We expect the trends and results of operations of the
combined company to be materially different than those of the standalone
entities.

Our MD&A is provided as a supplement to, and should be read together with, our
unaudited condensed consolidated financial statements for the three and six
months ended June 30, 2020, included in   Part I, Item 1   of this Form 10-Q and
audited consolidated financial statements included in Part II, Item 8 of our
Annual Report on Form 10-K for the year ended December 31, 2019. Except as
expressly stated, the financial condition and results of operations discussed
throughout our MD&A are those of T-Mobile US, Inc. and its consolidated
subsidiaries.

Beginning with the second quarter of 2020, we have discontinued the use of "Branded" to describe the results and metrics associated with our flagship brands including T-Mobile, Metro by T-Mobile, and Sprint.

Sprint Merger

Transaction Overview


On April 1, 2020, we completed our Merger with Sprint, a communications company
offering a comprehensive range of wireless and wireline communications products
and services. As a result, Sprint and its subsidiaries became wholly-owned
consolidated subsidiaries of T-Mobile. Upon completion of the Merger, each share
of Sprint common stock was exchanged for 0.10256 shares of T-Mobile common
stock. After adjustments and fractional shares, we issued 373,396,310 shares of
T-Mobile common stock to Sprint stockholders. The fair value of the T-Mobile
common stock provided in exchange for Sprint common stock was approximately
$31.3 billion. Additional components of consideration included the repayment of
certain of Sprint's debt, replacement of equity awards attributable to
pre-combination services and contingent consideration issuable to SoftBank.

We accounted for the acquisition as a business combination. Our preliminary
purchase price allocation as of the date of acquisition resulted in an aggregate
fair value of assets acquired of $93.8 billion, including Spectrum licenses of
$45.4 billion, assumed liabilities of $53.0 billion and the recognition of $9.2
billion in goodwill.

After closing of the Merger, DT and SoftBank held, directly or indirectly,
approximately 43.6% and 24.7%, respectively, of the outstanding T-Mobile common
stock, with the remaining approximately 31.7% of the outstanding T-Mobile common
stock held by other stockholders.

For more information regarding the Merger, see Note 2 - Business Combinations of the Notes to the Condensed Consolidated Financial Statements.


On June 22, 2020, we entered into a Master Framework Agreement and related
transactions with SoftBank to facilitate the SoftBank Monetization as described
in   Note 14 - SoftBank Equity Transaction   of the Notes to the Condensed
Consolidated Financial Statements. On August 3, 2020, upon completion of the
SoftBank Monetization, DT and SoftBank held, directly or indirectly,
approximately 43.4% and 8.6% respectively, of the outstanding T-Mobile common
stock, with the remaining approximately 48.0% of the outstanding T-Mobile common
stock held by other stockholders. As a result of the Proxy Agreements, DT has
voting control as of August 3, 2020 over approximately 52.4% of the outstanding
T-Mobile common stock. In addition, as provided for in the Master Framework
Agreement, DT also holds certain call options over approximately 101.5 million
shares of our common stock held by SBGC.

Sprint PCS (specifically Sprint Spectrum L.P.) is party to a variety of publicly
filed agreements with Shenandoah Personal Communications Company ("Shentel"),
pursuant to which Shentel is the exclusive provider of Sprint PCS's wireless
mobility communications network products in certain parts of Virginia, West
Virginia, Kentucky, Ohio, and Pennsylvania to approximately 1.1 million
subscribers. Sprint PCS has at least through August 29, 2020 to determine
whether it will exercise an option to purchase Shentel's wireless
telecommunications network assets. Should Sprint PCS exercise the purchase
option, there will be an appraisal process, which could be subject to various
legal challenges. If Sprint PCS declines to do so, Shentel has an opportunity to
purchase the legacy T-Mobile wireless telecommunications network assets in the
Shentel service area and, should it decline to do so within 60 days, the
affiliate agreement states that Sprint PCS must sell or decommission T-Mobile's
legacy wireless telecommunications network assets and transfer subscribers in
the Shentel service area within two years.

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Sale of Boost Mobile and Sprint Prepaid Brands

In connection with obtaining regulatory approval for the Merger, on July 1,
2020, DISH acquired the prepaid wireless business operated under the Boost
Mobile and Sprint prepaid brands (excluding the Assurance brand Lifeline
customers and the prepaid wireless customers of Shentel and Swiftel
Communications, Inc.), including customer accounts, inventory, contracts,
intellectual property and certain other specified assets (the "Prepaid
Business"), and assumed certain related liabilities (the "Prepaid Transaction").
The assets and liabilities associated with the Prepaid Transaction are presented
as held for sale in our Condensed Consolidated Balance Sheets as of June 30,
2020. The results of the Prepaid Business from April 1, 2020 through June 30,
2020 are presented in Income from discontinued operations, net of tax in our
Condensed Consolidated Statements of Comprehensive Income and do not include
corporate and administrative expenses not directly attributable to the
operations of the Prepaid Business.

Upon the closing of the Prepaid Transaction, we entered into a Master Network
Services Agreement (the "MVNO Agreement") providing for the provisioning of
network services to customers of the Prepaid Business for a period of up to
seven years following the closing of the Prepaid Transaction. The revenue
generated through this agreement will be presented within Wholesale revenues in
our Condensed Consolidated Statements of Comprehensive Income beginning upon the
close of the Prepaid Transaction on July 1, 2020.

We have included the pre-tax results of our discontinued operations in our
determination of Adjusted EBITDA, a Non-GAAP measure, to reflect contributions
of the Prepaid Business that will be replaced by the MVNO Agreement beginning on
July 1, 2020. See "Adjusted EBITDA" in in the "  Performance Measures  " section
of this MD&A

For more information regarding the Prepaid Transaction, see Note 12 - Discontinued Operations of the Notes to the Condensed Consolidated Financial Statements.

Impact on Results of Operations and Performance Measures for the Three and Six Months Ended June 30, 2020


The Merger has altered the size and scope of our operations, impacting our
assets, liabilities, obligations, capital requirements and performance measures.
We expect the trends and results of operations of the combined company to be
materially different than those of the standalone entities. As a combined
company, we expect to be able to achieve synergies, rapidly launch a broad and
deep nationwide 5G network, accelerate innovation, and increase competition in
the U.S. wireless, video and broadband industries. Among the expected synergies
are reduction in redundant cell sites from combining networks, back office and
information technology efficiencies and the evolution of our distribution and
retail footprint including the combining of the Sprint and T-Mobile brand
operations, unifying under the T-Mobile brand nationwide starting on August 2,
2020.

Merger-Related Costs

Merger-related costs generally include transaction costs such as legal and
professional services, restructuring costs including severance and store
rationalization and other integration costs to achieve synergies in network,
retail, IT and back office operations. Transaction costs and restructuring costs
are disclosed in   Note 2 - Business Combinations   and   Note 18 -
Restructuring Costs  , respectively. Merger-related costs have been excluded
from the calculation of Adjusted EBITDA, a non-GAAP financial measure, as we do
not consider these costs to be reflective of our ongoing operating performance.
See "Adjusted EBITDA" in the "  Performance Measures  " section of this MD&A.
Cash payments for merger-related costs are included in Net cash provided by
operating activities in our Condensed Consolidated Statements of Cash Flows.

Merger-related costs during the three and six months ended June 30, 2020 and
2019 are presented below:

                                                                                                                                                          Six Months Ended
                                         Three Months Ended June 30,                                      Change                                              June 30,                          Change
(in millions)                                            2020             2019              $                 %             2020             2019                  $               %
Merger-related costs
Cost of services, exclusive of
depreciation and amortization         $         40              $   -            $  40                   NM       $  40            $   -            $    40                    NM
Selling, general & administrative              758                222              536               241  %         901              335                566                169  %
Total Merger-related costs            $        798$ 222$ 576               259  %       $ 941$ 335$   606                181  %

Cash payments for Merger-related
costs                                 $        370$ 151$ 219               145  %       $ 531$ 185$   346                187  %


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NM - Not Meaningful

COVID-19 Pandemic

The COVID-19 pandemic has resulted in a widespread health crisis that has
adversely affected businesses, economies, and financial markets worldwide, and
has caused significant volatility in the U.S. and international debt and equity
markets. The impact of COVID-19 has been wide-ranging, including, but not
limited to, the temporary closures of many businesses and schools, "shelter in
place" orders, travel restrictions, social distancing guidelines and other
governmental, business and individual actions taken in response to the COVID-19
pandemic. These restrictions have impacted, and will continue to impact, our
business, including the demand for our products and services and the ways in
which our customers purchase and use them. In addition, the COVID-19 pandemic
has resulted in economic uncertainty and a significant increase in unemployment
in the United States, which could affect our customers' purchasing decisions and
ability to make timely payments. During the quarter, while the impact of the
COVID-19 pandemic peaked and subsequently subsided in some jurisdictions,
leading to phased re-openings, other areas have seen resurgences of COVID-19
cases and continuing or renewed containment measures.

As a critical communications infrastructure provider as designated by the government, our focus has been on providing crucial connectivity to our customers and impacted communities while ensuring the safety and well-being of our employees.


Our Response

We have taken a variety of steps to help mitigate the impact of COVID-19 on our customers and to protect the health and well-being of our workforce and communities:

To Protect and Support Our Employees and Communities


•Before the Merger, in mid-March, approximately 80% of T-Mobile and 70% of
Sprint company-owned store locations, as well as many third-party retailer
locations, that sell our T-Mobile, Metro by T-Mobile and Sprint brands, were
temporarily closed. In compliance with the regulations of various states, we
have since reopened a number of our previously closed stores.
•We supplemented pay for certain of our employees and commissions for
third-party dealers impacted by COVID-19 and provided access to incremental paid
time off for employees experiencing symptoms, taking care of children who were
home due to school closures or caring for individuals impacted by COVID-19;
•We implemented remote working arrangements for many employees with more than
14,000 internal care employees and over 31,000 global care employees
transitioned to a work-from-home environment. We also encouraged our corporate
and administrative employees to work remotely, if possible.

To Keep Our Customers Connected


•In March, we committed to the FCC's Keep Americans Connected pledge (the
"Pledge"), and at the FCC's request, later extended our commitment to June 30,
2020. During this period, we pledged to:
•Not terminate service to any residential or small business customers because of
their inability to pay their bills due to disruptions caused by the COVID-19
pandemic; and
•Waive any late fees that any residential or small business customers incur
because of their economic circumstances related to the COVID-19 pandemic.
•After the Pledge extension ended, we continued to work with our customers to
help them maintain service and become current on their accounts, while avoiding
financial hardship.
•We also took additional temporary steps in March to ensure that all current
T-Mobile customers with smartphone data plans were provided connectivity to
learn and work remotely through June 30, 2020, including:
•Providing unlimited high-speed smartphone data to current customers as of March
13, 2020 who had legacy plans without unlimited high-speed data (excluding
roaming);
•Giving T-Mobile postpaid and Metro by T-Mobile customers on smartphone plans
with mobile hotspot data the ability to add 10GB of Smartphone Mobile HotSpot
each month (20GB total);
•Working with our Lifeline partners to provide customers up to 5GB per month of
free data;
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•Increasing the data allowance, at no extra charge, to schools and students
using our EmpowerED digital learning program to ensure each participant has
access to at least 20GB of data per month; and
•Providing free international calling to landlines (and in many cases mobile
numbers) to countries that were significantly impacted by COVID-19 through May
13, 2020.
•In addition, during the pandemic we:
•Offered our customers creative, new COVID-safe solutions such as virtual
selling and curbside pickup;
•Launched T-Mobile Connect, a new, competitive $15 per month prepaid option we
had previously announced but launched in March 2020, ahead of schedule to
provide a reliable, low-cost connection for many Americans facing financial
strain;
•Partnered with multiple spectrum holders and the FCC to successfully deploy
additional 600 MHz spectrum on a temporary basis, effectively doubling total 600
MHz LTE capacity across the nation to help ensure customers can stay connected
during this critical time;
•Worked to keep our network fully operational as an essential service to first
responders, 911 communications and our customers and continued to expand our 5G
network, while adhering to governmental guidelines; and
•We unveiled our latest Un-carrier move, Scam Shield, a service to help block
robocalls and reduce scam calls for customers by using a free app that gives the
user control over T-Mobile's anti-scam protections like Scam ID, Scam Block, and
Caller ID. Scam Shield is available to all our customers to combat the rapid
increase in scams, including those related to COVID-19.

We continue to monitor the COVID-19 pandemic and its impacts and may adjust our actions as needed to continue to serve our employees and communities and to provide our products and services to our employees and communities.

Impact on Results of Operations and Performance Measures for the Three and Six Months Ended June 30, 2020


For the three and six months ended June 30, 2020, we incurred $341 million and
$458 million, respectively, before taxes, in supplemental employee payroll,
third-party commissions and cleaning-related COVID-19 costs, which are included
in Selling, general and administrative expenses in our Condensed Consolidated
Statements of Comprehensive Income. Substantially all of these costs were
incurred from March onward, as COVID-19 had a minimal impact on our expenses in
January and February. These costs have been excluded from the calculation of
Adjusted EBITDA, a non-GAAP financial measure, as they represent direct,
incremental costs as a result of our response to COVID-19 that we do not
consider to be indicative of our ongoing operating performance. See "Adjusted
EBITDA" in the "  Performance Measures  " section of this MD&A.

Additional impacts of COVID-19 for the three and six months ended June 30, 2020,
which primarily impacted our results from March onward, include:
•Lower net customer additions due to lower switching activity in the industry
from social distancing rules and temporary retail store closures, which impacted
our ability to sell devices and services and to persuade potential customers to
switch to our network during the crisis;
•Lower postpaid phone and prepaid churn due to social distancing rules and
retail store closures;
•Lower Total service revenues from lower net customer additions and customer
concessions as part of our commitments to the Pledge and other efforts to keep
our customers connected;
•Lower Equipment revenues and lower Cost of equipment sales due to lower
switching activity in the industry from social distancing rules and retail store
closures, which impacted our ability to sell devices; and
•Higher bad debt expense due to the recording of estimated losses associated
with the adoption of the new credit loss standard, which includes the impact of
our commitment to the Pledge through collection holds and the macro-economic
impacts of COVID-19.

Expected Continued Impact on Results of Operations and Performance Measures


We will continue to monitor developments regarding the COVID-19 pandemic and
evaluate the appropriate steps we need to take as a business to align with
guidelines from state, local and federal government agencies and to do what is
best for our employees and customers. We expect our business, liquidity,
financial condition, and operating results to continue to be adversely impacted
by the COVID-19 pandemic for the remainder of 2020 and thereafter. The extent to
which the COVID-19 pandemic impacts our business, operations and financial
results will depend on numerous future developments that we are not able to
predict at this time, including the duration and scope of the pandemic, the
success of governmental, business and
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individual actions that have been and continue to be taken in response to the
pandemic, and the impact on economic activity from the pandemic and actions
taken in response. Such impacts may include:
•Lower net customer additions due to lower switching activity in the industry
from social distancing rules, temporary retail store closures and reduced
consumer spending caused by widespread unemployment and other adverse economic
effects, partially offset by lower churn;
•Lower Equipment revenues and lower Cost of equipment sales from lower device
sales due to lower switching activity in the industry from social distancing
rules and temporary retail store closures, which will impact our ability to sell
devices;
•Higher bad debt expense on our service and equipment installment plan ("EIP")
receivable portfolios due to adverse macro-economic conditions. Should these
adverse conditions worsen, our operating and financial results could be
negatively impacted;
•Continued costs to protect and support our employees and customers, which
increased during the second quarter as a result of a full quarter of COVID-19
impacts compared to the first quarter because COVID-19 primarily only impacted
costs during the last month of the first quarter;
•Higher device insurance fulfillment costs due to a lower supply of returned
devices; and
•Potential disruptions in our supply chains.

In addition, we have reevaluated, and continue to assess, our spending, including for marketing purposes like advertising, capital projects like build-out of our stores, travel, third-party services and certain operating expenses. We have taken actions to adjust our spending given the significant uncertainty around the magnitude and duration of any recessionary impacts arising from the COVID-19 pandemic.

For additional risks to our business and industry, see Item 1A. Risk Factors .


Un-Carrier Moves

Scam Shield

On July 16, 2020, we unveiled our latest Un-carrier move with a comprehensive
set of protections against scams and robocalls. The move, called Scam Shield, is
our response to the growing number of scam calls with an unparalleled set of
free safeguards, including technology built into T-Mobile's network, to protect
customers in the T-Mobile family of brands against scams and robocalls. Scam
Shield addresses this complex problem with a solution designed to help stop
scammers, give the customer more information about the identity of the caller
and protect their personal information.

Brand and Retail Unification


On August 2, 2020, we unified our retail operations and rebranded thousands of
Sprint stores to T-Mobile stores while rolling out the tools and systems across
our distribution footprint to serve all customers in all stores. At the same
time, we launched our 4 lines for $25 each per month limited time promotion,
giving customers unlimited data and 5G access.
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Results of Operations

Set forth below is a summary of our unaudited condensed consolidated financial
results:
                                                                                                                                               Six Months Ended
                                Three Months Ended June 30,                                         Change                                         June 30,                                     Change
(in millions)                      2020                 2019               $                 %                2020              2019                      $                 %
Revenues

Postpaid revenues            $       9,959$ 5,613$  4,346                 77  %       $ 15,846$ 11,106$  4,740                43  %
Prepaid revenues                     2,311             2,379               (68)                (3) %          4,684             4,765                     (81)               (2) %
Wholesale revenues                     408               313                95                 30  %            733               617                     116                19  %
Roaming and other service
revenues                               552               241               311                129  %            813               449                     364                81  %

Total service revenues              13,230             8,546             4,684                 55  %         22,076            16,937                   5,139                30  %

Equipment revenues                   4,269             2,263             2,006                 89  %          6,386             4,779                   1,607                34  %
Other revenues                         172               170                 2                  1  %            322               343                     (21)               (6) %

Total revenues                      17,671            10,979             6,692                 61  %         28,784            22,059                   6,725                30  %
Operating expenses

Cost of services, exclusive
of depreciation and
amortization shown
separately below                     3,098             1,649             1,449                 88  %          4,737             3,195                   1,542                48  %
Cost of equipment sales,
exclusive of depreciation
and amortization shown
separately below                     3,667             2,661             1,006                 38  %          6,196             5,677                     519                 9  %
Selling, general and
administrative                       5,604             3,543             2,061                 58  %          9,292             6,985                   2,307                33  %
Impairment expense                     418                 -               418                    NM            418                 -                     418                   NM
Depreciation and
amortization                         4,064             1,585             2,479                156  %          5,782             3,185                   2,597                82  %

Total operating expenses            16,851             9,438             7,413                 79  %         26,425            19,042                   7,383                39  %
Operating income                       820             1,541              (721)               (47) %          2,359             3,017                    (658)              (22) %

Other income (expense)


Interest expense                      (776)             (182)             (594)               326  %           (961)             (361)                   (600)              166  %
Interest expense to
affiliates                             (63)             (101)               38                (38) %           (162)             (210)                     48               (23) %
Interest income                          6                 4                 2                 50  %             18                12                       6                50  %
Other expense, net                    (195)              (22)             (173)               786  %           (205)              (15)                   (190)            1,267  %

Total other expense, net            (1,028)             (301)             (727)               242  %         (1,310)             (574)                   (736)              128  %

(Loss) income from
continuing operations before
income taxes                          (208)            1,240            (1,448)              (117) %          1,049             2,443                  (1,394)              (57) %
Income tax expense                      (2)             (301)              299                (99) %           (308)             (596)                    288               (48) %

(Loss) income from
continuing operations                 (210)              939            (1,149)              (122) %            741             1,847                  (1,106)              (60) %
Income from discontinued
operations, net of tax                 320                 -               320                    NM            320                 -                     320                   NM
Net income                   $         110           $   939$   (829)               (88) %       $  1,061$  1,847$   (786)              (43) %

Statement of Cash Flows Data
Net cash provided by
operating activities         $         777           $ 2,147$ (1,370)               (64) %          2,394          $  3,539$ (1,145)              (32) %
Net cash used in investing
activities                          (6,356)           (1,615)           (4,741)               294  %         (7,936)           (2,581)                 (5,355)              207  %
Net cash provided by (used
in) financing activities            15,628              (866)           16,494             (1,905) %         15,175            (1,056)                 16,231            (1,537) %
Non-GAAP Financial Measures
Adjusted EBITDA              $       7,017$ 3,461$  3,556                103  %       $ 10,682$  6,745$  3,937                58  %
Free Cash Flow, excluding
gross payments for the
settlement of interest rate
swaps                                    1,441            1,169               272              23  %             2,173             1,787                     386             22  %


NM - Not Meaningful

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The following discussion and analysis is for the three and six months ended June
30, 2020, compared to the same period in 2019 unless otherwise stated.

Total revenues increased $6.7 billion, or 61%, for the three months ended and increased $6.7 billion, or 30%, for the six months ended June 30, 2020. The components of these changes are discussed below.


Postpaid revenues increased $4.3 billion, or 77%, for the three months ended and
increased $4.7 billion, or 43%, for the six months ended June 30, 2020 primarily
from:

•Higher average postpaid phone customers, primarily from customers acquired in
the Merger and the growing success of new customer segments and rate plans as
well as continued growth in existing and Greenfield markets;
•Higher average postpaid other customers, primarily from customers acquired in
the Merger and growth in wearable products, specifically the Apple Watch, as
well as in other connected devices primarily due to growth in educational
institution customers on lower average rate plans; and
•Higher postpaid phone ARPU. See "Postpaid Phone ARPU" in the "  Performance
Measures  " section of this MD&A.

Prepaid revenues decreased $68 million, or 3%, for the three months ended and
decreased $81 million, or 2%, for the six months ended June 30, 2020, primarily
from:

•Lower average prepaid customers primarily from a base adjustment, recorded on
July 18, 2019, for certain T-Mobile prepaid products now offered and distributed
by a current MVNO partner; partially offset by
•Higher prepaid phone ARPU. See "Prepaid Phone ARPU" in the "  Performance
Measures  " section of this MD&A.

Wholesale revenues increased $95 million, or 30%, for the three months ended and
increased $116 million, or 19%, for the six months ended June 30, 2020,
primarily from customers acquired in the Merger and the continued success of our
MVNO partnerships.

Roaming and other service revenues increased $311 million, or 129%, for the three months ended and increased $364 million, or 81%, for the six months ended June 30, 2020, primarily from:


•Inclusion of wireline operations acquired in the Merger;
•Higher Lifeline, advertising and affiliate revenues primarily due to operations
acquired in the Merger; partially offset by
•Lower international roaming due to the impact of COVID-19 and lower domestic
roaming due to the receipt of roaming revenue from Sprint in periods before the
Merger.

Equipment revenues increased $2.0 billion, or 89%, for the three months ended and increased $1.6 billion, or 34%, for the six months ended June 30, 2020.

The increase for the three months ended June 30, 2020, was primarily from:


•An increase of $1.3 billion in lease revenues due to a higher number of
customer devices under lease, primarily from leases acquired in the Merger;
•An increase of $353 million in device sales revenue, excluding purchased leased
devices, primarily from a 20% increase in the number of devices sold, excluding
purchased leased devices, due to an increase in our customer base primarily due
to the Merger and an increase in connected device sales, primarily to
educational institutions;
•An increase of $231 million in equipment sales from leased devices, primarily
due to an increase in purchased leased devices as a result of the Merger; and
•An increase of $165 million in revenues primarily related to the liquidation of
returned devices as a result of the Merger.

The increase for the six months ended June 30, 2020, was primarily from:

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•An increase of $1.3 billion in lease revenues due to a higher number of
customer devices under lease, primarily from leases acquired in the Merger;
•An increase of $232 million in equipment sales from leased devices, primarily
due to an increase in purchased leased devices as a result of the Merger; and
•An increase of $176 million in revenues primarily related to the liquidation of
returned devices as a result of the Merger; partially offset by
•A decrease of $33 million in device sales revenue, excluding purchased leased
devices, primarily from:
•Lower average revenue per device sold due to an increase in the lower-end
device mix; partially offset by
•A 1% increase in the number of devices sold, excluding purchased leased
devices, due to an increase in our customer base primarily due to the Merger and
an increase in connected device sales to educational institutions, offset by
social distancing rules and retail store closures arising from COVID-19, which
had a stronger impact in the first quarter of 2020.

Other revenues were essentially flat for the three months ended and decreased $21 million, or 6%, for the six months ended June 30, 2020.


Operating expenses increased $7.4 billion, or 79%, for the three months ended
and increased $7.4 billion, or 39%, for the six months ended June 30, 2020. The
components of these changes are discussed below.

Cost of services, exclusive of depreciation and amortization, increased $1.4
billion, or 88%, for the three months ended and increased $1.5 billion, or 48%,
for the six months ended June 30, 2020 primarily from:

•An increase in expenses associated with leases, backhaul agreements and tower
expenses acquired in the Merger and the continued build-out of our nationwide 5G
network;
•Higher employee-related and benefit-related costs primarily due to increased
headcount as a result of the Merger;
•Costs associated with wireline operations acquired in the Merger;
•An increase in repair and maintenance costs, primarily due to the Merger; and
•An increase in regulatory and roaming costs primarily due to the Merger,
partially offset by lower international roaming costs.

Cost of equipment sales, exclusive of depreciation and amortization, increased
$1.0 billion, or 38%, for the three months ended and increased $519 million, or
9%, for the six months ended June 30, 2020.

The increase for the three months ended June 30, 2020, was primarily from:


•An increase of $416 million in device cost of equipment sales, excluding
purchased leased devices, primarily from:
•A 20% increase in the number of devices sold, excluding purchased leased
devices, due to an increase in our customer base primarily due to the Merger and
an increase in connected device sales primarily to educational institutions;
partially offset by
•Lower average costs per device sold due to an increase in the low-end device
mix;
•An increase of $314 million in costs related to the liquidation of returned
devices as a result of the Merger and higher extended warranty costs; and
•An increase of $292 million in leased device cost of equipment sales, primarily
due to an increase in purchased leased devices as a result of the Merger.
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The increase for the six months ended June 30, 2020, was primarily from:


•An increase of $326 million in costs related to the liquidation of returned
devices as a result of the Merger as well as higher extended warranty costs; and
•An increase of $299 million in leased device cost of equipment sales, primarily
due to an increase in purchased leased devices as a result of the Merger;
partially offset by
•A decrease of $72 million in device cost of equipment sales, excluding
purchased leased devices, primarily from:
•Lower average cost per device sold due to an increase in the low-end device
mix; partially offset by
•A 1% increase in the number of devices sold, excluding purchased leased
devices, due to an increase in our customer base primarily due to the Merger and
an increase in connected device sales to educational institutions, offset by
social distancing rules and retail store closures arising from COVID-19, which
had a stronger impact in the first quarter of 2020.

Selling, general and administrative expenses increased $2.1 billion, or 58%, for
the three months ended and increased $2.3 billion, or 33%, for the six months
ended June 30, 2020.

The increase for the three months ended June 30, 2020, was primarily from:


•Higher employee-related costs due to an increase in the number of employees
primarily from the Merger;
•Higher external labor and professional services, advertising, lease and rent
expense primarily from the Merger;
•$758 million of Merger-related costs including transaction costs associated
with legal and professional services and restructuring costs including severance
and store rationalization, compared to $222 million of Merger-related costs in
the three months ended June 30, 2019;
•Higher commission expense primarily due to an increase in our retail workforce
from the Merger, partially offset by commissions capitalized in excess of
commissions expensed, including a net benefit from new contract costs
capitalized subsequent to Merger close that are in excess of the related
amortization; and
•Higher bad debt expense primarily due to customers acquired as a result of the
Merger and the recording of estimated losses associated with the new credit loss
standard including $125 million of incremental bad debt for the estimated
macro-economic impacts of COVID-19 of which $46 million is related to our
commitments to the Pledge.
•Selling, general and administrative expenses for the three months ended June
30, 2020, included $341 million of supplemental employee payroll, third party
commissions and cleaning-related COVID-19 costs.

The increase for the six months ended June 30, 2020, was primarily from:


•Higher employee-related costs due to an increase in the number of employees
primarily from the Merger;
•Higher external labor and professional services, advertising, lease and rent
expense from the Merger;
•$901 million of Merger-related costs including transaction costs associated
with legal and professional services and restructuring costs including severance
and store rationalization, compared to $335 million of Merger-related costs in
the six months ended June 30, 2019;
•Higher commission expense primarily due to an increase in our retail workforce
from the Merger and an increase of $87 million related to commissions expensed
in excess of commissions capitalized; partially offset by a net benefit from new
contract costs capitalized subsequent to Merger close that are in excess of the
related amortization as these costs will amortize into expense over time and
lower commissions expense from compensation structure changes;
•Higher legal-related expenses from recording an estimated accrual associated
with the FCC Notice of Apparent Liability and commitments associated with the
Merger; and
•Higher bad debt expense primarily due to customers acquired as a result of the
Merger and the recording of estimated losses associated with the new credit loss
standard including $155 million of incremental bad debt for the estimated
macro-economic impacts of COVID-19 of which $46 million is related to our
commitments to the Pledge.
•Selling, general and administrative expenses for the six months ended June 30,
2020, included $458 million of supplemental employee payroll, third party
commissions and cleaning-related COVID-19 costs.

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Impairment expense was $418 million for the three and six months ended June 30,
2020 and consisted of the following:

•A $218 million impairment on the goodwill in the Layer3 reporting unit; and
•A $200 million impairment on the capitalized software development costs related
to our postpaid billing system.

For more information regarding the impairments above, see   Note 5 - Property
and Equipmen    t   and   Note 6 - Goodwill, Spectrum License Transactions and
Ot    h    er     Intangible Asse    t    s   of the Notes to the Condensed
Consolidated Financial Statements.

Depreciation and amortization increased $2.5 billion, or 156%, for the three
months ended and increased $2.6 billion, or 82%, for the six months ended June
30, 2020, primarily as a result of the Merger including:

•Higher depreciation expense from assets acquired in the Merger, excluding
leased devices, and network expansion from the continued build-out of our
nationwide 5G network;
•Higher depreciation expense on leased devices resulting from a higher total
number of customer devices under lease, primarily from customers acquired in the
Merger; and
•Higher amortization from intangible assets acquired in the Merger.

Operating income, the components of which are discussed above, decreased $721
million, or 47%, for the three months ended and decreased $658 million, or 22%,
for the six months ended June 30, 2020.

Interest expense increased $594 million, or 326%, for the three months ended and increased $600 million, or 166%, for the six months ended June 30, 2020 primarily from:


•The assumption of debt with a fair value of $31.8 billion in connection with
the Merger;
•The issuance of an aggregate of $19.0 billion in Senior Secured Notes and the
entry into a $4.0 billion secured term loan in April 2020 in connection with the
Merger; and
•Amortization of $39 million related to interest rate swap derivatives beginning
upon settlement in April 2020.

Interest expense to affiliates decreased $38 million, or 38%, for the three months ended and decreased $48 million, or 23%, for the six months ended June 30, 2020.

The decrease for the three months ended June 30, 2020, was primarily from:

•The redemption of an aggregate of $4.0 billion in Senior Notes to Affiliates and the repayment of an aggregate of $4.0 billion in Incremental term loan facility to affiliates in April 2020; partially offset by •Lower capitalized interest.

The decrease for the six months ended June 30, 2020, was primarily from:


•The redemption of an aggregate of $4.0 billion in Senior Notes to Affiliates
and the repayment of an aggregate of $4.0 billion in Incremental term loan
facility to affiliates in 2020; and
•The redemption of $600 million in Senior Reset Notes in April 2019; partially
offset by
•Lower capitalized interest.

Other expense, net increased $173 million for the three months ended and increased $190 million for the six months ended June 30, 2020, primarily from losses on the extinguishment of the $19.0 billion New Secured Bridge Loan Facility and $4.0 billion Senior Notes to Affiliates.


(Loss) income from continuing operations before income taxes, the components of
which are discussed above, was ($208) million and $1.2 billion for the three
months ended June 30, 2020 and 2019, respectively, and was $1.0 billion and $2.4
billion for the six months ended June 30, 2020 and 2019, respectively.
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(Loss) income from continuing operations before income taxes for the three and
six months ended June 30, 2020 was primarily impacted by:
•Merger-related costs including restructuring costs;
•Impairment expense; and
•Make-whole commissions and incremental bad debt as a result of the
macro-economic impacts of COVID-19.

Income tax expense decreased $299 million, or 99%, for the three months ended and decreased $288 million, or 48%, for the six months ended June 30, 2020.

The decrease for the three months ended June 30, 2020, was primarily from:


•Lower income before income taxes; partially offset by
•A negative effective tax rate due to a small pre-tax loss primarily
attributable to expenses that are not deductible for tax purposes including our
Layer3 goodwill impairment and certain merger-related costs. The effective tax
rate was (0.7)% for the three months ended June 30, 2020 and 24.4% for the three
months ended June 30, 2019.

The decrease for the six months ended June 30, 2020, was primarily from:


•Lower income before income taxes; partially offset by
•A higher effective tax rate, primarily due to a reduction in income before
income taxes and an increase in expenses that are not deductible for income tax
purposes primarily related to our Layer 3 goodwill impairment and certain
Merger-related costs. The effective tax rate was 29.4% and 24.4% for the six
months ended June 30, 2020 and 2019, respectively.

(Loss) income from continuing operations, was $(210) million and $939 million
for the three months ended June 30, 2020 and 2019, respectively, and was $741
million and $1.8 billion for the six months ended June 30, 2020 and 2019,
respectively,
primarily due to lower Operating income and higher Interest expense, partially
offset by lower Income tax expense.

Income from discontinued operations, net of tax was $320 million for both the
three and six months ended June 30, 2020 and consists of the results of the
Prepaid Business that was divested on July 1, 2020. The components of
discontinued operations, net of tax from April 1, 2020 through June 30, 2020 are
presented in the table below:
                                                                               Three and Six Months Ended
(in millions)                                                                        June 30, 2020
Major classes of line items constituting pretax income from
discontinued operations
Prepaid revenues                                                               $                   973
Roaming and other service revenues                                                                  27
Total service revenues                                                                           1,000
Equipment revenues                                                                                 270
Total revenues                                                                                   1,270
Cost of services                                                                                    25
Cost of equipment sales                                                                            499
Selling, general and administrative                                                                314
Total operating expenses                                                                           838
Pretax income from discontinued operations                                                         432
Income tax expense                                                                                (112)
Net income from discontinued operations                                        $                   320



For more information regarding the Prepaid Transaction, see Note 12 - Discontinued Operations of the Notes to the Condensed Consolidated Financial Statements.


Net income, the components of which are discussed above, decreased $829 million,
or 88%, for the three months ended and decreased $786 million, or 43%, for the
six months ended June 30, 2020, primarily due to lower Operating income and
higher interest expense, partially offset by Income from discontinued
operations, net of tax and lower Income tax expense.

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Net income for the three months ended June 30, 2020 included the following:

•Merger-related costs, net of tax, of $635 million for the three months ended
June 30, 2020, compared to $175 million for the three months ended June 30,
2019.
•The negative impact of supplemental employee payroll, net of government
reimbursements, third-party commissions and cleaning-related COVID-19 costs, net
of tax, of $253 million for the three months ended June 30, 2020, compared to no
impact for the three months ended June 30, 2019.
•Impairment expense of $366 million, net of tax, for the three months ended June
30, 2020, compared to no impairment expense for the three months ended June 30,
2019. The impairment of goodwill of $218 million in the Layer3 reporting unit is
not deductible for tax purposes.

Net income for the six months ended June 30, 2020, included the following:


•Merger-related costs, net of tax, of $752 million for the six months ended June
30, 2020, compared to $268 million for the six months ended June 30, 2019.
•The negative impact of supplemental employee payroll, third-party commissions
and cleaning-related COVID-19 costs, net of tax, of $339 million for the six
months ended June 30, 2020, compared to no impact for the six months ended
June 30, 2019.
•Impairment expense of $366 million, net of tax, for the six months ended June
30, 2020, compared to no impairment expense for the six months ended June 30,
2019. The impairment of goodwill of $218 million in the Layer3 reporting unit is
not deductible for tax purposes.

Guarantor Financial Information


On March 2, 2020, the SEC adopted amendments to the financial disclosure
requirements for guarantors and issuers of guaranteed securities, as well for
affiliates whose securities collateralize a registrant's securities. We early
adopted the requirements of the amendments on January 1, 2020, which included
replacing guarantor condensed consolidating financial information with
summarized financial information for the consolidated obligor group (Parent,
Issuer, and Guarantor Subsidiaries) as well as no longer requiring guarantor
cash flow information, financial information for non-guarantor subsidiaries, nor
a reconciliation to the consolidated results.

On April 1, 2020, in connection with the closing of the Merger, we assumed certain registered debt to third parties issued by Sprint, Sprint Communications, Inc. and Sprint Capital Corporation (collectively, the "Sprint Issuers").


Pursuant to the applicable indentures and supplemental indentures, the long-term
debt to affiliates and third parties issued by T-Mobile USA, Inc. and the Sprint
Issuers (collectively, the "Issuers") is fully and unconditionally guaranteed,
jointly and severally, on a senior unsecured basis by T-Mobile ("Parent") and
certain of the Parent's 100% owned subsidiaries ("Guarantor Subsidiaries").

The guarantees of the Guarantor Subsidiaries are subject to release in limited
circumstances only upon the occurrence of certain customary conditions. The
indentures and credit facilities governing the long-term debt contain covenants
that, among other things, limit the ability of the Issuers and the Guarantor
Subsidiaries to incur more debt, pay dividends and make distributions, make
certain investments, repurchase stock, create liens or other encumbrances, enter
into transactions with affiliates, enter into transactions that restrict
dividends or distributions from subsidiaries, and merge, consolidate or sell, or
otherwise dispose of, substantially all of their assets. Certain provisions of
each of the credit facilities, indentures and supplemental indentures relating
to the long-term debt restrict the ability of the Issuers to loan funds or make
payments to Parent. However, the Issuers and Guarantor Subsidiaries are allowed
to make certain permitted payments to the Parent under the terms of the
indentures and the supplemental indentures.

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes." The standard simplifies the
accounting for income taxes by removing certain exceptions to the general
principles in Topic 740. We early adopted the standard on January 1, 2020 and
have applied the standard retrospectively to all periods presented. Upon the
adoption of the standard, deferred tax assets of non-guarantor entities in
aggregate of $163 million were reclassified and netted with the deferred tax
liabilities of the guarantor obligor group of the debt issued by T-Mobile USA,
Inc. The adoption of this standard did not have an impact on our condensed
consolidated financial statements.

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In March 2020, certain Guarantor Subsidiaries became Non-Guarantor Subsidiaries.
Certain prior period amounts have been reclassified to conform to the current
period's presentation.

The summarized balance sheet information for the consolidated obligor group of debt issued by T-Mobile USA, Inc. is presented in the table below: (in millions)

               June 30, 2020       December 31, 2019
Current assets             $      23,105       $          8,177
Noncurrent assets                163,040                 77,684
Current liabilities               21,487                 11,885
Noncurrent liabilities           101,662                 45,187
Due to non-guarantors              7,054                      -
Due from non-guarantors                -                    346
Due to related parties             6,067                 14,173
Due from related parties              24                     20


The summarized results of operations information for the consolidated obligor group of debt issued by T-Mobile USA, Inc. is presented in the table below:

                                                                      Six Months Ended         Year Ended December
(in millions)                                                          June 30, 2020                 31, 2019
Total revenues                                                      $       28,071$       43,431
Operating income                                                             1,525                      4,761
Net income                                                                   1,061                      3,468
Revenue from non-guarantors                                                    656                        974



The summarized balance sheet information for the consolidated obligor group of
debt issued by Sprint and Sprint Communications, Inc. is presented in the table
below:
(in millions)              June 30, 2020
Current assets            $      1,619
Noncurrent assets              130,938
Current liabilities              4,716
Noncurrent liabilities          64,845

Due from non-guarantors         49,254
Due to related parties           6,025




The summarized results of operations information for the consolidated obligor
group of debt issued by Sprint and Sprint Communications, Inc. is presented in
the table below:

(in millions)                    Three Months Ended June 30, 2020
Total revenues                  $                      2
Operating income                                     (15)
Net income                                           110
Revenue from non-guarantors                            2



The summarized balance sheet information for the consolidated obligor group of debt issued by Sprint Capital Corporation is presented in the table below:

(in millions)              June 30, 2020
Current assets            $      1,619
Noncurrent assets              136,235
Current liabilities              4,788
Noncurrent liabilities          70,070

Due from non-guarantors         58,276
Due to related parties           6,025



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The summarized results of operations information for the consolidated obligor
group of debt issued by Sprint Capital Corporation is presented in the table
below:

(in millions)                    Three Months Ended June 30, 2020
Total revenues                  $                      2
Operating income                                     (15)
Net income                                           110
Revenue from non-guarantors                            2



Performance Measures


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

The performance measures presented below include the impact of the Merger on a
prospective basis from the close date of April 1, 2020. Historical results were
not restated.

Customers

A customer is generally defined as a SIM number with a unique T-Mobile
identifier which is associated with an account that generates revenue. Customers
are qualified either for postpaid service utilizing phones, wearables, DIGITS or
other connected devices which includes tablets and SyncUp products, where they
generally pay after receiving service, or prepaid service, where they generally
pay in advance. Our postpaid customers include customers of T-Mobile and Sprint.
Our prepaid customers include customers of T-Mobile and Metro by T-Mobile.

The following table sets forth the number of ending customers:

                                      As of June 30, 2020                                     Change
(in thousands)                         2020               2019                  #            %
Customers, end of period

Postpaid phone customers (1)              65,105        38,590               26,515          69  %
Postpaid other customers (1)              12,648         6,056                6,592         109  %

Total postpaid customers                  77,753        44,646               33,107          74  %
Prepaid customers (1), (2)                20,574        21,337                 (763)         (4) %

Total customers                           98,327        65,983               32,344          49  %


(1) Includes customers acquired in connection with the Merger and certain
customer base adjustments. See Customer Base Adjustments and Net Customer
Additions tables below.
(2) On July 18, 2019, we entered into an agreement whereby certain T-Mobile
prepaid products will now be offered and distributed by a current MVNO partner.
As a result, we included a base adjustment in the third quarter of 2019 to
reduce prepaid customers by 616,000.

Total customers increased 32,344,000, or 49%, primarily from:


•Higher postpaid phone customers primarily due to postpaid phone customers
acquired in the Merger and the success of new customer segments and rate plans
and continued growth in existing and Greenfield markets, along with promotional
activities; and
•Higher postpaid other customers primarily due to postpaid other customers
acquired in the Merger and growth in wearable products, specifically the Apple
Watch as well as other connected devices primarily due to growth in educational
institution customers; partially offset by
•Lower prepaid customers driven primarily by a reduction of 616,000 customers
resulting from a base adjustment for certain T-Mobile prepaid products now
offered and distributed by a current MVNO partner, partially offset by the
continued success of our prepaid brands due to promotional activities and rate
plan offers.

Customer Base Adjustments
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Certain adjustments were made to align the customer reporting policies of T-Mobile and Sprint.

The adjustments made to the reported T-Mobile and Sprint ending customer base as of March 31, 2020 are presented below:

                                            Postpaid phone          Postpaid other          Total postpaid
(in thousands)                                 customers               customers               customers           Prepaid customers        Total customers
Reconciliation to beginning customers
T-Mobile customers as reported, end of
period March 31, 2020                              40,797                   7,014                  47,811                  20,732                  

68,543

Sprint customers as reported, end of
period March 31, 2020                              25,916                   8,428                  34,344                   8,256                  

42,600

Total combined customers, end of period
March 31, 2020                                     66,713                  15,442                  82,155                  28,988                 

111,143

Adjustments

Reseller reclassification to wholesale
customers (1)                                        (199)                 (2,872)                 (3,071)                      -                  

(3,071)

EIP reclassification from postpaid to
prepaid (2)                                          (963)                      -                    (963)                    963                       -
Divested prepaid customers (3)                          -                       -                       -                  (9,207)                 

(9,207)

Rate plan threshold (4)                              (182)                   (918)                 (1,100)                      -                  

(1,100)

Customers with non-phone devices (5)                 (226)                    226                       -                       -                       -
Collection policy alignment (6)                      (150)                    (46)                   (196)                      -                    

(196)

Miscellaneous adjustments (7)                        (141)                    (43)                   (184)                   (302)                   (486)
Total Adjustments                                  (1,861)                 (3,653)                 (5,514)                 (8,546)                (14,060)
Adjusted beginning customers as of April
1, 2020                                            64,852                  11,789                  76,641                  20,442                  97,083


(1) In connection with the closing of the Merger, we refined our definition of
wholesale customers resulting in the reclassification of certain postpaid  and
prepaid reseller customers to wholesale customers. Starting with the three
months ended March 31, 2020, we discontinued reporting wholesale customers to
focus on postpaid and prepaid customers and wholesale revenues, which we
consider more relevant than the number of wholesale customers given the
expansion of M2M and IoT products.
(2) Prepaid customers with a device installment billing plan historically
included as Sprint postpaid customers have been reclassified to prepaid
customers to align with T-Mobile policy.
(3) Customers associated with the Sprint wireless prepaid and Boost Mobile
brands that were divested on July 1, 2020, have been excluded from our reported
customers.
(4) Customers who have rate plans with monthly recurring charges which are
considered insignificant have been excluded from our reported customers.
(5) Customers with postpaid phone rate plans without a phone (e.g., non-phone
devices) have been reclassified from postpaid phone to postpaid other customers
to align with T-Mobile policy.
(6) Certain Sprint customers subject to collection activity for an extended
period of time have been excluded from our reported customers to align with
T-Mobile policy.
(7) Miscellaneous insignificant adjustments to align with T-Mobile policy.

Net Customer Additions

The following table sets forth the number of net customer additions:

                                                                                                                                             Six Months Ended
                             Three Months Ended June 30,                                        Change                                           June 30,                                        Change
(in thousands)                 2020                2019                 #                          %                2020                  2019                               #         %
Net customer additions

Postpaid phone customers          253                 710              (457)              (64) %            705              1,366                         (661)            (48) %
Postpaid other customers          859                 398               461               116  %          1,184                761                          423              56  %

Total postpaid customers        1,112               1,108                 4                   NM          1,889              2,127                         (238)            (11) %
Prepaid customers (1)             133                 131                 2                 2  %              5                200                         (195)            (98) %

Total customers                 1,245               1,239                 6                   NM          1,894              2,327                         (433)            (19) %
Acquired customers, net
of base adjustments            29,228                   -            29,228                   NM         29,228                  -                       29,228                 NM


NM - Not Meaningful
(1) On July 18, 2019, we entered into an agreement whereby certain T-Mobile
prepaid products will now be offered and distributed by a current MVNO partner.
As a result, we included a base adjustment in the third quarter of 2019 to
reduce prepaid customers by 616,000.

Total net customer additions increased 6,000, for the three months ended and decreased 433,000, or 19%, for the six months ended June 30, 2020.

The increase for the three months ended June 30, 2020 was primarily from:

•Higher postpaid other net customer additions primarily due to higher gross additions from connected devices primarily

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due to educational institution additions, partially offset by lower switching
activity in the industry from social distancing rules and retail store closures
due to COVID-19; and
•Higher prepaid net customer additions primarily due to lower churn and
promotional activity in the marketplace partially offset by lower switching
activity in the industry from social distancing rules and retail store closures
due to COVID-19; partially offset by
•Lower postpaid phone net customer additions primarily due to lower switching
activity in the industry from social distancing rules and retail store closures
due to COVID-19 and an increase in churn from the inclusion of the customer base
acquired in the Merger.

The decrease for the six months ended June 30, 2020 was primarily from:


•Lower postpaid phone net customer additions primarily due to lower switching
activity in the industry from social distancing rules and retail store closures
due to COVID-19 and an increase in churn from the inclusion of the customer base
acquired in the Merger; and
•Lower prepaid net customers additions primarily due to lower switching activity
in the industry from social distancing rules and retail store closures due to
COVID-19, partially offset by lower churn and promotional activity in the
marketplace; partially offset by
•Higher postpaid other net customer additions primarily due to higher gross
additions from connected devices primarily due to educational institution
additions and lower churn, partially offset by lower switching activity in the
industry from social distancing rules and retail store closures due to COVID-19.

Churn


Churn represents the number of customers whose service was disconnected as a
percentage of the average number of customers during the specified period. The
number of customers whose service was disconnected is presented net of customers
that subsequently have their service restored within a certain period of time.
We believe that churn provides management, investors and analysts with useful
information to evaluate customer retention and loyalty.

The following table sets forth the churn:

                                                                                                                               Six Months Ended
                                             Three Months Ended June 30,                                Bps Change                 June 30,                                     Bps Change
                                                         2020               2019                                                             2020           2019
Postpaid phone churn                            0.80  %            0.78  %               2 bps                0.82  %            0.83  %                      -1 bps
Prepaid churn                                   2.81  %            3.49  %             -68 bps                3.17  %            3.67  %                     -50 bps



Postpaid phone churn increased two basis points for the three months ended June
30, 2020, primarily due to the inclusion of the customer base acquired in the
Merger, offset by lower switching activity in the industry due to social
distancing rules and temporary retail store closures arising from COVID-19.

Postpaid phone churn decreased one basis point for the six months ended June 30, 2020, primarily impacted by lower switching activity in the industry due to social distancing rules and temporary retail store closures arising from COVID-19, offset by the inclusion of the customer base acquired in the Merger.


Prepaid churn decreased 68 basis points for the three months ended and decreased
50 basis points for the six months ended June 30, 2020, primarily due to lower
switching activity in the industry due to social distancing rules and temporary
retail store closures arising from COVID-19 and the continued success of our
prepaid brands due to promotional activities and rate plan offers.

During the three and six months ended June 30, 2020, we have seen lower churn
due to social distancing rules and temporary retail store closures arising from
the COVID-19 pandemic.
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Total Postpaid Accounts


A postpaid account is generally defined as a billing account number that
generates revenue. Postpaid accounts are generally comprised of customers that
are qualified for postpaid service utilizing phones, wearables, DIGITS or other
connected devices which includes tablets and SyncUp products, where they
generally pay after receiving service.

                                              As of June 30, 2020                                     Change
(in thousands)                                 2020               2019                  #            %
Accounts, end of period
Total postpaid customer accounts(1)               25,486        14,480      

11,006 76 %



(1) Includes accounts acquired in connection with the Merger and certain account
base adjustments. See Account Base Adjustments table below.
Total postpaid customer accounts increased 11,006,000, or 76%, primarily due to
10,150,000 accounts acquired in the Merger, the growing success of new customer
segments and rate plans, continued growth in existing and Greenfield markets,
improvements in network quality, industry-leading customer service, along with
promotional activities, partially offset by lower switching activity in the
industry from social distancing rules and temporary retail store closures
arising from COVID-19.

Account Base Adjustments

Certain adjustments were made to align the account reporting policies of T-Mobile and Sprint.


The adjustments made to the reported T-Mobile and Sprint ending account base as
of March 31, 2020 are presented below:
(in thousands)                                                     Postpaid 

Accounts

Reconciliation to beginning accounts
T-Mobile accounts as reported, end of period March 31, 2020

15,244

Sprint accounts, end of period March 31, 2020

11,246

Total combined accounts, end of period March 31, 2020

26,490

Adjustments

Reseller reclassification to wholesale accounts (1)                         

(1)

EIP reclassification from postpaid to prepaid (2)                           

(963)

Rate plan threshold (3)                                                     

(18)

Collection policy alignment (4)                                             

(76)

Miscellaneous adjustments (5)                                               

(47)

Total Adjustments                                                           

(1,105)

Adjusted beginning accounts as of April 1, 2020

25,385



(1) In connection with the closing of the Merger, we refined our definition of
wholesale accounts resulting in the reclassification of certain postpaid  and
prepaid reseller accounts to wholesale accounts.
(2) Prepaid accounts with a customer with a device installment billing plan
historically included as Sprint postpaid accounts have been reclassified to
prepaid accounts to align with T-Mobile policy.
(3) Accounts with customers who have rate plans with monthly recurring charges
which are considered insignificant have been excluded from our reported
accounts.
(4) Certain Sprint accounts subject to collection activity for an extended
period of time have been excluded from our reported accounts to align with
T-Mobile policy.
(5) Miscellaneous insignificant adjustments to align with T-Mobile policy.

Average Revenue Per User


ARPU represents the average monthly service revenue earned from customers. We
believe ARPU provides management, investors and analysts with useful information
to assess and evaluate our service revenue per customer and assist in
forecasting our future service revenues generated from our customer base.
Postpaid phone ARPU excludes postpaid other customers and related revenues which
includes wearables, DIGITS and other connected devices such as tablets and
SyncUp products.
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The following table illustrates the calculation of our operating measure ARPU and reconciles this measure to the related service revenues:


(in millions, except                                                                                                                               Six Months Ended
average number of customers     Three Months Ended June 30,                                          Change                                            June 30,                                      Change
and ARPU)                                      2020               2019                $                %                2020                2019                        S               %
Calculation of Postpaid
Phone ARPU

Postpaid service revenues   $       9,959$ 5,613$ 4,346               77  %       $ 15,846$ 11,106$ 4,740               43  %
Less: Postpaid other
revenues                             (618)               (326)              (292)              90  %           (928)               (636)                      (292)              46  %

Postpaid phone service
revenues                    $       9,341$ 5,287$ 4,054               77  %       $ 14,918$ 10,470$ 4,448               42  %
Divided by: Average number
of postpaid phone customers
(in thousands) and number
of months in period                64,889              38,226             26,663               70  %         52,737              37,865                     14,872               39  %
Postpaid phone ARPU         $       47.99$ 46.10$  1.89                4  %       $  47.15$  46.09$  1.06                2  %

Calculation of Prepaid ARPU
Prepaid service revenues    $       2,311$ 2,379$   (68)              (3) %       $  4,684$  4,765$   (81)              (2) %
Divided by: Average number
of prepaid customers (in
thousands) and number of
months in period                   20,380              21,169               (789)              (4) %         20,570              21,146                       (576)              (3) %
Prepaid ARPU                $       37.80$ 37.46$  0.34                1  %       $  37.95$  37.56$  0.39                1  %


Postpaid Phone ARPU

Postpaid phone ARPU increased $1.89, or 4%, for the three months ended and increased $1.06, or 2%, for the six months ended June 30, 2020; primarily due to:


•The net impact of customers acquired in the Merger, which have higher ARPU (net
of changes arising from the reduction in base due to policy adjustments and
reclassification of certain ARPU components from the acquired customers being
moved to other revenue lines);
•Continued growth in existing and Greenfield markets; and
•Higher premium service revenues; partially offset by
•A reduction in certain non-recurring charges including the impact of COVID-19.

Prepaid ARPU

Prepaid ARPU increased $0.34, or 1%, for the three months ended and increased $0.39, or 1%, for the six months ended June 30, 2020, primarily due to:


•The impacts of certain adjustments to our customer base, including the removal
of certain prepaid customers associated with products now offered and
distributed by a current MVNO partner as those customers had lower ARPU;
partially offset by
•Dilution from our promotional activities; and
•A reduction in certain non-recurring charges to customer accounts in connection
with our response to COVID-19.

Average Revenue Per Account


Average Revenue per Account ("ARPA") represents the average monthly postpaid
service revenue earned per account. We believe postpaid ARPA provides
management, investors and analysts with useful information to assess and
evaluate our postpaid service revenue realization and assist in forecasting our
future postpaid service revenues on a per account basis. We consider postpaid
ARPA to be indicative of our revenue growth potential given the increase in the
average number of postpaid phone customers per account and increases in postpaid
other customers, including wearables, DIGITS or other connected devices which
includes tablets and SyncUp products.

The following table illustrates the calculation of our operating measure ARPA and reconciles this measure to the related service revenues:

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                                                                                                                                                     Six Months Ended
(in millions, except average      Three Months Ended June 30,              
                           Change                                            June 30,                                    Change
number of accounts, ARPA)                       2020                2019                $                %                2020                2019                      $               %
Calculation of Postpaid ARPA
Postpaid service revenues    $       9,959$  5,613$ 4,346               77  %       $ 15,846$ 11,106$ 4,740               43  %
Divided by: Average number
of postpaid accounts (in
thousands) and number of
months in period                    25,424               14,354             11,070               77  %         20,289              14,231                    6,058               43  %
Postpaid ARPA                $      130.57$ 130.36$  0.21                  NM       $ 130.16$ 130.07$  0.09                  NM



NM - Not Meaningful

Postpaid ARPA

Postpaid ARPA was essentially flat for the three months ended and six months ended June 30, 2020.` Substantially offsetting impacts include:


•The net impact of customers acquired in the Merger; as well as
•The growing success of new customer segments and rate plans, including further
penetration in connected devices; and
•Higher premium service revenues; offset by
•An increase in our promotional activities; and
•A reduction in certain non-recurring charges including the impact of COVID-19.

Adjusted EBITDA


Adjusted EBITDA represents earnings before Interest expense, net of Interest
income, Income tax expense, Depreciation and amortization, non-cash Stock-based
compensation and certain income and expenses not reflective of our operating
performance. Net income margin represents Net income divided by Service
revenues. Adjusted EBITDA margin represents Adjusted EBITDA divided by Service
revenues.

Adjusted EBITDA is a non-GAAP financial measure utilized by our management to
monitor the financial performance of our operations. We use Adjusted EBITDA
internally as a measure to evaluate and compensate our personnel and management
for their performance, and as a benchmark to evaluate our operating performance
in comparison to our competitors. Management believes analysts and investors use
Adjusted EBITDA as a supplemental measure to evaluate overall operating
performance and facilitate comparisons with other wireless communications
services companies because it is indicative of our ongoing operating performance
and trends by excluding the impact of interest expense from financing, non-cash
depreciation and amortization from capital investments, non-cash stock-based
compensation, network decommissioning costs, costs related to the Merger,
incremental costs directly attributable to COVID-19 and impairment expense, as
they are not indicative of our ongoing operating performance, as well as certain
other nonrecurring income and expenses. Adjusted EBITDA has limitations as an
analytical tool and should not be considered in isolation or as a substitute for
income from operations, net income or any other measure of financial performance
reported in accordance with U.S. Generally Accepted Accounting Principles
("GAAP").

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Table of Contents The following table illustrates the calculation of Adjusted EBITDA and reconciles Adjusted EBITDA to Net income, which we consider to be the most directly comparable GAAP financial measure:

                                                                                                                                                      Six Months Ended
                                      Three Months Ended June 30,                                        Change                                           June 30,                                          Change
(in millions)                            2020                 2019              $                            %                2020                  2019                              $           %

Net income                         $         110           $   939$  (829)                (88) %       $  1,061$ 1,847$  (786)               (43) %
Adjustments:
Income from discontinued
operations, net of tax                      (320)                -             (320)                    NM           (320)                 -                       (320)                   NM
(Loss) income from continuing
operations                                  (210)              939           (1,149)               (122) %            741              1,847                     (1,106)               (60) %
Interest expense                             776               182              594                 326  %            961                361                        600                166  %
Interest expense to affiliates                63               101              (38)                (38) %            162                210                        (48)               (23) %
Interest income                               (6)               (4)              (2)                 50  %            (18)               (12)                        (6)                50  %
Other expense, net                           195                22              173                 786  %            205                 15                        190              1,267  %
Income tax expense                             2               301             (299)                (99) %            308                596                       (288)               (48) %

Operating income                             820             1,541             (721)                (47) %          2,359              3,017                       (658)               (22) %
Depreciation and amortization              4,064             1,585            2,479                 156  %          5,782              3,185                      2,597                 82  %

Operating income from discontinued
operations (1)                               432                 -              432                     NM            432                  -                        432                    NM
Stock-based compensation (2)                 139               111               28                  25  %            262                204                         58                 28  %
Merger-related costs                         798               222              576                 259  %            941                335                        606                181  %
COVID-19-related costs                       341                 -              341                     NM            458                  -                        458                    NM
Impairment expense                           418                 -              418                     NM            418                  -                        418                    NM
Other, net (3)                                 5                 2                3                 150  %             30                  4                         26                650  %

Adjusted EBITDA                    $       7,017$ 3,461$ 3,556                 103  %       $ 10,682$ 6,745$ 3,937                 58  %
Net income margin (Net income
divided by Service revenues)                   1   %            11  %                           -1,000 bps              5  %              11  %                                      -600 bps
Adjusted EBITDA margin (Adjusted
EBITDA divided by Service
revenues)                                     53   %            40  %                            1,300 bps             48  %              40  %                                       800 bps


NM - Not Meaningful
(1)Following the Prepaid Transaction, starting on July 1, 2020, we will provide
MVNO services to customers of the divested brands. We have included the
operating income from discontinued operations in our determination of Adjusted
EBITDA to reflect contributions of the Prepaid Business that will be replaced by
the MVNO Agreement beginning on July 1, 2020 in order to enable management,
analysts and investors to better assess ongoing operating performance and
trends.
(2)Stock-based compensation includes payroll tax impacts and may not agree to
stock-based compensation expense in the condensed consolidated financial
statements. Additionally, certain stock-based compensation expenses associated
with the Transactions have been included in Merger-related costs.
(3)Other, net may not agree to the Condensed Consolidated Statements of
Comprehensive Income primarily due to certain non-routine operating activities,
such as other special items that would not be expected to reoccur or are not
reflective of T-Mobile's ongoing operating performance, and are therefore
excluded in Adjusted EBITDA.

Adjusted EBITDA increased $3.6 billion, or 103%, for the three months ended and increased $3.9 billion, or 58%, for the six months ended June 30, 2020.

The Merger increased our customer base, increased our spectrum portfolio, altered our product mix by increasing the portion of customers who financed their devices with leasing programs and impacted our network and operating cost.

The increase for the three months ended June 30, 2020 was primarily due to:


•Higher service revenues, as further discussed above; and
•Higher equipment revenues, as further discussed above; partially offset by
•Higher Cost of services expenses, excluding Merger-related costs;
•Higher Selling, general and administrative expenses, excluding Merger-related
costs and supplemental employee payroll, third-party commissions and
cleaning-related COVID-19 costs; and
•Higher Cost of equipment sales.

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The increase for the six months ended June 30, 2020 was primarily due to:

•Higher service revenues, as further discussed above; and
•Higher equipment revenues, as further discussed above; partially offset by
•Higher Cost of services expenses, excluding Merger-related costs;
•Higher Selling, general and administrative expenses, excluding Merger-related
costs and supplemental employee payroll, third-party commissions and
cleaning-related COVID-19 costs; and
•Higher Cost of equipment sales.
•The impact from commission costs capitalization and amortization, including a
benefit from new costs capitalized as result of the merger, reduced Adjusted
EBITDA by $87 million for the six months ended for the June 30, 2020, compared
to the six months ended June 30, 2019.

Liquidity and Capital Resources


Our principal sources of liquidity are our cash and cash equivalents and cash
generated from operations, proceeds from issuance of long-term debt and common
stock, financing leases, the sale of certain receivables, financing arrangements
of vendor payables which effectively extend payment terms and the New Revolving
Credit Facility (as defined below). In connection with the closing of the Merger
on April 1, 2020, we incurred a substantial amount of additional third-party
indebtedness which increased our future financial commitments, including
aggregate interest payments. Further, the incurrence of additional indebtedness
may inhibit our ability to incur new debt under the terms governing our existing
and future indebtedness, which may make it more difficult for us to incur new
debt in the future to finance our business strategy.

Cash Flows

The following is a condensed schedule of our cash flows for the three and six months ended June 30, 2020 and 2019:

                                                                                                                                      Six Months Ended
                             Three Months Ended June 30,                                      Change                                      June 30,                                      Change
(in millions)                   2020               2019               $                 %               2020             2019                     $                 %
Net cash provided by
operating activities       $      777$ 2,147$ (1,370)              (64) %       $ 2,394$ 3,539$ (1,145)              (32) %
Net cash used in investing
activities                     (6,356)           (1,615)           (4,741)              294  %        (7,936)          (2,581)                 (5,355)              207  %
Net cash provided by (used
in) financing activities       15,628              (866)           16,494            (1,905) %        15,175           (1,056)                 16,231            (1,537) %



Operating Activities

Net cash provided by operating activities decreased $1.4 billion, or 64%, for
the three months ended and decreased $1.1 billion, or 32%, for the six months
ended June 30, 2020.

The decrease for the three months ended June 30, 2020, was primarily from:


•A $3.7 billion increase in net cash outflows from changes in working capital,
primarily due to the one-time impact of $2.3 billion in gross payments for the
settlement of interest rate swaps related to Merger financing for the three
months ended June 30, 2020, higher use from Other current and long-term
liabilities, Accounts payable and accrued liabilities and Inventories, partially
offset by lower use from Accounts receivable; and
•Lower Net income; partially offset by
•Higher net non-cash adjustments to Net income.
•Net cash provided by operating activities includes $370 million and $151
million in payments for Merger-related costs for the three months ended June 30,
2020 and 2019, respectively.
•Net cash provided by operating activities includes $243 million and $0 in
payments for supplemental employee payroll, third-party commissions and
cleaning-related COVID-19 costs for the three months ended June 30, 2020 and
2019, respectively.

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The decrease for the six months ended June 30, 2020, was primarily from:
•A $3.7 billion increase in net cash outflows from changes in working capital,
primarily due to the one-time impact of $2.3 billion in gross payments for the
settlement of interest rate swaps related to Merger financing for the six months
ended June 30, 2020, including higher use from Other current and long-term
liabilities, Accounts payable and accrued liabilities and Inventories, partially
offset by lower use from Accounts receivable; and
•Lower Net income; partially offset by
•Higher net non-cash adjustments to Net income.
•Net cash provided by operating activities includes $531 million and $185
million in payments for Merger-related costs for the six months ended June 30,
2020 and 2019, respectively.
•Net cash provided by operating activities includes $255 million and $0 in
payments for supplemental employee payroll, third-party commissions and
cleaning-related COVID-19 costs for the six months ended June 30, 2020 and 2019,
respectively.

Investing Activities

Net cash used in investing activities increased $4.7 billion, or 294%, for the
three months ended and increased $5.4 billion, or 207%, for the six months ended
June 30, 2020.

The use of cash for the three months ended June 30, 2020, was primarily from:


•$5.0 billion in cash paid for the acquisition of Sprint, net of cash and
restricted cash acquired;
•$2.3 billion in Purchases of property and equipment, including capitalized
interest, from network integration related to the Merger and the continued
build-out of our nationwide 5G network; and
•$745 million in Purchases of spectrum licenses and other intangible assets,
including deposits; partially offset by
•$1.2 billion related to derivative contracts under collateral exchange
arrangements, for more information regarding these contracts, see   Note    

7

  - Fair Value Measurements   of the Notes to the Condensed Consolidated
Financial Statements; and
•$602 million in Proceeds related to beneficial interests in securitization
transactions.

The use of cash for the six months ended June 30, 2020, was primarily from:


•$5.0 billion in cash paid for the acquisition of Sprint, net of cash and
restricted cash acquired;
•$4.0 billion in Purchases of property and equipment, including capitalized
interest, from network integration related to the Merger and the continued
build-out of our nationwide 5G network; and
•$844 million in Purchases of spectrum licenses and other intangible assets,
including deposits; partially offset by
•$1.5 billion in Proceeds related to beneficial interests in securitization
transactions; and
•$632 million related to derivative contracts under collateral exchange
arrangements, for more information regarding these contracts, see   Note     7
  - Fair Value Measurements   of the Notes to the Condensed Consolidated
Financial Statements.

Financing Activities

Net cash provided by (used in) financing activities increased $16.5 billion for the three months ended and $16.2 billion for the six months ended June 30, 2020.

The source of cash for the three and six months ended June 30, 2020, was primarily from:


•$26.7 billion in Proceeds from the issuance of long-term debt, net of discounts
and issuance costs, driven primarily by the issuance of $23.0 billion in Senior
Secured Notes and a draw of $4.0 billion on the New Secured Term Loan Facility;
•$18.7 billion in Proceeds from the issuance of short-term debt, net of
discounts and issuance costs, driven by a $19.0 billion draw on the New Secured
Bridge Loan Facility in connection with the closing of the Merger; and
•$300 million in net proceeds from the SoftBank Equity transaction, see Note 14
- SoftBank Equity Transaction of the Notes to the Condensed Consolidated
Financial Statements; partially offset by
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•$18.9 billion in Repayments of short-term debt, net of refunds for issuance
costs, for the repayment of the $19.0 billion draw on the New Secured Bridge
Loan Facility; and
•$10.5 billion in Repayments of long-term debt driven by the repayment of our
$4.0 billion Incremental Term Loan Facility with DT, $4.0 billion of Senior
Notes held by DT, $2.3 billion of outstanding principal for the termination of
the accounts receivable facility assumed in the Merger, and $219 million in
principal payments for the Senior Secured Notes assumed in the Merger.

Cash and Cash Equivalents

As of June 30, 2020, our Cash and cash equivalents were $11.1 billion compared to $1.5 billion at December 31, 2019.

Free Cash Flow


Free Cash Flow represents Net cash provided by operating activities less cash
payments for Purchases of property and equipment, including Proceeds from sales
of tower sites and Proceeds related to beneficial interests in securitization
transactions, less Cash payments for debt prepayment or debt extinguishment.
Free Cash Flow and Free Cash Flow, excluding gross payments for the settlement
of interest rate swaps, is a non-GAAP financial measure utilized by our
management, investors and analysts of our financial information to evaluate cash
available to pay debt and provide further investment in the business.

We have presented the impact of the sales in the table below, which illustrates
the reconciliation of Free Cash Flow and Free Cash Flow, excluding gross
payments for the settlement of interest rate swaps and reconciles each from Net
cash provided by operating activities, which we consider to be the most directly
comparable GAAP financial measure.
                                                                                                                                                Six Months Ended
                               Three Months Ended June 30,                                        Change                                            June 30,                                            Change
(in millions)                     2020                 2019               $                          %               2020                    2019                                  $          %

Net cash provided by
operating activities        $         777           $ 2,147$ (1,370)              (64) %       $ 2,394$ 3,539$ (1,145)              (32) %
Cash purchases of property
and equipment                      (2,257)           (1,789)             (468)               26  %        (4,010)            (3,720)                            (290)                8  %

Proceeds related to
beneficial interests in
securitization transactions           602               839              (237)              (28) %         1,470              1,996                             (526)              (26) %
Cash payments for debt
prepayment or debt
extinguishment costs                  (24)              (28)                4               (14) %           (24)               (28)                               4               (14) %
Free Cash Flow                       (902)            1,169            (2,071)             (177) %          (170)             1,787                           (1,957)             (110) %
Gross cash paid for the
settlement of interest rate
swaps                               2,343                 -             2,343                   NM         2,343                  -                            2,343                   NM

Free Cash Flow, excluding
gross payments for the
settlement of interest rate
swaps                       $       1,441$ 1,169$    272                23  %       $ 2,173$ 1,787$    386                22  %


NM - Not Meaningful

Free Cash Flow, excluding gross payments for the settlement of interest rate
swaps related to Merger financing, increased $272 million, or 23%, for the three
months ended and increased $386 million, or 22%, for the six months ended June
30, 2020.

The increase for the three months ended June 30, 2020, was impacted by the following:


•Lower Net cash provided by operating activities, as described above;
•Higher Cash purchases of property and equipment, including capitalized interest
of $119 million and $125 million for the three months ended June 30, 2020 and
2019, respectively, from network integration related to the Merger and the
continued build-out of our nationwide 5G network;
•Lower Proceeds related to our deferred purchase price from securitization
transactions; and
•The one-time impact of gross payments for the settlement of interest rate swaps
related to Merger financing of $2.3 billion, which is excluded from the
calculation Free Cash Flow.
•Free Cash Flow includes $370 million and $151 million in payments for
Merger-related costs for the three months ended June 30, 2020 and 2019,
respectively.
•Free Cash Flow includes $243 million and $0 in payments for supplemental
employee payroll, third-party commissions and cleaning-related COVID-19 costs
for the three months ended June 30, 2020 and 2019, respectively.
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The increase for the six months ended June 30, 2020, was impacted by the following:


•Lower Net cash provided by operating activities, as described above;
•Lower Proceeds related to our deferred purchase price from securitization
transactions;
•Higher Cash purchases of property and equipment, including capitalized interest
of $231 million and $243 million for the six months ended June 30, 2020 and
2019, respectively, from network integration related to the Merger and the
continued build-out of our nationwide 5G network; and
•The one-time impact of gross payments for the settlement of interest rate swaps
related to Merger financing of $2.3 billion, which is excluded from the
calculation Free Cash Flow.
•Free Cash Flow includes $531 million and $185 million in payments for
Merger-related costs for the six months ended June 30, 2020 and 2019,
respectively.
•Free Cash Flow includes $255 million and $0 in payments for supplemental
employee payroll, third-party commissions and cleaning-related COVID-19 costs
for the six months ended June 30, 2020 and 2019, respectively.

Borrowing Capacity and Debt Financing


As of June 30, 2020, our total debt and financing lease liabilities were $75.0
billion, excluding our tower obligations, of which $67.5 billion was classified
as long-term debt and $1.4 billion was classified as long-term financing lease
liabilities.

We maintain a financing arrangement with Deutsche Bank AG, which allows for up
to $108 million in borrowings. Under the financing arrangement, we can
effectively extend payment terms for invoices payable to certain vendors. As of
June 30, 2020, there were no outstanding balances.

We maintain vendor financing arrangements primarily with our main network
equipment suppliers. Under the respective agreements, we can obtain extended
financing terms. During the three and six months ended June 30, 2020, we repaid
$151 million and $176 million, respectively, under the vendor financing
arrangements. Payments on certain vendor financing agreements are included in
Repayments of short-term debt for purchases of inventory, property and
equipment, net, in our Condensed Consolidated Statements of Cash Flows. As of
June 30, 2020 and December 31, 2019, the outstanding balance under the vendor
financing arrangements and other debt was $353 million and $25 million,
respectively.

On April 1, 2020, in connection with the closing of the Merger, T-Mobile USA and
certain of its affiliates, as guarantors, entered into a Bridge Loan Credit
Agreement with certain financial institutions named therein, providing for a
$19.0 billion secured bridge loan facility ("New Secured Bridge Loan Facility").

On April 1, 2020, in connection with the closing of the Merger, T-Mobile USA and
certain of its affiliates, as guarantors, entered into a Credit Agreement (the
"New Credit Agreement") with certain financial institutions named therein,
providing for a $4.0 billion secured term loan facility ("New Secured Term Loan
Facility") and a $4.0 billion revolving credit facility ("New Revolving Credit
Facility").

On April 1, 2020, in connection with the closing of the Merger, we drew down on
our $19.0 billion New Secured Bridge Loan Facility and our $4.0 billion New
Secured Term Loan Facility. We used the net proceeds of $22.6 billion from the
draw down of the secured facilities to repay our $4.0 billion Incremental Term
Loan Facility with DT and to repurchase from DT $4.0 billion of indebtedness to
affiliates, consisting of $2.0 billion of 5.300% Senior Notes due 2021 and $2.0
billion of 6.000% Senior Notes due 2024, as well as to redeem certain debt of
Sprint and Sprint's subsidiaries, including the secured term loans due 2024 with
a total principal amount outstanding of $5.9 billion, accounts receivable
facility with a total amount outstanding of $2.3 billion, and Sprint's 7.250%
Guaranteed Notes due 2028 with a total principal amount outstanding of $1.0
billion, and for post-closing general corporate purposes of the combined
company.

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In connection with the entry into the Business Combination Agreement, T-Mobile
USA entered into a commitment letter, dated as of April 29, 2018 (as amended and
restated on May 15, 2018 and on September 6, 2019, the "Commitment Letter"). In
connection with the financing provided for in the Commitment Letter, we incurred
certain fees payable to the financial institutions, including certain financing
fees on the secured term loan commitment and fees for structuring, funding, and
providing the commitments. On April 1, 2020, in connection with the closing of
the Merger, we paid $355 million in Commitment Letter fees to certain financial
institutions which were recognized in Selling, general and administrative
expenses in our Condensed Consolidated Statements of Comprehensive Income.

On April 9, 2020, T-Mobile USA and certain of its affiliates, as guarantors,
issued $3.0 billion of 3.500% Senior Secured Notes due 2025, $4.0 billion of
3.750% Senior Secured Notes due 2027, $7.0 billion of 3.875% Senior Secured
Notes due 2030, $2.0 billion of 4.375% Senior Secured Notes due 2040, and $3.0
billion of 4.500% Senior Secured Notes due 2050 and used the net proceeds of
$18.8 billion together with cash on hand to repay at par all of the outstanding
amounts under, and terminate, our $19.0 billion New Secured Bridge Loan
Facility. Additionally, in connection with the repayment of our New Secured
Bridge Loan Facility, we received a reimbursement of $71 million, which
represents a portion of the Commitment Letter fees that were paid to certain
financial institutions when we drew down on the New Secured Bridge Loan Facility
on April 1, 2020.

For more information regarding our borrowing capacity and debt financing, see

Note 8 - Debt of the Notes to the Condensed Consolidated Financial Statements.

Consents on Debt


On May 18, 2018, under the terms and conditions described in the Consent
Solicitation Statement dated as of May 14, 2018, we obtained consents necessary
to effect certain amendments to certain of our existing debt and certain
existing debt of our subsidiaries. On April 1, 2020, in connection with the
closing of the Merger, we made payments for requisite consents to third-party
note holders of $95 million.

In connection with the entry into the Business Combination Agreement, DT and
T-Mobile USA entered into a Financing Matters Agreement, dated as of April 29,
2018, pursuant to which DT agreed, among other things, to consent to the
incurrence by T-Mobile USA of secured debt in connection with and after the
consummation of the Merger. On April 1, 2020, in connection with the closing of
the Merger, we made an additional payment for requisite consents to DT of $13
million.

For more information regarding consents on debt, see Note 8 - Debt of the Notes to the Condensed Consolidated Financial Statements.

Interest Rate Lock Derivatives


In April 2020, in connection with the issuance of an aggregate of $19.0 billion
in Senior Secured Notes, we terminated our interest rate lock derivative. At the
time of termination, the interest rate lock derivatives were a liability of $2.3
billion, of which $1.2 billion was cash-collateralized. Consequently, the net
cash required to settle the interest rate lock derivatives was an additional
$1.1 billion and was paid at termination.

For more information regarding the termination of our interest rate lock derivative, see Note 7 - Fair Value Measurements of the Notes to the Condensed Consolidated Financial Statements.

Future Sources and Uses of Liquidity


We may seek additional sources of liquidity, including through the issuance of
additional long-term debt in 2020, to continue to opportunistically acquire
spectrum licenses or other assets in private party transactions or for the
refinancing of existing long-term debt on an opportunistic basis. Excluding
liquidity that could be needed for spectrum acquisitions, or for other assets,
we expect our principal sources of funding to be sufficient to meet our
anticipated liquidity needs for business operations for the next 12 months as
well as our longer-term liquidity needs. Our intended use of any such funds is
for general corporate purposes, including for capital expenditures, spectrum
purchases, opportunistic investments and acquisitions and redemption of high
yield callable debt.

We determine future liquidity requirements, for both operations and capital
expenditures, based in large part upon projected financial and operating
performance, and opportunities to acquire additional spectrum. We regularly
review and update these projections for changes in current and projected
financial and operating results, general economic conditions, the competitive
landscape and other factors. We have incurred, and will incur, substantial
expenses as a result of completing the Transactions, the Divestiture Transaction
and compliance with the Government Commitments, and we are also expected to
incur substantial
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expenses in connection with integrating and coordinating T-Mobile's and Sprint's
businesses, operations, policies and procedures. While we have assumed that a
certain level of transaction-related expenses will be incurred, factors beyond
our control could affect the total amount or the timing of these expenses. Many
of the expenses that will be incurred, by their nature, are difficult to
estimate accurately. These expenses could exceed the costs historically borne by
us and adversely affect our financial condition and results of operations. There
are a number of additional risks and uncertainties, including those due to the
impact of the COVID-19 pandemic, that could cause our financial and operating
results and capital requirements to differ materially from our projections,
which could cause future liquidity to differ materially from our assessment.

The indentures and credit facilities governing our long-term debt to affiliates
and third parties, excluding financing leases, contain covenants that, among
other things, limit the ability of the Issuers and the Guarantor Subsidiaries to
incur more debt, pay dividends and make distributions on our common stock, make
certain investments, repurchase stock, create liens or other encumbrances, enter
into transactions with affiliates, enter into transactions that restrict
dividends or distributions from subsidiaries, and merge, consolidate or sell, or
otherwise dispose of, substantially all of their assets. Certain provisions of
each of the credit facilities, indentures and supplemental indentures relating
to the long-term debt to affiliates and third parties restrict the ability of
the Issuers to loan funds or make payments to the Parent. However, the Issuers
are allowed to make certain permitted payments to the Parent under the terms of
each of the credit facilities, indentures and supplemental indentures relating
to the long-term debt to affiliates and third parties. We were in compliance
with all restrictive debt covenants as of June 30, 2020.

The Merger


In connection with the closing of the Merger, on April 1, 2020, we assumed
Sprint's liabilities, which include accounts payable and accrued liabilities,
short-term debt, operating and financing lease liabilities, net pension plan
liabilities, deferred tax liabilities and long-term debt with an aggregate fair
value of $31.8 billion.

For more information regarding the Merger, see Note 2 - Business Combinations of the Notes to the Condensed Consolidated Financial Statements.

Financing Lease Facilities


We have entered into uncommitted financing lease facilities with certain
partners that provide us with the ability to enter into financing leases for
network equipment and services. As of June 30, 2020, we have committed to $4.6
billion of financing leases under these financing lease facilities, of which
$473 million and $646 million was executed during the three and six months ended
June 30, 2020, respectively. We expect to enter into up to an additional $554
million in financing lease commitments during 2020.

Capital Expenditures


Our liquidity requirements have been driven primarily by capital expenditures
for spectrum licenses and the construction, expansion and upgrading of our
network infrastructure. Property and equipment capital expenditures primarily
relate to the integration of our acquired Sprint 2.5 GHz spectrum licenses and
existing 600 MHz spectrum licenses as we build out our nationwide 5G network.

Since April 1, 2020, we have incurred, and expect to incur significant capital
expenditures in the near term related to the integration of the T-Mobile and
Sprint businesses in order to fully realize the anticipated synergies associated
with the Merger, including the reduction in redundant cell sites from combining
networks, back office and information technology efficiencies and the evolution
of our distribution and retail footprint including the combining of the Sprint
and T-Mobile brand operations.

For more information regarding our property and equipment and spectrum licenses, see Note 5 - Property and Equipment and Note 6 - Goodwill,

Spectrum License Transactions and Other I nt angible

A ssets of the Notes to the Condensed Consolidated Financial Statements, respectively.

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Spectrum Auction

In March 2020, the FCC announced that we were the winning bidder of 2,384
licenses in Auction 103 (37/39 GHz and 47 GHz spectrum bands) for an aggregate
price of $873 million, net of an incentive payment of $59 million. At the
inception of Auction 103 in October 2019, we deposited $82 million with the FCC.
Upon conclusion of Auction 103 in March 2020, we made a down payment of $93
million for the purchase price of the licenses won in the auction. On April 8,
2020, we paid the FCC the remaining $698 million of the purchase price for the
licenses won in the auction. Prior to the Merger, the FCC announced that Sprint
was the winning bidder of 127 licenses in Auction 103 (37/39 GHz and 47 GHz
spectrum bands). All payments related to the licenses won were made by Sprint
prior the Merger.

For more information regarding our spectrum licenses, see Note 6 -

Goodwill, Spectrum License Transactions and Oth er Intang i ble Assets of the Notes to the Condensed Consolidated Financial Statements.


Debt Redemptions

Prior to June 30, 2020, we delivered a notice of redemption on $1.0 billion
aggregate principal amount of our 6.500% Senior Notes due 2024. The notes were
redeemed on July 4, 2020 at a redemption price equal to 102.170% of the
principal amount of the notes (plus accrued and unpaid interest thereon),
payable on July 6, 2020. The redemption premium was approximately $22 million
and the write off of issuance costs and consent fees was approximately $12
million. The outstanding principal amount was reclassified from Long-term debt
to Short-term debt in our Condensed Consolidated Balance Sheets as of June 30,
2020.

Prior to June 30, 2020, we also delivered a notice of redemption on $1.25
billion aggregate principal amount of our 5.125% Senior Notes to affiliates due
2021. The notes were redeemed on July 4, 2020 at a redemption price equal to
100% of the principal amount of the notes (plus accrued and unpaid interest
thereon), payable on July 6, 2020. The write off of discounts were approximately
$12 million. The outstanding principal amount was reclassified from Long-term
debt to Short-term debt in our Condensed Consolidated Balance Sheets as of June
30, 2020.

In August 2020, we expect to deliver a notice of redemption on $1.7 billion aggregate principal amount of our 6.375% Senior Notes due 2025 and expect to redeem the Senior Notes on September 1, 2020.

For more information regarding debt redemptions, see Note 8 - Debt of the Notes to the Condensed Consolidated Financial Statements.

Dividends


We have never paid or declared any cash dividends on our common stock, and we do
not intend to declare or pay any cash dividends on our common stock in the
foreseeable future. Our credit facilities and the indentures and supplemental
indentures governing our long-term debt to affiliates and third parties,
excluding financing leases, contain covenants that, among other things, restrict
our ability to declare or pay dividends on our common stock.

Contractual Obligations

In connection with the regulatory approvals of the Transactions, we made commitments to various state and federal agencies, including the DOJ and FCC.

For more information regarding these commitments, see Note 1 7 - Commitments and Contingencies of the Notes to the Condensed Consolidated Financial Statements.

Between April 2 to April 6, 2020, in connection with the issuance of senior secured notes, we terminated our interest rate lock derivatives.


For more information regarding our interest rate lock derivatives, see   Note 7
- Fair Value Measurements   of the Notes to the Condensed Consolidated Financial
Statements.

The contractual commitments and purchase obligations of Sprint were assumed upon
the completion of the Merger. These contractual commitments and purchase
obligations are primarily commitments to purchase wireless devices, network
services, equipment, software, marketing sponsorship agreements and other items
in the ordinary course of business.

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For more information regarding our contractual commitments and purchase
obligations, see   Note     1    7 -     Commitments and Contingencies   of the
Notes to the Condensed Consolidated Financial Statements.


The following table summarizes our contractual obligations and borrowings as of
June 30, 2020 and the timing and effect that such commitments are expected to
have on our liquidity and capital requirements in future periods:
                                 Less Than 1                                                  More Than 5
(in millions)                        Year            1 - 3 Years          4 - 5 Years            Years              Total
Long-term debt (1)               $   5,076$    11,102$    16,184$  38,286$  70,648
Interest on long-term debt           3,559                6,187                4,653              9,632             24,031
Financing lease liabilities,
including imputed interest           1,094                1,250                  155                 85              2,584
Tower obligations (2)                  391                  763                  588                768              2,510
Operating lease liabilities,
including imputed interest           4,771                7,467                5,031              5,021             22,290
Purchase obligations (3)             4,248                3,483                1,629              1,323             10,683
Spectrum leases and service
credits (4)                            277          $       595$       588$   5,160$   6,620
Total contractual obligations    $  19,416$    30,847$    28,828$  60,275$ 139,366


(1)Represents principal amounts of long-term debt to affiliates and third
parties at maturity, excluding unamortized premiums, discounts, debt issuance
costs, consent fees, and financing lease obligations. See   Note 8 - Debt   of
the Notes to the Condensed Consolidated Financial Statements for further
information.
(2)Future minimum payments, including principal and interest payments, related
to the tower obligations. See   Note 9 - Tower Obligations   of the Notes to the
Condensed Consolidated Financial Statements for further information.
(3)The minimum commitment for certain obligations is based on termination
penalties that could be paid to exit the contracts. Termination penalties are
included in the above table as payments due as of the earliest we could exit the
contract, typically in less than one year. For certain contracts that include
fixed volume purchase commitments and fixed prices for various products, the
purchase obligations are calculated using fixed volumes and contractually fixed
prices for the products that are expected to be purchased. This table does not
include open purchase orders as of June 30, 2020 under normal business purposes.
See   Note 17 - Commitments and Contingencies   of the Notes to the Condensed
Consolidated Financial Statements for further information.
(4)Spectrum lease agreements are typically for five to ten years with two
automatic renewal provisions, bringing the total term of the agreements up to 30
years.

Certain commitments and obligations are included in the table based on the year
of required payment or an estimate of the year of payment. Other long-term
liabilities have been omitted from the table above due to the uncertainty of the
timing of payments, combined with the absence of historical trending to be used
as a predictor of such payments. See   Note 1    9     - Additional Financial

Information of the Notes to the Condensed Consolidated Financial Statements for further information.


The purchase obligations reflected in the table above are primarily commitments
to purchase spectrum licenses, wireless devices, network services, equipment,
software, marketing sponsorship agreements and other items in the ordinary
course of business. These amounts do not represent our entire anticipated
purchases in the future, but represent only those items for which we are
contractually committed. Where we are committed to make a minimum payment to the
supplier regardless of whether we take delivery, we have included only that
minimum payment as a purchase obligation. The acquisition of spectrum licenses
is subject to regulatory approval and other customary closing conditions.

Related Party Transactions

SoftBank


On June 22, 2020, we entered into a Master Framework Agreement and related
transactions with SoftBank to facilitate the SoftBank Monetization as described
in   Note 14 - SoftBank Equity Transaction   of the Notes to the Condensed
Consolidated Financial Statements. On August 3, 2020, upon completion of the
SoftBank Monetization, DT and SoftBank held, directly or indirectly,
approximately 43.4% and 8.6%, respectively, of our outstanding common stock,
with the remaining approximately 48.0% of our outstanding common stock held by
other stockholders. As a result of the Proxy Agreements, DT has voting control
as of August 3, 2020 over approximately 52.4% of the outstanding T-Mobile common
stock. In addition, as provided for in the Master Framework Agreement, DT also
holds certain call options over approximately 101.5 million shares of our common
stock held by SBGC.

On July 27, 2020, in connection with the SoftBank Monetization, the Rights Offering exercise period closed, and on August 3, 2020, the Rights Offering closed, resulting in the sale of 19,750,000 shares of our common stock.

For more information regarding our related party transactions with SoftBank, see

Note 2 - Business Combination and Note 14 -

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SoftBank Eq uity Trans action of the Notes to the Condensed Consolidated Financial Statements.

Marcelo Claure


On June 22, 2020, we entered into a Master Framework Agreement which provided
for the purchase of shares of our common stock by Marcelo Claure, a member of
our board of directors, from us at a specified price.

For more information regarding our related party transactions with Marcelo Claure, see Note 14 - SoftBank Equity Transaction of the Notes to the Condensed Consolidated Financial Statements.

Brightstar

We have arrangements with Brightstar, a subsidiary of SoftBank, whereby Brightstar provides supply chain and inventory management services to us in our indirect channels.


For more information regarding our related party transactions with Brightstar,
see   Note 1     -     Summary of Significant Accounting Policies   and   Note
19 - Additional Financial Information   of the Notes to the Condensed
Consolidated Financial Statements.

Deutsche Telekom

We have related party transactions associated with DT or its affiliates in the ordinary course of business, including intercompany servicing and licensing.

For more information regarding these transactions, see Note 1 9 - Additional Financial Information of the Notes to the Condensed Consolidated Financial Statements.


On April 1, 2020, in connection with the closing of the Merger, we repaid our
$4.0 billion Incremental Term Loan Facility with DT and repurchased from DT $4.0
billion of indebtedness to affiliates, consisting of $2.0 billion of 5.300%
Senior Notes due 2021 and $2.0 billion of 6.000% Senior Notes due 2024 as well
as made an additional payment for requisite consents to DT of $13 million.

On July 4, 2020, we redeemed $1.25 billion aggregate principal amount of our 5.125% Senior Notes to affiliates due 2021.


For more information regarding our related party debt transactions, see   Note 8
- Debt   of the Notes to the Condensed Consolidated Financial Statements.
Disclosure of Iranian Activities under Section 13(r) of the Securities Exchange
Act of 1934

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

As of the date of this report, we are not aware of any activity, transaction or
dealing by us or any of our affiliates for the three months ended June 30, 2020,
that requires disclosure in this report under Section 13(r) of the Exchange Act,
except as set forth below with respect to affiliates that we do not control and
that are our affiliates solely due to their common control with either DT or
SoftBank. We have relied upon DT and SoftBank for information regarding their
respective activities, transactions and dealings.

DT, through certain of its non-U.S. subsidiaries, is party to roaming and
interconnect agreements with the following mobile and fixed line
telecommunication providers in Iran, some of which are or may be
government-controlled entities: Irancell Telecommunications Services Company,
Telecommunication Kish Company, Mobile Telecommunication Company of Iran, and
Telecommunication Infrastructure Company of Iran. In addition, during the three
months ended June 30, 2020, DT, through certain of its non-U.S. subsidiaries,
provided basic telecommunications services to three customers in Germany
identified on the Specially Designated Nationals and Blocked Persons List
maintained by the U.S. Department of Treasury'sOffice of Foreign Assets
Control: Bank Melli, Bank Sepah, and Europäisch-Iranische Handelsbank. These
services have been terminated or are in the process of being terminated. For the
three months ended June 30, 2020, gross revenues of all DT affiliates
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generated by roaming and interconnection traffic and telecommunications services
with the Iranian parties identified herein were less than $0.1 million, and the
estimated net profits were less than $0.1 million.

In addition, DT, through certain of its non-U.S. subsidiaries that operate a
fixed-line network in their respective European home countries (in particular
Germany), provides telecommunications services in the ordinary course of
business to the Embassy of Iran in those European countries. Gross revenues and
net profits recorded from these activities for the three months ended June 30,
2020 were less than $0.1 million. We understand that DT intends to continue
these activities.

Separately, SoftBank, through one of its non-U.S. subsidiaries, provides roaming
services in Iran through Irancell Telecommunications Services Company. During
the three months ended June 30, 2020, SoftBank had no gross revenues from such
services and no net profit was generated. We understand that the SoftBank
subsidiary intends to continue such services. This subsidiary also provides
telecommunications services in the ordinary course of business to accounts
affiliated with the Embassy of Iran in Japan. During the three months ended June
30, 2020, SoftBank estimates that gross revenues and net profit generated by
such services were both under $3,500. We understand that the SoftBank subsidiary
is obligated under contract and intends to continue such services.

In addition, SoftBank, through one of its non-U.S. indirect subsidiaries,
provides office supplies to the Embassy of Iran in Japan. SoftBank estimates
that gross revenue and net profit generated by such services during the three
months ended June 30, 2020 were under $1,000 and $200, respectively. We
understand that the SoftBank subsidiary intends to continue such activities.

Off-Balance Sheet Arrangements


We have arrangements, as amended from time to time, to sell certain EIP accounts
receivable and service accounts receivable on a revolving basis as a source of
liquidity. As of June 30, 2020, we derecognized net receivables of $2.6 billion
upon sale through these arrangements.

For more information regarding these off-balance sheet arrangements, see   Note
4 - Sales of Certain Receivables   of the Notes to the Condensed Consolidated
Financial Statements.

Critical Accounting Policies and Estimates


Preparation of our condensed consolidated financial statements in accordance
with U.S. GAAP requires us to make estimates and assumptions that affect the
reported amounts of certain assets, liabilities, revenues and expenses, as well
as related disclosure of contingent assets and liabilities. Except as described
below and in   Note 1 - Summary of Significant Accounting P    oli    cies  ,
there have been no material changes to the critical accounting policies and
estimates as previously disclosed in Part II, Item 8 of our Annual Report on
Form 10-K for the year ended December 31, 2019, and which are hereby
incorporated by reference herein other than the updated risk factors below.

Evaluation of Goodwill and Indefinite-Lived Intangible Assets for Impairment

We assess the carrying value of our goodwill and other indefinite-lived intangible assets, such as our spectrum licenses, for potential impairment annually as of December 31, or more frequently if events or changes in circumstances indicate such assets might be impaired.


We have identified two reporting units for which discrete financial information
is available and results are regularly reviewed by management: wireless and
Layer3. The Layer3 reporting unit consists of the assets and liabilities of
Layer3 TV, Inc., which was acquired in January 2018. The wireless reporting unit
consists of the remaining assets and liabilities of T-Mobile US, Inc., excluding
Layer3 TV, Inc. We separately evaluate these reporting units for impairment.

When assessing goodwill for impairment we may elect to first perform a
qualitative assessment for a reporting unit to determine if the quantitative
impairment test is necessary. If we do not perform a qualitative assessment, or
if the qualitative assessment indicates it is more likely than not that the fair
value of a reporting unit is less than its carrying amount, we perform a
quantitative test. We recognize an impairment charge for the amount by which the
carrying amount exceeds the reporting unit's fair value; however, the loss
recognized would not exceed the total amount of goodwill allocated to that
reporting unit. We employed a qualitative approach to assess the wireless
reporting unit. The fair value of the wireless reporting unit is determined
using a market approach, which is based on market capitalization. We recognize
market capitalization is subject to volatility and will monitor changes in
market capitalization to determine whether declines, if any, necessitate an
interim impairment review. In the event market capitalization does decline below
its book value, we will consider the length, severity and reasons for the
decline when assessing whether potential impairment exists, including
considering whether a control premium should be
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added to the market capitalization. We believe short-term fluctuations in share
price may not necessarily reflect the underlying aggregate fair value. No events
or change in circumstances have occurred in the current quarter that indicate
the fair value of the Wireless reporting unit may be below its carrying amount
at June 30, 2020.

Concurrent with the acquisition, management also revisited the plans for our
TVisionTM Home service offering and the integration of this offering with the
Sprint customer base. Additionally, we expect our significantly enhanced
spectrum position following the Merger will allow us to accelerate our in-home
broadband internet service strategy. The enhanced in-home broadband opportunity,
along with the acquisition of certain content rights, has created a strategic
shift in our TVisionTM Home service offering allowing us the ability to develop
a video product which will be complementary to the in-home broadband offering.
Management has updated its forecast, which includes a reimagining of the
stand-alone product offering to potential customers that is expected to launch
by the end of 2020. Based on these events and changes in circumstances, we
determined that recoverability of the carrying amount of goodwill for the Layer3
reporting unit should be evaluated for impairment. We employed a quantitative
approach to assess the Layer3 reporting unit. The fair value of the Layer3
reporting unit is determined using an income approach, which is based on
estimated discounted future cash flows.

We made estimates and assumptions regarding future cash flows, discount rates and long-term growth rates to determine the reporting unit's estimated fair value. The key assumptions used were as follows:


•expected cash flows underlying the Layer3 business plan for the periods 2020
through 2025, which took into account assumptions for a delayed launch,
estimates of subscribers for TVision services, average revenue and content cost
per subscriber, operating costs and capital expenditures;
•Cash flows beyond 2025 were projected to grow at a long-term growth rate
estimated at 3%. Estimating a long-term growth rate requires significant
judgment about future business strategies as well as micro- and macro-economic
environments that are inherently uncertain; and
•We used a discount rate of 30% to risk adjust the cash flow projections in
determining the estimated fair value.

The carrying value of the Layer3 reporting unit exceeded its estimated fair
value as of June 30, 2020. Accordingly, during the three and six months ended
June 30, 2020 we recorded an impairment loss of $218 million, which is included
in "Impairment expense" in our consolidated statements of comprehensive income.

For more information regarding our impairment assessments, see   Note 1 -
Summary of Significant Accounting Policies   and   Note 6 - Goodwill, Spectrum
License Transactions and Other Intangible Assets   of the Notes to the Condensed
Consolidated Financial Statements.

Accounting Pronouncements Not Yet Adopted

For information regarding recently issued accounting standards, see Note 1 - Summary of Significant Accounting Policies of the Notes to the Condensed Consolidated Financial Statements.

© Edgar Online, source Glimpses

Stocks mentioned in the article
ChangeLast1st jan.
DEUTSCHE TELEKOM AG -0.45% 14.275 Delayed Quote.-2.02%
T-MOBILE US -0.63% 113.52 Delayed Quote.44.76%
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