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Analyzing T-Mobile’s Future Spending Plans and Free Cash Flow

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T-Mobile’s capital expenditure

Let’s take a closer look at T-Mobile (TMUS), which continues to invest in capital expenditure (capex) to improve its network. T-Mobile has continued to improve its network by deploying more low-band spectrum. The company has already spent $1.2 billion on capex in 3Q16 and just over $3.8 billion year-to-date (or YTD), given its front-end load network spend in 2016.

T-Mobile expects its capital spending to rise slightly next year as new projects such as network expansion and densification replace those rolling off such as the LTE (long-term evolution) upgrade.

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Expected capex investments in 2016

During T-Mobile’s recent 3Q16 earnings conference call, T-Mobile lowered its capex guidance range for 2016 from $4.5 billion–$4.8 billion to $4.5 billion–$4.7 billion. By comparison, competitor Verizon (VZ) expects capex to come in at the low end of its $17.2 billion–$17.7 billion forecast range for 2016, mainly due to project delays caused by a union strike.

AT&T (T) and Sprint (S) are expected to spend ~$22 billion and $3.0 billion, respectively, on capex this year.

T-Mobile and Sprint have lower operating cash flows

T-Mobile’s and Sprint’s lower spending is the result of their lower operating cash flows and the rising debt on their balance sheets. AT&T and Verizon have generated $29.2 billion and $17.6 billion, respectively, in operating cash flow YTD, giving them leeway to direct more cash flow toward capex.

In 3Q16, T-Mobile reported free cash flow of $0.6 billion, a rise of 41.4% year-over-year. T-Mobile expects continued significant free cash flow growth.

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