TMUS Q3 2026: Higher Bills, Higher Churn

The 60-second read

Five things to know

1. Accounts pay more. ARPA rose to $155.73 as fees, plan changes and customers per account lifted revenue.
2. Retention weakened. Monthly account churn reached 1.09%, versus 0.97%; this is not phone churn.
3. Cash growth is less dramatic. Lower capex offset declining operating cash to lift adjusted FCF.
4. Capital has competing claims. Spectrum, leases, fiber investments and taxes constrain distributable cash.
5. Valuation offers room. Our $210 anchor supports a BUY below $170, conditional on customer and cash delivery.

Three scenarios, one probability-weighted number

Twelve-month price scenarios for approximately November 2027, before dividends; separate from current fair value.

Signposts: what would change our mind

Financial guide rows are company expectations. Churn, ARPA, owner-cash and entry thresholds are analyst decision rules. Next earnings date is unconfirmed.

A discounted cash engine with a retention test

T-Mobile is producing more revenue from each account while losing accounts at a faster monthly rate. That combination makes this quarter more interesting than the headline earnings growth. The investment question is whether better pricing and deeper customer relationships can sustain cash generation without requiring an escalating promotional bill. We rate the shares BUY at the November 9 reference close of $168.71, with conviction 3/5, medium uncertainty and current fair value of $210. Our entry ceiling is $170, approximately a nineteen-percent discount to the rounded anchor. This is a valuation call with a retention condition, not a prediction that the next price move must be positive.

The dated reference matters. The source dataset includes a November 10 intraday quote, but the packet uses the last completed session, November 9. The October 28 earnings release arrived after the regular session. The next close was $147.29 against $148.08 before the release, a computed decline of 0.53%. By November 9 the stock stood 13.93% above that pre-release close. The recovery cannot be attributed solely to this report; market conditions and later news also move shares. We do not substitute the release-day close for the first post-release response.

The gap between current price and our anchor is material, but telecom equity carries leverage and capital obligations that headline free cash flow can obscure. The valuation therefore reserves capital for announced transactions, separates financial debt from operating leases, and uses a constant share denominator rather than assuming every authorized repurchase is accretive. The five-year model is deliberately less exuberant than simply capitalizing the company's entire adjusted free-cash-flow guide forever. Investors should judge the assumptions, not treat the BUY label as a guarantee.

Strong earnings; cash tells a more restrained story

Revenue reached $23.584 billion, up 7.4% from the prior-year quarter. Service revenue rose 6.2% to $19.375 billion, while postpaid service revenue increased 9.3% to $16.269 billion. Those are distinct denominators: total revenue includes equipment and other sales, while the recurring service base is the principal support for the franchise. Equipment sales can rise with device upgrades without carrying the same economics as service fees.

Net income rose 27.3% to $3.455 billion and diluted EPS increased 33.6% to $3.22. A lower diluted weighted-average share count contributed to the faster per-share growth. Core Adjusted EBITDA increased 10.8% to $9.620 billion. That non-GAAP measure is useful for operations, but it excludes depreciation, interest, taxes, stock compensation and selected expenses. It should not be treated as spendable cash or as an alternative name for GAAP operating profit.

Operating cash flow declined 1.6% to $7.341 billion. Cash purchases of property and equipment fell 14.0% to $2.270 billion, so issuer adjusted free cash flow rose 5.3% to $5.071 billion. The full $253 million improvement in that cash-flow measure is explained by a $369 million reduction in capital spending offset by $116 million less operating cash. Management attributes the lower investment principally to timing. That is not evidence that the network permanently requires fourteen percent less reinvestment.

FMP records revenue expectations of $23.146 billion and EPS expectations of $2.89. The revenue comparison implies a 1.9% beat. The EPS vendor basis is not independently established, so the numerical gap is context rather than a claim about a clean like-for-like adjusted earnings surprise. We give more weight to the company's reported year-over-year comparisons and revised guidance than to an estimate whose accounting basis is not specified.

One segment; several customer economics

T-Mobile reports a single operating segment, Wireless. Postpaid, prepaid and wholesale are revenue categories, not separately disclosed profit segments. Creating three segment EBITDA estimates would give false precision. The consolidated profit reflects shared network capacity, devices, commissions, customer support and corporate costs. We can compare category growth, but cannot assign a reported margin to each category from this filing.

Postpaid accounts ended the quarter at 34.974 million, versus 33.979 million a year earlier. Net account additions were 274,000, below 396,000 a year ago. Monthly postpaid ARPA reached $155.73, up $6.29 or 4.2%. Higher fees, rate-plan modernization and more customers per account supported that improvement; promotional activity partially offset it. ARPA is revenue per billing account, not revenue per phone line. A household adding broadband or a business adding connections can lift the metric without an equivalent price increase on every existing customer.

Account churn reached 1.09%, versus 0.97% a year earlier and 0.99% in the preceding quarter. The filing attributes the quarterly increase to more broadband-only accounts, which have higher churn, and the temporary effect of rate-plan modernization. For the nine-month period, higher industry switching also contributed. We accept those explanations as management's account of the drivers, while testing whether retention improves in subsequent results. Calling this phone churn would be wrong: the supplied current disclosures do not provide a directly comparable postpaid phone-churn metric.

Acquisitions complicate the account history. The prior-year quarter added UScellular and Metronet accounts through base adjustments, while the current year includes smaller adjustments for consolidated business billing accounts and Metronet repurchases. Net additions exclude those base adjustments. Growth in ending accounts and organic net additions therefore answer different questions. Prepaid revenue fell 7.5% and wholesale and other service revenue fell 7.5%; postpaid strength is carrying the combined result rather than every customer category improving together.

The earnings bridge and the buyback contribution

GAAP operating income was $5.661 billion. Adding depreciation and amortization of $3.452 billion produces $9.113 billion before the company's remaining adjustments. Stock compensation in the adjusted bridge was $195 million; UScellular merger costs $129 million; network restructuring $38 million; legal-related expenses $14 million; and other adjustments $131 million. Those items total $507 million and reconcile to $9.620 billion of adjusted EBITDA. Device lease revenue was effectively zero for the quarter, so Core Adjusted EBITDA was the same amount.

The stock-compensation adjustment differs slightly from the $197 million expense in the cash-flow statement because the non-GAAP bridge includes payroll-tax effects. The two values should not silently overwrite one another. Depreciation reflects a capital-intensive network and acquired intangible assets. It is noncash in this quarter, but dismissing it entirely while ignoring replacement investment would overstate owner earnings. Integration and restructuring exclusions also recur across periods, even when an individual project has an end date.

Below operating income, net interest expense of $1.031 billion and other expense of $90 million reduced pretax income to $4.540 billion. Tax expense of $1.085 billion left net income of $3.455 billion. The computed effective rate was 23.9%. Net interest increased from $924 million a year earlier, making leverage a real claim on the growth. Operating profit covers quarterly net interest approximately 5.5 times, a useful diagnostic that is not a debt-covenant calculation.

Diluted weighted-average shares fell from 1,126.628 million to 1,071.630 million, a 4.9% decline. That magnified earnings growth per share. Our valuation instead uses 1,059.273 million actual shares outstanding on October 23, the latest dated cover count. We do not confuse a quarterly average with the later ownership denominator. We also adjust the September balance sheet for specified subsequent cash uses so that the newer share count does not receive free credit for repurchases.

Nine checks on earnings quality

The strongest quality point is that operating cash comfortably exceeds accounting income. The weaker point is its direction: quarterly operating cash declined despite higher profit. Inventory consumed $892 million of cash, while accounts payable and accrued liabilities consumed $421 million, compared with a substantial source of cash a year earlier. These movements can reverse, but they demonstrate why earnings growth is not a complete cash forecast.

Bad-debt expense increased to $437 million from $337 million. This cost is included in the reported income statement; it is not a hidden subtraction we discovered after the fact. Its 29.7% increase exceeds revenue growth and merits monitoring alongside churn and promotional intensity. Current accounts receivable imply a simple 19.6-day sales proxy, and inventory implies a 52.1-day equipment-cost proxy using ninety-two days in the quarter. These are rough end-balance diagnostics, not true collection or inventory cycles: equipment installment receivables and varying product mix limit comparability.

Historical cash definitions require particular care. The 2025 annual report shows issuer adjusted free cash flow of $17.995 billion in 2025, $17.032 billion in 2024 and $13.586 billion in 2023. Earlier years included proceeds related to beneficial interests in securitizations, and 2023 included tower-sale proceeds. Plain operating cash less cash PP&E therefore gives different values. The vendor's capex and free-cash-flow mappings also differ from the issuer definition. We retain all raw records and identify the basis of each chart rather than splice unlike measures into one apparently clean growth line.

Disclosure controls were assessed as effective in the current filing. The ongoing ERP implementation is a disclosed change-management process, not evidence by itself of ineffective controls. The quarter's reporting quality passes a basic transparency test because the operating and non-GAAP bridges are explicit. That does not settle the economic question of how much reinvestment is necessary to defend the customer franchise.

Debt, spectrum and the claims outside the headline

September cash and equivalents were $5.620 billion. Short-term debt of $6.343 billion plus long-term debt of $77.323 billion give $83.666 billion of financial debt and $78.046 billion of net financial debt. We separately deduct $2.294 billion of finance-lease liabilities and $3.419 billion of tower obligations in the enterprise valuation. Operating-lease liabilities total $28.661 billion, but we do not subtract them again when using an EBITDA measure already burdened by operating rent. Consistency between earnings and debt definitions is more useful than the largest possible debt headline.

The current ratio is just below one, common for a business with recurring billings but still worth watching. The company reported an undrawn $10 billion revolving facility at September 30. That supports liquidity; it is neither cash owned by shareholders nor a reason to erase debt. Refinancing costs, interest-rate changes and capital allocation can affect equity even if day-to-day customer receipts remain stable.

The $2.9 billion of cash proceeds from the completed 800 MHz spectrum sale is investing cash, outside adjusted free cash flow. It is not recurring subscriber cash generation. The company expects roughly $850 million of related cash taxes primarily through the end of 2027. Additional contingent consideration tied to Grain's future monetization is not recognized, and our valuation assigns it zero. We do not capitalize a possible further payment before its amount and conditions are established.

Our $4.476 billion transaction and timing reserve includes $671 million invested in i3 Broadband after quarter-end, an expected $2 billion Oak Hill joint-venture investment, $850 million of spectrum-sale taxes, the $164 million cash Ka'ena earnout, and $791 million of disclosed October repurchases. The latter aligns the older cash balance with the newer share denominator. The pending Oak Hill benefits receive no separate incremental valuation credit. Normal spectrum purchases, including the $290 million TStar payment expected in early 2027, are covered by the recurring spectrum allowance in the equity cash-flow model rather than another reserve deduction.

Adjusted FCF is after cash PP&E and operating expenses, but before finance-lease principal, spectrum acquisitions and strategic equity investments. That is why our owner-cash base is below the company guide. A large distribution authorization is not an additional asset: dividends and repurchases consume the same cash that can fund debt reduction and growth. The reported $5.4 billion remaining authorization at September 30 had declined to $4.6 billion by October 23.

Three routes, one dated current-value anchor

Our current fair-value anchor is $210 per share. The three routes cluster around $208–$217, but they are not independent statistical estimates: all depend on the same customer franchise and capital discipline. Medium uncertainty reflects durable recurring service demand alongside leverage, pricing sensitivity and investment needs. We require roughly a nineteen-percent discount and set a practical entry ceiling of $170. At the $168.71 reference close that condition is met. The intrinsic-value uncertainty band is $135–$270 today; it is distinct from the dated twelve-month price scenarios below.

The equity cash-flow route starts with the $18.750 billion midpoint of issuer adjusted FCF guidance. We subtract annual allowances of $1.350 billion for finance-lease principal, $1.100 billion for spectrum and $800 million for stock compensation, leaving $15.500 billion before a transaction-tax normalization. The release does not identify how much of the roughly $850 million spectrum-sale tax is embedded in the 2026 cash guide. We assume $425 million for our central case, add it back to avoid treating a one-time tax as a recurring annual cost, and obtain $15.925 billion. These are analyst normalization assumptions, not company guidance or verified tax timing. Operating-lease payments and cash interest are already inside operating cash. The resulting cash belongs to equity after recurring financing costs, so we do not subtract financial debt a second time. We grow this base five percent annually for five years, discount at ten percent, use two-percent perpetual growth, and subtract the $4.476 billion specific reserve. The result is approximately $213 per share. The full $850 million transaction-tax reserve is deducted once within the $4.476 billion specific reserve; the assumed $425 million add-back prevents the assumed guide-year tax from also being capitalized as a recurring cost. Holding the full reserve constant, an embedded guide-year tax of zero gives $207.39, $425 million gives $213.20, and $850 million gives $219.00 per share. This is a sensitivity to an unverified allocation, not three verified payment schedules. The filing reports only $7 million of total net income-tax payments in Q3 and does not isolate spectrum-related payments. If any of the expected transaction tax was already paid and included in September cash, that portion of the reserve should also be released; the maximum additional effect is about $0.80 per share. The $210 anchor therefore remains a rounded, conservative judgment rather than a tax-timing precision claim.

The enterprise route applies 8.5 times to $37.400 billion of guided Core Adjusted EBITDA. That yields $317.900 billion of operating value. Deduct $78.046 billion of net financial debt, $2.294 billion of finance leases, $3.419 billion of tower obligations and the $4.476 billion reserve, then divide by 1,059.273 million shares. The result is approximately $217. We use a rent-burdened earnings measure and therefore do not separately capitalize operating leases. This multiple is our valuation judgment, not a verified peer median.

The earnings route uses $12.500 billion of normalized annual net income at eighteen times, deducts the same specific reserve, and divides by the same share count. It gives approximately $208. The earnings assumption sits above annualized nine-month profit but below annualizing the latest quarter alone. It is not a company GAAP forecast: management explicitly does not provide that forecast because certain items are too variable. The method is a cross-check on the owner-cash and enterprise approaches.

At the reference price, equity value is approximately $178.7 billion. Adding our net debt, lease, tower and reserve deductions produces adjusted enterprise value of about $266.9 billion, or roughly 7.1 times the full-year Core EBITDA midpoint. The reverse cash model requires approximately $12.7 billion of starting normalized owner cash if growth and discount assumptions stay fixed. Our $15.925 billion starting base, including the assumed tax normalization, is higher, explaining the upside. The apparent discount disappears if retention pressures, higher normal taxes or reinvestment consume that difference. A sensitivity grid shows why a one-point change in required return can matter more than a small quarterly EPS beat.

Dated targets without pretending the horizons match

The saved FMP target records are bullish relative to the reference price. BNP Paribas published $245 on October 30, Deutsche Bank $300 on October 29, Scotiabank $214 on October 29 and KeyBanc $240 on October 29. Those are dated third-party records, not endorsements. Their original analyst reports and exact target horizons were not independently obtained. We therefore compare their levels with our explicit twelve-month base target of $230 while stating that the horizons may differ.

Our current fair value of $210 answers what the modeled stream is worth now. The $230 base scenario answers what a future market price could be around November 2027 under specified earnings and multiple assumptions. Confusing those two clocks creates a false disagreement with the Street. The base scenario uses $13.8 billion of 2027 net income, 1.05 billion shares and a 17.5-times multiple. The bear uses $12.18 billion, the same shares and 12.5 times for $145; the bull uses $15.75 billion and nineteen times for $285. None is company guidance.

We assign 25%, 50% and 25% probabilities, yielding a weighted twelve-month price of $222.50 before dividends. These probabilities are judgmental scenario weights, not statistically calibrated odds. The asymmetric operating scenarios capture the possibility that pricing and network quality support better cash conversion, as well as the risk that promotions and churn force lower earnings and valuation. The vendor annual estimates are retained separately; its EBITDA field is not relabeled company Core Adjusted EBITDA. An estimated next earnings date of February 10, 2027 remains unconfirmed by the issuer in this packet.

What the guidance raise actually requires

Management raised the midpoint of annual Core Adjusted EBITDA guidance by $100 million to $37.400 billion and narrowed the range to $37.350–$37.450 billion. The operating-cash midpoint increased $150 million to $28.750 billion; adjusted FCF increased by the same amount to $18.750 billion. Cash PP&E remained approximately $10 billion. The net-account-addition midpoint remains approximately one million, so the financial upgrade is not accompanied by a higher midpoint for that customer metric.

Subtracting reported nine-month results from the guide implies about $9.003 billion of fourth-quarter Core EBITDA, $6.687 billion of operating cash and $4.283 billion of adjusted FCF at the midpoints. Implied fourth-quarter cash PP&E is $2.404 billion. Those calculations show why mechanically annualizing the latest $5.071 billion FCF quarter would overstate the company's full-year outlook. The effective-tax-rate guide moved down to 24–25% from 25–26%, another contributor to the financial picture that is separate from customer momentum.

Capital allocation is mixed but understandable. Quarterly buybacks occurred at an average $177.31; the first nine months averaged $195.81; disclosed October repurchases averaged $158.68. The later purchases retired more shares per dollar. That is favorable arithmetic relative to our current valuation, but hindsight should not replace the contemporaneous decision process. The December dividend of $1.17 per share was declared for payment December 10 to holders of record November 25. Multiplying it by four gives a $4.68 annual run rate, not a promise that all future dividends will stay at that level.

UScellular integration targets $1.2 billion of annual run-rate cost synergies, comprising $950 million of operating expenses and $250 million of capex. Expected costs to achieve are approximately $2.6 billion excluding accelerated depreciation, with substantially all costs and payments anticipated by the end of 2027. Our model does not add the entire synergy target on top of already improving guidance. The useful questions are how much remains unearned, whether customer experience survives the integration, and whether the spending schedule stays within the disclosed envelope.

The strongest objection to our BUY

The bull case is a well-funded network advantage earning more from a growing customer base. ARPA improves, service margins expand, buybacks retire stock at attractive prices and integration reduces duplicative costs. The business does not need a spectacular new product to create value; it needs the recurring service relationship to remain durable while the capital base works harder. Our valuation allows moderate growth rather than a permanently accelerating customer acquisition rate.

The bear case is equally concrete. A price increase can lift ARPA before its full retention cost appears. Broadband-only account growth changes churn mix, but competitive promotions can still force higher device subsidies and selling expense. Bad debt may signal customer pressure. Meanwhile, cash tax, spectrum needs, finance leases and joint ventures compete with dividends and repurchases. The stock can remain statistically cheap if the cash available to owners is lower than the reported adjusted measure suggests.

Deutsche Telekom held approximately 55.0% of the outstanding common stock and controlled approximately 55.9% of the vote as of October 23. Minority investors therefore do not control strategic allocation. The annual report identifies controlled-company governance exemptions. This is a governance risk, not an allegation of misconduct. The company has one common share class covered here, no ADS conversion and no preferred stock outstanding at September 30.

The section 13(r) disclosure needs precision. The filing reports activities of Deutsche Telekom affiliates or former affiliates outside T-Mobile's control, including Iranian telecom roaming and interconnection relationships and services to specified German entities. The disclosed revenues and estimated profits for the identified telecom activities were each below $0.1 million; embassy services were also below that threshold. Some services were being terminated through legal processes, while DT intended to continue other activities. This is an ongoing affiliate regulatory disclosure. It is not evidence that T-Mobile itself conducted those transactions, and the small disclosed amounts do not make the regulatory issue nonexistent. We preserve it as a risk and source-review flag without inventing a sanction liability or an automatic prohibition on analyzing the listed parent.

Decisions tied to observable checkpoints

The next earnings report should resolve whether the higher account churn was temporary and whether the narrower full-year cash guide was achieved. The issuer's next release date is unconfirmed in the saved materials, so the vendor calendar is not used as a firm event promise. The key year-end checkpoints are financial and operational: adjusted FCF at least $18.7 billion, Core EBITDA at least $37.35 billion, and roughly one million net account additions.

Our analyst thresholds are intentionally stricter than a vague request for progress. Account churn at or below 1.05% would improve confidence, while above 1.15% would call for a review of the pricing thesis. ARPA at least $155 would support the revenue base; below $153 alongside elevated churn would weaken it. These thresholds are decision rules, not company commitments. Seasonal and mix effects still require interpretation before changing the model.

The Oak Hill joint venture is expected to close in the first half of 2027 subject to conditions and approvals. Its approximately $2 billion investment is already reserved, while incremental returns are not awarded in advance. Spectrum-sale cash taxes extend primarily through December 2027. Neither obligation disappears because the company has repurchase authorization remaining. We will revisit the BUY if normalized owner cash falls below $13 billion or if leverage rises without a clear return on the new capital.

Definitions, source coverage and reproducible history

All dollar amounts are US dollars. Tables labeled $M use millions; valuation and EPS cells use ordinary dollars per share. Primary current-period columns read 2026 first and 2025 second, with separate three-month and nine-month blocks. The release's longer reconciliation table runs chronologically from early 2025 through the current quarter. Those column orders were checked before extracting figures.

The nine-quarter history below retains vendor revenue, net income and EPS, but every operating-income cell is checked against issuer disclosures. Three FMP operating-income values were rejected: Q3 2026 $5.813 billion versus issuer $5.661 billion; Q3 2025 $4.862 billion versus $4.530 billion; and Q4 2025 $3.864 billion versus $3.736 billion. The other six rows agree. Q4 2024 operating income is computed from issuer annual $18.010 billion less nine-month $13.424 billion. Raw vendor records remain unchanged; normalized rows carry field-specific source and method provenance. Detailed income, cash-flow and balance-sheet records are retained in data.json with source URLs, and the original provider response is preserved separately under _src. No vendor EBITDA or inconsistent operating expense total is relabeled as the corrected GAAP operating-income figure. Seven quarters of issuer operating profit, Core EBITDA and non-GAAP reconciliation are available in the current release. Complete historical category profit does not exist because the company reports a single segment. Nine-quarter phone-specific churn, fully restated account cohorts, employee histories and independently timed historical earnings reactions were not established. We leave those unavailable rather than fabricate continuity across acquisitions and reporting changes.

The 2025 annual report identifies Deloitte & Touche LLP as auditor and approximately 75,000 full-time and part-time employees at year-end. These are dated annual facts. The company is a Delaware corporation listed on Nasdaq; common shares have one vote each subject to the disclosed voting arrangements. Consolidated VIEs and unconsolidated joint ventures are accounting structures described in the filings, not an offshore ADS arrangement. Current debt and cash bridge figures come from the September 2026 filing rather than the provider's broader debt mapping.

Core Adjusted EBITDA is a company non-GAAP operating measure. Adjusted FCF is also non-GAAP and has changed in historical composition. Owner cash in this packet is our modeled equity cash after additional recurring allowances. Enterprise value in our multiple route includes expressly listed debt-like claims and reserve assumptions. The reserve is an analytical deduction, not a newly reported liability. Scenario probabilities and valuation multiples are judgments, and future share counts are assumptions. A subsequent price or filing change requires a dated update; it does not retroactively change this source-bound reference.

No prior packet signpost set was supplied for a formal scorecard comparison, so this packet establishes the next review's checkpoints without inventing past forecasts. The previous quarter's video remains a separate immutable publication. Production review should verify the exact current source hashes, rendered units and mobile charts before the research is promoted into the live episode.

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