Edited Transcript of DISH earnings conference call or presentation 7-May-20 4:00pm GMT

Englewood May 8, 2020 (Thomson StreetEvents) — Edited Transcript of DISH Network Corp earnings conference call or presentation Thursday, May 7, 2020 at 4:00:00pm GMT

DISH Network Corporation – Senior VP, Deputy General Counsel & Corporate Secretary

* Charles W. Ergen

* Paul W. Orban

* Thomas A. Cullen

* W. Erik Carlson

RBC Capital Markets, Research Division – AVP & Lead US Cable & Satellite Analyst of US Telecommunications Services

* Philip A. Cusick

Good day, ladies and gentlemen. Welcome to the DISH Network Corporation First Quarter 2020 Earnings Conference. Today’s conference is being recorded.

At this time, I would like to hand things over to Mr. Jason Kiser. Please go ahead, sir.

Thank you, and thanks for joining us, everybody. Joined today by Charlie Ergen, our Chairman; Tom Cullen, EVP of Corporate Development. Erik Carlson, our CEO; Paul Orban, our CFO; and Brandon Ehrhart, our Deputy General Counsel.

Paul and Erik will have some opening remarks. Look forward to that. We do need to do our safe harbor disclosures, so we’ll turn that over to Brandon.

Brandon Ehrhart, DISH Network Corporation – Senior VP, Deputy General Counsel & Corporate Secretary [3]

Good morning, everyone. Thanks for joining us. Statements we make during this call that are not statements of historical fact constitute forward-looking statements that are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from historical results and/or from our forecasts.

We assume no responsibility for updating forward-looking statements. For more information, please refer to the risks, uncertainties and other factors discussed in our SEC filings.

Now I’d like to turn it over to our CEO, Erik Carlson.

W. Erik Carlson, DISH Network Corporation – President & CEO [4]

Thanks, Brandon, and welcome, everyone to the call. Before I share a few observations on the quarter, I want to wish everyone the very best. These are incredibly difficult times. For many of us, the challenges are personal. And I hope you’ve all been able to take time and space for loved ones, family, friends and neighbors.

In that vein, I’d like to take a moment to recognize the entire DISH team. In the past 2 months, this organization from top to bottom has really been incredible in its response to the COVID crisis. I’m incredibly proud and grateful for the flexibility, creativity, the compassion of our coworkers that we demonstrated every day on one another to our customers and the commitments to communities we all serve. Our team really answered the call from equipping our field-based techs to operate safely in hundreds of thousands of homes across the nation that we serve to moving in very short order thousands of our frontline customer experience and sales agents as well as management to a work-at-home posture. It’s really been an incredible effort.

And just another example, like, our manufacturing and distribution teams continued their usual high level of performance. But in addition to their day jobs, they drove into address shortages of protective gear for frontline health care workers and their own colleagues by manufacturing face shields and face masks. So a big thank you to the entire DISH team.

Let’s get started. I’ll touch on wireless. Despite the disruption, the teams had been hard at work on our wireless initiatives. First, we stopped the NB-IoT effort in the quarter. Paul will have a bit of commentary on that. The wireless team continues to make progress on the stand-alone 5G network, and we continue to pursue closing the Boost assets with T-Mobile. Charlie and Tom are also here on the call and available to take your questions.

Now with regard to the quarter, DISH TV played a strong fundamental game, but the crisis was not without its impacts. We saw gross additions grow quarter-over-quarter by 56,000. We did see the rate of adds slow in March, especially in the back half. That was due in part to some customers’ reluctance to some of our marketing efforts like direct mail and to have folks working in their homes.

You hear it from me virtually every quarter over the past 4 years, our DISH strategy has been anchored on acquiring and retaining long-term profitable customers. In that time, we focused on a more rural and higher-credit subscriber base, and we remain committed to that path. In the quarter, we saw DISH TV net subscriber loss of 132,000.

While the pace of activation slowed, we did adapt our activity to match conditions. We adjusted our marketing. We brought more value to customers at an important time, delivering more than 40 channels of content and free preview with the help of our programming partners. And as always, we focused on providing an excellent and safe in-home installation and service experience.

While the country went into a shelter-in-place posture, we saw customers’ usage of our platform increase. We’re pleased to see subscribers’ growing engagement with the excellent experience the Hopper platform delivers, including on demand, apps and our DISH Anywhere capabilities. Given the massive impact COVID had on the travel and hospitality industry, including airlines and hotel chains, we took the step of removing approximately 250,000 subscribers representing DISH TV commercial accounts from our ending Pay-TV account. Paul will have more color on this in a moment.

Turning to Sling. In the quarter, a total of 281,000 net subscribers compared to net adds of 7,000 in the year-ago period. This is certainly disappointing. We opened up the quarter having rolled out a price increase, launching Fox News with our Blue base package and introduced a free cloud DVR.

Like DISH, Bloom TV viewer engagement did increase. That said, while live news coverage in late February and March was up more than 100%, the loss of sports in the last part of the quarter changed the viewing equation significantly. And the competitive environment was also aggressive, especially from the free — commercial-free streaming services that flooded the space with introductory offers and promotions.

Look, we continue to focus on acquiring and retaining profitable customers and delivering a great customer experience when it comes to platform stability and user experience. But we still have room to grow, and we have to execute at a much higher level.

Before I turn it over to Paul, let me — I want to again express my gratitude to the team on behalf of the leadership team here. A lot of people have been working a lot of extra hours to take care of our customers and take care of the broader DISH community, and I couldn’t be prouder.

So with that, I’ll turn it over to Paul for a quick commentary on some of the numbers.

——————————————————————————–

Paul W. Orban, DISH Network Corporation – Executive VP & CFO [5]

——————————————————————————–

Hey, thank you, Erik. Before we get into the quarterly results, I have 2 items to highlight: First is the impact of COVID-19 and the measures we have implemented to address it. Second is the impairments we took during the quarter.

For our Pay-TV business, we have implemented a series of initiatives to address the impact of COVID-19. We have tightened our belt and put in place cost-cutting measures to slow the pace of OpEx and CapEx. We are recalibrating the investments we are making in the business. We have pulled back on marketing. We want to keep our powder dry for the time being.

COVID-19 has reduced our in-person selling opportunities. It has also hindered our direct mail marketing because customers don’t want to open their mail, and some customers are currently reluctant to allow our technicians into their home. We increased our bad debt reserve by $21 million. Because many commercial establishments are closed or running at reduced capacity, we have put these accounts on pause or provide a temporary rate relief. These accounts, including commercial accounts that have or will ultimately disconnect due to COVID-19, represent approximately 250,000 subscribers, and they were removed from our ending DISH TV subscriber count.

We expect the vast majority of these commercial accounts to reactivate in the coming quarters. The reactivation will come with minimal cost. Therefore, we will not comp them as gross activations, and we’ll add them back to our ending subscriber count in the quarter that they return.

We also took a $356 million impairment charge during the quarter related primarily to our narrowband IoT build in our satellites D1 and T1. Now that the T-Mobile-Sprint merger has closed and there is more clarity surrounding our revised build-out requirements, we no longer intend to finish our narrowband IoT build. Accordingly, we recorded an impairment in the quarter for the narrowband IoT assets and satellites that we currently do not plan to use in our 5G build.

And looking at the P&L. Our operating income and EBITDA for the quarter are both down compared to last year. However, absent the impact of the impairment charge, both operating income and EBITDA would have increased versus last year. Our revenue increased due to higher Pay-TV ARPU, partially offset by a lower subscriber base. The increase in the Pay-TV ARPU was driven by price increases at both DISH and Sling.

Our subscriber margins for the quarter were positively impacted by our continued focus on higher-quality subscribers and also reduced costs related to channel removals, including regional sports. DISH TV SAC is up this quarter due to increased subscriber activations, and the cost per activation increased slightly from $828 last year to $861. This was driven by increased advertising spend pre COVID-19, offset by more subscribers activating with remanufactured equipment.

In Q1 2020, satellite and transmission expenses decreased by $65 million. As discussed on prior calls, this reduction in expense was related to the acquisition of certain satellites from EchoStar and during the third quarter of 2019. G&A expenses were up this quarter as a result of costs to support our wireless initiatives.

Our free cash flow of $537 million for Q1 benefited from improved operating performance and working capital. We ended the quarter with approximately $3.4 billion of cash and marketable securities, which we used to redeem a $1.1 billion debt maturity on May 1. That leaves us with $2.3 billion, which will allow us to purchase Boost and fund our wireless initiatives for 2020. We still expect our 2020 wireless expenditures to be between $250 million to $500 million. Given the impact of COVID-19, we may end up closer to the lower end of that range.

With that, I’ll turn it over for questions. Operator?

================================================================================

Questions and Answers

——————————————————————————–

Operator [1]

——————————————————————————–

(Operator Instructions) And we’ll go to our first caller. It’s from Kutgun Maral, RBC Markets.

——————————————————————————–

Kutgun Maral, RBC Capital Markets, Research Division – AVP & Lead US Cable & Satellite Analyst of US Telecommunications Services [2]

——————————————————————————–

Two if I could. First, Charlie, on Pay-TV. A lot has been said over the last few weeks about sports rights payments and how there should be some sort of relief to consumers. I know there are quite a few steps required to get to this scenario. Let’s just say that this happens and consumer bills come down $20 or $30 a month throughout the summer. And when sports come back on, bills go back up again. And so in what is an already a challenged ecosystem, re-upping consumer bills to reflect the sports cost seems that will be a significant churn event across the entire ecosystem. So I was just curious about how you think about the sustainability of your Pay-TV subscriber base should all of this play out? And then I have a brief follow-up.

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [3]

——————————————————————————–

Yes. I think I heard that question. I think it was about sports and how it’s going to play out in the ecosystem. Well, first of all, the consumers — sports are already seasonal so — to begin with. So — and the real question would be whether sports come back or not, whether the seasons are canceled or the seasons — or parts of seasons are canceled. The second question would be whether the content owners get reprieved in the leagues directly or indirectly. And then if they did, would they pass that on to the distribution network. What I would — so all those things are going to play out, and I think it would be premature to try to speculate on how that’s going to happen. But I don’t see bills going down and going up the way you described it. I think we try to do that more — whatever we do, it would either be a onetime credit or it would be something permanent.

What I would say is at DISH, we do a couple of things. One is — first of all, we fought really hard for our consumers that they have more flexibility in how they can actually subscribe for us. So our — a lot of our customers like regional sports take — for example, they’re not required to take regional sports if they can take a lesser package that doesn’t have regional sports in it. So regional sports loss — the sports, they could downgrade that, and we make that pretty easy to do.

The second thing I would say is that to the extent that the content owners credit us, we’ll pass that on to consumers. So — and I will say, we’ll work with our distribution packaging customers. Because at this point, leagues like the NBA hasn’t been canceled, seasons haven’t been canceled, so they’re not in any position that’s probably — to make a determination there. The one place that maybe is worthy of discussion today is on the NCAA tournament, where CBS and the Turner networks may be in discussions, and maybe there are some things that have happened within that realm. But we’ll just stay tuned like everybody else. But certainly, it starts with the league. Do they somehow give credits to the networks — to the ESPN and the networks and so forth? And then do they give credit to us? And then we will pass it on. Absent that, that’s hard to do.

——————————————————————————–

Kutgun Maral, RBC Capital Markets, Research Division – AVP & Lead US Cable & Satellite Analyst of US Telecommunications Services [4]

——————————————————————————–

Understood. Great. And if I could, I’m going to hand it off to my colleague, Jonathan Atkin, for a follow-up.

——————————————————————————–

Jonathan Atkin, RBC Capital Markets, Research Division – MD and Senior Analyst [5]

——————————————————————————–

I’m just interested in where you stand on the 5G network planning. As you kind of evaluate the potential Sprint sites that you could utilize and where can you stand on that and the pros and cons of taking over some of those leases, signing new ones on your own. I imagine there’s a trade-off in terms of cost versus speed on air, but how are you thinking about that? And where do things stand currently?

——————————————————————————–

Thomas A. Cullen, DISH Network Corporation – EVP of Corporate Development [6]

——————————————————————————–

This is Tom. I think it’s a little too early in the process for that. The first step is we need to close on Boost. Once we close on Boost, that initiates the consent decree requirements. And so as you probably know from the order, the obligation for them to give us visibility to decommission sites would not commence until after we closed on Boost. That being said, our deployment team is already doing RF planning, and we’re far down the road with our tower company discussions so the deployment planning has begun on our side, but it’s not dependent on the decommissioned sites at this point.

——————————————————————————–

Jonathan Atkin, RBC Capital Markets, Research Division – MD and Senior Analyst [7]

——————————————————————————–

And when would you anticipate then getting equipment up and on air and activated under either scenario?

——————————————————————————–

Thomas A. Cullen, DISH Network Corporation – EVP of Corporate Development [8]

——————————————————————————–

Well, you’ve probably seen that we announced a deal with Mavenir as the first vendor selection. Marc continues to work on the architecture and further vendor selection. So I would anticipate more of those announcements in the third quarter. And then we’ll share our deployment plans once those are formalized, likely on the next call.

——————————————————————————–

Operator [9]

——————————————————————————–

Our next question will come from David Barden, Bank of America.

——————————————————————————–

David William Barden, BofA Merrill Lynch, Research Division – MD [10]

——————————————————————————–

Charlie, I think last quarter, we talked about Rakuten and the OpenRAN architecture, which Mavenir or is your software vendor for — is kind of the first RFP awarded. You talked about how you would be able to kind of get some learnings from them being out in front on this kind of new architecture, slings and arrows in the back, I think you said. They’ve launched now for a month. I was wondering if you’ve had any kind of incremental contact and met with them about their learnings and kind of why you chose to go the Mavenir route rather than some other route from an OpenRAN software vendor?

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [11]

——————————————————————————–

Yes. So yes, we have continual discussions with Rakuten. We certainly share thought process and learnings. The — I wouldn’t speak for the — I’m not in Tokyo today, so I can’t speak to all the results. They certainly will do that as a public company. But the — Mavenir met — we negotiated with a lot of people. Mavenir was the first company, really, that met the kind of guidelines that we needed. They by no means will be the only vendor that we use, and we certainly — there’s certainly room for — as you get into virtualized network, there’s a lot of parts that can be interchangeable. And certainly, we would expect that there’s other people in the space in our network.

——————————————————————————–

David William Barden, BofA Merrill Lynch, Research Division – MD [12]

——————————————————————————–

Got it. And if I could ask a follow-up, which is I think that there’s been a lot of concern about the lack of movement on some kind of funding visibility for the build. I think that it’s probably a mistake to look at it as a monolithic $10 billion thing where you need to have $10 billion in the bank today. Can you kind of talk about what your comfort level remains with your access to the banks, financial markets, your access to other funding markets to kind of support the plans that we’re talking about here today?

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [13]

——————————————————————————–

Yes. Well, I mean, we look at what our funding needs are, and then we look at where the marketplace is, and we try to be opportunistic. And obviously, the market is not particularly opportunistic today, number one. And number two, we don’t have a funding need today in the short term. So I’d love to give you a little bit — what we have done is over the last 13 months, we’ve paid down $2.5 billion of debt and we’ve raised $1 billion of equity. So it’s not like — we’re not standing still. That $10 billion now is $9 billion because we raised $1 billion of equity. So in terms of things we have to do.

So and we continue to obviously generate a fair amount of cash flow. So — and I guess, let’s put the math there. At $900 million of cash in the balance sheet end of the quarter, I think you can anticipate there we’re positive cash flow. We’re going to spend $1.4 billion to purchase Boost. And I think I heard Paul say we’re probably in the low end of the $250 million to $500 million CapEx expense for this year. So you can see that we get into this time next year before we have a funding requirement due to the next debt payment.

So a lot of stuff is going to happen between now and then, and we have — and we’re focused on that. And the funding part is not probably the thing that’s keeping up — keeping us up at night at this point. Certainly, the things we don’t control like a potential — the COVID crisis that’s — not where it is today but where it might go, that probably does keep us up because that’s the fear of the unknown. But where it is today, we’re — we feel like we can manage through that. So that’s kind of where we are in that.

It’s [tough] to answer, but I think internally, we’re able to see this maybe a little bit better than people on the outside. But if you looked at where we were a year ago and where we are today, it’s been one of the most productive years I’ve ever been — this is my 40th year. This has been one of the most productive years at DISH. A year ago, we were building a narrowband IoT network that wasn’t exactly what we want — wasn’t what we wanted and certainly wasn’t what the FCC wanted. Because it wasn’t — when started out, it made sense, but it wasn’t going to move the needle in how people communicate in the United States. And it’s certainly wasn’t going to put us in a leadership position. And it’s certainly why we didn’t compete against the Chinese and vendors and everything else.

And you fast forward — and by the way, we had — that narrowband IoT network we built, and then we had to build the broadband network on top of that. And the broadband network had to be built, and we had to build virtually the whole country before we could turn it on and start generating revenue because we need a national network.

Fast forward a year later, what’s changed? The narrow, while we had to write off, we spent a lot more than what we just wrote off, obviously. But we spent, again, $0.5 billion in a narrowband IoT work that we just had to flush. Not great, right, but the right thing to do. But now we’re building a broadband network that will be the envy of the world, right? That broadband network now is going to be using open architecture. It’s going to be cloud based. And you hear words like O-RAN. It’d be O-RAN compatible. So we’re building a state-of-the-art network. We’re aligned with the FCC. We’re aligned with the executive branch. We’re aligned with both Houses of Congress on where that needs to go. And we have a time line that’s manageable to do that.

We’ve also — we have an MVNO deal for 7 years, where we can start generating revenue with the — and we’re purchasing Boost. So we start generating revenue day 1 with purchase of Boost. We also can generate very profitable revenue as we build city by city. So when we build a city and get owner economics in that city, then the profit — they can be a profitable business for us. And we can do that on a city-by-city basis. So we’re not waiting to build the whole network together. And as I said, we paid down $2.5 billion and raised $1 billion of equity.

So this — and the only — and so the negative is, right, the money we spend on narrowband IoT and the COVID crisis that’s affecting every part of our economy. Those are the 2 negatives. But even putting those things — putting those in the pile, this company is materially better off and materially less risky than it was before this time last year. And we felt like we had a plan to be successful last year. And now we just — I think we just have a higher degree of confidence in terms of where we’re trying to go.

And we now know — based on working with the vendor community that we are, we now know that O-RAN is real. It’s not pie in the sky. We know that there’s vast support in the United States and around the world for it.

And we know that, at least our approach is, if we’re not allowed to use Chinese equipment because there’s a national security issue for whatever reason, right — Huawei has been — Huawei is really good. The Chinese equipment is really good. It’s best-in-class. But the only way we’re going to be better is to out-innovate. And we shouldn’t just try to be as good as what the Chinese manufacturers are doing. We should be better. And to be better, you got to innovate. And the innovation is things like O-RAN, open architecture, cloud-based automation. Those are all things that can make a network better.

And at DISH, we get to help lead that. We get to be part of that team along with some others, of course. But we get to help lead that just as this company in the early 1900s led — the 1990s led in digital. This company was the first company in the world use MPEG-2 standard digital compression, right? We’ve led in digital compression and our digital video. And we’ll lead again in how wireless operates. And if there’s a silver lining in COVID, it’s shown us how — just how imperative and how much of a necessity good communication and connectivity is.

So we feel like — not to give a long speech here, but I will, when Tom and I started on this, I think it was about — I mean you’d have to go back to conference calls, but we’re the first people who said that linear television is going to get challenged out there unless the linear programmers change what they’re doing. And it will be challenged, and we pivoted and started to look at the connectivity business in a serious way and made our investments there because we knew that it was not likely that linear TV providers would change.

So I think that, strategically, we’re well positioned now. And I think it’s — even though we took some arrows for — and we took some punishment on conference calls for years where our numbers weren’t up to what our competition was doing, we were building long-term customers and long-term cash flow in a business that is sustainable even if linear television is going to be challenged. And we’re well positioned for where the world is — where the industry is going — where the consumer is going, I should say, and not just the consumer but enterprise and businesses. That was a long answer.

——————————————————————————–

Operator [14]

——————————————————————————–

Our next question will come from Jonathan Chaplin, New Street.

——————————————————————————–

Jonathan Chaplin, New Street Research LLP – US Team Head of Communications Services [15]

——————————————————————————–

I’m wondering if you can — so you said in the past that before you go out and raise capital, you would lock in an anchor tenant. You need to know who you’re building the network for before you raise capital. When do you think we’ll get an announcement on who the partner or partners that are going to use — be the sort of the first users of the network would be?

And then the second question I had was around the 600 megahertz that T-Mobile is borrowing at the moment. In the merger agreement, it was contemplated that they would lease that spectrum for you, but you hadn’t completed the negotiations by the time the deal needed to be announced. When do you — where are the — what’s the status of those negotiations?

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [16]

——————————————————————————–

Yes, let me start the 600 megahertz piece. So you’re correct that the consent decree did require that the companies negotiate in good faith and that T-Mobile lease all or some of the 600 megahertz spectrum. Those negotiations have gone on for a bit of time, and that’s now — both companies have presented to the Justice Department, and the Justice Department will make a decision as to what the definition of all or some, what the length of any lease would be and what the payment would be. So we would expect something — we would expect to know that in the near term, whether there is going to be a lease and, if so, what it might be.

Clearly, T-Mobile, based on their advertising — we made it available to T-Mobile during the initial stages of the crisis for free. It was the right thing to do because, obviously, usages have gone up dramatically, and they were able to take advantage of lighting it up right away. They’ve certainly bragged about it in the commercials and the fact that their speeds have doubled. So it certainly has value for them in the network. And they certainly — their customers are benefiting, and they’re probably gaining market share as a result of it. So that’s hopefully a positive for us, but we’ll so what — that’s at our control at this point right now.

Tom, do you want to…

——————————————————————————–

Thomas A. Cullen, DISH Network Corporation – EVP of Corporate Development [17]

——————————————————————————–

Yes. Jonathan, it’s Tom. Regarding anchor tenants or partners, consistent with what I said on the last quarterly call, it’s not something that we feel any urgency around. If anything, the momentum around O-RAN has vastly accelerated in the last quarter. And so the potential and the opportunity associated with a network that can facilitate both consumer, wholesale and enterprise, that recognition is growing within the industry and globally.

So our 3 real swim lanes of activity right now are preparing for the Boost integration, completing the architecture and vendor selections and deployment planning. And as I said on the last call, once we have a market built and we’re able to demonstrate the capabilities of what a virtualized network can do, we think that’s a better time to attract third-party interest.

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [18]

——————————————————————————–

This is Charlie. I’d add a little bit. First of all, there is a lot of third-party interest already. But the way that we look at it is, there’s 2 kinds of vendors — there’s 2 kinds of partners for us. One is a traditional vendor relationship. They’ve got a product that’s best-in-class. We’d like to buy that product, and we buy that product because it’s best-in-class. And they make money, and we get the best product we possibly we can.

There’s another partnership arrangement, and I think the one that you’re alluding to is when there strategically is an alignment and a vision alignment that a vendor says we think things like OpenRAN and virtualized network that’s cloud native makes a lot of sense. That would be really — that’s something that we want to promote because it would be good for our business, and it would be good for our customers. And we would be aligned in the sense that, obviously, that, that would help us get the network built and perhaps we would get customers through that relationship that we otherwise wouldn’t. So both companies would benefit from a common vision.

And in that particular thing, the one reason that we’ve probably gone a little slower than maybe people might have expected in the marketplace is, there is some zero-sum game problem for us there in that some vendors have a service that’s very similar to another vendor. And if we — and both of those vendors might share the same vision. So we’ve got to pick one. And when we pick one, it might leave out the other one. And so we have to be pretty confident that we’re picking not only best-in-class but also the — share the vision because once you do that, you’re kind of married. And so that takes a little bit longer to make sure that you’re going down the same path and that it’s not just a — it’s more than a vendor relationship and you pick the best-in-class customer to share the vision with.

So it’s exactly the same kind of thing we had to do back in DBS and to our history of our company. But — so — and you end up — and some of it is personal. Some of it’s management teams that just work better together. Or some of it’s you’ve known somebody longer. Or sometimes, it’s somebody was more aggressive on the pricing, but you’re just as good as somebody else. So it’s a lot of factors there. But there’s not any question in my mind that, at least over the last year, particularly over the last 3 months or 6 months, the momentum for the kind of things that we’re trying to do are clearly recognized outside of Wall Street and analyst community. It’s totally recognizable to the people who know what a modern network should look like. And it’s starting to be recognized internationally now, and it’s certainly recognized now by the regulators and the legislative and executive branches in the United States. So that’s been a big — a marked difference, say, than 6 months ago. So again, I think we’re on the leading edge of that in terms of thought process. We’re certainly in the leading edge of that in terms of our ability to do it. I’ll just add one thing is that while vendors and technology companies are prospective partners, the consideration set of partners is broader than that universe.

——————————————————————————–

Operator [19]

——————————————————————————–

Next up, we’ll hear from Doug Mitchelson, Credit Suisse.

——————————————————————————–

Douglas David Mitchelson, Crédit Suisse AG, Research Division – MD [20]

——————————————————————————–

Charlie, we’ve heard you talk a lot about the advantages of the network you’re building. Any chance you’ve sort of calculated and want to share what the cost per bid advantage will be versus the traditional networks that are out there? And as part of that, I think when I listen to the calls the last a few years, I sort of had an expectation that you were headed more towards the wholesale path with your wireless network build-out and wireless operations. And today, talked a lot more about sort of retail and making money from the get-go with the MVNO. What are you thinking about retail versus wholesale in terms of where you’re going to end up when we look out a few years? And one more after that.

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [21]

——————————————————————————–

Second part, first. We’ve always thought the wholesale model was the one we focused on the most. But with the opportunity for the MVNO deal and Boost, we’re thrust into the retail business in a way we didn’t expect. So that will be both — that’s both a positive and negative, but we have to manage Boost prudently, and we have to prepare for competing against 3 pretty entrenched incumbents, and we got to do that in a profitable way, long term. So we think we can do that. So we think that — the way I would look at it is that our retail business will just be a slice of our network, and that wholesale part of our network still is a slice. So if it’s a smart city, that’s a slice for that smart city, and DISH retail is just a slice of that network. So we kind of got an added thing that we didn’t — we got a cherry on top that we didn’t think we were going to get, so we didn’t have plans for it. What was the first part of the question?

Cost per bid. Yes. And — I would say it this way because we — until we have all the cost in from all the vendors and we start building, I don’t know that we — but we know enough to know it will be materially less expensive than a cost per bid today. It will be materially less expensive to operate because we’ll be able to use a lot more automation than people can do today. So we know that — and from a business perspective, again, I went to the University of Tennessee, so — and I’m not smartest guy, but the one thing I did figure out that it — are we still on?

——————————————————————————–

Douglas David Mitchelson, Crédit Suisse AG, Research Division – MD [22]

——————————————————————————–

I can hear you.

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [23]

——————————————————————————–

The one thing is what you really look for from a macro point of view is can you build a better product that’s less expensive? And if you can do that, you can be a very successful business. You can build a better product that’s less expensive. You may be able to stay in business if you build a better product that’s more expensive. Certainly, if a Mercedes car was cheaper than a Ford and a Chevrolet Chevette, they’d stay in business. But if you build a cheaper car that’s better, then you’re going to gain market share. And there’s no question in our mind we are going to build a better network that’s less expensive and less expensive to operate and more flexible. So therefore, we think that we’ll be materially less cost per bid. But it’s more than just cost per bid, it’s going to be more flexible in terms of how the network is architected. It’s Netflix versus Blockbuster, right?

——————————————————————————–

Douglas David Mitchelson, Crédit Suisse AG, Research Division – MD [24]

——————————————————————————–

So that leads to the second question, which is this $10 billion number, you’ve had that out there for a while, and it sort of stuck out there. I think there’s a pretty healthy debate among investors as to how much eventually this will all cost to build out. Are you able to share with us at all what does that $10 billion get you to? Does that get you to your regulatory required buildout? Does it get you to any kind of coverage and any sense of what that $10 billion gets you to would be helpful.

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [25]

——————————————————————————–

It essentially gets us to scale nationwide coverage, which is materially more coverage than the network. So the $10 billion is not to meet the FCC regulatory, but it’s to build the network that can be competitive. That’s not — we haven’t done a good job of presenting that and articulating that, so you’re asking a really good question. And I think people think it’s $10 billion just to get the milestone for the FCC. But it’s really beyond that, right? That doesn’t include spectrum purchases. It doesn’t include millimeter wave buildout and those kind of things, but it includes that total macro layer that’s competitive in the United States, well beyond the FCC requirements.

——————————————————————————–

Operator [26]

——————————————————————————–

Our next question comes from Walter Piecyk, LightShed.

——————————————————————————–

Walter Paul Piecyk, LightShed Partners – Partner & TMT Analyst [27]

——————————————————————————–

This is Walt from LightShed. Charlie, just do you expect to still launch a 5G network? Well, I think you had mentioned a trial, you’d hit 1 network by year-end. And then also on the network side, Verizon, in addition to T-Mobile, has been using your spectrum for free during the kind of current situation. Is there an opportunity to lease spectrum to Verizon or AT&T, either to help generate some cash flow to fund the network build or even as kind of a way to more quickly roll out your own network?

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [28]

——————————————————————————–

So in the second part of the question, yes. I mean there always is an opportunity. They currently are using some of our spectrum, and I think one of them’s using some of the DE spectrum. And obviously, if you look at the patterns of where they’re using it, it’s certainly increased their capacity and increased their speeds at times of crisis. So it certainly opens up the possibility of discussions for that, but certainly it’s also possible that nothing would come with that as well. And the first part was — sitting…

——————————————————————————–

Walter Paul Piecyk, LightShed Partners – Partner & TMT Analyst [29]

——————————————————————————–

Are you expecting to hit 5G by year — I think you said one marketed trial at year-end.

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [30]

——————————————————————————–

Yes. I think that we have 2 things we’re working on. One is to launch a market by year-end, and I believe we will do that with the core. But we’ll integrate the T-Mobile to the extent that they cooperate. And then the other thing we’re going — postpaid. So we expect that a year from now, we’ll have a — we’ll be in the postpaid business, which isn’t — when you’re paying for a network, well, postpaid business is just a better business. So if you look at postpaid and prepaid, prepaid is not nearly as good a business as the postpaid business so…

——————————————————————————–

Walter Paul Piecyk, LightShed Partners – Partner & TMT Analyst [31]

——————————————————————————–

Yes. I mean I’d like to ask a follow-on. I don’t know if you’ve looked under the hood of Boost yet, but I’m going to defer and let Rich chime in with one of his questions.

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [32]

——————————————————————————–

We’re the only company that let you guys ask questions, right?

——————————————————————————–

Walter Paul Piecyk, LightShed Partners – Partner & TMT Analyst [33]

——————————————————————————–

Well, I think someone just tried to — I think — well, that’s true. That’s true.

——————————————————————————–

Richard Scott Greenfield, LightShed Partners – Partner and Media & Technology Analyst [34]

——————————————————————————–

Charlie, I appreciate you taking our questions. This is a philosophical one for you. Based on everyone’s results, it looks like the Pay-TV universe probably lost at least 2 million subscribers in Q1. If we’re on track to lose 8 million to 10 million subscribers from the Pay-TV universe and programmers are all coming to you asking for annual rate increases, whether it’s Viacom, which is up for renewal soon or RSNs or whatever, do we see a new normal? Like is it time for prices to start really rolling back? You’ve got viewership collapsing. I mean even in a pandemic, we’ve got viewership down other than for news networks in 18 to 49. Like does it sound like you’ve hit a wall in terms of the rate increases for all of this programming because there’s just such a collapse in the universe?

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [35]

——————————————————————————–

Well, a logical person would say the answer to that’s yes. There is a — if your ratings are down and there’s — and that you’re not going to — and people are watching less hours of your programming, you’re not going to be able to get more revenue for it. And — but it’s much broader than that. The — it’s not just about that, but the product itself from a consumer point of view isn’t good enough. And so — and everybody on this call probably had just watched more television in the last 8 weeks. And everybody that I see that — I just watch Human Nature. They’re going to Disney+ or Netflix or Amazon because it’s not commercial. And because you can binge view something. You can watch it whenever you want to. You can watch — makes — it easy to watch in any device because it’s an app. So TV has become an app without commercials. And if there are commercials, it’s a lighter load. And you can put that linear TV where you might have 16, 17 minutes of commercial time during an hour’s show, it might be a really good show, but you just — it’s painful, right, once you’ve seen something without commercials.

And then the second — so that ad load needs to change and be different. And then if you want to bend something, you got to push a bunch of buttons to watch the next show as opposed to sit there for 8 seconds and watch something. So the user experience has to be better. And the final thing is that a lot of people’s programming — you mentioned Viacom, a lot of their content’s being sold in another avenues. So the branding of the particular channel has kind of gone away. And people are used to a particular show, but not necessarily the brand of the channel. And so they’re used to getting that show somewhere else and they don’t want to pay for it twice.

So all those dynamics are out there. And the way we approach every negotiation is, here’s how much value your station or your broadcast or your content is to our customers because here’s how much they watch of it, and here’s how much the cost per hour is. And we do all that analysis in real time. And we have a dozen years of history of that, and we can see those trends and see kind of what cut the consumers, right? And so obviously, regional sports became the most expensive thing in our portfolio that customers didn’t — and it’s a gross generalization. Customers didn’t see the value in it, at least what — and certainly, 100% of people didn’t watch them. A very small minority watched regional sports. So that made for tough negotiations once they went down, right? But others aren’t maybe as egregious, but they have similar issues, yet they have budget. They have — most programmers come in and say, well, you paid this last year, we want an increase. There’s no logic. There’s no math behind it. It’s just that’s what we need to make our budget. I mean, the argument is we have to make our budget. That’s the argument. And those people look…

——————————————————————————–

Richard Scott Greenfield, LightShed Partners – Partner and Media & Technology Analyst [36]

——————————————————————————–

Right. But who cares about what their budget is? I mean I look at FX, FX is telling you to go to Hulu now to watch their programming, not to go to DISH.

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [37]

——————————————————————————–

That — and so that’s going to happen, right? So let’s fast forward, right? We talked about this years ago with Netflix when one of the programmers sold a lot of stuff to Netflix for $25 million a year. And we pointed out that you’re going to create a monster, right, that’s going to get leverage over you — if you’re in the content — they’re going to get leverage, and then they could become a competitor. And the same — so now, if you’ve gone to YouTube and Hulu, and yes, you might be getting some pretty decent rates today, but the next negotiation, they’re going to own you, right? If linear TV, if the other distributors aren’t out there, they’re going to own you, right? And that’s what’s getting created.

So Erik might talk to this. As a result of those things and those trends, which sometimes you point — you guys have correctly pointed out, I think we see some things a little different. Erik, maybe you can talk about what our strategy has been the last several years and how we kind of balance that.

——————————————————————————–

W. Erik Carlson, DISH Network Corporation – President & CEO [38]

——————————————————————————–

Sure, Charlie. Rich, how are you doing, hope things are well. I mean, look — I mean, I’ve been pretty consistent in the comments on the call and our approach, especially on the linear side of the business just to really target customers who one still find value in linear TV; and two, have less of an opportunity to may have densified broadband or go to one of the OTT-type providers. So look, our strategy has been to look at rural America, has been focused on high credit quality customers, customers that find value in linear TV, find value in skipping commercials, find value in all the things that the Hopper platform brings and try to insulate ourselves a little bit or mitigate some decline. Go ahead, Charlie.

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [39]

——————————————————————————–

Well, I was going to say, we’ve built value into the Hopper platform in a way that’s beyond linear TV. And so you can get Netflix, you can get Amazon, you can get YouTube from our platform, but you also can search. And so something might be on DISH and it might be $3.99, it might be free on Netflix. It will show you Netflix for free. So we put the customer first and say, here’s your best value. And so this is — I find personally I still, by far, love the Hopper experience better than any OTT experience because I can record everything I want to record and keep it as long as I want. I can skip commercials if I want to. If I forget to record something, that’s already recorded for me if it’s in prime time. So there’s features set there. And when me or my family want to watch Netflix on one of the OTT apps, we’re easily able to do it without having — in all of our TV sets without having to do anything, and I can do it with my voice, right? And so I think to Erik and his team’s credit, that’s going to continue to pay dividends for us.

——————————————————————————–

Operator [40]

——————————————————————————–

Up next, we’ll hear from Philip Cusick, JPMorgan.

——————————————————————————–

Philip A. Cusick, JP Morgan Chase & Co, Research Division – MD and Senior Analyst [41]

——————————————————————————–

Charlie, from your earlier comments, is it fair to say that you have your choice of partners to work with at this point, especially on the strategic side? And is there a trigger at which point you have to make that decision, maybe it’s the start of construction or an auction or something like that?

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [42]

——————————————————————————–

Well, again, I’ve only gone on an experience. My experience has been that everybody kind of moves at their own pace, and you end up with 3 kinds of companies, right? And with one that want to lead and make — and if they lead, they get to make the rules. And you end up with some fast followers and you end up with some stragglers, right, who maybe don’t even get to play in the game. Same thing is going to happen with us, is we believe we’re leading, and we believe that there’ll be some companies that want to lead and help make the rules. And those are likely that we share common vision, and that pace will be chopped, will be different, right?

A simple example would be you saw a Facebook announcement in Jio in India. Facebook has said, we’re going to jump in and help make some of the rules in how commerce is done in India, right? Other people looked — probably looked at that and maybe didn’t feel comfortable for whatever reason, right? But they probably — I don’t think Facebook was the only company who was saying, “Look, I’d like to make some rules in India.” It’s a long-term play, right, but they are a company that when — I think there’s similar companies that will say the similar things in the United States and say, “We want to help develop what a modern network should look like. And here’s how it helps us and here’s — and we’d like to participate and play.”

And so I guess, I’d say a lot of the things that the — look, people are skeptical, clearly are skeptical of — based on our stock price, you can currently see people skeptical of our ability to compete and to build a network. But I don’t think — we’re not skeptical, and we’re just going to go — doesn’t even need to talk about it. We’re just going to go do it. We’re just going to go build it. And you’ll see. And we’ll either be right or wrong, right? And it’s not the first time we’ve been in this situation.

And the second thing I’ll say is that our company has built — in a funny sort of way, it’s on — we’re better in a crisis. We’re better — and I think the COVID thing is a crisis, and I think we’re better in that environment. We’re leaner. We make decisions quicker. There’s visibility. We’re not as layered in management. It’s the environment that, at least personally, I feel more comfortable in. And it’s where I think we’ve excelled as a company, and I think it’s where we have made our — the most creative times in the marketplace for us takes scrambling back in 1986, where our business went to 0 overnight. We came back the next year and doubled our business and doubled again, doubled again and doubled again because we made — we had a plan, long-term plan, and we make sound decisions and move quickly. And I think those are the things that we challenge Erik and his team every day to make sure we’re — we have long-term plans, and they’re good. And they’re — in a funny sort of way the market is moving that way, and then we just got to move quick and execute. And if we do that, we’re going to be a much bigger company and a much more profitable company. And we’ll gain market share in a place where in — an economic situation where a lot of companies are going to struggle. And if we don’t do that, we’ll be one of those struggling companies and the skeptics will be right.

——————————————————————————–

Thomas A. Cullen, DISH Network Corporation – EVP of Corporate Development [43]

——————————————————————————–

So all right, operator, we have time for one more analyst question.

——————————————————————————–

Operator [44]

——————————————————————————–

We will now take our final question from the analyst community. (Operator Instructions) We will begin the media portion of this call following the answer to this final analyst question.

And our final analyst question comes from Kannan Venkateshwar, Barclays.

——————————————————————————–

Kannan Venkateshwar, Barclays Bank PLC, Research Division – Director & Senior Research Analyst [45]

——————————————————————————–

So Charlie, when you think about the $10 billion number that you put out, I mean, based on some of the comments you’ve made, it looks like that’s largely Capex. But as you go into the retail business, there’s also going to be operating losses in the first few years as you scale the business up. When you think about the total funding need overall beyond just the build-out, how should we think about the scaling on your total capital requirements maybe over the next 3 or 4 years?

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [46]

——————————————————————————–

Well, a couple of things. I mean, I think there’s 2 things that could require additional funding, right, potentially. But one is if you’re in spectrum purchases and there’s certainly auctions coming up. The second would be, I think if you enter the retail business and you have losses, I think is what you said, those would certainly require us. So a couple of things. One is we would hope as we enter the retail business that we don’t have significant 2 years of funding gaps there from a cash flow perspective, right? I do think — I think we’ll have to manage that. I think — let’s pay close attention to that. I think that will be difficult, right, but not impossible by any means to do that. And obviously, our balance sheet is our balance sheet as it comes to auction. So I think we’re really focused — I think we’re mostly focused on the network and what it takes to get to where we want to go.

And then there may be revenue opportunities for us as we talked about spectrum leases and so forth. There may be other revenue opportunities for us as well. So you balance it all together. And I think while we’re cognizant of the markets and we keep an eye on it, we certainly would be opportunistic if the marketplace we’re open in a favorable way. That’s not our focus for the near term. And I think Tom articulated where our focus is as a management team. And if we execute those things in the near term, I think we’ll be fine.

——————————————————————————–

Operator [47]

——————————————————————————–

We will now take questions from members of the media. (Operator Instructions)

And we’ll take our first question from Amy Maclean, Cablefax.

——————————————————————————–

Amy Maclean, [48]

——————————————————————————–

I was just wondering if you could provide any color on negotiations with Viacom CBS.

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [49]

——————————————————————————–

Not really, not really. I mean, we tend to keep our negotiations private, and they’ve been a long-term value vendor for us. But the reality is that certainly, a lot of their content is available from other sources that people are already paying for. And obviously, from a ratings perspective or a viewership perspective, they’ve had declines over the last several years. And a lot of their investment has gone into Pluto now, and that’s free. So we hope we get there with the transactions because I said, we have long, long term — they helped build this company. We like them — the company a lot personally, but there’s a reality out there of where the market is. And it’s probably not the same as it was in years past.

——————————————————————————–

Operator [50]

——————————————————————————–

Next, we’ll hear from Paul Kirby, TR Daily.

——————————————————————————–

Paul Kirby, [51]

——————————————————————————–

I just wanted to see if there’s — do you have any expectation time-wise of the FCC resolving the DE issue?

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [52]

——————————————————————————–

It’s — I’d say — so let’s take a little background so that — I mean, obviously, we’re coming up on — I think, since the end of the auction, almost 5 years since the auction. There’s been a court case where the court found that the FCC was correct, that perhaps the DE didn’t qualify. But they were incorrect in that they didn’t get the DEs a chance to cure. The DEs, in our opinion, have cured, and they have — and that has been in front of the FCC for well over 1.5 years now and the FCC hasn’t ruled on that. So that’s disappointing, given that I think this FCC has been incredible about bringing new spectrum to the marketplace. This FCC has been incredible about advancing 5G in the United States and put the country in a position to compete against China.

I mean, it’s incredible, really what they’ve done. It’s disappointing that the one thing that affects DISH in a big way potentially hasn’t been ruled on yet. And as management you always want certainty, right? And we have uncertainty, which makes it tough for us — tougher to manage the business. So we would encourage the FCC to make a ruling on that.

And then more importantly, maybe is that some of the spectrum the DEs and DISH paid a penalty on and that could get resolved if they get used a lot faster and be put into business plans, particularly as we are designing our network. We have this big question mark out there, what do we do with the AWS-3 spectrum out there? So it’s a bit frustrating, but we hope in the national interest that at least we get a ruling on that. And I think the current crisis is more evidence that maybe that’s a place we could get a ruling.

——————————————————————————–

Operator [53]

——————————————————————————–

And for our next question, if you could please announce your name and company name.

——————————————————————————–

Drew FitzGerald, [54]

——————————————————————————–

Yes. This is Drew from The Wall Street Journal. Drew Fitzgerald. I think there was a difficulty earlier, so apologies if this has been answered before. But first, I’m just curious about where you see, in general, most of the impasse in negotiations over rights to sports content been? Have any of the leagues waived fees or even refunded some of what programmers owed them given the fact that there are no games on right now? Or is the issue more between the programmers and distributors?

And then second, I’d just be curious, given the social distancing and new normal we have with the coronavirus crisis, whether that’s changed your thinking at all as to the value of physical stores that you might pick up from Sprint or elsewhere.

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [55]

——————————————————————————–

Yes. The first question was answered — asked and answered, Drew, but — so you’ll see that in the transcript.

Second part, the — I do think that the — I think the modern economy stores are probably — stores of any kind are probably — have to be reevaluated. And there’s certainly need for stores, and there’s certainly needs. But I think you see it across all segments of the population that people will reevaluate that.

Within Boost, of course, Boost doesn’t own any stores. Their distribution is all independently owned and operated — are retailers themselves. So it’s not a huge issue for Boost other than Boost is very similar to DISH. The DISH doesn’t own stores either, but we would rely on small business people to promote our business and perform sales and service functions, and Boost is heavily dependent upon those retailers for that. So we don’t quite have the overhead of the stores. They still have cost — indirect cost related.

And so we’re looking forward to building those relationships with the independent dealers. And although Boost — when we look at Boost, we see some things there that probably aren’t the best business practices from a DISH perspective since we won’t own a network day 1. And obviously, there had to be some changes there. But there’s a huge opportunity there because suddenly we have a really good network and a network that more devices can work on and you get away from CDN, voice, for example. And so there’s just a lot of positives, and we’re going to have to feel our way through there and manage it closely and be prudent about what we do.

——————————————————————————–

Operator [56]

——————————————————————————–

And we’ll go to our next question, if you could announce your name and company.

——————————————————————————–

Scott Moritz, [57]

——————————————————————————–

Great. Scott Moritz from Bloomberg. Charlie, on wireless, look, what kind of time line are we looking at in terms of closing the Boost deal, maybe changing the name, if that’s in the works, and then selling your first loans?

——————————————————————————–

Charles W. Ergen, DISH Network Corporation – Co-founder & Chairman of the Board [58]

——————————————————————————–

Well, as you’re probably aware on the consent agreement. First of all, we probably — most likely, because of accounting and everything, we’d close on first of the month. So that should lead to –and then the second thing, per the consent agreement, there are certain things that have to happen — before close that can happen. And probably one of the biggest ones, as an example, is cross-provisioning so that when we own Boost then our customers can provision — we can provision all our customers and new customers on the T-Mobile network because we don’t want to go back and manage new and existing. We don’t necessarily want to go back, and we don’t want to necessarily put people in the Sprint network and then have to go back and switch them later, and the cost of switching later to the T-Mobile network. And obviously, every time you switch a customer, you have excess churn.

So we want to be able to be — we want to be just competitive with Metro and T-MO. If a device can be provisioned on T-Mo — and naturally we’ll be able to be — that Boost can do the same thing. So that condition hasn’t been met yet. So June 1 would be the earliest that — but it could be July 1 that that condition can be met. So that’s kind of — that’s the time frame that we’re looking at today.

All right, everyone, thank you for your time and interest, and we’ll talk to you next quarter.

——————————————————————————–

Operator [59]

——————————————————————————–

Once again, ladies and gentlemen, that does conclude today’s conference. We would like to thank you all for your participation today. You may now disconnect.

Source Article