DISH Network Corp (DISH) 2013 Q4 法說會逐字稿

Good morning and good afternoon. My name is Candace and I will be your conference operator today. At this time, I would like to welcome everyone to the DISH Network Corporation Q4 and Year End 2013 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

After our speakers' remarks, there will be a question and answer session. (Operator Instructions) Thank you. Mr. Jason Kiser, you may begin your conference.

Thanks, Candace. Thanks for joining us, everybody. My name is Jason Kiser I'm the Treasurer here at DISH Network, joined today by Charlie Ergen, our Chairman, Joe Clayton, our CEO, Tom Cullen, EVP of Corporate Development, Bernie Han, who's dialing in for the call as our COO, we've got Dave Shull, Chief Commercial Officer, Robert Olson, our CFO, Paul Orban, our Controller, and Stanton Dodge, our General Counsel.

We've got a full house here today. Before we open it up for some Q&A, we do need to do our Safe Harbor disclosures. For that, we will turn it over to Stanton.

Thanks, Jason, and good morning, everyone. Thank you for joining us. We ask that media representatives 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 future results expressed or implied by such forward-looking statements. For a list of those factors, please refer to the front of our 10-K.

All cautionary statements that we make during this call should be understood as being applicable to any forward-looking statements we make wherever they appear. You should consider carefully the risks described in our reports and should not place undue reliance on any forward-looking statements, which we assume no responsibility of updating. With that out of the way, I'll turn it over to Joe.

Thanks, Stanton. Good afternoon to those of you on the East Coast and good morning to our West Coast participants. Today, I'll discuss our most recent transaction. I'll also review some of the key highlights from the 2014 CES show, where DISH was once again front and center in terms of the press, the public, our distribution and programming partners.

Finally, I'll cover our commercial and operational performance for the fourth quarter. Charlie and Tom Cullen are also here with us to take your questions on our spectrum status a little later. I want to start today with the EchoStar transaction that we recently completed and was mentioned in our 10-K. Since the DISH/EchoStar spinoff in 2008, DISH has expanded its direct to consumer business.

To further enhance that core competency, DISH has agreed to transfer to EchoStar and to lease back capacity on five of its own satellites. In exchange, DISH will receive a preferred tracking stock that represents an 80% economic interest in the HughesNet retail consumer satellite broadband business. As of year end, HughesNet had approximately 600,000 retail subscribers.

This move significantly increases our interest in the expanding satellite broadband market and it is also a natural extension of the investment that we've already made in our own DISHNet business. Stated very simply, we've agreed to transfer and to lease back capacity on five satellites that were already being operated for us by EchoStar. Now, in exchange, we received a major stake in an established business in the growing satellite broadband market.

Later, Robert will briefly describe the P&L impact of this transaction. Moving on, at the CES show last month, we continued to expand our technology superiority to better serve the needs of the American consumer. We're forcing all the other pay-TV providers to play catch-up and at DISH, we just keep setting the bar higher, as part of our never-ending goal to provide our customers with simply the best video experience, period.

As usual, our new product introductions received numerous awards. First, the new Super Joey, when paired with our consumer friendly Hopper, now provides a consumer the ability to record up to eight programs; that's right, up to eight programs at one time. This basically eliminates channel conflict.

The Super Joey received the prestigious CES 2014 Editors' Choice Award from review.com; a division of USA Today. Again this year, with a little less controversy, the Best of CES Award in the video category went to our Virtual Joey product. This provides a customer the ability to directly connect with a Hopper to access live and recorded TV in other rooms of the home, using a Sony PlayStation 3 or 4 or an LG Electronics Smart TV.

No extra Joey is required, so there is less set top box clutter in the home. Finally, our new Wireless Joey eliminates the need to hook up your Joey to a coax cable connection, so now the Hopper with Sling Service can be expanded into the hard to get to places in the home: the garage, patio, bathroom, kitchen. DISH is, indeed, available anywhere.

This revolutionary product helps resolve the cable clutter found in American homes today and it gives consumers a choice of where they can watch TV. In addition to these significant product introductions, we also enhanced our consumer usability by adding new content discovery and search features such as voice activation, recommendation capability, and faster processing speeds. Lastly, we announced the expansion of our Southwest Airlines partnership and the continuing association with Apple.

We will continue to provide qualifying customers a free iPad when they purchase our Hopper with Sling product and an appropriate programming package. Finally, we implemented our price increase on January 17, which became effective with February 2 bills. Onto the fourth quarter performance, we faced fierce pricing pressures, aggressive promotions, a weak economy, local retransmission channel takedowns, and new video providers in the fourth quarter.

In fact, the competitive environment may have been the toughest quarter of the year as all the pay-TV providers scrambled to attain their year-end goals. Despite the headwinds, we gained approximately 60,000 customers. This includes 8,000 new subscribers in our pay-TV business, which is roughly on par with last year's fourth quarter, and this takes our pay-TV customer base to 14,057,000.

Our broadband satellite business continued to expand as we added over 50,000 new DISHNet subscribers. This improves our customer count to 436,000 at year-end. In total, we continued to grow our base of high-value customers and to increase the percentage of customers with HD, DVR, and IP connections. We were also pleased that our churn results came in at 1.53% for the quarter. Now, to provide you all with additional details on our financial performance, here's our CFO, Robert Olson.

Thank you. As Joe noted, we had solid subscriber results in the fourth quarter. Pay-TV activations and churn tracked closely with last year, while broadband activations increased significantly year-over-year in the fourth quarter. For the full year 2013, DISH pay-TV subscribers were flat, which was consistent with the overall industry; however, our broadband business grew by more than 250,000 subscribers.

We expect the broadband business to continue to grow in 2014. Our full-year financial results and the prior-year results include our Blockbuster operations recast for discontinued operations. As of December 31, Blockbuster had ceased all material operations. Total revenue grew by 5.5% in 2013 compared to 2012 and increased by 6.6% year-over-year in the fourth quarter.

This growth was due to a combination of increased pay-TV ARPU and increased broadband revenue. Pay-TV ARPU was up 4.9% year-over-year in the fourth quarter with fairly flat to the third quarter. As discussed in our last earnings call, we benefited from strong pay-per-view revenue in the third quarter. On a quarter-over-quarter basis, this headwind was offset by normal seasonal improvements in advertising revenue.

Broadband revenue was up $43 million year-over-year in the fourth quarter. Subscriber weighted expenses increased by 7.8% in 2013 versus 2012 and was up by roughly the same percentage year-over-year in the fourth quarter. This increase was largely driven by higher programming expenses. The programming expense increase was due to contractual rate increases and was consistent with the trends we have seen during the last few years.

In addition, our growing broadband business accounted for slightly over 1 percentage point of the year-over-year increases for both the fourth quarter and full year. Pay-TV stack for 2013 was $866 per activation; an increase of 10.5% versus 2012. The increase was largely due to capital expenses and advertising expenses associated with our Hopper receiver systems.

Pay-TV stack was up slightly in fourth quarter compared to the third quarter, due to increased advertising spending per activation. Administrative expenses in 2013 were up 7.6% year-over-year, driven largely by M&A activity in our wireless segment and growth in our broadband subscriber base. Depreciation and amortization expenses were up 9.3% year-over-year in 2013; primarily due to the growing base of Hopper receiver systems.

Our overall operating income in both years was impacted by one-time items, including the Voom settlement in 2012 and the impairment of the T-2 and [V-1] satellites in 2013. Other income improved by $52 million in 2013 compared to 2012, a increased interest expense associated with higher debt levels was more than offset by gains on equity and debt sales plus realized and unrealized gains on derivative financial instruments.

We recognized $166 million of these net gains in fourth quarter, largely driven by the sale of Clearwire debt and by the appreciation of our derivative financial instruments. Net income attributable to DISH Network was up 26.8% for the full-year. This same metric was up 37.7% year-over-year in the fourth quarter. Both periods were impacted by one-time items. Our adjusted free cash flow for the full year 2013 was slightly over $1 billion.

Finally, as Joe described, we reached agreement with EchoStar this week for a transaction in which we will transfer five of our own satellites plus $11 million in cash in exchange for two series of preferred tracking stocks that represent an 80% economic interest in the Hughes retail broadband business. As part of this transaction, we will lease back certain capacity on these five satellites.

Joe described the strategic rationale and I will briefly describe the financial impacts. Since these agreements are among entities under common control, we will record the tracking stocks at their historical cost basis. Any difference between the cost basis and the net carrying value of the five satellites will be recorded as a capital transaction in additional paid-in capital on our balance sheet.

Our economic share of the Hughes retail broadband business going forward will be accounted for on a cost basis. This means that unless we receive dividends or impair these assets, this tracking stock will have no short term effect on DISH's income statement. On the other hand, the change in ownership for the five satellites will drive changes in satellite lease expense and depreciation starting March 1.

In 2014, we anticipate roughly $148 million of incremental satellite lease expenses, partially offset by approximately $40 million less depreciation expense. The monthly run rate for lease expenses will gradually decline during the next several years, as specific satellites reach the end of their lease terms. Let me now turn it back to Joe before we start Q&A.

Thanks, Robert. In summary, we continue to grow our high-value customers and to increase revenue while making the strategic investments for our future. Thanks for joining us today for our fourth quarter earnings call. Now we'll open it up to your questions. We'll start with questions from the financial analysts. When we are finished with those, we'll open up the line for questions from the media.

(Operator Instructions) Ben Swinburne, Morgan Stanley.

Coming back to the transaction with SATS, I'm curious what is in place around change in control if, in fact, SATS were to be acquired, how does the tracking equity get dealt with one way or the other and what kind of valuation approach is taken? Robert, just to clarify, you said there's no impact on the income statement. You're talking about from the equity pickup on the investment. Obviously, it's going to hit earnings a touch with the satellite lease expense and the depreciation, right?

Ben, that's right. The satellite lease expense that I mentioned and the depreciation will hit the income statement, but from the tracking stock alone. Unless there's an impairment or a dividend, it won't hit the income statement.

Okay. Anything on the change of control side?

Once again, there are change of control provisions. We usually don't disclose that, but there are change of control provisions in the agreement between us and EchoStar.

Okay. As we think about trying to value this on a go-forward basis, is there a meaningful difference in the contribution margin in a customer at DISHNet and the new or go-forward Hughes retail business? Are they similar in terms of the economic cash flow each sub generates?

Ben, this is Robert again. That's correct. They are similar in their economic model so as you value that, you can look at our DISHNet business and assess that.

Got you. Obviously, major transaction in the industry with Comcast Time Warner Cable. What's the DISH perspective on that transaction? Where are you focused in terms of program access or net neutrality? Do think there's something that the government needs to do here with this deal to address some competitive concerns you have?

Ben, this is Tom. Naturally, when our largest competitor expects to expand its homes past footprint by over 55%, it's extremely concerning. That being said, it's only been a week since the announcement, so Management's still assessing the proposed merger's potential impact and our options. We'll be discussing the implications of that with our Board in the near future.

All right. Thank you.

Doug Mitchelson, Deutsche Bank.

On the SATS deal, so we can understand the economics better, I can understand why SATS would want to do this, they get an income stream immediately from DISH. I'm not quite sure I understand the benefit to DISH just owning a portion of the Hughes satellite business. Is there a value on this deal on the stock $0.5 billion or so? Something that would make sense of the lease back? Why didn't you send EchoStar 15 and assign 18 to SATS as well as part of this?

Doug, it's Tom. We look at the satellite broadband business as a long-term opportunity. The equity position that we've taken in their retail group, it's aligned with the value that DISH has created over time is based on subscription-based consumer economics and we believe in that business and we think there's long-term benefit there.

As far as the transfer of the specific satellites, I think on the other ones that you referenced, there's still tax benefit for DISH to gain from continuing to hold the latter satellites that you referenced.

Part of trying to understand the deal better and the rationale behind the deal is, really, this is still going to be a business that resides within SATS and Hughes, something that DISH doesn't have any legal or operating control over, other than a common Chairman, correct?

Yes. The wholesale business and the retail business both continue to be controlled, the Hughes retail business continues to be controlled by EchoStar. DISH simply has an economic interest in that retail consumer base and the economics associated with it.

Did you extend or what's the length of the wholesale agreement between DISH and SATS around selling broadband?

Doug, this is Robert. We did extend that agreement for 10 years past the date of the agreement, so to March 2024.

One more for Tom or Charlie, just an update on strategy around uplink spectrum: in particular, what happens if DISH doesn't end up with LightSquared? Is there any sort of, Tom, from your angle, update on standards approval process or vendor negotiations? That would be helpful. Thank you.

Doug, as for LightSquared, the bid for a portion of LightSquared assets, which was proposed by a subsidiary of DISH, that bid included specific milestone dates. As the bankruptcy process was extended beyond the final date in that proposal, the bid expired on its own terms and we've decided not to pursue it any further. As I hope you can understand, I can't comment beyond that, due to ongoing litigation.

As for uplink spectrum, as you know, AWS-3 includes some uplink spectrum, as well as some paired spectrum. Those are frequency bands that are of interest to us. But we'll wait to see how the FCC rules come out to see if the rules are favorable for us but clearly, it's an auction that is planned for later this year and we're going to be watching it closely.

Tom, anything in terms of timing on standards approvals? It's a process that's under way, can you remind us how much longer before we could expect a new set of standards for the spectrum you own?

We have approval on the band for AWS-4. As you know, in a current uplink/downlink configuration, as you know based on the agreement we reached with the FCC in September, we now have flexibility for a period of time to convert uplink to downlink. That would require another phase with 3GPP.

However, Doug, we're really waiting to see what the totality of our spectrum position is, which again, may be influenced by upcoming auctions and including the H-Block auction, which is ongoing right now. Once we have a firmer grasp of the totality of our spectrum position, we think that's the best time to go in and finalize standards bands, as well, as you mentioned, antenna design and negotiations with vendors.

Right. Exactly what I was looking for. Thank you.

Walter Piecyk, BTIG.

Tom, when you're talking about the totality of the spectrum, is that something that you anticipate would occur after AWS-3 auction or could that timeline extend beyond that? Obviously, you have a lot of time to decide what you're going to do on the downlink.

Yes. It's a little premature to forecast that, Walt, but clearly, the two auctions that are being conducted this year will influence our thinking on that.

Okay. The rights that EchoStar got on the T-2 satellite seems to give them some synergies with the Solaris acquisition and obviously, any other assets opportunities in Europe. Those seem to be more spectrum plays. Why would it make sense to let T-2 go? Why was Solaris done at [SATS] as opposed to explore maybe some global spectrum opportunities within the DISH umbrella?

One, most of that is a SATS question, but when we spun SATS in 2008 from DISH, international opportunities were earmarked as primarily a SATS initiative, first of all. Secondly, they made the investment in Solaris and they're doing what they can to clarify that position with each of the member states and the EU. As for the sale of the T-2 satellite, it wasn't a satellite that we had use for and there's not a large market for those types of satellites and so when they expressed interest, we evaluated it and think we were fairly compensated for it.

Okay. To the extent that it's obviously not even speculated anymore, I think Tom Wheeler, yesterday, said that Sprint and T-Mobile came to him talking about a potential transaction. To the extent that those companies are considering a transaction, would you ever envision that it would be in the best interest of the Company to ever just end up being a wholesaler of someone else's network or do you think that owning the network is important to running your business?

I'll let Charlie expand if he wants to, but I think, as we've said in the past, we haven't ruled out anything and we enjoy the position that we're in now of having optionality. We can't really comment on how the rest of industry landscape is going to change in the interim.

This is Charlie. I think you guys have known us a long time. I think we look at each investment from an economic point of view for our shareholders. From a spectrum position, we've committed to the H-Block auction about $1.5 billion. We should end up, in theory, with a little over $5 billion investment spectrum and have about 50 megahertz of potentially downlink spectrum.

The world has changed in a way that we thought it might. While we've been in the spectrum acquisition in the sense that nationwide, continuous blocks of 20 megahertz are the beachfront property of spectrum. A mid-band spectrum like our S-band is a good cross between propagation and capacity. That $5 million has gone into an asset that is strategic for us in a number of ways and enhances, potentially, our video business around the country.

That same $5 billion, we could have spent it growing our DISH video subscriber business. We certainly could have probably grown our subscriber base by 5 million customers if we spent another $5 billion to do that. But we don't think those extra 5 million customers would have the value strategically or from a shareholder value perspective.

We chose to spend money in spectrum and of course, as Tom said, there's future auctions coming up, including the one he didn't mention, that we will potentially have interesting, which is the 600 megahertz auction, which is perhaps a couple years away. We also could have spent that money in a number of ways. But when we looked at the return on that investment from a strategic and economic shareholder value, we could have bought back our stock, as an example.

We could have paid another dividend. We look at those things every day, almost, to think about and we've been focused on about the same conclusion for the last five years. Absent tax law change, where we paid some dividends to our shareholders, we've gone out and made that investment. We think that's a good investment. We think it's yet to be seen.

You can put your own number on spectrum, but I think some analysts have started to correctly point out that downlink spectrum is materially more valuable than uplink spectrum. The reason is, people use downlink spectrum as much as 10 times more than they used uplink spectrum. Obviously, when you look at it, we have as much downlink spectrum, potentially, as everybody besides Sprint; other than Sprint.

That's pretty interesting, from our perspective. Second, spectrum in 20 megahertz blocks is more valuable than spectrums in 10 megahertz blocks. Third, spectrum is nationwide and the same frequency band is more valuable than spectrum when its chopped up. When you can have AWS-4 spectrum nationwide, you're not chopped up to PCS-1 and PWS-1 and AWS and all the different bands.

I think to some extent, the spectrum is virgin spectrum, so as technology changes, as an example, the way you might build your network today, you might be more cloud-based. You might have less hardware and smarts at the tower, so it costs less to build out your tower and you're more flexible in how you can build your network. We can take advantage of those technological changes and in fact, perhaps G-5 makes more sense than where it is today.

We all know that, when you upgrade your capacity, that you have to be backward compatible and you have to continue -- we still have networks that are running 2G and Edge and GPS, RS and that capacity can't get freed up until you wean people off those networks, which takes years and years and years and then you have to run those networks at somewhat an uneconomical way. We think we're well-positioned. We have options.

Obviously, it's a long-winded answer, but obviously, the Time Warner Comcast potential transaction will shift this industry in a way that concentrates most broadband in a nationwide player, video in another nationwide player, content with over 30 million subscribers owned by a Company. That's going to send a seismic shift across our industry in ways that maybe we can't predict today, because it ultimately will depend on where that goes from a regulatory point of view.

But certainly, we are a Company that has options and it's our job as management to look at that strategically for the Company and for ultimately, the economic benefit of our shareholders and for our consumers and for our employees and I like where we are.

Okay. Thank you.

Phil Cusick, JPMorgan.

Thanks, Charlie, that was helpful. Tom, can you explain -- maybe I'm a little naive here, but the late technical issue that you found with LightSquared that had you pulling back? Robert, again, maybe I just don't really understand this, but can you talk about the economic impact of the SATS transaction? Will you be consolidating the full consumer subscriber base there? How do we think about that? Thank you.

Phil, this is Tom. I can't comment on any of the LightSquared diligence process or anything beyond what I've already said, due to the ongoing litigation.

Thanks.

Phil, this is Robert. With regard to the tracking stock, that'll be still on the EchoStar side. They will do the financials. What I mentioned, the only impacts that we'll see on our income statement will be if they declare a dividend or we decide that we should impair those assets. Otherwise (inaudible - multiple speakers) because we will have lease expense and then less depreciation.

This is Charlie. I may have missed this because I was out doing the auction, but there is another impact. The transaction does lower our EBITDA short term.

That's right.

I assume you mentioned that.

We have $148 million of satellite lease expense and $40 million less depreciation. But $148 million of lease expense would lower our EBITDA.

Short-term, there's a hit to EBITDA for those who analyze EBITDA and value on some multiple that's a kind of analysis you're doing, that will have an impact.

Sorry. You did say it clearly. I got confused later. Thanks, guys.

Marci Ryvicker, Wells Fargo.

First, Charlie, you just said downlink is more valuable than uplink. What would you say the ratio is here? We've heard a range between 2 to 1 and 9 to 1. Just curious where you come out?

I think it's probably in that range. I think it's clearly more than 2 to 1 and I don't know if it's 9 to 1. The carriers themselves will be better people to ask because they've got real data. But most of the data that I'm looking at today is at least 5 to 1, in terms of usage, in a generalized fashion.

I think the key will be where the trends are going. Are people continuing to request more information? Video is probably the biggest data growth area and that tends to be one way downlink. You could make the case that the trend continues for more downlink.

Okay.

But there are people that have real numbers, but I feel safe in saying that if you're going to be a wireless carrier or if you're a wireless carrier in the United States today, one of your problems is that you are paired up with downlink and uplink spectrum. The way that the market's evolved over time and where it looks like it's going, you need more downlink than uplink.

Okay. Robert, is there, with the transfer of the satellite to EchoStar, is there any impact on CapEx?

Marci, no. There wouldn't be any CapEx impact. As I mentioned in my talking notes, any difference between the historical cost basis and the value of the satellites would just be recorded as additional paid in capital, but there will be no CapEx impact.

Okay. Joe, you mentioned that the fourth quarter was the most competitive of the year. Did you feel this disproportionately from any particular provider? We saw some of the numbers. Comcast and I think DirecTV did pretty well. The telcos didn't. Is that something that you saw, as well?

We were facing the Sunday Ticket free program from DirecTV. Comcast was very aggressive on the video side, basically packaging with their broadband. Yes, we did see the pressure from both those companies.

Got it. Thank you.

James Ratcliffe, Buckingham Research.

First of all, regarding the Hughes residential business, what was the rationale for buying 80% of it rather than putting in another $150 million, $200 million cash and just buying it all? Second, can you update us on your thoughts on over-the-top delivery and if you think there's a role to play for the over-the-top service serving customers who potentially couldn't, for one reason or another, get access to the satellite-based service? Thanks.

James, this is Robert. With regard to the 80%, we and EchoStar both discounted cash flow valuation of the assets we were bringing to the exchange and 80% was indeed the right number, if you look at the value of the five satellites. Also, among other reasons, the agreement was set up to be a tax efficient transfer. The other question regarding --

This is Charlie on OTT. I think that the OTT is probably going to bring in -- first of all, it's going to happen in many forms and fashions. In fact, OTT is already here for a lot of subscribers today: Netflix, Hulu, Amazon and it's going to continue to expand because the technology can, in some ways, give you a better customer experience.

You certainly can give a customer who can't afford $100 a month potential experience. From a programmer point of view, I think they have to be interested in that to make sure that they're maximizing their revenue. It also is going to bring an unlimited number of competitors into the marketplace because virtually anybody can start up an OTT service.

From our perspective, we have to, as Joe mentioned, we have to be able to give the consumer the best experience, that video experience, and of course, we know that's inside your home looking at a big TV. We know that's inside your home looking at a tablet or phone. We know it looks like outside your home.

We put together the assets and technology that allows us to give you a great consumer experience in all those metrics. Part of our wireless strategy could play into that because obviously, when you're outside the home, in many instances, the only way you can get video is in a wireless environment and you can't always count on Wi-Fi to do that for you.

We will continue to look at it. Programmers have been fairly reluctant to transition. But obviously, a number of programmers and content owners are looking at that and coming up -- and they're each going to have maybe a different strategy and we're open to talking to all of them about things that work for both our companies. We'll continue to do it, but there's nothing imminent about a nationwide OTT service that I can see based on where programmers are today. But when they're ready, we'll be ready.

If you wanted to rollout the existing video package you offer but deliver purely by broadband rather than satellite, do your programming agreements allow you to do that or are they platform-restricted?

This is Charlie. All of our programming agreements are different. I would say, in general, some of those rights exist today, some of those rights don't exist.

Great. Thank you.

Jason Bazinet, Citi.

I've got a little bit of cognitive dissonance so maybe you guys can help me out. DISH, your stock is up 5% or something, EchoStar is down 7%. Both of you have said on your calls that there will be no impact to the income statement as a result of the EchoStar DISH transaction that you announced.

If you were in our shoes and made a living trying to figure out which way stocks are going to move based on financial numbers that are reported, what guidance would you give us to try and figure out: A, whether this was a good deal over time? I understand it was an even transfer, according to your DCF. But over time, if nothing changes, how would you suggest we, the buy side or the sell side try and figure this out in terms of how much value's added over time?

But this is Charlie. I think that you should look at it the same way that EchoStar and DISH looked at it. The DISH Board independent committee looked at that and said this is positive for DISH long-term. The EchoStar Board looked at it separately and said, this is positive for EchoStar. In other words, it's a win-win situation in terms of the transaction. I would say the market probably has it wrong on EchoStar side today, but only time will tell.

If the numbers you just give me -- in other words, I would look at that as an investor, personally, that this is a positive. If that was the only thing I was looking at, that this is a positive transaction for both companies and it's a lot of strategic reasons why that is and a lot of time went into this.

Probably too detailed to try to explain, but I think you have to give the Management and the Board members credit that they're making good decisions for their shareholders and that neither one of them would do something that was negative for their shareholders knowingly. I look at it as a positive transaction for both of them and gets them more aligned in the business units that they're in and focused on.

Jason, this is Robert. I just wanted to clarify one thing you said which is, as we discussed, this will have an impact on DISH's EBITDA in the short term because --

I understand. Yes. The satellite lease stuff is so straightforward. I think where everyone's struggling is this wholesale retail change that's happening on the broadband side, the transponder station.

This is Charlie. I think people maybe on EchoStar side don't understand -- the wholesale side of the business and the satellites remain at the EchoStar side. There are very good economics on the wholesale side. There's good economics on the retail side, too, but the retail side has SAC so you're investing in the customer.

You don't have that issue on wholesale side. If your business is building and launching and satellites and you primarily deal with engineers and big companies and wholesale agreements and you can take your capital and build more satellites and where you're probably the leader in the world in satellite broadband and you can build more satellites around the world because you free up cash flow that you're not spending on SAC.

That can make a lot of sense from an EchoStar perspective. From a DISH perspective, if you're already dealing with consumers and you have a rural focus and your roots are rural and you're always trying to enhance your products for rural America and you're already out talking to customers, perhaps customers who can't get broadband today, this makes a lot of sense to be more invested in the retail side of the business.

That's the general rationale. How that translates into the way analysts look at things who look just at numbers, I think you might see a distortion for a day or two until people probably -- maybe a quarter or two until people see why that makes logical sense from both companies' perspectives. But it truly is, in my opinion, a win-win situation.

Thank you very much.

Amy Young, Macquarie.

You have two trials for fixed wireless broadband: one with nTelos and one with Sprint. Can you talk just about what the experience has been for the consumer and the longer-term scalability of those ventures versus something like DISHNet?

This is Tom. The Sprint trial has not launched yet and the nTelos trial is still in the early stages. I will tell you that's driven by -- we're waiting for band-41 radios, which will allow for more bandwidth to be used to test the business model. While we're optimistic about it, until we get better results in terms of -- I shouldn't say better, more complete results once we have a chance to launch it more broadly, then we'll be able to ascertain the scalability of it.

This is Charlie. The other part of it that maybe is not evident, but is important, is that with our betting that fixed broadband in smaller communities is going to make economic sense, in part because a lot of people aren't -- that's not where the big guys are going, that's probably not where Comcast and Time Warner are going. But you can build a tower and cover people pretty economically.

One of the advantages in the tracking stock transaction that we did with EchoStar is that, as you already are going to customers for satellite broadband, to the extent that those customers are in your footprint on the tower, that's going to be a better experience than satellite. As the consumer, you'd like to have fiber to the home or coax to the home like cable does. That'd be your first choice. Second choice would probably be fixed wireless. Third choice would be satellite broadband.

From an economic and a customer, in terms of the speed and latency and amount of data throughput as a customer can get, that's the way it stack ranks. As you get more rural, the only economical -- if you get really rural, the only economic way is satellite. But there's an interim step where fixed broadband makes a lot of sense.

Then obviously, for the vast majority of densely populated high income homes, a cable of some sort of makes sense. We're just preparing ourselves. We're making an investment in customers who we already have, which tend to be more rural and in technologies where the big guys aren't going.

I don't see Google fiber fibering up Pueblo, Colorado. They're going to Austin, Texas. There's a reason. Pueblo's not as economic. Fixed broadband may make sense in Pueblo, Colorado. There's a strategy here. There's a method to our madness. It's more encompassing than just the trials. But we've got to prove it to ourselves because once you prove the model, you can expand on the model.

But we haven't proven the model yet because we're right in the midst of a technology change. Sprint's talked a lot about their technology change and how they're upgrading their network. That also affects how we do broadband.

Great. Thank you.

Craig Moffett, Moffett Nathanson.

You have, with your MVDDS spectrum, I think some buildout requirements for this year, if I'm not mistaken. I'm wondering if you could update us with your thinking on that? A more industry level question, Charlie, can you talk about your views of usage-based pricing?

As you think about entering the wireless broadband business, for obvious reasons, you would imagine that it would probably be hard to sell that product to consumers with limitations on usage. But as a network operator of a sort, I can imagine you philosophically being aligned with the idea of trying to charge for consumption and transport. I was wondering if I could hear your thoughts about the idea of charging for consumption for broadband.

Okay. On the MVDDS, strategically, we think that those frequencies which are mirror images of our satellite DBS frequencies, but they're terrestrially-based. We think that is a critical strategic component of where we'd like to go with backhaul for our wireless networks and so we think it's strategically important to us. We have been doing testing on that and we'll be, obviously, working with the regulatory agencies on the timing of when we can do that and for extensions of time on those licenses.

On the usage, I'd say it a probably different way. I think the way we approach everything that we do is, in a wireless side, we will try to build the most economical network so that the cost of transporting a bit to you, whether it be video via satellite or whether it be in a wireless basis, we bring the cost of that down by making the ecosystem make sense, in terms of more balance between uplink and downlink, having the right frequencies, using the right technology on towers, getting the most economical use of backhaul, so that when you ultimately get it as a consumer, our cost is less than our competition.

Therefore, we can give you a better experience at a lower cost. That's how we approach it. The economics of a customer who uses 100 gigs of data versus a customer who uses 2 gigs of data a month is different and I think that most economic animals would say there's going to be a difference in price for those two guys.

Having said that, other people may have high fixed costs in their network and their network may not be fully utilized. So you may see things like T-Mobile's been able to do because of that where they might give those customers exactly the same price. I think it depends on a lot of different factors as to how you might go about how you might look at it.

But I think the key thing is that the thing that will ultimately drive innovation and will drive the best consumer experience will be competition. As long as you've got robust competition, it'll find the right level. We look at it and say, if it finds the right level, we better be very efficient the way we do it. I would be hesitant to go invest in copper broadband because that's not going to be as efficient as wireless or it's not going to be as efficient as fiber or fiber to the curb.

You have to look at long-term wireless today, it might make sense economically, but long-term that's probably not where I would personally go. That's how we look at it. It's going to be driven, hopefully, by competition and the best man will win or best woman or best company.

You just mentioned wireline and it triggered for me one of your more memorable comments about the pay-TV business might be on a trajectory to look something like wireline telecom. Can you just update us on your thoughts there and you talked about your kids thought you were crazy to be in the pay-TV business? Have those views evolved over the last couple years or have they just been underscored by developments?

I think we talked about this about five years ago. We said when we invest $800 in a customer and you make $2,000, that's a pretty easy investment, but when you invest $800 in a customer and you make $900, maybe you should and customer only worth (inaudible) maybe should look at their investments. I think that's become pretty clear to people or maybe will become clear to people.

It became clear to us a long time ago. In my opinion, the video business for a monthly subscription of $80 to $100 a month is a mature business. We're losing a whole generation of individuals who aren't going to buy into that model because they only want one particular show or they want to watch the show wherever they can or they want to watch it on their schedule and so that generation is not signing up to satellite or cable or phone video today.

Obviously, you'd like to have your cake and eat it too and make sure that you come up with products that you can engage that new generation. As the older generation declines, then you're going to have to figure out other ways to grow your business and that's why we've taken the track that we've taken. At some point in time, the video business, as we know it today, will change dramatically enough that the current business will go from a mature business to a declining business.

Hopefully, we'll make up for that and in an over-the-top business or a wireless business or other businesses that make sense. But we have fought the urge to sit on a conference call here and tell you we've got a bunch of uneconomical subs that you couldn't figure out were uneconomical, but we could.

That's why we've taken a little bit different approach than some of our competition; only because we're long-term equity holders and so we can afford to do that. I don't know whether we're right or not, but it's the best personal investment I know I can make based on the most sound logic strategy that I can think of and we could be wrong.

Very helpful. Thank you.

We haven't been shy about sharing that opinion, by the way. What Chairman gets on a conference call and says we're in a mature business? Everybody's talking about the future and all these things they're going to do and this and that, but they don't normally say their business is mature.

We've been saying it for five years. Quite frankly, looks like it hasn't gone into decline mode. I would have thought five years ago, we'd be in a decline mode now and that doesn't appear yet, although odds are, it's going to happen.

Bryan Kraft, Evercore.

Is anything changing in how EchoStar runs its retail broadband business or are you just getting share of the economics now? Is there any change in your satellite broadband economics aside from the equity participation? Charlie, what do you think the Comcast Time Warner Cable transaction means for potential DBS consolidation? Thank you.

Bryan, this is Robert. Nothing is changing in the way that EchoStar runs the Hughes retail business. They will continue to run it as they have. Our economics on the DISHNet business haven't changed. The only change is we extended our agreement with Hughes out till 2024.

On the second part of the question, I would say it certainly doesn't hurt the case for consolidation within the satellite providers. Obviously, if you take the number one and four providers and put them together, it would be hard to see why you couldn't put the number two and three providers together. In fact, the one and for provider going together, I think puts pressure on everybody in the video business and broadband business in a way that's a bit unprecedented.

I don't know how that shakes out and I don't think we've thought about it enough internally to understand how what the implications of that merger is, but there's nothing that I can see that's positive about it for anybody in the video or broadband or content business. You're in the video distribution business, the content business, or broadband business and your name is not Comcast and Time Warner, I don't see anything positive.

Okay. On the broadband side too, Robert, you talked about the satellite lease expense eventually or starting to come down as the satellites reach end-of-life. How long does it take for that satellite lease expense to bottom and normalize and any sense as to what level that is? Does it get back to, say, the fourth quarter '13 run rate as a normalized run rate?

Bryan, in our 10-K, we listed out the satellite lease commitments over the next several years and it stays fairly steady at a $15 million per month rate for the next couple years. Then after that, it starts declining.

Okay. Thank you.

Tuna Amobi, S&P Capital IQ.

Charlie, if I can stay on that DBS consolidation theme, Comcast and Time Warner Cable talked about not competing in any kind of market as a potential argument in favor of the deal. How would you react to the point that the number one and four, as you mentioned, I know you said it's not good for anyone else but them, but the number two and three do compete; you guys and DirecTV. In the context of a possible DISH/DirecTV merger, how would you respond to that?

First of all I think it's incorrect that Time Warner and Comcast don't compete. They certainly do. As an example, they compete for content. When they can combine and go buy content, they can go buy content cheaper than anybody else.

The best example would be retransmission consent where broadcasters have talked about taking the rates up, but no broadcaster could ever -- let me put it this way: if Time Warner was Comcast and Time Warner and taking down CBS, the outcome would have been exactly the opposite. CBS probably would have been paying them to keep it up as opposed to Time Warner paying CBS. DISH doesn't have that kind of scale.

We actually pay CBS and we send our check every month with a smile. But Comcast Time Warner won't have to send a check. You end up with that kind of stuff. There is a ton of competition between those people, so I think that's misleading for that. Obviously, the regulator's have a tough job because there's obviously, two regulatory bodies that will look at any transaction and justice will look at it with one set of eyes and the FCC would look at it with a different set of eyes.

Consolidation between cable guys is different than consolidation between satellite guys. Everybody would look at it differently. At the end of the day it still boils down to, if somebody's going to get to over 30 million subscribers and all the advantages that go with that and a virtual monopoly in broadband, Time Warner Comcast for all practical purposes, will become a nationwide video provider; they're going to cover 80%-something of the homes.

They will become a nationwide broadband provider. That's materially different than the environment we're in today. How people look at that, the agencies are staffed with very intelligent people. I would think that, as they have always tried to do, make the best decision for competition and consumers in the end, regardless of what transaction they're looking at.

That's helpful. I wanted to clarify on your philosophy about auto hub compensation, it seems to be a suggestion Charlie, that you guys are not willing to somehow compensate the broadcasters without for that. Sounds like a radical change in your philosophy. My question is, if that premise is correct, a, does that open up the door for other broadcasters to request the same and b, how do you subtract the economics from that kind of arrangement?

This is Charlie. I think maybe the press has got this wrong, but we understand that broadcasters have a dual revenue stream. Advertising is an important part of what they do and without advertising, the consumer would pay more or we would pay more. But we also understand that the reality is, customers skip commercials.

One of the reasons consumers skip commercials is because the commercial's not important to them. If you're a 15-year-old girl, you may not be looking at a Mercedes-Benz commercial with the idea of buying a Mercedes-Benz. You might be looking for something else.

What we've really said is and we've really got no traction with broadcasters about trying to change the model to make commercials more meaningful to consumers, which we think is more money for everybody. The Hopper technology allows us to do that.

We also understand consumers skip commercials, so we made it easier for them, but we've also been in dialogue with all the broadcasters that says really, we believe there's more money involved here, you can either have customers skip commercials on everybody's platform, including ours, or we can start putting more targeted advertising in that may be less advertising, but more targeted advertising that makes more sense.

I've always thought that the Hulu model was a pretty good one where, if you watch something the next day, you can watch it, but there's maybe two or three minutes of commercials instead of 15 or 18 minutes of commercials. We know how to target that. That's the kind of dialogue that we think is interesting where it's a positive for broadcasters, positive for consumers, and a positive for us.

That's the dialogue that I think we are engaged in and are willing to be engaged in and perhaps, we didn't go about it exactly right the way we introduced the Hopper. In hindsight, I might have done that a different way, but we have to think about consumers. We are in a competitive environment and we have to think about the total experience. I don't think commercial skipping is going to go away.

Okay. Very helpful. Thank you very much.

(Operator Instructions) Tom Egan, Northland Securities.

First, on Google, they've indicated their interest to extend their fiber to nine cities. Charlie, any thoughts about talking with Google about some kind of video data bundle?

I think that what Google's doing is very interesting, but they're also providing video to the customers. To the extent that they want to have the conversation, we'd certainly willing to, but they appear to be, at least what I can see, is they appear to be doing the whole bundle themselves.

I think that the big cities are going to have plenty of people interested in perhaps looking at broadband, but we've focused on those less than top hundred markets, which is why we looked particularly at fixed broadband and satellite broadband, because we think those people are being left out. But we're happy to have discussions with Google on anything. But we're a pretty small company compared to them and they normally set the rules of what they're doing.

About Aereo, I won't ask you, of course, to comment on your upcoming court case, but how does it affect DISH? Whether Aereo wins or loses, how does that affect DISH?

We're impressed with Aereo's innovation. I think we've said, continue on these calls, that our first preference in life is to work with our current partners. Before we go out and work with a new partner, we try to work with the current partner. Certainly, most of what we're doing today, regardless of how Aereo turns out, is to try to continue to work with our current broadcasting partners and we have hundreds of them across the country and so that's our first focus.

To the extent a broadcasting partner doesn't want to work with us or wants to do something that's uneconomical for our consumers, then obviously, we are excited to look at the things, the kind of innovation that people like Aereo have brought to the marketplace. But we're a lot more focused on our current partners than trying to go out and get new partners.

I think Aereo, like anything else, there's a difference of opinion between them and the broadcasters as to a very complex set of laws and copyright and we've been on both ends of those kind of controversies and I think it's really impossible to predict. Other than, I think, Aereo has started the conversation about a better consumer experience. I think that's an important one to continue regardless of whether it's the broad broadcasters themselves or whether it's start up companies like Aereo.

I think ultimately, the consumer will benefit from technology and innovation and Aereo should be credited with that. They have shown a lot of innovation that broadcasters themselves, in my opinion, could do as well. We hope they're all successful and if they're successful, I think will help us.

Great. Thank you.

(Operator Instructions) Scott Moritz, Bloomberg.

Charlie, question on Time Warner Comcast: do you have a position? Would you say that you oppose the deal? If not, does it give you some sort of optionality in terms of M&A?

I don't think we understand the deal enough to come out with a formal position. As a consumer I can say, gee, I'm worried my broadband rates go up, I'm worried about concentration of content, where I may only have a slim choice of content in the future from an economic point of view. I worry about those things but I don't know enough about the transaction itself until we see some of the filings.

I'm sure that we'll have an opinion at some point in time. Obviously, as I said earlier, I don't think, when you put the number one and four companies together, I think it certainly increases the risk to everybody else who is in the content, broadband, or video distribution business. There's not any question about t hat. If you put United Airlines together with Southwest, you're going to put pressure on American or the bus or the trains or our cars.

You're going to put pressure on people. Transportation business so I'm sure that boardrooms across the country in the content and video distribution business and the broadband business, people are having discussions about how it impacts them and certainly, that's no different here at DISH.

Great. Flipside of that, does it give you leverage to maybe pursue deals maybe along the lines of broadband or wireless that you might not have had before?

I don't think leverage is the right word. I think the way we look at everything is that we will be facing realistically a much more challenging environment if that merger is approved. We have to look at A, how will we compete in that environment and what steps would we have to take to compete in that environment?

The second part of that is, how do we continue to make, in anything that we would decide to do if we decided to do something, would that be better for consumers are worse for consumers? Obviously, long-term, it has to be better for consumers and so we'd have two challenges. Is there anything that we can do as a company that's better for consumers?

Is there anything that we can look at that is not only better for consumers, but gives us ability to compete better as a company? If you could combine those two things where you compete, where you can enhance your competitive status and you could do something for consumers you otherwise might not be able to do, then we've got to seriously look at that.

I would think that there potentially are a number of options that our Company and our Board will have to look at. Tom and his team are challenged with coming up with those things. Maybe the question's better addressed to him. I didn't see him working at midnight last night. (laughter) Maybe tomorrow night, he will be.

As I said earlier, Management is assessing it. We're obviously concerned about it. We're putting together options, recommendations and (inaudible - background noise) impacts and we'll be sharing that with the Board shortly.

You're putting together something -- is this for the Board or for the regulators that are reviewing it?

We'll first have the discussion with our Board, but it's our role as Management to understand the potential impacts, evaluate potential options, and share that with the Board for consideration of next steps. At the same time, part of that process is determining our strategy and our position in terms of the regulatory environment.

I don't want to put words in Tom's mouth, but what he just said is what we'd normally do as a day-to-day basis. I would say that there's perhaps a heightened urgency given the magnitude of that particular deal.

Thanks.

Lisa Richwine, Reuters.

I wondered if you could give us an update on the status of your negotiations with Disney over carriage of their networks?

This is Charlie. Again, believe it or not, nothing's changed since last quarter, but we're cautiously optimistic that we're going to get there with Disney. I think that the agreement is important enough to both companies that each side is taking time to get it right.

To the extent that it's a long-term deal, it makes it more difficult because neither Disney nor DISH can predict the future many, many years out, particularly when it comes to technology. That's why it's taken maybe a little longer than any of us would like, but I'm cautiously optimistic that we're going to get to an agreement with them before the next conference call.

Okay. On the last conference call, you said you don't date everybody you marry. How long do you keep dating before you decide that there's is not going to be a marriage?

Sometimes you ask them out and they turn you down and you see them out with somebody else. That just happens sometimes.

Have any new issues cropped up since the last quarter?

I'd say, in general, there aren't new issues. They're just changes in technology and changes in the way people think about what might happen, maybe slight changes in strategy. I think it's just a complex deal where we're trying to look out in the future. To Disney's credit, they are probably the leader in looking at technology; in part because I think their CEO's been on the Board of Apple and he just has a better feel for it, technology.

They've looked at it in a way that others have not. My expectation is they're going to be a leader in the technology field. If they are, it makes it more difficult to predict and write that down on a piece of paper so it's fair to both parties.

Okay. Thank you.

Shalini Ramachandran, Wall Street Journal.

One question on the potential idea of DISH and Direct merging. Previously, you guys and Direct execs have indicated that there are benefits to consolidation, but you guys have obviously taking different strategic paths, with you guys in wireless and they eschewing that task. Do you think that's still a big obstacle or has the Comcast Time Warner Cable, in some ways, lessen the amount you think that's a difference between you guys?

This is Charlie. You'd have to ask DirecTV about those things. I think that, clearly, we've taken slightly different strategic paths and therefore, I think it's safe to assume, from a DirecTV perspective that they certainly could have gotten in the wireless space and chose not to or the spectrum space and chose not to.

They obviously probably don't have as much passion for that strategically as we would. We might have less passion for stock buybacks, which helped short-term, but may not help long-term so yes, there's different strategies there.

Got you.

Different strategies don't necessarily make things impossible, but I think there's a reason why people go different strategies. Having said that, obviously, Time Warner Comcast transaction and the magnitude of that transaction, I would imagine, and I wouldn't speak for DirecTV, but certainly, it makes us look at everything in a different light today at DISH.

Got you. There are some rumors about trying to jointly bid for T-Mobile and regulators have shown that they would be disinclined to bless that. Does that open any more doors for DISH with T-Mobile?

This is Charlie again. I think Sprint has indicated their interest in T-Mobile and certainly, we've had experience competing against SoftBank and we're realistic to know that we're not going to outbid SoftBank in any transaction.

I think that SoftBank has conquered us into submission there, so to the extent that they're going after T-Mobile, I don't think you're going to see us engaged in that. Never say never, but I don't think that would be -- if you pound your head against the wall and it hurts, I believe you quit pounding your head against the wall and I think SoftBank is bigger and stronger than we are.

Got you. Thank you.

Greg Avery, Denver Business Journal.

To touch back on the discussions with Disney, Charlie, you had said that there generally aren't any new issues that have arisen since last time we spoke, but talking about Comcast Time Warner changes everything. I'm curious how a deal like that doesn't set discussions with Disney back to square one?

I guess that's possible, your premise is possible. But I think that rather than having an effect on our current discussion today, I think it's far enough along that's probably not something that they want to go back and retread but certainly, I think it will make future discussions with Comcast more interesting because the balance of power will shift.

Even for Disney?

You'd have to ask content owners about that transaction, but again, I will stand by my statement that I see nothing good in that transaction for content owners, other than NBC, other than Comcast. I see nothing good in that transaction for content owners, broadband providers, or video distribution companies.

Okay. Thank you.

But that's life, right?

Right.

Amy Maclean, CableFAX.

Charlie, you mentioned the advantages that Comcast and Time Warner would have when it comes to combining to buy content, including in retrans commission consent. Does any of that trickle-down to you and other MVPD's?

My concern would be the opposite. If you're CBS and you are normally getting -- I'm going to make this number up, because I don't know the number -- and you're getting $1 from Time Warner and you go into your next negotiation and you're paying a $1 or getting zero, you've got to make that dollar up.

Where are you going to make the dollar up? You go to the number seven, eight, six, five, four, three, two, one providers and say, we need $1.50. So I don't see how that helps us.

Okay. The same boat with cable networks though? Wouldn't MFNs come into play at some point?

That would be a very good condition. They should be an MFN for all video providers against Comcast. That would be a reasonable concession for the Comcast team to make. I'm sure that's the first thing on their list that they're going to propose. I think you have to be realistic that the merger is of enormous scale but ultimately, the way I believe Washington will look at it as it relates ultimately to consumers and is there a fair and level playing field for competition so the consumers ultimately benefit?

All I know is my experience in Washington is people and the regulatory agencies are very competent and very dedicated. Sometimes politics plays a role, that perhaps we all wish it didn't, but it's a lot of hard-working people that ultimately, we've lost a lot more than we've won, but even when we've lost, from a personal point of view, I understand why they're making the decisions that they're making and I think we just have to trust in their judgment at this point and also look at it as it relates to our Company and how we react to that.

Thanks.

We have no further questions at this time. I'll turn the call back to our presenters.

Thank you. Appreciate your joining.

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