Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the T-Mobile U.S. Second Quarter 2013 Conference Call. [Operator Instructions] This conference call is being recorded today, August 8, 2013. I would now like to turn the conference over to Mr. Nils Paellmann, Head of Investor Relations for T-Mobile U.S. Please go ahead, sir.

Thank you very much. Welcome to the first earnings call of T-Mobile U.S. With me today are John Legere, our President and CEO; and Braxton Carter, our CFO. Please turn to Slide 2, the disclaimer. During the course of this earnings call, the company will make projections and other forward-looking statements that are subject to many risks and uncertainties that could cause actual results to differ materially from expectations. A detailed discussion of the risks and uncertainties that affect the company's business and qualify the forward-looking statements made in this call is contained in T-Mobile's SEC filings, particularly the risk factors included in our current report on Form 8-K filed with the SEC on May 8, 2013. Copies of T-Mobile's SEC filings are available online from the SEC or at the Investor Relations homepage on the T-Mobile website. The company's projections and forward-looking statements are based on factors that are subject to change and, therefore, these statements speak only as of the date they are given. The company does not undertake any duty to update any projections or forward-looking statements. In addition, during today's discussion, management will comment on both actual results and certain non-GAAP results. Reconciliations between GAAP results and these non-GAAP results are available in the investor quarterly, in the Investor Relations homepage on our website at, as you know, t-mobile.com. Let me now turn it over to John Legere, please. John?

Okay. Good morning, everyone. I'm going to jump straight into our results and we clearly had an outstanding second quarter. And here's just a few of the highlights from an operational perspective. Starting with net adds. Now I know these are the numbers you've all been waiting for and, frankly, as you know, I've been waiting to be able to tell you in the second quarter, we brought in 1.1 million net additional customers. Moving to branded postpaid net adds, T-Mobile led the entire industry with 685,000 branded postpaid phone net adds. And just to be clear, that's exclusive of tablets and other mobile devices. Now by the way, we added about 3,000 of those, bringing the total branded postpaid adds to 688,000. Now this result is underpinned by a 77% year-over-year and 53% quarter-over-quarter increase in branded postpaid gross ads. Now turning to branded postpaid churn, the combined improvements in the network, customer care, the device lineup and especially the new un-carrier offers that we've implemented, have led to a new record low for branded postpaid churn of 1.58%. Our un-carrier initiatives continue to roll out and we are on a purpose-driven march to solve all customer pain points, change the way this industry operates and creates value for our shareholders. We have hugely accelerated the modernization and upgrading of our network to 4G LTE, having lit up 116 Metro areas covering 157 million people as we had announced in July, and that expands even further as we speak. We clearly exceeded our goal of 100 million by midyear and the pace continues. We now have a complete lineup of the most desired devices, having launched the iPhone. We rolled out un-carrier 1.0 and 2.0, installed the pain points with our annual -- no annual service contract offer; low…

Thank you, John, and good morning. I'm very excited about our first TM U.S. earnings call. Let me start with revenues and EBITDA. Most of the figures I will present to you are pro forma combined. That is including MetroPCS results for the entire quarter in previous comparable periods. Total revenues grew by 11.5% quarter-over-quarter, driven by strong growth in equipment revenues. In the quarter, we financed over $800 million of equipment sales revenue, compared to $300 million in the first quarter and $150 million in the second quarter of last year. Service revenues continued to be impacted by the migration to Simple Choice value plans. However, even with the significantly increased migration of these plans in the quarter, service revenues were stable sequentially in the quarter and year-over-year trend improved. In total, Simple Choice value plans now make up 50% of our branded postpaid base versus 36% at the end of the first quarter. Stabilization is supported by the fact that the difference in ARPUs between Simple Choice, Value and classic plan customers appears to be narrowing due to the improving plan loading mix. Adjusted EBITDA in the quarter was impacted by our investment in sustainable, profitable growth. Branded postpaid growth adds alone increased by 77% year-over-year and 53% quarter-over-quarter, and we also increased promotional expenditures in connection with the iPhone and un-carrier launches. We told you this was the plan in our first quarter relays. Our upgrade rate doubled by approximately 5% in the first quarter to a record 10% in the second quarter. This was the big driver for the increase in retention expense. We believe this was a very worthwhile investment, which is reflected by the improving quality of our customer base, which John already highlighted. Adding to the statistics already mentioned by John, service revenue,…

Okay. Thanks, Braxton. So here are the main highlights from my perspective. We successfully launched un-carrier 1.0 and 2.0 and have seen a significant improvement in customer momentum. We led the entire industry with 685,000 branded postpaid phone net adds. Branded postpaid gross ads increased 77% year-over-year and 53% quarter-over-quarter and we have achieved an all-time low branded postpaid churn of 1.58%. We're rapidly expanding our 4G LTE footprint. The 4G LTE rollout is proceeding ahead of schedule and we expect our 200 million POP target to be met prior to the end of the year. Our 4G LTE network is performing great and we're on track for 20 plus 20 MHz 4G LTE in 90% of the top 25 markets. The MetroPCS integration is proceeding well ahead of plan. And on July 25, we announced that we doubled the number of MetroPCS markets. After 15 markets in the first 10 years, we'll add the next 15 markets in 10 weeks. And by the way, more will follow. We have a strong cash position with $2.4 billion of ending cash and most importantly, we're just getting started. Stay tuned for un-carrier 3.0 and more. The fun is just beginning. We're now ready for Q&A. Operator, first question, please.

[Operator Instructions] We'll take our first question from Phil Cusick from JPMorgan.

I guess 2, if I can. John, number one, can you talk about momentum over the last 5 weeks and especially as you launched the new pent-up sort of financing promotions in the last couple of weeks versus when you first launched the iPhone. And then second, Braxton, if you could help us with some marginal OpEx of a gross ad at this point on an expense basis, not -- So excluding the capitalization, how does that change the EBITDA when you add another customer?

Yes, interestingly, the momentum we have in July is very strong and there's a lot of new data coming out as we speak, as the period just ended. But I will tell you, as you probably noticed, we came into the marketplace a little over a week ago with a 0 down promotion for the summer, and we've had great traction with that. Give you an idea, the porting ratios that we've seen previously in -- let's just go back. If you go back 1 year ago, the porting ratios with AT&T and Sprint were about 0.41 and 0.50. In Q2, where we had a successful quarter, as you know, the porting ratio with Sprint was about 1.6 and AT&T, about 1.7. And in the week ended July 31, the porting ratios for AT&T were about 2.04 and Sprint 2.24. So we've had a good strong response, momentum is good in -- through July. I think our performance on a SOGA [ph] basis in July probably mirrored May and June as we start to get the data. So we are anticipating. As you saw, we gave the guidance for 1 million, 1.2 million subscriber additions on the postpaid side net for the year, which is an increase in the second half over the first half. And it does anticipate. So we are anticipating additional competitive response. So even with that, we're pretty confident in that. So I'll turn the second part of the question over to Braxton.

Yes, Phil. When you look at the branded CPGA, significant decreases. Q2 2012 was $420. Q1 was $341. Q2 went down to $326. Partly, what's reflected there is leveraging fixed cost from the base and that's manifestating [ph] itself in lower CPGA. When you're looking at, really, the incremental OpEx part of a gross ad, over 2/3 of this is variable. So when you account for the variable OpEx associated with this increased growth, and adjust some of the consensus estimates for EBITDA, it's clear to see that we are definitely performing well from a profitability standpoint, which again is testament to some of the focus on cost control and cost initiatives within the company.

And is that marginal cost all sort of commission and things like that? Or is there something else in there?

Yes, there's commissions. There's certainly distribution costs on -- and there is some subsidy on certain handsets that are part of that equation.

We'll move next to Brett Feldman from Deutsche Bank.

So if I look at your full year postpaid net add guidance, it looks like the net adds you're looking for in the second half of the year are about in line with what you did in the second quarter alone. You alluded to an expectation there may be some competitive response. I'm just curious, like what will you think that means? In other words, do you think that some of the gross ads that you saw a nice pop in the second quarter might turn down a little bit as people realize you're doing better? Or are you actually assuming that maybe the churn rate you achieved in the second quarter could tick back up in light of some of the competitive responses. And then just on the prepaid side, John, you talked about Apollo 15, you're going to go out there, you're going to acquire Leap's customers. AT&T has announced that they're going to acquire Leap's customers, the whole company actually. Have you given any reconsideration of whether it makes more sense to just bid for the company versus bidding for the subs?

Let's do 2 things. I'll start and just say we have no interest in acquiring Leap. We had no interest in acquiring Leap, which was fascinating and led to, I think, AT&T outbidding itself thinking that people were coming. But we've said all along that we'll acquire Leap's customers the old-fashioned way, using our network and our devices. And frankly, AT&T is acquiring Leap, it doesn't mean there'll be any customers left by the time they get through the process. But we -- I'll make it clear, we have no interest in acquiring Leap as an entity, and I'll say more about Apollo 15. I'd ask Mike to comment on your initial comments and then I'll comment at the end on the competitive response. And it's got more to do with if we are -- we've always been conservative in outlining our forecast. And all I'm trying to say is our guidance assumes a competitive environment. I'll make some comments after Mike does on whether or not that is already happening and whether it's impacting us or not. But Mike, did you want to comment on that?

Yes, just an outlook on the second half and connecting it to the guidance. The first thing to say is that we're starting out strong. As John said, we've seen great porting ratio in the quarter so far. Our share of gross ads on the phones, we believe, in July, was in line with our performance in May and June which, as we previously said, were our stronger months of Q2. So really nice performance so far in the second half. And as you mentioned, our guidance suggests that we will outperform in the second half versus the first half. But a couple of things there, one is, the second quarter, with its 685,000 postpaid net additions, if you just take that math forward, we would over-perform versus the guidance that we shared. So as John said, there is a certain amount of -- you could call it conservatism or you can just call it expectation of customer response built into the numbers that we're sharing for the second half on customer growth. A couple of other things. One is that if you look at churn, it was a huge factor in our performance and we expect the structural improvements in our business, the brand reassessment by consumers, the way Simple Choice and the un-carrier strategy are driving customer loyalty, the network performance, which has been phenomenal, to allow us to continue postpaid churn at low levels. That being said, there is some seasonality to churn and we've been historically very successful in the third and fourth quarters at gross ads, which means we have more contract expirations in the third and fourth quarter. So you could see some seasonal variability in churn that can put a little pressure there. So if you look at the numbers overall, while the second half is expected to be better than the first half, the guidance we gave would suggest that it would moderate a bit from Q2 and you can chalk that up to a little bit of conservativism and an expectation of stronger customer response.

Yes. And just a couple of other comments. Don't read my comments that the little kid in the schoolyard is sitting here waiting for the bully to come out and beat him up after school. We're just trying to be conservative. And frankly, I would suggest that AT&T certainly, although they don't want to admit it, they're in full fight back mode. This acquisition of Leap certainly was an attempt to get some spectrum, but also a competitive response, although delayed to what we're doing with MetroPCS. The next program was an attempt to respond to JUMP! And it failed miserably from the standpoint of how the market understood it and perceived it. Now I would more so suggest to you that as each month goes on, an entire new set of customers at AT&T and Verizon have the ability to consider the un-carrier proposition. That's the big news here. The simplified rate plan, the low upfront device cost, the no contract, the anytime upgrade, this is what customers are desiring. And if each month goes on, there's a whole new set of people that can respond to this. And competitively, I think our competitors have already got to respond to un-carrier Phase 1, un-carrier Phase 2, our MetroPCS Apollo 15 migration that we're doing and I've made it clear, we're not done. So in responding to us and what we're doing in the marketplace, un-carrier 3.0 is already scheduled and you can trust it's going to do 2 things: It's going to solve another customer pain point and it's going to unveil another weakness of the major players with an inability for them to respond. So the pile of things you need to respond to is going to grow as much and as fast as we can possibly solve points for customers.

We'll hear next from Craig Moffett from Moffett Research.

Can you talk about your momentum with commercial accounts? And most of what we've heard from the un-carrier strategy has been aimed at the residential market. Can you help us understand what your expectations are with commercial going forward and is that a big part of un-carrier 3.0?

Let me do this. It's a good chance to introduce Drew Kelton, who's been here very quietly, creating the next phase of our B2B process. And I put that in the category of coming attractions in a piece of the business where we think there's quite a bit of upside. And I'll ask Drew to use this opportunity to make a quick comment on that.

Thanks, John. Thanks, Craig. Let me give you a quick color a little bit in terms of where we are right now, Craig, and then some of the things you can look forward to. Firstly, is the B2B portfolio continues to grow in line with the rest of the organization, 11% year-on-year growth, which is very, very strong performance in this business portfolio. But more importantly, as we start to embrace Simple Choice for business or Simple Choice as for business, you're going to see a dramatic shift in the offerings we put out to the business and [indiscernible] community. So a really exciting opportunity for T-Mobile business to change the game, the way we engage with the B2B customer base. So wise is best.

Yes, and I would put it -- I'll just summarize what Drew is saying as, we didn't get started there yet. We're a small player in a big market and we're going to choose the pain point that we can solve and talking Q4, Q1 you'll start to hear more from us in this space.

So can you provide any additional color on what percentage of your business is that today of your gross ads, for example? How small is it?

It's too small to get concerned with at this point.

We'll hear next from John Hodulik from UBS.

Maybe for Braxton. Can you just talk about what's driving the narrowing of the gap between the value plans and the classic plans and the flattening out sequentially that you seen in terms of that change in ARPU? Do you expect that to continue going forward? And then because the iPhone number's a little bit lower than we thought, can maybe, Braxton, can you let us know of the 900,000-or-so iPhones you sold the mix between gross ads and upgrades.

Sure. So looking at the ARPU trajectory, again, a significant deceleration -- the dilutive impact of going to Simple Choice Value Plan, and specifically EIP, where what traditionally would be recorded, the service revenues, is now being used to reduce the equipment installment receivable on the balance sheet. So what's going on here? We did, in the second quarter, have a very significant penetration, 14% quarter-over-quarter of our base. And it's simple math to go in and see that the impact on the dilution of ARPU could have been much, much larger. So what is the offset? And we're also having migration from classic customers down to Simple Choice. The offset was a very well-crafted, simplified, Simple Choice offering, where their tiers of data were designed to right-size to a customer's needs, and the power of truly unlimited data in the world of the latest and greatest smartphones with very significant usage is a true competitive differentiator in the marketplace. And that data attach rate driving customers to the premium unlimited offering that we have was the significant offset that we're seeing to the dilutive impact of EIP. Looking forward, we gave guidance again for purposes of transparency, that we believe by the end of the year, 60% to 70% of the base will be on Simple Choice value. And that implies a 10% to 20% growth in the second half of the year versus a 14% growth in the base in the second quarter. So the dilutive effect should be somewhat mitigated while we execute on optimizing mix and right-sizing the data attach rate for the needs of the customer. Going into '14, you're going to hit terminal penetration at these plans, which definitely signals a stabilization of ARPU before other innovations that we're going to bring to the market, such as un-carrier 3.0. So stay tuned. The outlook is bright.

Great. And did you guys have the iPhone mix?

Mike, do you want to talk about the iPhone results?

Yes. A couple of things. One is, as you know, upgrades were a record quarter for us. We're [indiscernible] to 10% on upgrades, that's more than 2 million upgrades. The iPhone was 29% of combined gross ads and upgrades. But on a gross ad side, it was only 20%, which means it was a higher percentage of that on the upgrade side. And so you've got just about everything in the investor quarterly to be able to triangulate on the answer to your question. More on upgrades than on gross ads and a record upgrade quarter, with more than 2 million total upgrades.

Matt Niknam from Goldman Sachs.

You talked about $1 billion in cost structure improvements. I'm just wondering if you can talk about where some of the biggest areas of improvement have been and where you see the greatest opportunity for incremental improvement going forward. And as we look to the second half of the year, in 2014, how much of these cost savings do you expect to reinvest to pursue further growth?

So a lot of the comp initiatives had been previously announced and we're executing on that throughout the year. And there's a variety of measures that are incorporated into that $1 billion number. And I think the way to look at it, one of the beauties about the un-carrier strategy is complete simplification of the business, in driving our business processes and making them more efficient in a much more simplified offering to the customer. We have not cut back at all on the front line. We continue to invest very heavily in customer service, very important we've eliminated a lot of the pain points that our customers had suffered in the past. So it's a focus on preserving and actually enhancing the customer experience, while driving out back-office cost. These changes that we made are sustainable and we think that there is incredible additional opportunity in cost transformation. And our cost transformation initiatives will continue throughout '13 going into '14. And we're not giving an outlook on '14 at this point, but suffice it to say that we are very focused on increasing our EBITDA margins and growing the cash flows of the business.

Important to note, the un-carrier is a philosophy as well as a marketing proposition. We are a creating and enabling -- a different kind of a company. One that is flat, one that is fast, one that is not your typical, fat, bloated hierarchical player that can't move quickly. And we're putting all of our focus in the care environment, in the retail environment, into our network environment. And then with a very simple set of propositions, simplifying as much as possible our business and as much of the overhead as we can remove. And what we've done is, amongst other things, we've made every single employee in the company a shareholder. And so there's this combined aggressive set of shareholders across the business that are looking for every piece of cost. And I think what we demonstrated recently is, the flatter we become as a company, our ability to move in the marketplace is very quick and the ability to move as much of this cost over to the front line and to the network, I think, is going to be as big a part of our success as any. And it's a -- it's as big a part of the un-carrier revolution as possible. I think the companies in our industry got a little fat and bloated and bureaucratic, and it's going to stop them from being able to respond to us. And we're going to put as much of that as we can into the growth of the business.

Moving next to Kevin Smithen from Macquarie.

Wondered if you could give us an update on the conversion of PCS's spectrum on to T-Mo's network. What was the retention of PCS subs in Las Vegas when you did that conversion? What percentage signed up for Value Plans and postpaid and what percentage on to prepaid plans on T-Mo?

It's Neville. Let me take the first piece on spectrum and then I'll hand back to Tom for some of the further stats on what customer movement we saw. I mean, obviously, the foundation of network is key for all the growth that we've talked about. We're just -- we're moving very, very quickly, right, through the modernization stuff as you've heard from John and Braxton. We're well ahead of our plan and we'll be well ahead of what we said we'd do by the end of the year. And we're also ahead on what we need to do to integrate and move to a single network. So combining those Metro spectrum assets into the -- and onto the T-Mobile network. So we're making great strides there. The calls of the network are now integrated, so all of the LTE traffic carried by Metro customers is supported on the T-Mobile U.S. core network, and that's the first critical and key step in spectrum migration. So spectrum migration will commence this year. As John said, we'll be moving towards that kind of 20 plus 20 vision in '14. But a lot happening in Vegas already, as you know, 2 weeks post, post. We went from 2 5 plus 5 networks to a combined 10 plus 10 network. That was our first and major move combining the 2-company spectrum. We saw a great performance there. Our Metro customer experience went from 1 to maybe 2 megabits per second speed on their LTE, to 8 to 10 on the combined network. And our customers at T-Mobile also saw a material improvement in performance, peaks well above the 15 to 20 megabit per second story. So we are well on the way to integrating these 2 spectrum portfolios, collapsing down to the 1 network, a lot of massive synergy that comes through on a cost basis. But the customer experience is continuing to improve. The great news piece is we're doing it in a spectrum that we run day in, day out on AWS. We're not looking to try and incorporate a new band here or clear a new band out of existing customers. We are adding and piling on in the AWS band that we know so well. So we'll be announcing more as we move through the next quarter or 2. But Vegas first and there'll be many markets to come where we'll be integrating that spectrum over the next 3 to 6 months.

And Neville, I'd like to turn the call over to Tom Keys, who's running the Metro business and has been running the Metro business. Let me just say that we couldn't be more thrilled with the coming together of T-Mobile and MetroPCS. This was clearly the right thing to do not only from a network standpoint, but from a business standpoint. This is the real deal. The legacy of this company, everything has lived up exactly to what we thought. And I will tell you just a quick update. The integration process, the integration synergies, the integration savings, the one-time costs, et cetera, everything so far is on or ahead of plan. And as we've said all along, we think there is some conservatism built into the potential savings here. And we see some upside, and so far so good. And the combination of what's happening in protecting the base, as well as expanding dramatically the presence of Metro, as you get into Q4 and beyond, you're going to see a significant impact on our business by this. But let me introduce and turn the call over to Tom Keys to make some comments.

Thank you, John. Kevin, to your point specifically, the 2 things that I want to highlight are speed to market and cost containment. And if you remember, Metro's calls and the things we've said over time, those are just legacy elements of our business that it's wonderful to have them as key tenants of the new company. Specifically to Las Vegas, as Neville mentioned, 7x to 8x quicker network speeds. So the customers that did have our devices now enjoy better -- I think we're seeing better retention. Although it's early to tell, it's only been 90 days since we started this and I think we got this done in the first couple of weeks. Secondarily, and even more importantly, the marketing team, Mike Sievert's team, the entire device team of Jim Allen [ph], we've been able to get devices into the market now, 7 devices that we're selling on the new network. So people who now come into MetroPCS who hear from their original customers that it's a better network and now coming in getting a better device selection, getting Samsung Galaxy 3s and Galaxy 4s. And additionally, the most exciting thing in the market is we can now take BYOD, bring your own device, and we can have SIM-based devices coming to Las Vegas, as well as every other MetroPCS market out there. And now bringing customers who, before, had to stay with a device they loved but with a network they weren't quite happy with. So specifically, Las Vegas is the beta test market. Neville and his team, Ed Chao, great job. Now we take this out to the remaining markets. We're selling now in 8 markets on their network, meaning the T-Mobile network with MetroPCS locations, and this thing's only going to get bigger.

Just to confirm, the Metro customers are having a full Metro experience on the T-Mobile network. We're not migrating the Metro customers to the T-Mobile brand. This is the Metro brand all-handset experience, fully supported on the T-Mobile network.

So the vast bulk of them are still taking a prepaid device. They may be upgrading to a higher-end smartphone, but they're still taking prepaid. They're not showing up in the postpaid value plans.

That's correct. At the Metro locations, we have purposely segmented our distribution so that Metro is selling what Metro always has done, pay in advance, no contract, unlimited plan.

And just a last follow-up on this. Historically, Metro has had a lot of success in launching new markets and adding subscribers. Obviously, these are a lot of markets where there's an existing prepaid competitor or several existing prepaid competitors. How should we think about prepaid sub-growth in the second half and into 2014? And will you experience the same success that you saw in postpaid on the prepaid side with these new market launches?

I think John mentioned, we've started this on the 25th of July. So in less than 90 days, we've opened up about 350 doors with 1,000 on track to the end of the year is our goal. The interesting thing to note, these are all dealer distribution doors, none of these are opened up by Metro. So think about that. In competitive markets where they know that they're the second base carrier on the block, we have people dying to open up distribution locations. Actually clamoring to get into big cities like Houston, Washington, San Diego. That's a really strong signal for us. We also have some people who had doors that might have had some other logos on that want to come our way over time, really big. So this is the way that we do get customers who want to use Metro's simple plans, right, $40, $50, $60. Second half of the year is teed up for a lot of growth. And as John mentioned, we call this Apollo 15, it's a nice umbrella name for 15 markets to sit under. We think there's an Apollo 30. We're working with Neville and Ed Chao's team to look at the next set of markets that are out there and say, what can we do in the back end of the year into Q1? And could we get ready to have additional markets in our strongest selling season in Q1 in '14? That's really the goal at this point. A lot of excitement behind it.

My feelings on the issue is watching, I think, as you know, Metro is also quite a seasonal business. In Q2 and Q3, so far, we're operating well ahead of their seasonal trends. But I think as you look at the broader TMUS, as you get into Q4 and then into Q1, you will see a substantial presence in our numbers from both the underlying Metro business, but the Apollo 15 and soon to be 30.

Michael Rollins from Citi.

A couple if I could, please. The first one is, I was wondering if you could talk a little bit more about the growth in the value in the simple plans. I think the metric was you got to about 50% penetration. If you look at that significant sequential growth, how much of that was bring your own device versus customers who came in and actually upgraded or bought a new device from you as part of the equipment installment plan? And then secondly, I was wondering if you could peel back the onion a little bit more on the 10% device replacement rate that you had in the quarter? How much of that do you think was pent-up demand, people waiting for some of the new iconic devices that you launched during the quarter? Or was part of that maybe some flexibility that you gave in upgrade policy to encourage more retention of your customers and satisfaction from your customers. If you could just peel that one back a little bit, that would be great.

Those are great questions and there's some hidden gems in there because, as you know, when you give customers the visibility to the Simple Choice and no contract plan, they feel free. They love the engagement with you as a carrier with a no contract for what you do as a business. And then as they're buying their device, when you give them the right to have a low upfront cost by an equipment installment plan purely of their choice as a way to finance their purchase, it does have a significant linkage to you as a customer other than through that contract mechanism. And in general, 75% to 80% of our customers that come in also take an Equipment Installment Plan. But I'll let -- Mike, if you want to comment on both of those variables?

Yes. It's -- to me, it's an a nice sign of commitment from the customer and it's a great benefit to the customer to have a 2-year free installment plan for the device and to have lower plan, service charges through the Simple Choice. So they're making a commitment to us and it's about 75% who are choosing Simple Choice are also taking a 2-year EIP. And some of the balance are bring your own device customers which, again, is a nice source of strength for us and a attack weapon for us to go after the competition.

And the pent-up demand for iconic devices?

Yes. This was a -- it's interesting. This was not a quarter that was defined by any one device. We -- as we said, we sold about 900,000 iPhones which was terrific, a great success. We also sold about 600,000 Galaxy S4s. The iPhone represented about 29% of our gross ads and upgrades. The month of the iPhone launch was a great month for us. But May and June inside the quarter were better. And so what we've got here is reassessment by the consumer public of our brand. We've got people stepping back and rethinking T-Mobile on a new set of terms. And that's driven by the un-carrier strategy, that's driven by fantastic network progress. And that, more than anything else, is what's driving our renewed momentum in the marketplace.

Yes, let's be clear with what we're saying. Our partnership with Apple is a significant and special component of who we are as a company and the things that we will do going forward in the full array of devices that Apple does and will offer. And I think it's done great for our store traffic, it's done great for our brand. In combination with our un-carrier program, it's had a significant positive impact on us. But unfortunately, for our competitors, it's the onetime pent-up demand of customers wanting the iPhone is not an explanation of the phenomenon that we're announcing here as our Q2 results. So I do see Apple products, the iPhone 5 and ensuing devices, to be a significant part of how we will compete and the way we bring them to market. And the percentage of our base could change positively going forward, but it's the combination of them with our brand and our un-carrier proposition that has made the impact.

And does that mean that the replacement rate might just stay elevated for a little while as you're trying to get to your goal of up to 70% on the Value Plan by the end of the year, and you got these new devices, you got the new network? So does that mean that we should expect that replacement rate to stay elevated now because it was less about the pent-up demand in the second quarter?

Yes. And in the math, you're right. I mean you quoted the math suggests that it'll stay elevated. We picked up a record 14 points. We -- our base on Simple Choice moved from 36% at the end of the last quarter to 50%, which was a record. We had more than 2 million of those people take a phone upgrade moving to 10% of our total postpaid base, taking an upgrade from 5% last quarter. Both of these are records for us which basically says we're winning over not only the public and their reassessment of our brand but our own base. And you see that reflected in our record low churn as well. And I think it's a beginning. It's a big base and they're coming back to us, recommitting to us as we said before. And what we're providing in the guidance is a sense for where we think that'll land by the end of the year.

Your last question today will come from Rick Prentiss from Raymond James.

Obviously, very strong customer numbers. I wanted to talk a little further on the churn topic. Given the improvements in network but more to come, care, device lineup, un-carrier 3.0 coming, how low could churn get for you guys as we look out into the future?

I think that, Rick, you really hit on a lot of the key drivers. It's almost the perfect storm of multiple factors coming together that contributed to our record low postpaid churn of 1.5% to 8%. Can it get better? Absolutely. There is seasonality involved in churn. You do need to take that into account. But the foundation of the network, you have to remember, we're making a very significant investment in the network. We have a much simpler network. We're not dealing with a lot of legacy bands and complexities that the other large carriers are dealing with. And you're seeing a team that is hitting on all cylinders with a very rapid and massive rollout of, first, HSPA+ and now 4G LTE. That's the foundation. But everything else that John and Mike and the team has talked about with the un-carrier strategy is obviously having a significant impact on customer retention. And the quality of the customers, the mix, has significantly increased. So while there's always some seasonality to churn, we certainly expect that as we continue to innovate the marketplace and execute on our strategy that there are potential upsides from a churn standpoint here.

It's a fantastic question. I'm not going to give guidance on that at this point in time. But let's just think about what's happened. From previous descriptions about the medium term of this business, we talked about having some potential incremental positive postpaid net adds in '13 and then positive in '14 to changing our update to 1 million to 1.2 million positive this year. We previously had a multiyear plan that looked at dipping under 2 this year to postpaid churn and then potentially dipping under 1.9, and then 2 years hence dipping under 1.8. We're now sitting at 1.58 already. Obviously, there may be -- we'll have to see whether we can hold that specifically on a month-to-month basis going forward. But the combination of where we are in the momentum of our net adds in the postpaid side and where we are in the churn base is giving us some very positive feeling about the previously described multi-year view for the business, both from a revenue and an EBITDA, and a cash generating standpoint.

Makes sense. And the second question is, seems like one of the other pain points in the industry might be family plans, shared data, is it really cheaper or not? If I had somebody that wanted to change to a T-Mobile plan it might be a child who's locked up on a different expiration date. How are you guys feeling about attacking that kind of segment out there?

Yes, I'll let Mike answer that. But Rick, I just want to say, that sounded like you were describing your own pain point and what you need to do. So I'll have Mike answer this one specifically to you as our potential new customer.

This has been a systematic strategy of going after the things that frustrate customers most. And so anybody that studies the industry would -- shouldn't have too hard a time figuring out the things that are high on our radar screen. We went after contracts first because those were such an area of frustration. We went after simplicity and transparency in our rate plans and separating out the cost of the device from the cost of the rate plans, so people can really see what they're buying. Then we went after upgrades, the thing that has always been the most frustrating part about those contracts. And so you just have to kind of extrapolate that forward and get a sense for the kinds of things that customers are saying really matter. And by the way, it's all customers. As Drew and John mentioned a few minutes ago, it's across the segments, not just consumer. And we think there's some big things still remaining. The strategy is pretty simple, solve their pain points and pick things that are not only really valuable in customers and really important to them, but important to them at their moment of choice, so that they choose T-Mobile. And specifically things that, as John said, cost some money, add some value, but would be disproportionately difficult for our competitors to respond to. So that's the cocktail of criteria that we look at when we're planning our phases on un-carrier.

Okay. Well, we appreciate everybody tuning in. You certainly have a lot more to hear from us, and we look forward to individual discussions with as many of you as possible. But thank you for tuning in today.

Ladies and gentlemen, this concludes the T-Mobile U.S. second quarter 2013 conference call. If you have any further questions, you may contact the Investor Relations department. Thank you for your participation. You may now disconnect and have a pleasant day.