DISH Network Corp (DISH) 2011 Q1 法說會逐字稿

Good afternoon. My name is Alicia, and I will be your conference operator today. At this time I would like to welcome everyone to the DISH Network Corporation Q1 2011 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session. (Operator Instructions) Thank you.

Mr. Jason Kiser, you may begin your conference.

Thank you. Thanks for joining us. My name is Jason Kiser. I'm the Treasurer here at DISH Network. I'm joined today by Charlie Ergen, Chairman and CEO; Tom Cullen, Executive Vice President; Bernie Han, COO; Robert Olson, our CFO; Stanton Dodge, our General Counsel; and Michael Kelly, our newly-appointed President of Blockbuster.

Before we open it up for some Q&A, we do need to do our Safe Harbor disclosure. So for that, I'll turn it over to Stan.

Thank you, Jason. And good morning, everyone, and thank you for joining us. We invite media to participate in listen-only mode on the call, and ask that you not identify participants or their firms in your reports. We also do not allow audio taping, and ask that you respect that.

All statements we make during this call that are not statements of historical fact constitute forward-looking statements, which involve known and unknown risks, uncertainties, and other factors that could cause our actual results to be materially different from historical results and from any future results expressed or implied by such forward-looking statements. For a list of those factors, please refer to the front of our 10-Q. All cautionary statements we make during this call should be understood as being applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks described in our reports, and should not place undue reliance on any forward-looking statements. We assume no responsibility for updating any forward-looking statements.

As we begin our Q&A session, we would like to call your attention, due to security laws considerations, we do not intend to provide additional information about the financing transactions announced by the Company this morning beyond that contained in the announcement, and we appreciate your cooperation in that regard.

With that out of the way, I'll turn it back over to Jason.

Thanks, Stanton. Operator, we're going to go straight into the Q&A, so you can open up the phone lines, please.

(Operator Instructions) Tuna Amobi, with Standard and Poor's.

Tuna Amobi, from Standard & Poor's Equity Group. Good morning, gentlemen, and clearly a lot to talk about here. You guys have been clearly very busy. So if I can start off with the question that's in everyone's mind, Charlie, the Blockbuster deal. If you can, perhaps, help us here with the strategic vision that you have for Blockbuster. And perhaps how you intend to integrate that with your current plans, would be helpful. And also, along the lines of the TiVo settlement announced today, it's my understanding there may be some promotional elements for Blockbuster that's involved in that settlement. So, A, can you provide some clarity on that ? And, B, why do you think, or what's the thought process toward reaching this settlement in terms of the timing, the amount involved, et cetera? So those would be very helpful. Thank you.

Okay. I think I'll let Mike Kelly take Blockbuster vision first. And then I'll come back and talk about the TiVo settlement and maybe how that relates to Blockbuster, as well.

Sure, thanks, Charlie. First of all, we've only had Blockbuster for about 5 days so we're still trying to get our arms around it. Blockbuster is clearly, we see it as an opportunity to distribute up to 125,000 DVDs. We think that there's many points of presence in sale in the Blockbuster product today. We think that there's an opportunity for us with the by mail business, an opportunity to break into the digital business a little bit heavier. And there's a tremendous brand there, as well. But as of right now, we think there might be synergies back with DISH Networks business. We're not sure yet. We're still going to spend some time looking at that. But it's an opportunity that we think at the price that we got it for that it could make sense for us in the long term.

And by digital, are you referring specifically to streaming or anything else?

We think that there's still a business in the physical presence, in the physical market. And we'll have to see what the studios think with that. So we'll be talking to the studios over the next few weeks, as well, to see if there is, in fact, a business there. We're not sure but we'll continue to look at that.

Okay, this is Charlie. I'd just add a couple things. When you say Blockbuster, really almost anywhere in the world it means, first and foremost, means movies. Almost right off the tip of somebody's tongue they're going to say movies. And they're probably going to, after that, say family. So it fits into I think where we would like to be as a Company.

The second, a lot of where we go with it probably will depend on the studios in the sense of do they want a physical presence? If they want a physical presence, Blockbuster is well positioned to maintain and grow a physical presence. There's still a business out there for physical presence. It's up to the studios to whether they want a physical presence or whether they want to go all electronically and so forth. And a lot of that will drive, I think, some of the strategic decisions of Blockbuster in terms of working with the studios to give them an alternative to some of the avenues they had today. I don't see Blockbuster necessarily being a competitor to Netflix directly in terms of streaming because Netflix has got a formidable lead, and probably insurmountable, lead in that business. On the other hand, for studios it may not be the best economic model for studios, and I think Blockbuster can indirectly provide competition out there by presenting a better financial model to where the studios want to go. If I owned a studio and I wanted to maximize my profit, Blockbuster would be an important element in that I think.

As far as the TiVo settlement, as it relates to Blockbuster, part of that is that we accepted the contract that Blockbuster had with TiVo. And when you buy a TiVo device, Blockbuster is a widget on that to order movies, and we think we can expand upon that with them.

In regard to your general question about the settlement, I'd say 3 things. The first and foremost was there just wasn't anything to argue about anymore once we got the Court of Appeals ruling. We both won a good battle in that ruling. They won on a disablement ruling that failed to challenge the injunction in a timely manner. And we, in all likelihood, were going to get a new trial on the merits of our work around. And in fact, I think we won a big battle for innovation in the sense that the law has now changed, the court has changed the law on contempt of court for design-arounds and what criteria you use for that. And I think the Court of Appeals made a pretty solid judgment on what judges should consider for that, So that was a win for innovators for the next century, irregardless of our case.

As a result of that, it became, I think, clear to both TiVo and DISH that we could at least get our arms around what the costs and risks were because there wasn't -- obviously the thing that was the most risky to DISH was that, in fact, TiVo would have won on the design-around side of the case, which would have been a knock out blow. And the fact we won a 12 to nothing decision there, I think, was not unexpected by our side. In fact, two judges that had voted against us, voted for us the next time around. I just think that we had the stronger end of that argument and that a lot of analysts missed that.

Having said that, I'd say first and foremost, certainty from a DISH perspective was important. We weren't talking about that much money one way or the other, even with the new trial, and we certainly knew a lot about how our system works.

The second thing would be that we think we can make our product better, in some ways, using the Time Warp patent. It's a patent that the Patent Office has looked at many many times now, and it has re-examined it and has survived the latest re-exam. And we think that by utilizing the Time Warp patent, we can add some functionality feature, make our product better, and compete against some people who may not be using that technology in the future. So we can make our DVRs, which are already pretty darn good, maybe even better. And third, we think there is a way to continue to work with TiVo in the future. They have, as an example, since we wired them the $300 million this morning, I think they're sitting on perhaps as much as $600 million or more in cash. They have an ability to grow their business, utilizing cash. We have a great understanding of their Company and their management. And I can only say that there's a lot respect from the DISH side for the management of that Company and the legal team there and the management team, as well.

It was not antagonistic litigation. It was a difference of opinion, strong difference of opinion that the Court of Appeals settled for us. And we both won battles and I think now we're in a situation where I hope that we go win the war, and I hope that TiVo goes and wins the war. And TiVo will do that by continuing to enforce their intellectual property with others and utilizing their cash and their expertise to grow their business. And hopefully we'll win the war by making our products better and working with them in the future. So that's really how it all came about. And that we had this ruling from the District Court a long time ago, would have settled it a long time ago.

Jeffrey Wlodarczak with Pivotal Research Group.

Hi guys, good morning. Congrats on the first quarter results ending this TiVo saga. I wanted to focus on sustainability of your first quarter subscriber churn SAC results. How much of the churn result was related to the fact that you're adding more and more advanced set top box customers for churn less, versus increased retention spend? And then on SAC, it sounds like the primary driver is lower equipment costs so I assume that's sustainable. And I have one follow-up.

You want to take that, Tom?

Okay, on the churn, Jeff, as you know, it's slightly higher than first quarter of last year, so there's certainly some seasonality in the churn number. That being said, I don't think we're going to go back, we certainly hope not to be going back to the numbers that you saw late last year. And as I explained on the last call, some of that was attributable to programming interruptions. On the retention spend, however, we have increased retention spending modestly. It's not over historical levels but it's up over the last two previous quarters.

Yes, Jeff, this is Robert. On your question on SAC, I think on our last call, we talked about the SAC that we had in the fourth quarter being higher than normal due to a couple reasons. One was our marketing expenses were higher. We just weren't as effective as a result of different factors in the fourth quarter. And so about half of the reduction quarter-over-quarter was due to reduced marketing expense. The other part of the reduction was due to the percentage of mix in our new versus remanufactured MPEG-4 receivers. That percentage of new receivers was fairly high in fourth quarter and it was fairly low in first quarter. I think we've talked on previous calls when our gross activations were lower, we tend to have a higher percentage of remanufactured receivers. So those are the two big drivers in SAC in the first quarter.

Thank you. And then just the follow-up, can you provide more color on the experience you're seeing on churn related to the $5 price increase you did throughout February? And how is that going in the second quarter?

This is Charlie. I think the price increase probably flows through, for the most part, in the second quarter. Some in the first quarter, but probably more in the second quarter, because by the time that price increase flows through and you get your bill and you have to pay your bill, then it's probably more in effect in the second quarter than the first quarter. But it has gone, I would say, remarkably smoothly.

James Ratcliffe with Barclays Capital.

Good morning. Thanks for talking the question. Two, if I could. First of all, Charlie, can you talk about in addition to Blockbuster, how Blockbuster and the DBS business and the spectrum assets, both the 700 and the newly acquired DBSD assets fit together? And second of all, clearly, your program contracts must be compatible with offerings, the Slingbox offering for anywhere viewing. Do you believe they're compatible with an offering that's entirely without a satellite component? Do you need to deliver the programming to the home via DISH or could you offer an entirely on demand delivered program line-up equivalent to what you offer to DBS customers today? Thanks.

First in terms of strategy, I'd say with DBSD, Blockbuster and some other things we've done, I would say that we're utilizing what I call the Seinfeld strategy. Which is, if you ever watched a Seinfeld show, there's a lot of things that happen the first about 28 minutes of that show where you didn't know exactly where that show was going. But it seemed to all come together in that last couple minutes. And so I think, in terms of where we're going strategically, you'll have to just wait and see where it all comes together. It's a little hard to explain it this early in the show, so to speak. And then for you skeptics out there, of course Seinfeld was a show about nothing, so it could be a strategy about nothing if you're skeptical. But I think that everything we do has a purpose and we feel like it ultimately fits together.

As far as whether we could -- programming contracts, I would say that we certainly don't discuss programming contracts on a conference call. And there's a wide variety of programming contracts and rights. But I think that a bigger picture answer is that I think you're already starting to see in our industry competition for people who don't have either cables, who haven't put the capital investment in cables or satellites. And I think that's a risk factor for our industry. And so I think that regardless of what we're able to do, that that's going to be a competitive threat to our industry and is in multiple new entrants. I think we have to be prepared for multiple new entrants into our business.

Great, thank you. And just one quick follow-up on the remanufactured equipment. Do you have any sizeable stocks of boxes that you were holding back from redeploying because of concerns about the TiVo case that could now be deployed and keep that new CapEx down going forward?

No. James. Most of the change from fourth quarter to first quarter was with regard to MPEG-4 receivers which are -- I'll let Stanton talk more to the details of the TiVo case, but really weren't impacted there. But no, the MPEG-4 receivers, we installed more remanufactured receivers in the first quarter that were MPEG-4.

This is Charlie. We did have to hold a higher inventory than normal in case we lost the disablement and weren't able to reach a resolution with TiVo. Then we would have had a very short period of time to replace boxes. So one of the positives of the TiVo settlement is that I think we can get our inventory, it may take a few quarters to do it but I think we can have a more balanced inventory in terms of total which obviously is positive for cash flow.

Stefan Anninger with Credit Suisse.

Hi, good morning. Thanks for taking my question. Just two brief questions. The first one, maybe you could talk a little bit about your optimism that the spectrum rules around ATC, let's call them ATC gating factors, will change over the longer term to give you an opportunity, perhaps, to use the spectrum in a more efficient manner. And then the second question relates to some comments you made on a prior call about your longer term view as to how the multi-channel video marketplace will develop, and how you view how delivery of service will be offered longer term, perhaps over the internet and not via traditional means. Maybe you could expand a bit on that and talk a little bit about how you see that playing out, if that's changed at all since a previous call. Thanks.

Yes, as far as Spectrum, I think one of the key components as it relates to DBSD that's maybe not understood by the market, is that DBSD has already perfected their license with the launch of the satellite. So they're not required to build out anything beyond what they've done. They have a fully functional satellite that's utilizing their spectrum today and is capable of mobile video, as an example, just for starters. So there's not a capital requirement to build out. To do anything else with DBSD. I can see in the future there may be a new generation of satellites or so forth.

The other possibility, as you mentioned, is that if you were to want to use the spectrum terrestrially, if there was a reason to do that, then the ATSC laws, they have a Safe Harbor which is if you have a ground satellite and you put a link to the satellite in your devices, there's a pretty good Safe Harbor precedent that you would get ATC. And then there's people like LightSquared who have gone in and got exemptions to that in return for aggressive schedules to build out terrestrial spectrum. Obviously, we haven't actually closed on DBSD as far as the FCC is concerned, and we haven't asked for that. So we'd have to have a real strategic direction to do that, which we're not looking at that in any short-term basis. So we're very pleased with the asset and the spectrum and what we think we can do with it, but we don't think it requires significant capital for build out in the near term.

In the multi-channel development, I just think we have to be realists, that what was a market where there were 3 competitors 5 years ago is a market today where there's at least 5 competitors in the marketplace with the addition of a phone company and the internet. And, in fact, there's probably, because the internet is relatively ubiquitous, it could be multiple entrants into all or part of our business today. So there's strategic things that we think we can do and compete in that world, but we think the world has changed and we have to be prepared for change. And we're not scared of change. We're willing to make long term decisions. And if you're a long term investor, I think you'll like what we do. But we're not managing the business quarter to quarter. We're managing it to compete against the long term. I've always been for a la carte for customers because I always realized the internet was going to be there and, in fact, you're going to be able to buy channels a la carte on the internet. So it's interesting some of our programming partners make us buy 20 channels from them but they will sell their own channels a la carte. So that's not an enviable position to be in the MVPD business. So I think it's going to change and we have to be quick on our feet and be ready to adapt to it. And I think some of the things we've done in the past couple of years are positioning ourself pretty well for what I think is going to take place. And there's probably more to be done.

Doug Mitchelson with Deutsche Bank.

Thanks very much. I'm trying to figure out which Seinfeld episode we're in, Charlie. But I think with some of the comments that you made--

What's your favorite one? We can go with just about any of them.

Any of them will work, right? A couple questions. You just mentioned you thought we would have a la carte online or that some of these companies are putting their channels online a la carte. I'm not sure I see that. Is there any specific examples you can point to? Or that's just your belief in what's going to happen?

There's some examples. Certainly there's things like some of the ESPN product you can get online. There's an awful lot of online that is, perhaps, loosely defined as piracy. If you've got young children over the age of 5 and you pick out some video you want to watch, I'm sure they can find it for you for free on the internet. So we have to be able to compete with that. And even something like CNN, you are getting enough of CNN in clips and so forth that you wouldn't have to have the total channel and so forth. So there's a lot of stuff online either because somebody has put it up there for free, maybe without the permission of the actual copyright owner, or the copyright owner himself has put it up there. Hulu is out there with stuff, maybe it's 24 hours later. But it's not like people have to be in front of their TV set at 7 o'clock anymore. So it is a changing landscape. And in that landscape, if you see what our industry is doing, and people are giving away, again they are spending, if you spend $700 or $800 or $900 on SAC, and then give away $700, $800 of programming, it is an economic model that is probably -- it may work, but it's a much thinner margin than we've historically had in the past. And I think when we look at it, we say if we have $700 or $800 to spend, or $1,500 to spend, there might be a better way to spend it. That's all.

So would you say, even though you're not going to lay out your strategy in detail that these initiatives -- it sounds like it's a mix of offensive and defensive, right? Typically you're very tight with spending money, you want to earn a good return. We think the Blockbuster deal and the wireless acquisition, you're specifically looking at returns on investment. At the same time, you talk about the need to be at these other places, perhaps defensive ways. Are you able to give us a sense whether these are offensive initiatives or defensive initiatives?

We're all offense. We're all offense. It's just not clear yet. And if we make, I think we've purchased good assets and I think to the extent -- I don't know that every asset you purchase ends up being one that fit the way you thought it was going to fit. It's a little bit like being in the NFL draft. You draft a lot of people, they don't all work out and some people you trade. And maybe that happens with some of the assets that we have acquired, but we think they all fit. We think they are all things we need for offense. And it's up to us to develop those assets and put them together that work in a cohesive fashion where the products that we sell to consumers is a better product than it is today, and a product that can compete with where we see the industry going.

So I actually have a mundane, financial question after all that. Tax rate, given the deals that you're doing, can you give us any sense of where the tax rate is headed for the year?

Yes, Doug, this is Robert. It's 38% range.

And the big deferred tax in the first quarter, that's just timing of tax payments?

It is. The estimated tax payments for the first quarter on April 15 are always a big driver in the first quarter.

Vijay Jayant with Citadel Securities.

Thanks. Just want to follow-up on the Blockbuster cash flow story. I think the last results showed they lost, I think, about $50million, $55 million in EBITDA for the first two months of the year. Can you talk about what kind of a drag we could see from that asset through this year as you shut down more stores? And second, can you talk about the MPEG-4 and APSK conversion, where we are across your subscriber base? And now that the TiVo settlement has been done, does that slow that down for any reason? Thanks. Okay, I'll take the first part. On Blockbuster, they were running negative EBITDA and probably still are. Obviously we've owned it 5 days. But the good news is we have control of the asset now so we can start making the right long term decisions there to grow that business. One reason they were negative is they were starved for capital so they didn't have access to all of the titles. And Mike, you may want to jump in a little bit here after I finish on that. But we'll try to spend money smartly. We have some time on stores to make decisions. And, obviously -- and it has some cash on the balance sheet today. We bought the Company for basically its liquidation value and got a good international brand with it. So it's not a big risk in terms of total Company, but it does have, if everything fell into place, it would have obviously a lot of upside. The second part of the question was?

MPEG-4.

We were prepared to move pretty fast had we not come to agreement with TiVo. But I think that with the agreement with TiVo, we'll take a slower approach to the conversion. We'll do it in a timing that's better for our customers and better for us and doesn't disrupt our operations. So I think that was a positive that came out of that. But obviously, our customers are going to be, if you look long term, they are going to be APSK customers. Mike, did you have anything else?

No, I'd just add it was constrained for cash. There was very little advertising, very little inventory in the stores. So we'll have to get into that. And as you said, we control the asset now and we'll be looking hard at it and see how we might be able to turn that around.

Marci Ryvicker with Wells Fargo.

Thanks. Two operational questions. The first, in terms of ARPU, can you just talk about how the $5 price increase impacted ARPU in the first quarter? Did you implement the price increase throughout the quarter and therefore should we see a greater bump in Q2? And then, secondly, can you characterize your internal operations? I believe you said you're in the fifth inning of a nine-inning game last quarter. Any update there?

So Marci, this is Robert. I'll take the first question. We first rolled out the price increase on bills going out February 1. And we send out bills throughout the month. Coupled with the fact that -- and we've talked about this before -- we send out our bills 15 days prior to the service period. So effectively when you start a price increase on February 1, you get about one month of the revenue in the first quarter.

And this is Bernie. With respect to our operational progress, I think I did say the fifth inning last quarter. I think we're a little further along, one quarter further along this time around. And bottom line is we still think there's a lot of work ahead of us, a lot of opportunity to improve operations that we haven't yet realized. Over the last few years we've done a lot. The lower hanging fruit in terms of answering our calls better, taking less time to handle calls, trying to drive fewer repeat phone calls, fewer repeat truck rolls, made some good progress on. Some of the more foundational or fundamental things take a longer period of time to do. I alluded to the fact last time that we've got a big billing conversion happening between now and a year from now. And while that introduces some risk, it also introduces a lot of opportunity to clean up our systems that we haven't maintained as well as we would have liked in the past. So not only is our billing conversion going to happen in the next year, a lot of our systems whether it's the voice system that our customers deal with, our website that our customers use, our agent customer management tools, our agent order entry tools, our workforce management systems are all going to be cleaned up as part of the billing conversion that's happening over the next year.

Craig Moffett with Sanford Bernstein.

Hi, good morning. Charlie, two quick questions, if I could. One is, given how good the SAC number was and how much lower it was and the improvement in margins, does that change your view of the attractiveness of customer acquisition that you talked about last time around? And then second, in some markets you're de-emphasizing regional sports programming, or arguably simply not trying to sign some regional sports contracts. Does that strike you as a potentially attractive strategy for less affluent customers to say in some markets you will focus on price rather than sports breadth?

I'll take the second part of that first. On the sports programming, it depends on the willingness of our programming partners to structure a deal that works for us. Strategically I would say it this way. If you've got 3 competitors and they all have the sports programming, and only 15% of the people actually watch the sports programming, then there's probably a real good path for somebody, for 1 of the 4 not to carry the sports programming would have a great strategic advantage for certain customers. If everybody carries exactly the same thing, then there's no advantage except you rate your price. And I think that from a sports perspective we're not viewed as the leading provider for sports.

Having said that, the only markets that we certainly prefer to carry sports and we are able to come to an agreement with Fox. So we carried the vast majority of the regional sports networks. And I believe we've come to agreement with most of Comcast and so forth. So I think we carry most of it. In New York City, where we have never had Yes Network, it may not make as much sense. And we have a high degree of international customers where the sports programming is not as important to them. So I don't think you could make a blanket statement that we've exited the regional sports business. In fact, I think of the 27 regional sports today, I think we only don't carry 2 or 3 of them. Or 30 regional, we don't carry but 2 or 3 of them.

But there is a strategy potentially out there for one video provider not to carry regional sports. And I think there might be some short-term pain but they probably do pretty well long term, if that was the case. But that is not our strategy today, with the exception of probably the New York market where we just haven't -- if somebody's got a losing team that's not doing very well and they want a 50% increase in price, it doesn't make any sense. There's a limit to what we think our customers are willing to pay for that. We have viewer measurement. We know what they watch. We can very objectively get to a value for our channels and what we think the long term result is if we take something down versus paying an increased price. And particularly the internet coming in, and a lot of sports programming being on the internet. That's one that's a la carte. Major league baseball sells their Major League Baseball Network Channel for $99 on the internet. You can get it for $199 from some of our competitors. Does it make sense to take all that bandwidth and force our customers to pay for something they can get on the internet for less money? I don't know if that makes sense or not.

What was the first question?

Customer acquisition attractiveness.

Look, if we can get a customer that we can invest $700, $800, $900, $2,000 in, and we can get a return on that investment, we're going to do it. So I don't look so much at the SAC that you're looking at, $700 versus $800 or whatever. I add the programming cost into it. I add the kind of equipment they get. We add what kind of credit worthiness they have. We add in how many times they call us. We add in how long they stay as a customer. And see whether we make a return on that. And if we can make a return on that, there are some customers we would spend $2,000 for and there's some customers we wouldn't spend $200 for. And we just look at it in more detail than what you're seeing in a roll up on a financial statement. And, look, we didn't have to spend a lot of time on it 5 years ago. You spent $500 for a customer that the marketplace said was worth $2,000, that didn't take a lot of financial analysis. Today, when you add in free programming, most people are spending well over $1,000 in SAC for customers that some customers who aren't worth that, and some customers who are worth materially more than that. And the art is to figure that out. But there's an awful lot of customers out there now that sign up and stay with somebody for 2 years and then they switch -- with the cable company they switch to satellite company A and they stay for 2 years, and switch to satellite company B for 2 years, and then they switch to the phone company for 2 years, and then they go back to the cable company again. And that's not the kind of customer I want to invest $1,200 in.

Tom Eagan with Collins Stuart.

Thank you very much. Just 2 quick follow-up questions on the Blockbuster strategy. First, on the stores, how many stores are you going to keep again? And will you sell anything in those stores except for rent, anything but DVDs? And then I have a follow-up, thanks.

With respect to the total number of stores, we don't know. We're still evaluating stores. We're going to try to run stores profitably over time. In the bankruptcy process, I think we assumed about 370 profitable stores. So we'll continue to look at that over the next 90 days.

But I think, suffice to say you're well over that.

Yes. Today we're operating at 1,700 stores.

1,700 stores today. So with time to evaluate them in the contracts. And again, I think a lot of it, from my perspective, a lot of it depends on studio participation. If studios want a physical presence, I think there's a lot of reasons to keep the stores open.

Right. In terms of the contracts, is it right to think that, say, for example, with Warners and Fox, I thought those output deals expired in 2012. Is that roughly right?

Yes, that's roughly right.

Mike McCormack make with Nomura Securities.

Hi guys, thanks. Just a couple of quick questions. It just seems like maybe you could try to put together the pieces here between the price increase and the benefit you're getting there versus the commentary on competition, some pretty strong language around promotional offers and discounts. Just trying to get a sense for whether you think there's a risk that the price increases will have a impact down the road on churn. And then, secondly, on the TV Everywhere strategy/product, can you just give us a sense for what you're thinking about as far as rights go for that? Thanks.

Yes, this is Tom. I'm not sure I understand the first part around the risk on the price increase. Obviously, its been in the market now for a few months. We gave some price assurances through February of 2013. We'll continue to observe and monitor the churn impacts but so far so good, as Charlie said.

As far as the TV Anywhere product -- or Everywhere, however you want to -- everybody has a different term for it -- we are, like others, securing authentication rights as part of all of our programming renewals. So the DISHOnline.com product represents that, and it's a pretty vast library of content. And then we also, as someone indicated earlier, we're also promoting the Sling adapter which is a device that connects to the 722 models of ours, and that gives the consumer access to their programming that they are paying for on their box.

Yes, by the way, I'd just add a follow-up to that. That I think in our price increase, we found out that we had some pricing power. We're materially lower than other people in the marketplace after you get to through discount periods that people discount. And, B, we believe that pricing is going to be much tougher next year based on competition, which is one of the reasons, not the only reason, that we went to a two-year price guarantee. So we don't have to touch customers again, from that perspective. Hopefully we'll have other products to sell them so that ARPU -- hopefully we're smart enough to figure out how to sell them additional product but it won't be in terms of a price increase.

I'm just trying to get a sense whether there's some sort of lag between the time you instituted it and when customers look around and say maybe there's other alternatives. But it sounds like the discount is still pretty significant.

Again, the general thing that I think is not the most logical thing you'd prefer to see is, as an industry, you can't turn your TV on without seeing a $29 offer or a $19 offer or whatever, from somebody who's probably playing close to $80 to $90 to $100 ARPU. So I think everybody is looking around. And you're not going to get a return on that customer until they can look around again. So I think we have to be a little bit smarter about it. I have a better understanding how people got into the subprime business, because everybody was doing it. And I think it takes a lot of maturity as a CEO to say, if everybody is in the subprime business, maybe that's not where we want to be. There's other ways to spend our money that's a better return to our shareholders long term, and that's really what we're trying to do. And, again, stay tuned for the end of the show.

Bryan Kraft with Evercore Partners.

Hi, thanks. Just had two questions on wireless and then just a question about customer quality. First, on the wireless side, if you did end up building a wireless network, is it something you think you would need the cooperation of another operator for in order to make the economics work? Or is it more likely you could do something alone? And just what's a reasonable expectation as to how long it would take for you to fully explore and evaluate the potential wireless opportunity? And then just another question. When you look at the DVR and HD sell-in rates that you're getting today, how do they compare to the last couple of quarters? Is that still at a high level, which I think has increased over the last couple of quarters? Or has it normalized to maybe where it was more early last year? Thanks.

This is Charlie. On the wireless opportunity, I think it is unlikely that we would do something in wireless without somebody who's more of an expert in that business than we are. And I think there's any number of people out there that are more expert than we are. And I think we're watching closely what LightSquared does, whose also where I think our spectrum fits nicely with them in terms of how they go about doing it. But we bought 700 megahertz spectrum and we didn't build it out day one. We certainly are building out some of that today. We have about 6.5 more years to build that out, I think. And we're certainly experimenting with any number of things there. But Qualcomm built it out and couldn't prove the business model. And I think we've got to be very -- and therefore, they still made a good return on that spectrum by selling it to AT&T but they lost a significant amount of capital in a buildout. So we have to be careful about knowing exactly what we're doing, making sure that there's what we believe to be a good return on the asset, and any number of strategies there. But to build it out in the wireless space, if that was the decision to go forward, I would think you would see us work with people who are more expert in that business than we are. And the second part of the question was?

Mike, this is Tom Cullen. The quality of customers, as Charlie has indicated, we've been much more selective and more targeted in our marketing approach. So from a credit quality standpoint, we are seeing improvement in incoming customers. The DVR and HD rates remain high but really not significantly different first quarter over fourth quarter in terms of attach rates on new customers.

I think the TiVo settlement helps us in the DVR space going forward. Again, we can do some things now. With their Time Warp patent, to design around that, we did things a little differently, which in some cases worked better, some cases didn't work as well. And now we'll take the best of what TiVo does and their Time Warp patent with some of the things we learned in some of our intellectual property. And I think we, without question, can put the best DVRs in the business out there going forward. And to the extent other people don't license from TiVo and don't use that Time Warp technology, I think we would have a significant advantage.

What about TiVo's software? Would you consider using their software in your boxes for user interface?

I guess I'd say it this way. I think the lines of communication are open with TiVo. Tom already owes me dinner. He owes me about a $600 million dinner. That's before the tip. I think TiVo has a very good operating system. I like their viewer measurement, I like their advertising model they do. And I think that it's up to their management, our management to come up with innovative ways and see if there are ways to work together. Because we've been through -- it was close. We actually signed this deal on Saturday so we actually signed a deal before we captured Bin Laden, which I didn't think -- it was a good race to see who got there first -- us and TiVo or Bin Laden. We got Bin Laden, so we beat them by a day and we're proud of that.

Ben Swinburne from Morgan Stanley.

Hi guys. It's Ben Swinburne. I wanted to ask about DirecTV's strategy to connect boxes to the internet, Charlie, if you think that's something that makes sense for your business if you're doing it today, and if you do think that's something you want to do over the next couple years, as you size up the financial capacity or financial obligation that would require and how you would get a return on that.

Yes, I think DirecTV's overall strategy is, obviously, excellent. They're the gold standard in terms of this business today. And I think that we share their thoughts that hooking up customers to the internet to broadband access is important. We haven't articulated our goals externally to the market yet but I think we see it the same way that they do as far as the strategy. Tom, do you want to add something to that?

Yes, Ben. This is Tom. About a we're ago we started emphasizing connectivity throughout our service and installation workforce. And we're seeing those numbers rise nicely. Every installation, every service call, every upgrade, when we're in someone's home we're looking for the opportunity to connect those boxes. Concurrently we launched IP delivered movie service late last year and we're seeing a nice uptick there in terms of not only the number of unique subs who are accessing it every month but the number of sessions per month is growing rather quickly month over month. So still in the early stages of this but we understand that some IP delivered content will be necessary to complement the traditional satellite delivered pay TV service. And it creates more of a stickier customer, as well.

And Tom -- that's helpful -- can you just give us a sense for what fleet of boxes or what percentage of your gross customers are coming on that are being connected, just so we can think about the ramp?

The VIP series boxes, of which there are many millions in the field, unfortunately, Ben, if I could turn back the clock I would have been connecting these 4 years ago. But we weren't as focused on connecting them, even though they were ethernet capable. So we have that opportunity to catch up. And in terms of percentage of new installations, it correlates with the DVR deployments. And so the numbers, the opportunity is rather large in terms of getting the base connected. But I think it's still, I don't want to overstate it, we're still a ways from getting to 20% of our base.

And this is Charlie. Realize that a lot of our base is more rural and we don't really have the opportunity to hook them up to broadband yet. The last places that are going to be built out for broadband are going to b e rural America. So on its best day, you're not talking about the vast majority of our customers hooked up to internet. For a while.

Just on the DBSD, I wanted just a point of clarification and then a question. The $1.4 billion is for the equity and then there's another $325 million as part of the support agreement. Is that the total cash outlay for DISH?

Yes, you're correct that the DBSD was worth at least that or more, but the actual payment is, I think -- and I'm going to get this wrong a little bit so someone correct me -- I think it's about $1.1 billion for the debt and about $300 million for the equity. I think maybe $325 million for the equity. And then something in the neighborhood of $1 billion to $1.1 billion for the debt. And I think there's still an outstanding amount to Sprint as we go through their conversion costs. They're claiming $100 million. I think we think it's materially less than that.

I was looking at page 9 of the Q. It talks about the restructuring support agreement $325 million in consideration, $290 million will be creditable against the amounts payable to ICO.

That's the equity. And we own some of the debt ourselves, so.

Right. And presumably none of that has gone out yet. That's all post March 31, right?

Do you know? March 31? Some of that had gone out by March 31.

This is Robert. A little bit less than $250 million had gone out as of the balance sheet date on March 31.

Okay, thank you. And then, Charlie, just on the investment opportunity, going back to your Seinfeld point, there was a script there and they were all planning to tie it up at the end. And I just wanted to get a sense for whether or not there is a broad strategy to bring all these assets together. Or are you looking at this as a portfolio of investments where they could fit together but even if they don't, the risk/reward on these investment still looks pretty attractive to you? And if you end up selling some or parsing them out with partners? Just a little more clarity there would be helpful, given all the moving pieces.

Yes, I think it's the former. I think we know, as we said in the last call, I think we know where we want to go. And each of these assets is important. And each of these assets are going to open other doors for us of opportunity. Having said that, I've also been around long enough to know that every time you acquire something, it doesn't always work out. I remember we got into StarBand which was satellite broadband, and it didn't work out. I think we wrote off $100 million, it didn't work out. And I think the trick is to realize when you made a mistake and move on. We're not emotional players so we're not going to fall in love with anything emotionally. But I like the asset portfolio. I love the 14 million subscribers we have in the satellite assets but I like the other assets we put together. And I think we definitely have a plan of where we would like to go.

But there's always events that happen. I think, for example, AT&T/T-Mobile -- that announcement totally rearranged, potentially, strategies across the globe for people. And obviously, when you have major events like that, it could affect your strategy. On the other hand, if one anticipates events that are likely to happen, then you look pretty smart that you anticipated things that might happen, and you were positioned for things that might happen when they actually happened.

Yes, it just seems like a lot of the outcome or opportunity for you with DBSD will depend on the FCC transfer and any conditions around there. You mentioned LightSquared and their waiver. Are there any things on the --?

Let me speak to that point, and maybe Stanton. But I don't think there will be any conditions on the DBSD transfer. They've already perfected their license. So this is acquisition that's out of a company out of bankruptcy that we think we can enhance a product for consumers but it does not require a buildout terrestrially. They already cover every square inch of the United States with the signal. It's up to us to create the product that people are willing to pay for that utilizes their satellite assets today. We're primarily a satellite company so I don't want to give the impression that we're this terrestrial company that's going to build out a bunch of terrestrial stuff that we don't understand. So I don't expect there will be conditions on that acquisition.

Okay. So you think you can make a return on the investment without a terrestrial component effectively?

That's correct. I could be wrong, but I think we can.

We've actually made it through the whole call and no one has asked about stock buybacks so I think I have to go down that path. But since the stock is up 50% this year, is it safe to assume you weren't a buyer at whatever it was, $18, looking at the stock today versus your opportunity? You just raised some more money today, as well. Interest rates are low. Any comment on your capital allocation or maybe just capital structure thoughts?

I think the TiVo overhang was important in our thought process, to settle that. The way we look at it -- again, I've said this about every call -- we'll look at our opportunity as management and our first priority is to grow our business, grow our business with the capital. if we can't come up with good ways to grow the business, I think stock buybacks probably are a good second choice. And if not that, dividend, you look at dividends. Again, the tax law today is favorable to dividends but might not be so favorable a year or two from now. So we take all those things into consideration. We knew our stock was materially undervalued but we knew there was some assets out there that we wanted. And we had to have our powder dry to go after those assets. And so we couldn't do both, or didn't feel like we could do both, and we didn't know exactly which assets would be available at what price. So I think we're pretty happy the way it turned out. Obviously, you can grow your stock price by buying your stock back. You can grow your stock price by making smart investments and acquisitions and investments into your business. And I think that's the route we've chosen because we've, I think, come up with good ways to spend the money. But time will tell.

But it sounds like with TiVo behind you, maybe the thought process may be evolving.

I think one of the analysts correctly pointed out, had we lost the design-around question, then we would have had to turn off all of our DVRs and would not have been able to sell any DVRs. And while we were highly confident that we were on the right side of the law, and that if you got 12 judges to listen to us that they would, more than likely get a majority of them to agree we're on the right side of the law, that was a risk. That was pretty risky. There was a low chance that that was a bad outcome, certainly something that we weren't prepared to take on.

Operator, we need to wrap up the call.

Again, just so you know, I probably am not on the next call in August. That's usually when I have a personal time with my family. So depending on the date, don't be surprised. This wonderful management team carried us on its own and hopefully Mr. Kelly has lots to tell us about Blockbuster. So we'll talk to you then.

This concludes today's conference call. You may now disconnect.