UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from    to

Commission File Number: 1-33409

T-MOBILE US, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	20-0836269
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
12920 SE 38th Street, Bellevue, Washington	98006-1350
(Address of principal executive offices)	(Zip Code)
(425) 378-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer     x                        Accelerated filer             ¨

Non-accelerated filer     ¨                        Smaller reporting company        ¨

Emerging growth company    ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Shares Outstanding as of April 18, 2019
Common Stock, $0.00001 par value per share	854,303,011

T-Mobile US, Inc.

Form 10-Q

For the Quarter Ended March 31, 2019

Table of Contents

PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements	3
		Condensed Consolidated Balance Sheets	3
		Condensed Consolidated Statements of Comprehensive Income	4
		Condensed Consolidated Statements of Cash Flows	5
		Consolidated Statement of Stockholders’ Equity	6
		Notes to the Condensed Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51
	Item 4.	Controls and Procedures	51
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	52
	Item 1A.	Risk Factors	52
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
	Item 3.	Defaults Upon Senior Securities	52
	Item 4.	Mine Safety Disclosures	52
	Item 5.	Other Information	52
	Item 6.	Exhibits	53
		SIGNATURE	54

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

T-Mobile US, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in millions, except share and per share amounts)	March 31, 2019			December 31, 2018
Assets
Current assets
Cash and cash equivalents	$	1,439		$	1,203
Accounts receivable, net of allowances of $63 and $67	1,749			1,769
Equipment installment plan receivables, net	2,466			2,538
Accounts receivable from affiliates	16			11
Inventory	1,261			1,084
Other current assets	1,814			1,676
Total current assets	8,745			8,281
Property and equipment, net	21,464			23,359
Operating lease right-of-use assets	9,509			—
Financing lease right-of-use assets	2,339			—
Goodwill	1,901			1,901
Spectrum licenses	35,618			35,559
Other intangible assets, net	174			198
Equipment installment plan receivables due after one year, net	1,662			1,547
Other assets	1,661			1,623
Total assets	$	83,073		$	72,468
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities	$	7,330		$	7,741
Payables to affiliates	242			200
Short-term debt	250			841
Short-term debt to affiliates	598			—
Deferred revenue	665			698
Short-term operating lease liabilities	2,202			—
Short-term financing lease liabilities	911			—
Other current liabilities	1,129			787
Total current liabilities	13,327			10,267
Long-term debt	10,952			12,124
Long-term debt to affiliates	13,985			14,582
Tower obligations	2,244			2,557
Deferred tax liabilities	4,925			4,472
Operating lease liabilities	9,339			—
Financing lease liabilities	1,224			—
Deferred rent expense	—			2,781
Other long-term liabilities	896			967
Total long-term liabilities	43,565			37,483
Commitments and contingencies (Note 11)
Stockholders' equity
Common Stock, par value $0.00001 per share, 1,000,000,000 shares authorized; 855,858,890 and 851,675,119 shares issued, 854,380,118 and 850,180,317 shares outstanding	—			—
Additional paid-in capital	38,100			38,010
Treasury stock, at cost, 1,478,772 and 1,494,802 shares issued	(5		)	(6		)
Accumulated other comprehensive income	(521		)	(332		)
Accumulated deficit	(11,393		)	(12,954		)
Total stockholders' equity	26,181			24,718
Total liabilities and stockholders' equity	$	83,073		$	72,468

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

T-Mobile US, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended March 31,
(in millions, except share and per share amounts)	2019			2018
Revenues
Branded postpaid revenues	$	5,493		$	5,070
Branded prepaid revenues	2,386			2,402
Wholesale revenues	304			266
Roaming and other service revenues	94			68
Total service revenues	8,277			7,806
Equipment revenues	2,516			2,353
Other revenues	287			296
Total revenues	11,080			10,455
Operating expenses
Cost of services, exclusive of depreciation and amortization shown separately below	1,546			1,589
Cost of equipment sales, exclusive of depreciation and amortization shown separately below	3,016			2,845
Selling, general and administrative	3,442			3,164
Depreciation and amortization	1,600			1,575
Total operating expense	9,604			9,173
Operating income	1,476			1,282
Other income (expense)
Interest expense	(179		)	(251		)
Interest expense to affiliates	(109		)	(166		)
Interest income	8			6
Other income (expense), net	7			10
Total other expense, net	(273		)	(401		)
Income before income taxes	1,203			881
Income tax expense	(295		)	(210		)
Net income	$	908		$	671
Net income	$	908		$	671
Other comprehensive loss, net of tax
Unrealized loss on available-for-sale securities, net of tax effect of $0 and $(1)	—			(3		)
Unrealized loss on cash flow hedges, net of tax effect of $(66) and $0	(189		)	—
Other comprehensive loss	(189		)	(3		)
Total comprehensive income	$	719		$	668
Earnings per share
Basic	$	1.07		$	0.78
Diluted	$	1.06		$	0.78
Weighted average shares outstanding
Basic	851,223,498			855,222,664
Diluted	858,643,481			862,244,084

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

T-Mobile US, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31,
(in millions)	2019			2018
Operating activities
Net income	$	908		$	671
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	1,600			1,575
Stock-based compensation expense	110			97
Deferred income tax expense	288			206
Bad debt expense	73			54
Losses from sales of receivables	35			52
Deferred rent expense	—			4
Losses on redemption of debt	—			32
Changes in operating assets and liabilities
Accounts receivable	(1,143		)	(873		)
Equipment installment plan receivables	(250		)	(222		)
Inventories	(265		)	33
Operating lease right-of-use assets	435			—
Other current and long-term assets	(87		)	132
Accounts payable and accrued liabilities	13			(1,028		)
Short and long-term operating lease liabilities	(522		)	—
Other current and long-term liabilities	121			45
Other, net	76			(8		)
Net cash provided by operating activities	1,392			770
Investing activities
Purchases of property and equipment, including capitalized interest of $118 and $43	(1,931		)	(1,366		)
Purchases of spectrum licenses and other intangible assets, including deposits	(185		)	(51		)
Proceeds related to beneficial interests in securitization transactions	1,157			1,295
Acquisition of companies, net of cash acquired	—			(333		)
Other, net	(7		)	(7		)
Net cash used in investing activities	(966		)	(462		)
Financing activities
Proceeds from issuance of long-term debt	—			2,494
Proceeds from borrowing on revolving credit facility	885			2,170
Repayments of revolving credit facility	(885		)	(1,725		)
Repayments of financing lease obligations	(86		)	(172		)
Repayments of long-term debt	—			(999		)
Repurchases of common stock	—			(666		)
Tax withholdings on share-based awards	(100		)	(74		)
Cash payments for debt prepayment or debt extinguishment costs	—			(31		)
Other, net	(4		)	3
Net cash (used in) provided by financing activities	(190		)	1,000
Change in cash and cash equivalents	236			1,308
Cash and cash equivalents
Beginning of period	1,203			1,219
End of period	$	1,439		$	2,527
Supplemental disclosure of cash flow information
Interest payments, net of amounts capitalized	$	340		$	378
Operating lease payments (1)	688			—
Income tax payments	32			1
Noncash investing and financing activities
Noncash beneficial interest obtained in exchange for securitized receivables	$	1,512		$	1,128
Changes in accounts payable for purchases of property and equipment	(333		)	(364		)
Leased devices transferred from inventory to property and equipment	147			304
Returned leased devices transferred from property and equipment to inventory	(57		)	(82		)
Short-term debt assumed for financing of property and equipment	250			237
Operating lease right-of-use assets obtained in exchange for lease obligations	694			—
Financing lease right-of-use assets obtained in exchange for lease obligations	180			142

(1) On January 1, 2019, we adopted ASU 2016-02, “Leases (Topic 842),” which requires certain supplemental cash flow disclosures. Where these disclosures or a comparable figure were not required under the former lease standard, we have not retrospectively presented historical amounts. See Note 1 – Summary of Significant Accounting Policies for additional details.

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

T-Mobile US, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

(in millions, except shares)	Common Stock Outstanding		Treasury Shares at Cost			Par Value and Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders' Equity
Balance as of December 31, 2017	859,406,651		$	(4	)	$	38,629		$	8		$	(16,074	)	$	22,559
Net income	—		—			—			—			671			671
Other comprehensive income	—		—			—			(3		)	—			(3		)
Stock-based compensation	—		—			108			—			—			108
Exercise of stock options	78,435		—			2			—			—			2
Stock issued for employee stock purchase plan	1,069,512		—			55			—			—			55
Issuance of vested restricted stock units	3,947,005		—			—			—			—			—
Issuance of restricted stock awards	354,459		—			—			—			—			—
Shares withheld related to net share settlement of stock awards and stock options	(1,235,899	)	—			(74		)	—			—			(74		)
Repurchases of common stock	(10,498,539	)	—			(666		)	—			—			(666		)
Transfer RSU to NQDC plan	(55,395	)	(3		)	3			—			—			—
Prior year retained earnings	—		—			—			—			224			224
Balance as of March 31, 2018	853,066,229		$	(7	)	$	38,057		$	5		$	(15,179	)	$	22,876
Balance as of December 31, 2018	850,180,317		$	(6	)	$	38,010		$	(332	)	$	(12,954	)	$	24,718
Net income	—		—			—			—			908			908
Other comprehensive income	—		—			—			(189		)	—			(189		)
Stock-based compensation	—		—			121			—			—			121
Exercise of stock options	31,874		—			1			—			—			1
Stock issued for employee stock purchase plan	1,172,511		—			69			—			—			69
Issuance of vested restricted stock units	4,343,972		—			—			—			—			—
Shares withheld related to net share settlement of stock awards and stock options	(1,364,621	)	—			(100		)	—			—			(100		)
Repurchases of common stock	—		—			—			—			—			—
Transfer RSU from NQDC plan	16,065		1			(1		)	—			—			—
Prior year retained earnings	—		—			—			—			653			653
Balance as of March 31, 2019	854,380,118		$	(5	)	$	38,100		$	(521	)	$	(11,393	)	$	26,181

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

T-Mobile US, Inc.

Index for Notes to the Condensed Consolidated Financial Statements

Note 1	Summary of Significant Accounting Policies	8
Note 2	Significant Transactions	11
Note 3	Business Combinations	12
Note 4	Receivables and Allowance for Credit Losses	13
Note 5	Sales of Certain Receivables	14
Note 6	Fair Value Measurements	17
Note 7	Tower Obligations	18
Note 8	Revenue from Contracts with Customers	20
Note 9	Earnings Per Share	21
Note 10	Leases	22
Note 11	Commitments and Contingencies	24
Note 12	Subsequent Event	25
Note 13	Guarantor Financial Information	26

7

T-Mobile US, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements of T-Mobile US, Inc. (“T-Mobile,” “we,” “our,” “us” or “the Company”) include all adjustments of a normal recurring nature necessary for the fair presentation of the results for the interim periods presented. The results for the interim periods are not necessarily indicative of those for the full year. The condensed consolidated financial statements should be read in conjunction with our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.

The condensed consolidated financial statements include the balances and results of operations of T-Mobile and our consolidated subsidiaries. We consolidate majority-owned subsidiaries over which we exercise control, as well as variable interest entities (“VIE”) where we are deemed to be the primary beneficiary and VIEs which cannot be deconsolidated, such as those related to Tower obligations (Tower obligations are included in VIEs related to the 2012 Tower Transaction. See Note 7 - Tower Obligations for further information). Intercompany transactions and balances have been eliminated in consolidation.

The preparation of financial statements in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”) requires our management to make estimates and assumptions which affect the financial statements and accompanying notes. Estimates are based on historical experience, where applicable, and other assumptions which our management believes are reasonable under the circumstances. These estimates are inherently subject to judgment and actual results could differ from those estimates.

Accounting Pronouncements Adopted During the Current Year

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842),” and has since modified the standard with several ASUs (collectively, the “new lease standard”). The new lease standard is effective for us, and we adopted the standard, on January 1, 2019.

We adopted the standard by recognizing and measuring leases at the adoption date with a cumulative effect of initially applying the guidance recognized at the date of initial application and as a result did not restate the prior periods presented in the Condensed Consolidated Financial Statements.

The new lease standard provides for a number of optional practical expedients in transition. We did not elect the “package of practical expedients” and as a result reassessed under the new lease standard our prior accounting conclusions about lease identification, lease classification and initial direct costs. We elected to use hindsight for determining the reasonably certain lease term. We did not elect the practical expedient pertaining to land easements as it is not applicable to us.

The new lease standard provides practical expedients and policy elections for an entity’s ongoing accounting. Generally, we elected the practical expedient to not separate lease and non-lease components in arrangements whereby we are the lessee. For arrangements in which we are lessor we did not elect this practical expedient. We did not elect the short-term lease recognition exemption, which includes the recognition of right-of-use assets and lease liabilities for existing short-term leases at transition. We have also applied this election to all active leases at transition.

The most significant judgments and impacts upon adoption of the standard include the following:

• In evaluating contracts to determine if they qualify as a lease, we consider factors such as if we have obtained or transferred substantially all of the rights to the underlying asset through exclusivity, if we can or if we have transferred the ability to direct the use of the asset by making decisions about how and for what purpose the asset will be used and if the lessor has substantive substitution rights.

• We recognized right-of-use assets and operating lease liabilities for operating leases that have not previously been recorded. The lease liability for operating leases is based on the net present value of future minimum lease payments.

8

The right-of-use asset for operating leases is based on the lease liability adjusted for the reclassification of certain balance sheet amounts such as prepaid rent and deferred rent, which we remeasured at adoption due to the application of hindsight to our lease term estimates. Deferred and prepaid rent will no longer be presented separately.

• Capital lease assets previously included within Property and equipment, net were reclassified to financing lease right-of-use assets, and capital lease liabilities previously included in Short-term debt and Long-term debt were reclassified to financing lease liabilities in our Condensed Consolidated Balance Sheet.

• Certain line items in the Condensed Consolidated Statements of Cash Flows and the “Supplementary disclosure of cash flow information” have been renamed to align with the new terminology presented in the new standard; “Repayment of capital lease obligations” is now presenting as “Repayments of financing lease obligations” and “Assets acquired under capital lease obligations” is now presenting as “Financing lease right-of-use assets obtained in exchange for lease obligations.” In the “Operating Activities” section of the Condensed Consolidated Statements of Cash Flows we have added “Operating lease right-of-use assets” and “Short and long-term operating lease liabilities” which represent the change in the operating lease asset and liability, respectively. Additionally, in the “Supplemental disclosure of cash flow information” section of the Condensed Consolidated Statements of Cash Flows we have added “Operating lease payments,” and in the “Noncash investing and financing activities” section we have added “Operating lease right-of-use assets obtained in exchange for lease obligations.”

• In determining the discount rate used to measure the right-of-use asset and lease liability, we use rates implicit in the lease, or if not readily available, we use our incremental borrowing rate. Our incremental borrowing rate is based on an estimated secured rate comprised of a risk-free LIBOR rate plus a credit spread as secured by our assets.

• Certain of our lease agreements include rental payments based on changes in the consumer price index (“CPI”). Lease liabilities are not remeasured as a result of changes in the CPI; instead, changes in the CPI are treated as variable lease payments and are excluded from the measurement of the right-of-use asset and lease liability. These payments are recognized in the period in which the related obligation was incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

• We elected the use of hindsight whereby we applied current lease term assumptions that are applied to new leases in determining the expected lease term period for all cell sites. Upon adoption of the new standard and application of hindsight, our expected lease term has shortened to reflect payments due for the initial non-cancelable lease term only. This assessment corresponds to our lease term assessment for new leases and aligns with the payments that have been disclosed as lease commitments in prior years. As a result, the average remaining lease term for cell sites has decreased from approximately nine to five years based on lease contracts in effect at transition on January 1, 2019. The aggregate impact of using the hindsight is an estimated decrease in Total operating expense of $240 million in fiscal year 2019.

• We were also required to reassess the previously failed sale-leasebacks of certain T-Mobile-owned wireless communication tower sites and determine whether the transfer of the assets to the tower operator under the arrangement met the transfer of control criteria in the revenue standard and whether a sale should be recognized.

• We concluded that a sale has not occurred for the 6,200 tower sites transferred to Crown Castle International Corp. (“CCI”) pursuant to a master prepaid lease arrangement; therefore, these sites will continue to be accounted for as failed sale-leasebacks.

• We concluded that a sale should be recognized for the 900 tower sites transferred to CCI pursuant to the sale of a subsidiary and the 500 tower sites transferred to Phoenix Tower International (“PTI”). Upon adoption on January 1, 2019, we derecognized our existing long-term financial obligation and the tower-related property and equipment associated with these 1,400 previously failed sale-leaseback tower sites and recognized a lease liability and right-of-use asset for the leaseback of the tower sites. The estimated impacts from the change in accounting conclusion are primarily a decrease in Other revenues of $44 million and a decrease in Interest expense of $34 million.

• Rental revenues and expenses associated with co-location tower sites are presented on a net basis under the new lease standard. These revenues and expenses were presented on a gross basis under the former lease standard.

9

Including the impacts from a change in the accounting conclusion on the 1,400 previously failed sale-leaseback tower sites, the cumulative effect of initially applying the new lease standard on January 1, 2019 is as follows:

	January 1, 2019
(in millions)	Beginning Balance			Cumulative Effect Adjustment			Beginning Balance, As Adjusted
Assets
Other current assets	$	1,676		$	(78	)	$	1,598
Property and equipment, net	23,359			(2,339		)	21,020
Operating lease right-of-use assets	—			9,251			9,251
Financing lease right-of-use assets	—			2,271			2,271
Other intangible assets, net	198			(12		)	186
Other assets	1,623			(71		)	1,552
Liabilities and Stockholders’ Equity
Accounts payable and accrued liabilities	7,741			(65		)	7,676
Other current liabilities	787			28			815
Short-term and long-term debt	12,965			(2,015		)	10,950
Tower obligations	2,557			(345		)	2,212
Deferred tax liabilities	4,472			231			4,703
Deferred rent expense	2,781			(2,781		)	—
Short-term and long-term operating lease liabilities	—			11,364			11,364
Short-term and long-term financing lease liabilities	—			2,016			2,016
Other long-term liabilities	967			(64		)	903
Accumulated deficit	$	(12,954	)	$	653		$	(12,301	)

Including the impacts from the change in the accounting conclusion on the 1,400 previously failed sale-leaseback tower sites and the change in presentation on the income statement of the 6,200 tower sites for which a sale did not occur, the cumulative effects of initially applying the new lease standard for fiscal year 2019 are estimated as follows:

• The aggregate impact is a decrease in Other revenues of $185 million, a decrease in Total operating expenses of $380 million, a decrease in Interest expense of $34 million and an increase to Net income of $175 million.

• The expected impact on our Condensed Consolidated Statements of Cash Flows is a decrease in Net cash provided by operating activities of $10 million and a decrease in Net cash used in financing activities of $10 million.

For arrangements where we are the lessor, including arrangements to lease devices to our service customers, the adoption of the new lease standard did not have a material impact on our financial statements as these leases are classified as operating leases.

Device lease payments are presented as Equipment revenues and recognized as earned on a straight-line basis over the lease term. Recognition of equipment revenue on lease contracts that are determined to not be probable of collection are limited to the amount of payments received. We have made an accounting policy election to exclude from the consideration in the contract all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer (for example, sales, use, value added, and some excise taxes).

At operating lease inception, leased wireless devices are transferred from Inventory to Property and equipment, net. Leased wireless devices are depreciated to their estimated residual value over the period expected to provide utility to us, which is generally shorter than the lease term and considers expected losses. Returned devices transferred from Property and equipment, net are recorded as Inventory and are valued at the lower of cost or market with any write-down to market recognized as Cost of equipment sales in our Consolidated Statements of Comprehensive Income.

We do not have any leasing transactions with related parties. See Note 10 - Leases for further information.

We have implemented significant new lease accounting systems, processes and internal controls over lease accounting to assist us in the application of the new lease standard.

10

Accounting Pronouncements Not Yet Adopted

Financial Instruments

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses,” which amends the scope and transition requirements of ASU 2016-13. The standard requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectibility of the reported amount. The standard will become effective for us beginning January 1, 2020 and will require a cumulative-effect adjustment to Accumulated deficit as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). We are currently evaluating the impact this guidance will have on our Consolidated Financial Statements.

Cloud Computing Arrangements

In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard will become effective for us beginning January 1, 2020 and can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Early adoption is permitted for us at any time. We are currently evaluating the impact this guidance will have on our Consolidated Financial Statements and the timing of adoption.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (the “SEC”) did not have, or are not expected to have, a significant impact on our present or future Consolidated Financial Statements.

Note 2 - Significant Transactions

Business Combinations

Proposed Sprint Transaction

On April 29, 2018, we entered into a Business Combination Agreement (the “Business Combination Agreement”) to merge with Sprint Corporation (“Sprint”). See Note 3 - Business Combinations for further information.

Sales of Certain Receivables

In February 2019, the service receivable sale arrangement was amended to extend the scheduled expiration date, as well as extend certain third-party credit support under the arrangement, to March 2021. See Note 5 – Sales of Certain Receivables for further information.

Note Redemption

In March 2019, we delivered a notice of redemption on $600 million aggregate principal amount of our 9.332% Senior Reset Notes due 2023 (the “DT Senior Reset Notes”) held by Deutsche Telekom AG (“DT”), our majority stockholder. The notes will be redeemed on April 28, 2019, at a redemption price equal to 104.666% of the principal amount of the notes (plus accrued and unpaid interest thereon), payable on April 29, 2019. The redemption premium is $28 million. The outstanding principal amount was reclassified from Long-term debt to affiliates to Short-term debt to affiliates in our Condensed Consolidated Balance Sheets as of March 31, 2019.

Certain components of the reset features were required to be bifurcated from the DT Senior Reset Notes and are separately accounted for as embedded derivatives. The balance of embedded derivatives was reclassified from Other long-term liabilities to Other current liabilities in our Condensed Consolidated Balance Sheets as of March 31, 2019. The write-off of embedded derivatives upon redemption will be $11 million. See Note 6 - Fair Value Measurements for further information.

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Note 3 – Business Combinations

Proposed Sprint Transactions

On April 29, 2018, we entered into a Business Combination Agreement to merge with Sprint in an all-stock transaction at a fixed exchange ratio of 0.10256 shares of T-Mobile common stock for each share of Sprint common stock, or 9.75 shares of Sprint common stock for each share of T-Mobile common stock (the “Merger”). The combined company will be named “T-Mobile” and, as a result of the Merger, is expected to be able to rapidly launch a broad and deep nationwide 5G network, accelerate innovation and increase competition in the U.S. wireless, video and broadband industries. Neither T-Mobile nor Sprint on its own could generate comparable benefits to consumers.

The Merger and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”) have been approved by the boards of directors of T-Mobile and Sprint and the required approvals of the stockholders of each of T-Mobile and Sprint have been obtained. Immediately following the Merger, it is anticipated that DT and SoftBank Group Corp. (“SoftBank”) will hold, directly or indirectly, on a fully diluted basis, approximately 41.7% and 27.4%, respectively, of the outstanding T-Mobile common stock, with the remaining approximately 30.9% of the outstanding T-Mobile common stock held by other stockholders, based on closing share prices and certain other assumptions as of December 31, 2018.

In connection with the entry into the Business Combination Agreement, T-Mobile USA, Inc. (“T-Mobile USA”) entered into a commitment letter, dated as of April 29, 2018 (as amended and restated on May 15, 2018, the “Commitment Letter”). The funding of the debt facilities provided for in the Commitment Letter is subject to the satisfaction of the conditions set forth therein, including consummation of the Merger. The proceeds of the debt financing provided for in the Commitment Letter will be used to refinance certain existing debt of us, Sprint and our and Sprint’s respective subsidiaries and for post-closing working capital needs of the combined company. In connection with the financing provided for in the Commitment Letter, we expect to incur certain fees if the Merger closes. There were no fees accrued as of March 31, 2019. We also may be required to draw down on the $7 billion secured term loan facility prior to closing and, if so, will be required to place the proceeds in escrow and pay interest thereon until the Merger closes.

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. If the Merger is consummated, we will make payments for requisite consents to DT. There were no consent payments accrued as of March 31, 2019.

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 existing debt of us and our subsidiaries. If the Merger is consummated, we will make payments for requisite consents to third-party note holders. There were no consent payments accrued as of March 31, 2019.

Under the terms of the Business Combination Agreement, Sprint may be required to reimburse us for 33% of the upfront consent and related bank fees we paid, or $14 million, if the Business Combination Agreement is terminated. There were no reimbursements accrued as of March 31, 2019. On May 18, 2018, Sprint also obtained consents necessary to effect certain amendments to certain existing debt of Sprint and its subsidiaries. Under the terms of the Business Combination Agreement, we may also be required to reimburse Sprint for 67% of the upfront consent and related bank fees it paid, or $161 million, if the Business Combination Agreement is terminated. There were no fees accrued as of March 31, 2019.

For the three months ended March 31, 2019, we recognized merger-related costs of $113 million. These costs generally included consulting and legal fees and were recognized as Selling, general and administrative expenses in our Condensed Consolidated Statements of Comprehensive Income.

The consummation of the Transactions is subject to regulatory approvals and certain other customary closing conditions. We expect to receive federal regulatory approval in the first half of 2019. The Business Combination Agreement contains certain termination rights for both Sprint and us. If we terminate the Business Combination Agreement in connection with a failure to satisfy the closing condition related to specified minimum credit ratings for the combined company on the closing date of the Merger (after giving effect to the Merger) from at least two of the three credit rating agencies, then in certain circumstances, we may be required to pay Sprint an amount equal to $600 million.

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On June 18, 2018, we filed the Public Interest Statement and applications for approval of our Merger with Sprint with the Federal Communications Commission (“FCC”). On July 18, 2018, the FCC issued a Public Notice formally accepting our applications and establishing a period for public comment. The transaction remains subject to FCC review. The FCC’s informal transaction review clock, which has stopped and started several times as T-Mobile and Sprint have filed additional information, is currently set to expire on June 3, 2019.

Note 4 – Receivables and Allowance for Credit Losses

Our portfolio of receivables is comprised of two portfolio segments, accounts receivable and EIP receivables. Our accounts receivable segment primarily consists of amounts currently due from customers, including service and leased device receivables, other carriers and third-party retail channels.

Based upon customer credit profiles, we classify the EIP receivables segment into two customer classes of “Prime” and “Subprime.” Prime customer receivables are those with lower delinquency risk and Subprime customer receivables are those with higher delinquency risk. Customers may be required to make a down payment on their equipment purchases. In addition, certain customers within the Subprime category are required to pay an advance deposit.

To determine a customer’s credit profile, we use a proprietary credit scoring model that measures the credit quality of a customer using several factors, such as credit bureau information, consumer credit risk scores and service and device plan characteristics.

The following table summarizes the EIP receivables, including imputed discounts and related allowance for credit losses:

(in millions)	March 31, 2019			December 31, 2018
EIP receivables, gross	$	4,573		$	4,534
Unamortized imputed discount	(341		)	(330		)
EIP receivables, net of unamortized imputed discount	4,232			4,204
Allowance for credit losses	(104		)	(119		)
EIP receivables, net	$	4,128		$	4,085
Classified on the balance sheet as:
Equipment installment plan receivables, net	$	2,466		$	2,538
Equipment installment plan receivables due after one year, net	1,662			1,547
EIP receivables, net	$	4,128		$	4,085

To determine the appropriate level of the allowance for credit losses, we consider a number of credit quality indicators, including historical credit losses and timely payment experience as well as current collection trends such as write-off frequency and severity, aging of the receivable portfolio, credit quality of the customer base and other qualitative factors such as macro-economic conditions.

We write off account balances if collection efforts are unsuccessful and the receivable balance is deemed uncollectible, based on customer credit quality and the aging of the receivable.

For EIP receivables, subsequent to the initial determination of the imputed discount, we assess the need for and, if necessary, recognize an allowance for credit losses to the extent the amount of estimated probable losses on the gross EIP receivable balances exceed the remaining unamortized imputed discount balances.

The EIP receivables had weighted average effective imputed interest rates of 9.8% and 10.0% as of March 31, 2019 and December 31, 2018, respectively.

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Activity for the three months ended March 31, 2019 and 2018 in the allowance for credit losses and unamortized imputed discount balances for the accounts receivable and EIP receivables segments were as follows:

	March 31, 2019									March 31, 2018
(in millions)	Accounts Receivable Allowance			EIP Receivables Allowance			Total			Accounts Receivable Allowance			EIP Receivables Allowance			Total
Allowance for credit losses and imputed discount, beginning of period	$	67		$	449		$	516		$	86		$	396		$	482
Bad debt expense	15			59			74			4			50			54
Write-offs, net of recoveries	(19		)	(74		)	(93		)	(14		)	(67		)	(81		)
Change in imputed discount on short-term and long-term EIP receivables	N/A			53			53			N/A			53			53
Impact on the imputed discount from sales of EIP receivables	N/A			(42		)	(42		)	N/A			(51		)	(51		)
Allowance for credit losses and imputed discount, end of period	$	63		$	445		$	508		$	76		$	381		$	457

Management considers the aging of receivables to be an important credit indicator. The following table provides delinquency status for the unpaid principal balance for receivables within the EIP portfolio segment, which we actively monitor as part of our current credit risk management practices and policies:

	March 31, 2019						December 31, 2018
(in millions)	Prime		Subprime		Total EIP Receivables, gross		Prime		Subprime		Total EIP Receivables, gross
Current - 30 days past due	$	2,091	$	2,395	$	4,486	$	1,987	$	2,446	$	4,433
31 - 60 days past due	14		25		39		15		32		47
61 - 90 days past due	6		15		21		6		19		25
More than 90 days past due	7		20		27		7		22		29
Total receivables, gross	$	2,118	$	2,455	$	4,573	$	2,015	$	2,519	$	4,534

Note 5 – Sales of Certain Receivables

We have entered into transactions to sell certain service and EIP receivables. The transactions, including our continuing involvement with the sold receivables and the respective impacts to our condensed consolidated financial statements, are described below.

Sales of Service Accounts Receivable

Overview of the Transaction

In 2014, we entered into an arrangement to sell certain service accounts receivable on a revolving basis (the “service receivable sale arrangement”). The maximum funding commitment of the service receivable sale arrangement is $950 million. In February 2019, the service receivable sale arrangement was amended to extend the scheduled expiration date, as well as certain third-party credit support under the arrangement, to March 2021. As of March 31, 2019 and December 31, 2018, the service receivable sale arrangement provided funding of $891 million and $774 million, respectively. Sales of receivables occur daily and are settled on a monthly basis. The receivables consist of service charges currently due from customers and are short-term in nature.

In connection with the service receivable sale arrangement, we formed a wholly-owned subsidiary, which qualifies as a bankruptcy remote entity, to sell service accounts receivable (the “Service BRE”). The Service BRE does not qualify as a VIE, and due to the significant level of control we exercise over the entity, it is consolidated. Pursuant to the service receivable sale arrangement, certain of our wholly-owned subsidiaries transfer selected receivables to the Service BRE. The Service BRE then sells the receivables to an unaffiliated entity (the “Service VIE”), which was established to facilitate the sale of beneficial ownership interests in the receivables to certain third parties.

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Variable Interest Entity

We determined that the Service VIE qualifies as a VIE as it lacks sufficient equity to finance its activities. We have a variable interest in the Service VIE but are not the primary beneficiary as we lack the power to direct the activities that most significantly impact the Service VIE’s economic performance. Those activities include committing the Service VIE to legal agreements to purchase or sell assets, selecting which receivables are purchased in the service receivable sale arrangement, determining whether the Service VIE will sell interests in the purchased service receivables to other parties, funding of the entity and servicing of receivables. We do not hold the power to direct the key decisions underlying these activities. For example, while we act as the servicer of the sold receivables, which is considered a significant activity of the Service VIE, we are acting as an agent in our capacity as the servicer and the counterparty to the service receivable sale arrangement has the ability to remove us as the servicing agent of the receivables at will with no recourse available to us. As we have determined we are not the primary beneficiary, the balances and results of the Service VIE are not included in our condensed consolidated financial statements.

The following table summarizes the carrying amounts and classification of assets, which consists primarily of the deferred purchase price and liabilities included in our Condensed Consolidated Balance Sheets that relate to our variable interest in the Service VIE:

(in millions)	March 31, 2019		December 31, 2018
Other current assets	$	342	$	339
Accounts payable and accrued liabilities	—		59
Other current liabilities	230		149

Sales of EIP Receivables

Overview of the Transaction

In 2015, we entered into an arrangement to sell certain EIP accounts receivable on a revolving basis (the “EIP sale arrangement”). The maximum funding commitment of the EIP sale arrangement is $1.3 billion, and the scheduled expiration date is November 2020.

As of both March 31, 2019 and December 31, 2018, the EIP sale arrangement provided funding of $1.3 billion. Sales of EIP receivables occur daily and are settled on a monthly basis.

In connection with this EIP sale arrangement, we formed a wholly-owned subsidiary, which qualifies as a bankruptcy remote entity (the “EIP BRE”). Pursuant to the EIP sale arrangement, our wholly-owned subsidiary transfers selected receivables to the EIP BRE. The EIP BRE then sells the receivables to a non-consolidated and unaffiliated third-party entity for which we do not exercise any level of control, nor does the third-party entity qualify as a VIE.

Variable Interest Entity

We determined that the EIP BRE is a VIE as its equity investment at risk lacks the obligation to absorb a certain portion of its expected losses. We have a variable interest in the EIP BRE and determined that we are the primary beneficiary based on our ability to direct the activities which most significantly impact the EIP BRE’s economic performance. Those activities include selecting which receivables are transferred into the EIP BRE and sold in the EIP sale arrangement and funding of the EIP BRE. Additionally, our equity interest in the EIP BRE obligates us to absorb losses and gives us the right to receive benefits from the EIP BRE that could potentially be significant to the EIP BRE. Accordingly, we include the balances and results of operations of the EIP BRE in our condensed consolidated financial statements.

The following table summarizes the carrying amounts and classification of assets, which consists primarily of the deferred purchase price and liabilities included in our Condensed Consolidated Balance Sheets that relate to the EIP BRE:

(in millions)	March 31, 2019		December 31, 2018
Other current assets	$	327	$	321
Other assets	71		88
Other long-term liabilities	20		22

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In addition, the EIP BRE is a separate legal entity with its own separate creditors who will be entitled, prior to any liquidation of the EIP BRE, to be satisfied prior to any value in the EIP BRE becoming available to us. Accordingly, the assets of the EIP BRE may not be used to settle our general obligations and creditors of the EIP BRE have limited recourse to our general credit.

Sales of Receivables

The transfers of service receivables and EIP receivables to the non-consolidated entities are accounted for as sales of financial assets. Once identified for sale, the receivable is recorded at the lower of cost or fair value. Upon sale, we derecognize the net carrying amount of the receivables.

We recognize the cash proceeds received upon sale in Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows. We recognize proceeds net of the deferred purchase price, consisting of a receivable from the purchasers that entitles us to certain collections on the receivables. We recognize the collection of the deferred purchase price in Net cash used in investing activities in our Condensed Consolidated Statements of Cash Flows as Proceeds related to beneficial interests in securitization transactions.

The deferred purchase price represents a financial asset that is primarily tied to the creditworthiness of the customers and which can be settled in such a way that we may not recover substantially all of our recorded investment, due to default by the customers on the underlying receivables. We elected, at inception, to measure the deferred purchase price at fair value with changes in fair value included in Selling, general and administrative expense in our Condensed Consolidated Statements of Comprehensive Income. The fair value of the deferred purchase price is determined based on a discounted cash flow model which uses primarily unobservable inputs (Level 3 inputs), including customer default rates. As of March 31, 2019 and December 31, 2018, our deferred purchase price related to the sales of service receivables and EIP receivables was $738 million and $746 million, respectively.

The following table summarizes the impacts of the sale of certain service receivables and EIP receivables in our Condensed Consolidated Balance Sheets:

(in millions)	March 31, 2019			December 31, 2018
Derecognized net service receivables and EIP receivables	$	2,546		$	2,577
Other current assets	669			660
of which, deferred purchase price	667			658
Other long-term assets	71			88
of which, deferred purchase price	71			88
Accounts payable and accrued liabilities	—			59
Other current liabilities	230			149
Other long-term liabilities	20			22
Net cash proceeds since inception	1,861			1,879
Of which:
Change in net cash proceeds during the year-to-date period	(18		)	(179		)
Net cash proceeds funded by reinvested collections	1,879			2,058

We recognized losses from sales of receivables, including adjustments to the receivables’ fair values and changes in fair value of the deferred purchase price, of $35 million and $52 million for the three months ended March 31, 2019 and 2018, respectively, in Selling, general and administrative expense in our Condensed Consolidated Statements of Comprehensive Income.

Continuing Involvement

Pursuant to the sale arrangements described above, we have continuing involvement with the service receivables and EIP receivables we sell as we service the receivables and are required to repurchase certain receivables, including ineligible receivables, aged receivables and receivables where write-off is imminent. We continue to service the customers and their related receivables, including facilitating customer payment collection, in exchange for a monthly servicing fee. As the receivables are sold on a revolving basis, the customer payment collections on sold receivables may be reinvested in new receivable sales. While servicing the receivables, we apply the same policies and procedures to the sold receivables as we apply to our owned receivables, and we continue to maintain normal relationships with our customers. Pursuant to the EIP sale

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arrangement, under certain circumstances, we are required to deposit cash or replacement EIP receivables primarily for contracts terminated by customers under our JUMP! Program.

In addition, we have continuing involvement with the sold receivables as we may be responsible for absorbing additional credit losses pursuant to the sale arrangements. Our maximum exposure to loss related to the involvement with the service receivables and EIP receivables sold under the sale arrangements was $1.1 billion as of March 31, 2019. The maximum exposure to loss, which is a required disclosure under GAAP, represents an estimated loss that would be incurred under severe, hypothetical circumstances whereby we would not receive the deferred purchase price portion of the contractual proceeds withheld by the purchasers and would also be required to repurchase the maximum amount of receivables pursuant to the sale arrangements without consideration for any recovery. As we believe the probability of these circumstances occurring is remote, the maximum exposure to loss is not an indication of our expected loss.

Note 6 – Fair Value Measurements

The carrying values of Cash and cash equivalents, Accounts receivable, Accounts receivable from affiliates, Accounts payable and accrued liabilities, and borrowings under our revolving credit facility with DT, our majority stockholder, approximate fair value due to the short-term maturities of these instruments.

Derivative Financial Instruments

Interest rate lock derivatives

Periodically, we use derivatives to manage exposure to market risk, such as interest rate risk. We designate certain derivatives as hedging instruments in a qualifying hedge accounting relationship (cash flow hedge) to help minimize significant, unplanned fluctuations in cash flows caused by interest rate volatility. We do not use derivatives for trading or speculative purposes.

We enter into and designate interest rate lock derivatives (forward-starting swap instruments) as cash flow hedges to reduce variability in cash flows due to changes in interest payments attributable to increases or decreases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt.

We record interest rate lock derivatives on our Condensed Consolidated Balance Sheets at fair value that is derived primarily from observable market data, including yield curves. Interest rate lock derivatives were classified as Level 2 in the fair value hierarchy. Cash flows associated with qualifying hedge derivative instruments are presented in the same category on the Condensed Consolidated Statements of Cash Flows as the item being hedged.

In October 2018, we entered into interest rate lock derivatives with notional amounts of $9.6 billion. The fair value of interest rate lock derivatives was a liability of $703 million and $447 million as of March 31, 2019 and December 31, 2018, respectively, and were included in Other current liabilities in our Condensed Consolidated Balance Sheets. As of and for the three months ended March 31, 2019, no amounts were accrued or amortized into Interest expense in the Condensed Consolidated Statements of Comprehensive Income while changes in fair value, net of tax, of $521 million and $332 million are presented in Accumulated other comprehensive income as of March 31, 2019 and December 31, 2018, respectively. There were no cash payments or receipts associated with these derivatives for the three months ended March 31, 2019.

Embedded derivatives

In March 2019, we delivered a notice of redemption on $600 million aggregate principal amount of our 9.332% Senior Reset Notes due 2023 held by DT. The notes will be redeemed effective April 28, 2019, at a redemption price equal to 104.666% of the principal amount of the notes (plus accrued and unpaid interest thereon), payable on April 29, 2019. The balance of embedded derivatives associated with the DT Senior Reset Notes was reclassified from Other long-term liabilities to Other current liabilities in our Condensed Consolidated Balance Sheets as of March 31, 2019. The write-off of embedded derivatives upon redemption will be $11 million.

Deferred Purchase Price Assets

In connection with the sales of certain service and EIP accounts receivable pursuant to the sale arrangements, we have deferred purchase price assets measured at fair value that are based on a discounted cash flow model using unobservable Level 3 inputs, including customer default rates. See Note 5 – Sales of Certain Receivables for further information.

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The carrying amounts and fair values of our assets measured at fair value on a recurring basis included in our Condensed Consolidated Balance Sheets were as follows:

	Level within the Fair Value Hierarchy	March 31, 2019				December 31, 2018
(in millions)		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets:
Deferred purchase price assets	3	$	738	$	738	$	746	$	746

Long-term Debt

The fair value of our Senior Notes to third parties was determined based on quoted market prices in active markets, and therefore was classified as Level 1 within the fair value hierarchy. The fair values of our Senior Notes to affiliates, Incremental Term Loan Facility to affiliates and Senior Reset Notes to affiliates were determined based on a discounted cash flow approach using market interest rates of instruments with similar terms and maturities and an estimate for our standalone credit risk. Accordingly, our Senior Notes to affiliates, Incremental Term Loan Facility to affiliates and Senior Reset Notes to affiliates were classified as Level 2 within the fair value hierarchy.

Although we have determined the estimated fair values using available market information and commonly accepted valuation methodologies, considerable judgment was required in interpreting market data to develop fair value estimates for the Senior Notes to affiliates, Incremental Term Loan Facility to affiliates and Senior Reset Notes to affiliates. The fair value estimates were based on information available as of March 31, 2019 and December 31, 2018. As such, our estimates are not necessarily indicative of the amount we could realize in a current market exchange.

The carrying amounts and fair values of our short-term and long-term debt included in our Condensed Consolidated Balance Sheets were as follows:

	Level within the Fair Value Hierarchy	March 31, 2019				December 31, 2018
(in millions)		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Liabilities:
Senior Notes to third parties	1	$	10,952	$	11,354	$	10,950	$	10,945
Senior Notes to affiliates	2	9,985		10,201		9,984		9,802
Incremental Term Loan Facility to affiliates	2	4,000		4,000		4,000		3,976
Senior Reset Notes to affiliates	2	598		632		598		640

Guarantee Liabilities

We offer a device trade-in program, JUMP!, which provides eligible customers a specified-price trade-in right to upgrade their device. For customers who enroll in JUMP!, we recognize a liability and reduce revenue for the portion of revenue which represents the estimated fair value of the specified-price trade-in right guarantee, incorporating the expected probability and timing of handset upgrade and the estimated fair value of the handset which is returned. Accordingly, our guarantee liabilities were classified as Level 3 within the fair value hierarchy. When customers upgrade their device, the difference between the EIP balance credit to the customer and the fair value of the returned device is recorded against the guarantee liabilities. Guarantee liabilities are included in Other current liabilities in our Consolidated Balance Sheets.

The carrying amounts of our guarantee liabilities measured at fair value on a non-recurring basis included in our Condensed Consolidated Balance Sheets were $76 million and $73 million as of March 31, 2019 and December 31, 2018, respectively.

The total estimated remaining gross EIP receivable balances of all enrolled handset upgrade program customers, which are the remaining EIP amounts underlying the JUMP! guarantee, including EIP receivables that have been sold, was $3.1 billion as of March 31, 2019. This is not an indication of our expected loss exposure as it does not consider the expected fair value of the used handset or the probability and timing of the trade-in.

Note 7 – Tower Obligations

In 2012, we conveyed to CCI the exclusive right to manage and operate approximately 7,100 T-Mobile-owned wireless communication tower sites (“CCI Tower Sites”) in exchange for net proceeds of $2.5 billion (the “2012 Tower Transaction”). Rights to approximately 6,200 of the tower sites were transferred to CCI via a master prepaid lease with site lease terms

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ranging from 23 to 37 years (“CCI Lease Sites”), while the remaining tower sites were sold to CCI (“CCI Sales Sites”). CCI has fixed-price purchase options for the CCI Lease Sites totaling approximately $2.0 billion, exercisable at the end of the lease term. We lease back space at certain tower sites for an initial term of ten years, followed by optional renewals at customary terms.

In 2015, we conveyed to PTI the exclusive right to manage and operate certain T-Mobile-owned wireless communication tower sites (“PTI Sales Sites”) in exchange for net proceeds of approximately $140 million (the “2015 Tower Transaction”). As of March 31, 2019, rights to approximately 150 of the tower sites remain operated by PTI under a management agreement (“PTI Managed Sites”). We lease back space at certain tower sites for an initial term of ten years, followed by optional renewals at customary terms.

Assets and liabilities associated with the operation of the tower sites were transferred to SPEs. Assets included ground lease agreements or deeds for the land on which the towers are situated, the towers themselves and existing subleasing agreements with other mobile network operator tenants, who lease space at the tower sites. Liabilities included the obligation to pay ground lease rentals, property taxes and other executory costs. Upon closing of the 2012 Tower Transaction, CCI acquired all of the equity interests in the SPE containing CCI Sales Sites and an option to acquire the CCI Lease Sites at the end of their respective lease terms and entered into a master lease agreement under which we agreed to lease back space at certain of the tower sites. Upon closing of the 2015 Tower Transaction, PTI acquired all of the equity interests in the SPEs containing PTI Sales Sites and entered into a master lease agreement under which we agreed to lease back space at certain of the tower sites.

We determined the SPEs containing the CCI Lease Sites (“Lease Site SPEs”) are VIEs as our equity investment lacks the power to direct the activities that most significantly impact the economic performance of the VIEs. These activities include managing tenants and underlying ground leases, performing repair and maintenance on the towers, the obligation to absorb expected losses and the right to receive the expected future residual returns from the purchase option to acquire the CCI Lease Sites. As we determined that we are not the primary beneficiary and do not have a controlling financial interest in the Lease Site SPEs, the balances and operating results of the Lease Site SPEs are not included in our Consolidated Financial Statements.

Due to our continuing involvement with the tower sites, we previously determined that we were precluded from applying sale-leaseback accounting. We recorded long-term financial obligations in the amount of the net proceeds received and recognized interest on the tower obligations at a rate of approximately 8% for the 2012 Tower Transaction and 5% for the 2015 Tower Transaction using the effective interest method. The tower obligations are increased by interest expense and amortized through contractual leaseback payments made by us to CCI or PTI and through net cash flows generated and retained by CCI or PTI from operation of the tower sites. Our historical tower site asset costs continue to be reported in Property and equipment, net in our Condensed Consolidated Balance Sheets and are depreciated.

Upon adoption of the new leasing standard we were required to reassess the previously failed sale-leasebacks and determine whether the transfer of the assets to the tower operator under the arrangement met the transfer of control criteria in the revenue standard and whether a sale should be recognized. We concluded that a sale has not occurred for the CCI Lease Sites and these sites continue to be accounted for as a failed sale-leaseback. We concluded that a sale had occurred for the CCI Sales Sites and the PTI Sales Sites and therefore we derecognized our existing long-term financial obligation and the tower-related property and equipment associated with these sites as part of the cumulative effect adjustment on January 1, 2019.

The following table summarizes the balances of the failed sale-leasebacks in the Condensed Consolidated Balance Sheets:

(in millions)	March 31, 2019		December 31, 2018
Property and equipment, net	$	237	$	329
Tower obligations	2,244		2,557

Future minimum payments related to the tower obligations are approximately $157 million for the year ended March 31, 2020, $314 million in total for the years ended March 31, 2021 and 2022, $314 million in total for years ended March 31, 2023 and 2024 and $574 million in total for years thereafter.

We are contingently liable for future ground lease payments through the remaining term of the CCI Lease Sites. These contingent obligations are not included in Operating lease liabilities as any amount due is contractually owed by CCI based on the subleasing arrangement. See Note 10 - Leases for further information.

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Note 8 – Revenue from Contracts with Customers

Disaggregation of Revenue

We provide wireless communication services to three primary categories of customers:

• Branded postpaid customers generally include customers who are qualified to pay after receiving wireless communication services utilizing phones, DIGITS, or connected devices which includes tablets, wearables and SyncUP DRIVE™ ;

• Branded prepaid customers generally include customers who pay for wireless communication services in advance. Our branded prepaid customers include customers of T-Mobile and Metro by T-Mobile; and

• Wholesale customers include Machine-to-Machine (“M2M”) and Mobile Virtual Network Operator (“MVNO”) customers that operate on our network but are managed by wholesale partners.

Branded postpaid service revenues, including branded postpaid phone revenues and branded postpaid other revenues, were as follows:

	Three Months Ended March 31,
(in millions)	2019		2018
Branded postpaid service revenues
Branded postpaid phone revenues	$	5,183	$	4,811
Branded postpaid other revenues	310		259
Total branded postpaid service revenues	$	5,493	$