DISH Network Corp (DISH) 2014 Q1 法說會逐字稿

Good afternoon. My name is Stephanie and I will be you're conference operator today. At this time, I would like to welcome everyone to the DISH Network Corporation first-quarter 2014 earnings conference call.

(Operator Instructions)

Thank you. Jason Kiser, Vice President and Treasurer, you may begin your conference.

Thanks, Stephanie. Thanks for joining us, everybody. It's Jason Kiser, Treasurer here at DISH Network. I'm joined today by Charlie Ergen, our Chairman; Joe Clayton, our CEO; Tom Cullen, EVP of Corporate Development; (inaudible) Robert Olson, Our CFO; and Paul Orban, our Controller. Before we get to the prepared remarks from both Joe and Robert, we do need to do our Safe Harbor disclosures so, for that, we'll turn it over to Brandon Erhart.

Good morning, everyone. Thanks for joining us.

We ask the 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 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. 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 to update.

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

Thanks, Brandon, and good afternoon to those of you on the east coast, and good morning to our west coast participants.

Now, today I'm going to report on the progress that we've made in the first quarter as we continue to improve our best-in-class video experience, to grow incremental revenue streams, and to strengthen our core pay-TV business. Charlie and Tom Cullen are also here to take your questions on our spectrum status a little later.

Now, most noteworthy, in early March we signed a new long-term programming contract with the Walt Disney Company. This historic agreement is really about the future of digital television, both in terms of technology and advertising. This landmark deal also delivers the best in sports, news, and entertainment, both in and out of the home. In fact, DISH is the Southeastern Conference Network's first nationwide television partner.

It's also worth noting that our agreement with Disney also gives us carriage rights for the Texas Longhorn Network. Now, when combined with the nationwide availability of Pac-12 sports and the Big Ten Network, there is no better place for college sports fans than here at DISH.

Now turning to our marketing efforts -- during the NCAA college basketball tournament we introduced a new national marketing campaign featuring the voice of award-winning actress Rebel Wilson as Hopper, the DISH kangaroo. The advertising message played off the consumer trend of streaming March Madness, a phenomenon that has grown exponentially over the past few years. And unlike the competition, only DISH allows consumers to sling all of their live and recorded TV anywhere.

Now, let's move onto broadband. We continue to see significant growth in both dishNET satellite and wireline businesses. In the first quarter, we added over 50,000 dishNET customers, bringing our base to approximately 489,000 subscribers. We're focused on adding higher-quality customers, up selling subscribers to more monthly services, and improving operational synergies. This allows us to leverage the power of DISH satellite TV with the dishNET broadband bundle.

Now, as veterans of an industry that continues to mature, we have concentrated on improving productivity and on maximizing the value of our core pay-TV business. For example, with careful application of customer retention tools, our first quarter churn came in at 1.42%, a 5-basis point improvement compared to last year. In total, we gained a little over 40,000 pay-TV customers in the first quarter.

Secondly, in a mature business you must exercise discipline in realizing efficiencies, and that's exactly what we did in the first quarter as we drove higher sales close rates, improved call center utilization, and lowered service call rates. Now, we still have more work ahead of us, but we believe we have the right plans and programs in place to attain our goals. Now to provide you all with additional details on our financial performance, here's our CFO, Robert Olson.

Thank you.

As Joe noted we continued to make progress in growing our core business. Our pay-TV base increased by 40,000 subscribers in the quarter. This was modestly better than the growth we saw in first quarter 2013, due to slightly better churn this year. Pay-TV churn was down 5 basis points year over year as we continued to refine our customer retention efforts.

Our broadband business continued to experience solid growth. We ended the quarter with 489,000 broadband subscribers, up 240,000 subscribers versus the same time last year. Broadband churn rate was down year-over-year, but with our larger base, total disconnects were higher. Revenue increased $219 million or 6.5% in the first quarter compared to last year. This growth was largely driven by pay-TV ARPU, which was up almost $4 or 5% year over year. On a sequential basis, we saw about half of the benefit of our price increase in our first quarter ARPU, and expect to see the full benefit in second quarter ARPU.

Our broadband business also contributed to the subscriber-related revenue growth, accounting for $42 million of the year-over-year revenue increase. Subscriber-related expenses increased by 8.2% in the first quarter versus last year. This increase was largely due to higher pay-TV programming expense. The higher broadband subscriber-related expenses contribute roughly one point of the year-over-year increase. The higher programming costs were primarily driven by increases in our contractual rates. The increased broadband expenses were driven by higher average subscriber levels.

Our pay-TV [stack] per activation for the quarter was $862, which was roughly in line with our recent number. The year-over-year decrease of $20 was driven by a reduction in manufacturing costs of Hopper with sling receiver systems and a one-time impact associated with increased inventory subsidies provided to third-party sales channels in first quarter 2013, which we discussed on our call last year.

Satellite and transmission expense was up $14 million sequentially and $26 million year over year. These increases were primarily driven by the satellite and tracking stock transaction with EchoStar, which was effective on March 1. Administrative expenses were down sequentially about $30 million year over year in the first quarter. The year-over-year increase was largely driven by one-time items including spectrum M&A expense in 2014 and a favorable sales tax settlement we received in 2013.

We also incurred additional engineering expense from EchoStar associated with enhancements to our Hopper receiver system. We expect G&A expense to be relatively flat compared to 2013 for the rest of the year.

Depreciation expense is up $19 million year over year in the first quarter. The year-over-year increase was driven primarily by a larger percentage of Hopper receiver systems within our installed customer base. Despite relatively flat operating income year over year, net income declined by 18%, driven by reductions in other income. Interest income was down $23 million year over year. While our cash and marketable securities balance was higher year over year, the sale of certain debt securities in the fourth quarter reduced our average rate.

Interest expense was up $14 million year over year as we issued $2.3 billion of debt in second quarter 2013. We generated $383 million of adjusted free cash flow in the first quarter, which was considerably above net income. We expect free cash flow will be roughly in the same ballpark as net income for the full year 2014. There is normal seasonality of free cash flow, with first quarter typically higher and second quarter typically lower due to the timing of tax payments.

Relative to our year-end 2013 balance sheet, we saw reductions of approximately $800 million in cash and marketable securities driven by the March 28 payment to the FCC for the H block licenses.

I'll now turn it back to Joe before we start Q&A.

Okay. Thanks, Robert.

As I said earlier, we are focused on continuing to strengthen our best-in-class video experience, to grow incremental revenue streams, and to maximize our core pay-TV business while making strategic investments for future growth.

Thank you all for joining us today for our first quarter earnings call. Now, we'll open it up to your questions. Operator?

Your first question comes from the line of [Joe Cusak] with JPMorgan, your line is open.

Great. I guess the first one for Charlie if I can. With [Verizon] and Sprint talking about high volume to data over the clear wire spectrum and cable Wi-Fi coverage expanding over time, did your wireless effort, as you envision it, look less attractive than it did sort of two to five years ago when you started talking about it or does it become even more important as you look to push against cable? Thanks.

Yes. Certainly from when we started looking at it really six years ago it is quite a bit more important for any number of reasons, but the first of the macro trends. The data usage is growing at exponential rates and that looks to continue in the foreseeable future, typically with the growth of video which is going to be the biggest use of that. And technology improvements and the amount of additional bandwidth that's available can't keep up with that demand curve as we see it. So spectrum, in fact, has become more valuable.

The second thing is, is that working with the FCC we're able to now have the option to convert our spectrum to down link spectrum, and down link spectrum, in the old days everything was synchronous, right, because all our voice calls were synchronous. We talked as much as we talked up as we talk down, but now the ratios have materially changed where it can be 6, 8, 10 to 1 down link more than up link. So, down link spectrum is more in demand.

To give you an example, we have as much as nationwide spectrum or virtually the same nationwide spectrum today on the down link side as Verizon does, and they have 100 million customers on their network. Our spectrum gets even better because we're in, we have two 20 megahertz blocks and of course you know with LTE the 20 megahertz block is the sweet spot, that's the maximum throughput that you can get in the LTE technology.

And then from there it's nationwide, so that means you've got the same frequency nationwide. So you're not all chopped up like a quilt with some PCS frequency, some AWS frequency, some 700, some cellular, it's all chopped up, ours is nationwide and singular frequency.

And, finally, it's virgin frequency which means that any new technology or any new use you can put on that network from scratch, you can design it from scratch. And technology is changing and how you view spectrum, and it's also changes how you'd use your core and how much smart you put on the tower and how you do all that.

When you enter the marketplace with our spectrum, you're able to do that in a more efficient manner. Because 5G is not backward compatible is 4G, and 4G is not backward compatible to 3G, and 3G is not backward compatible to 2G, and hedge and APRS and all the different technologies, a hodgepodge of these things out there. So the spectrum is very unique and so it's more valuable.

And I think if I think there's one place that analysts get it wrong, and the marketplace gets it wrong is probably in valuing your spectrum. The good news for you is that it's going to be valued for you in a sense that there's another auction coming up probably in the fall for AWS-3 spectrum and that AWS-3 spectrum is adjacent to our spectrum. So it's a very similar spectrum to the spectrum we have today and it will be 25 megahertz of down link spectrum in that auction. And realize we own 50 megahertz of down link spectrum. So you're going to get a pretty good market comparable in that auction for what our spectrum is worth. So I would say it's materially more valuable.

Wi-fi is going to continue to have, there will be more public spectrum available. It's going to continue to have problems in terms of [propagation]. It's going to have interference and you're never protected with the quality of service and the consistency of service you want to give your customers. And of course it's not going to be ubiquitous. It'll help and there are certainly strategic things that cable and other people will be able to do with it, but it's not going to replace the need for your own licensed spectrum so that you can give a quality service to customers.

So, that's a long winded answer, but I think that we may be wrong, but we'll have a better feel for the value of our spectrum from a financial point of view probably later this year, but I think it will be materially different than what people are analyzing.

That helps. And as you think about the, the business differentiation, it sounds like you don't believe that having a product out there using all the spectrum, would it be any less differentiated today than it would have been three or four years ago when you envisioned it?

Well, I mean, I think the -- we saw the world change in six years ago into several different technologies, right? We had the home covered on a nationwide basis, but there were things such as broadband, there was something called OTT that was starting to be used around the world, and then there was mobile. And all those things have to come together, and they come together in the ecosystem of communications. It's not just about a pay-TV subscription or a subscription for a mobile number of minutes or number of gigabytes, right.

So, it's really about how that whole ecosystem works, whether it be a subscription, whether it be advertising. The advertising model completely changes with OTT and mobile because you have one to one connections for the most part which means your advertising is totally focused on a person and you have big data banks now. You have big data so you know a lot about that customer since you're able to put a meaningful ad to that customer, advertisers will pay more for that.

And that infrastructure has to be put in place and no one company has all those things. We started thinking about how you could do that and to do that you're going to need -- you have to work with programmers and develop an OTT product and an OTT ecosystem. Obviously we've done that with several programmers with the largest being Disney, so that's we're working really hard at that. And you need a mobile platform to get it out to people. We have spectrum that will allow us to do that. And of course you need mostly down link spectrum for that.

And you also are going to need a broadband service. That's part of the one weak link that we have in the sense that we really only play in the satellite broadband market today which is more of a niche market, perhaps five million homes potentially in the United States. We're working with fixed wireless, which I think would add another 30 million homes economically. Then you have the backdrop of Comcast/Time Warner, and a cable company which have a virtual monopoly on the broadband side. How all that comes together will be for the regulators and for us to weave our way through that, but we are well positioned strategically and financially for the changes that are going to develop.

That's helpful. Thanks, Charlie.

Your next question comes from the Marci Ryvicker with Wells Fargo. Your line is open.

Two for Charlie. The first one, just curious if you see strategic or financial rationale of a AT&T and DirecTV combination, especially given that DirecTV doesn't have spectrum?

I do see a financial, I mean, this is from -- I'm not the expert here, and I haven't looked at it from an AT&T perspective in detail, but there certainly is economic rationale for an AT&T DirecTV -- or an acquisition of DirecTV by AT&T because I think it would be accretive. Even at a very high price, materially higher than even DirecTV is selling for today, that could be an accretive transaction for them, and if the reports are true that DirecTV has hired bankers to perhaps shop the company, AT&T would be -- and some other companies would be crazy not to look at DirecTV. It's a really good company and it's got really good financial metrics.

It probably makes little less sense strategically because they don't buy long-term strategic -- they do buy you some strategy but they don't buy you what you really need to probably compete with where the industry's going. But certainly from a financial point it makes a lot of sense and they'd be crazy not to look at it.

Now, if this does happen, do you see your options changing, whether it be in wireless or paid TV or even in dishNET?

Not really. I think it puts us -- in many ways puts us in a stronger position if that were to happen because it allows our spectrum to go in a way that would be detrimental to some people and beneficial to others. So I think we're just well-positioned depending on how things go.

I do think strategically -- we're a small telecommunications company. We don't get to --, there's two things we don't get to control, which is we don't have the kind of money to go out bid Sprint for T-Mobile or out bid AT&T for DirecTV. And so we're -- we have to be well positioned so that no matter what happens it's all good for us and I think we're there.

And, secondly, Washington will make rules and regulations and merger approvals and things, and decisions that will affect us and they'll pick winners and losers. The good news is that the administration and the FCC have talked a lot about competition and being in favor of competition and that would be good for DISH because we like to compete.

The negatives would be that there are some headwinds there, the Time Warner/Comcast merger is unprecedented concentration of power particularly in broadband and that certainly would raise concerns. And some of the comments on the neutrality where there might be a charge for fast line would totally change the dynamics of the industry. We're hopeful that perhaps the chairman's comments were misunderstood and we'll get more detail on where the FCC is headed on that, but that would be a concern.

And so based on the kind of thing to come out of Washington could drive us one direction or another. I'll give you another example. One other example is that the, that the upcoming auction for AWS-3, we have fought really hard for interoperability, that would have made that spectrum more valuable to DISH because we have been interoperable with AWS-1 and AWS-3. Our AWS-4 spectrum would have been inoperable. We weren't able to get that through the commission, so that's a negative for us from an auction perspective.

So, we've had some things that are positive. The all down link is a big positive for us. The H block auction is successfully completed since last we talked. That's a big auction -- positive for us.

And then we have some things like potentially net neutrality, Comcast/Time Warner, and interoperability that didn't go so well for us. That drives us in certain directions depending on what happens and we really have no control over those things other than to go make our positions known and try to work with the officials and staffs.

I just have one followup. It feels like over the years you've kind of gotten your building blocks in order from a spectrum perspective. After the AWS-3 auction, would you say that you have all your building blocks at that point?

I think we're going to know exactly where we stand. I think you're going to know what the value -- we will know what the value of our spectrum because somebody would have bought like spectrum in the open market. So we'll know what the value is. We will know that we have -- we think we'll have critical mass of spectrum. We think we have that today.

And there will be one more final auction which will be the incentive auction that could happen as early as 2015 and that would be something else that would be of interest potentially to us. But I think we'll know where we stand. And there's one more piece to that in the sense that the spectrum screen is expected to come out next week in terms of how much spectrum a company can own. And that looks like that screen is going to be increased materially over 200 megahertz that a company can own.

So that's interesting because that probably shows a road map for what future consolidation can happen within the spectrum community. So, we'll have to wait and see what that says officially. All I can say is we have most of the building blocks we need, even without the next auction, but that can only be added -- that can only be helpful because it sets a floor in the value of our spectrum and strategically places us. There'll be winners and losers in that auction, and winners will be happy and losers won't have a lot of places to go. So I don't see how it hurts us.

Got it. Thank you so much.

Your next question comes from Walter Piecyk with BTIG. Your line is open.

Thanks. Just want to follow up on that question. Assuming DT is just unwilling to move forward with Sprint, then you're not really having to bid against Sprint for T-Mobile. Does T-Mobile have any interest to you as far as a strategic partnership or would you rather just wait for the spectrum screen to show people the road map and maybe some have some of those other opportunities take place?

Or conversely, by the way, if they do in fact try and they fail in that attempt to get approval for that transaction, does T-Mobile hold any value for you as a partner, acquisition target, whatever?

No, I think that T-Mobile is Sprints to make a decision on and we wouldn't -- we just can't compete in that process. They'd have a lot of synergy. There's logic to what -- why they would want to go after T-Mobile. It looks like a tough regulatory hurdle based on what people have said, but you never -- you could go broke betting on Washington. So if in fact Sprint didn't proceed or was denied, then T-Mobile would have strategic interest to us, yes.

Okay. And also on the spectrum values that you referenced, how do you view the difference in value between up link and down link? So when we see that kind of blended number that's going to come out of the auction, how would you allocate the difference in value on up link versus down link?

The vast majority of the, in my opinion, and it could be literately 10 to 1 in this next auction, the value will be on the down link side of the spectrum for two reasons. One is you use a lot more down link spectrum so it's just inherently more valuable.

And most people's networks they do not have congestion on the up link side except possibly in a football stadium at game time. That's about the only time that they don't have up link. They don't have congestion, they have congestion on the down link, so down link would be the biggest value.

The second reason the down link would be the biggest value is the up link spectrum in the upcoming auction is impaired and it has a lot of technical issues that have to be cleared before anyone could use that spectrum, and we think -- we haven't seen the rules on it, we haven't seen where NTIA has given a road map there, but it looks like it could be 5 to 10 years before you could use that up link spectrum.

And so I think it's almost as simple as take the value of that auction and multiply by two and that's the value of DISH with spectrum. So what the will marketplace is saying is that auction on the paired spectrum that that auction is going to go for somewhere from $5 million to $10 million and I think the minimum reserve price will be higher than that.

Right. (Multiple speakers)

I think analysts just have that part wrong in their analysis, but that's my personal opinion.

In that case for that auction you're saying the up link is the interference on that paired spectrum. So, if the net number comes out to like $1, then the respective down link value is obviously much nor than your typical 4 to 1 ratio on usage?

If it was $1, it would probably be $0.90 for the down link and $0.10 for the up link or $0.95 for the down link and $0.05 for the up link. Again, that's -- I'm not as knowledgeable about what other players would want up link for, but that would be my view.

And, Walt, this is Tom. Let me just clarify. It's not necessarily an interference issue, it's that that spectrum is currently occupied by several federal agencies, so the NTIA has to coordinate the clearance of that which would take some time.

Right. Got it, the timing of the availability of that spectrum. Okay.

I just remember economics 101 as a freshman in college and there was something called supply and demand, and there's a lot of demand for down link, there's an over supply of up link relatively.

Got it. And then Greenfield wants to hop on for a quick one, too, thanks.

Charlie, the PSS that you signed with Disney seems to be a paradigm shift moving from household-based video delivery to per stream video delivery. Just wondering if there is anything you can give us in terms of how you think about this changing the video landscape overall as you move from signing up a whole household to just signing up me and whether this can be television-based or this has to be tablet or mobile phone based. What are the restrictions or limitations on what you can and can't do with this as you kick it off later this year?

Okay. It's a really a big picture which was really Disney was our worst relationship with a programmer and I hope that Disney is now our best relationship. What we realize and the industry's changing that there can be more economics to our content providers. And while some people think we're against advertising, we're actually probably more pro advertising than anybody other than the network broadcasters.

So OTT in a sense is an experiment that they're willing to go make -- that they have kind of set the rules for that. In other words, they're leading -- and as a result of them leading, they're setting the rules of that. And the rules are pretty smart I think on their part in a sense that we're going to be able to go to people on a one to one relationship and give them a more slim down version of content that people primarily aim to people who aren't paying for content today. Or if they are paying for content it is going to Netflix, it's not going to the current partners.

The second part of it is we also are going to experiment a lot in the advertising realm in the sense that we believe that we can increase the advertising to our programming partners by getting higher -- when you take the data that we have and the data that they have and you put that together, we can go to a customer in a way that we otherwise couldn't go to them with particular ads. So we're going to know that you have -- we know you have a car for eight years or we know that you went to on-line to look at a car, we can download a car ad to you instead of downloading a car ad to you when you just bought a car last week. That doesn't make any sense, right?

We can download movie trailers on Thursday night because you're more likely to go -- and Friday night because you're more likely to go to the movie on Friday night or Saturday night, we don't have to download that trailer on Sunday night when we know you're not going to go to the movie on Monday. And so we can do a lot of things that increase the revenue pie to our programming partners but also increase the revenue to us, and it's not a zero sum gain.

The hardest thing about a programming negotiation today is every penny we pay Disney is a penny out of our pocket and it's a penny we've got to charge customers. But in the advertising model it's a win-win situation. And so that allows us to go do some things that are different, and I think that we have to work with Disney and other programmers to make this a product and share our results and try to make it a product that's economical for where things are going. I believe it's also a precursor to mobile. Every part of infrastructure that we put in place for OTT is exactly the infrastructure we need for mobile.

And for mobile the advertising's even better because in mobile we're going to a smart device and we're going to know your physical location and we're going to make it interactive, and we'll have your credit card information, and the ads are, in fact, interactive, they're not static ads. The world of static ads isn't going to make much sense in the future, and so the ads are going to ask you to do something and that's going to be more valuable ad for advertisers. Again with mobility you need airways, you need spectrum, and so we're well positioned there.

So, it's all part kind of a two-step process to OTT and mobility that we believe makes programming partners a lot more money than they make today. So -- there's only two ways to make money in this business. One is you own the content and the other is you own the distribution. We're just a distribution company, we're not a content company.

So, we're not a two-headed monster between content and distribution, we're just a distribution company. And for those programming partners who want to work with us, we're going to make them more money, right, by getting them more eyeballs and more advertising revenue. We're going to make ourselves more money because it's going to go through our pipes.

Thank you very much.

Your next question comes from Ben Swinburne with Morgan Stanley. Your line is open.

Thanks. I just want to continue on the PSS Disney agreement for either Charlie or Joe. There's been a lot written about what else needs to be done to get this off the ground from a contract perspective. I don't know if you would talk to that. But, if not, how confident are you, you can actually launch a product this year? And how do you make money, Charlie, at $30 of ARPU which I think is what the press has talked about?

How big is the market? Disney just seems to describe it as for the broadband-only homes, cord [nevers] whatever catch phrase or buzz word you want to use. But when you look at the economic opportunity here, how do you make money at $30? Do you have a truck role and how big is the market?

I'll take the first part of that and then Joe wants to jump in. First of all, it's a -- we don't know if we make money at it, but we think the money -- that the sack is materially less because obviously you wouldn't necessarily have to have a truck roll, it can be a smart TV or Chrome or Roku box or Kindle Fire, you don't need us to roll a truck.

It can be immediate, so if you order it, we can give it to you immediately because it will -- you will have to be online to use it. And it goes to a smaller niche of people. I think that we're in agreement with Disney on that in terms of how we approach the marketplace. We're trying to get incremental revenue, we're not trying to go change the system that we have today with a person having four TVs in their house and trying to convert them to this.

So, I think, and I think there's a bigger advertising data component of this that we can monetize in a way that we're not able to do as well on satellite. We have mostly national commercials so, those go at a lower CPM than a local commercial, right?

Might be 5, 6, 7, 8 to 1 for a local commercial, but not only are we going to be able to local commercials, we're going to be able to do commercials down to the address of the house or the location of the person. So that will increase those CPMs. It's a benefit to both of us. And then finally we have enough programming contracts to launch this service now, but we don't anticipate we would launch before the end of the year.

You said you do --

It's that kind, there have been reports that may be earlier, but I think the end of the year to come out with a product that works and we certainly have a few more spots for other programmers if they so choose to. So, we're comfortable launching with what we have and think it's still a meaningful product. But we think that there's a few other programmers that would like to experiment with this, and it's going to take a bit, we have to invent some technology in how to insert ads and how to monitor the data. There's a few things we have to invent that's going to take us some time. So, we're looking at something by the end of the year.

Thanks.

Well, just to follow up on that. The pay-TV industry itself today, the entire industry is missing this key customer segment and let's call it the young adult market for lack of a better word from, say, like 18 to 35. We do know that they're young, they're well educated, they're mostly urban dwellers, and they are not going to spend $100 per month for their video content. Maybe they'll spend the $20, $30 that you mentioned.

We know they're not going to watch 250 channels. They might watch 20, 30, so it will be a smaller offering of channels.

And we know they're not going to watch it on a 60-inch, 62-inch flat panel display, they're going to watch it on their tablets, PCs, or smartphones. So even though there may be a potential of some cannibalization to our existing satellite TV business, we believe the majority of this will be incremental because we're missing it today. So that's kind of a market look at it.

Got it. Thank you.

Your next question comes from James Ratcliffe with Buckingham Research. Your line is open.

Morning. Thanks for taking the question. Two if I could. One, following up on the OTT offering.

Do you need hardware in the home to do this? You mentioned they're going to be watching it on tablets and PC screens and phones and the like, but does this require a set top box for you or can you get away with just having clients on other third-party devices, Roku, Amazon Fire, or X-Boxes and the like of the world?

And, secondly, thoughts on integrate -- integrating other OTT providers into your core DISH DBS offering such as having Netflix in an option in your box and search across multiple platforms? Thanks.

You don't have to have a separate piece of hardware, I shouldn't say -- you have to have a smart TV or you have to have a way to connect to the Internet whether it be smart TV or whether it be Chrome or a Roku or Kindle Fire. You could have a separate box and you could do a lot of interesting things with that box in terms of graphic and an operating system, but it can work on game players, game consoles, too. So, for the most part customers may already have the devices, and the second part of the question was?

Other providers, OTT.

Oh, I think that's a strategic call that I don't think we've made a decision on, but you have two choices of being a closed platform or you can be an open platform. Open platform probably at the end of the day is more consumer friendly but probably a little bit more disadvantageous to our current business. So, we haven't made decisions on that yet.

Thank you.

Your next question comes from Vijay Jayant with ISI. Your line is open.

Just continuing on this new OTT offering, Charlie. Can you talk about in this digital ad insertion environment? How the (technical difficulty) is going to be shared with the content guys? Is it similar to the current splits or does a new economic model developing there?

Also just strategically when you're creating this new offering and you said it's going to be a niche product, what is that niche that this offering could sort of take from the current ecosystem and you could gain share? We thought it would be sort of non-sports, but now you've got some of the best sporting channels from the Disney platform. So any help on just where the option would be there, thanks?

Yes, I think that the advertising model will be similar to the way it is today. We normally have minutes as a multi channel provider and the programming partner has minutes. We're certainly open to sharing our data with our partners so that they can place ads in a way that would be more meaningful to them. They get more money. We don't see -- we see helping our partners is a positive, not a negative.

Obviously, so the model will just be higher CPMs as we get scale, and it will take a while to get scale, but we'll have real data. The world of was pretty -- if you think about the world of TV, 30 years ago you had four channels to watch and you had a scrolling guide if you had a guide and TV ads are all static and they just play, and now the world today is that you can interact with that ad. You can buy something. You can get information quickly.

You have plenty of channels to go and your biggest problem is finding out what to watch. And so we have to look at that paradigm and say let's put a product in there that makes sense, right?

People aren't going to come home and say I want to watch Comedy Central. They're going to come home and say I want to watch the daily show. But they're not going to come at 9:00 when it's on, they're going to come home at 10:00 and watch it the next day and so forth. So, how do you do all these things?

Do you need to watch Shark Week on Discovery during Shark Week or maybe you want to watch it when your kids are studying sharks in school. Right. That changes everything and OTT allows us to give a better product to the customer.

The advertising -- I will predict that the advertising will be -- some day will be huge and when you add mobility to it that the advertising revenue between OTT and mobility will be much greater than the broadcasting -- the programming people get today.

Right, so the future of advertising will dwarf what they're getting today, it will be just a different system. We can put our head in the sand or we can go obsolete ourself. We've obsoleted ourself before as a company when we went from big dishes to little dishes. We're willing to obsolete ourself by going to the next generation of where this thing is going which is in home and out of home, fixed OTT and mobile would be malpractice not to do that because then we would be stuck as a -- then we'd be the wire line business.

We'd be twisted pair copper that does voice in a business that would be declining in 4% or 5% a year and that's just not what we chose to do. And history will prove us right or wrong. I think the jury's out.

Great. Thank you.

Your next question comes from John Hodulik with UBS. Your line is open.

Thank you. Back to the M&A and Charlie following up on your spectrum screen comments. It looks like our map suggests that AT&T has a little other 130 megahertz per market, you guys are about 54. Given the new spectrum screen and the 200 megahertz that you mentioned, in your mind as you read the tea leaves, is there anything that would prevent AT&T from buying you guys?

It seems like that would be a better fit given frankly what you just talked about and the need to move to sort of non-traditional video? And I guess following up on that, the other side of that transaction, DirecTV with your new OTT product and others coming, how does that impact a potential combination between DISH and DirecTV going forward, at least from a regulatory standpoint? Thanks.

From a spectrum screening perspective, I think AT&T, Verizon, or T-Mobile could buy DISH or vice versa.

If the rules go.

If the rules are what.

What we think they are.

We haven't seen the rules, so Sprint, if the rules are what we think they're going to be, then Sprint probably couldn't buy us without having to give up some spectrum or we couldn't buy Sprint without having to give up spectrum.

The DirecTV, DISH, obviously that's, that would be from a transaction point of view that would be the highest synergy transaction that DISH could do. But -- and it potentially would face some regulatory headwinds depending on how they come down on Comcast/Time Warner. But it's certainly a different landscape than it was 11 years ago when we tried it.

But the other part of it that I think all those things -- all those potential transactions it ultimately boils down to economics and price. So I think the -- our Board I don't think would be inclined to do something with valuation of DISH that didn't include the true value of our technology, our spectrum, our management and everything else. I think we are well-positioned for the future.

We've put long-term things in place to the detriment of a short-term stock price. As an example, I think that the DirecTV would be too floppy for us for our Board to look at, at those kinds of prices. It makes all the sense in the world, but you're not going give up two-thirds of the synergy to another company that you believe you're better positioned in.

So that just looks to be too frothy, but it could make a lot of sense for an AT&T or Verizon or somebody else that has a different motivation because it's very accretive. So --

Got you. Thanks.

Your next question comes from Craig Moffett with MoffettNathanson. Your line is open.

Hi, Charlie. Two quick questions. First, you said categorically in the past that you would not separate the spectrum from your core satellite business. Is that still the case that there's sort of a categorical view that if you're going to do a transaction for the spectrum it would have to include the whole company?

And then separately, just a clarification on the Disney deal. As I understand it, that deal does not include the typical obligations to carry other -- all the other suites of programming. Can you just put any detail around that as to how much additional programming from other programmers it does require and what your vision would be for how broad that offering would be when you go to market?

Okay. I'll take the second parts first. We're not going to give -- talk about the details of the Disney deal other than to say we have enough programming contracts in house today to launch the service. So that's not going to be a stumbling block in terms of, it is a smaller -- much narrower -- it's a skinny down version of pay-TV targeted at a different class of people. But we don't believe we're getting or Disney's getting today.

There's certainly -- we'll certainly re-evaluate with Disney and our other partners as we go along and do the right thing long term as it moves forward. So, this is not going to be a ground-breaking material huge thing in 2014. It's just the precursor to where I think the industry is going and certainly the precursor to where we think we're going with mobile.

So, it's getting out and going -- it would be like doing broadband back in 1998. This is dial up. Now we're full speed broadband. OTT will be similar. It's going to move in directions we can't foresee.

I don't think we've ever said we categorically wouldn't split off our spectrum. But certainly our preference would not to be to take a strategic asset that we've worked on for six years and then split it off for a profit, pay taxes on the profit, and then be back to just DISH Network and what we view as a mature business and potentially a declining business, right? We think that the spectrum is an integral part of where DISH Network needs to go and that those -- that the best value to our shareholders is keeping those things linked, right?

And as you mature in the satellite side of the business, you're able to combine the mobile side and the OTT side into an ecosystem that when you put it all together has tremendous value. Okay. Operator, I think we have time for one more.

We will now take our final question from the analyst community.

(Operator Instructions)

We will begin the media portion of this call following the answer to this final analyst question. Our final analyst question comes from Tom Eagan with Telsey. Your line is open.

Super. Thanks. Charlie, I was wondering if you could comment on the impact of some of the announced deals between Comcast and Charter. We know that Comcast is taking the systems on the east and the west coast and that Charter is taking the systems in the central states such as Ohio and Wisconsin. So, for example, does that change the landscape for you guys at all? Thanks.

I don't know. Tom may have some comments. He know cable better than I do. Obviously the merger itself is the biggest concern, right, because it gives unprecedented concentration of power in broadband and with programming and with leverage against programmers who we have to compete against.

Obviously Comcast/Time Warner is going to get better pricing than Comcast or Time Warner alone. That means the programmers get less money. They got to pass costs on to somebody else. Where's it going to go? It's going to the littler guys, right.

So, that's not -- and then of course obviously to the extent you control the pipe to the house if you believe what I believe that most video long-term is going to come through that pipe, particularly from an OTT's perspective, suddenly you have a virtual monopoly which is very similar to where cable was before DirecTV and DISH got in the satellite business.

So, we're going to go backward in time there. And so that's concerting. Then it gets even more concerting when you start thinking about paying for a fast lane, only the big players will be able to play. You'd never have a DISH network start up in that environment. You wouldn't have a Facebook start up in that environment or Google. It will just be really big companies and that's concerning.

The other part of geographic concentration I think makes sense for the cable guys, makes all the sense in the world because there's economics of scale and synergy by operating in a particular geographic area. And so that just seems to be smart business on their part. It just makes them more formidable as competitor we don't begrudge the fact that they're doing smart things.

Given the marketing and operating efficiencies in local markets by concentrating geographies but also improves their position in terms of local programming which could include Runs. So, in general, yes, of course we're concerned about Comcast/Time Warner, just the sheer scale of the entity, the dominance in broadband, and the potential for very disruptive bundling are all things that concern us.

Okay. Great. Thank you.

So take what media questions now.

Okay. That concludes our Q&A with the financial analysts. And thank you all for joining the call. We have a little more time for questions from the media.

Thank you. We will now take questions from the members of the media.

(Operator Instructions)

Our first media question comes from [Leighanna Baker] with Reuters. Your line is open.

Hi, thanks so much for giving media the time. Just a followup for Charlie about a comment you made before. Could you elaborate on your comment about DirecTV being too frothy at those prices, what do you mean by that?

Well, I think the question was would DISH look at DirecTV, or that's the way I interpreted the contract and the answer is of course we'd look at DirecTV if they're for sale. Of course we would look at them. And there would be a lot of synergy and a lot of -- that would make a lot of sense from our perspective because there would be a ton of synergy between the two companies, right. And there's probably no deal that DISH could do that would have that kind of synergy.

But we'd also have to be realistic about valuations and the price levels that they would be at today based on the relative value to where we think we are would probably be kind of a non-starter for us because we would -- I don't want to talk for DirecTV I think they might be very skeptical on where we are on wireless spectrum and what the real value of that is. They have wouldn't really know how to value that, right? [Half] the marketplace doesn't know how to value that today, right. The valuations are all over, are $5 billion, $10 billion apart. Right. So nobody really knows how to value that.

So that makes it very difficult for them to say -- they would probably say DISH is over-valued because they're getting value -- all we can value is their subscribers and when we look at that, we think they're allocating too much value to their strategic position or spectrum. We would look at it the other way where we'd say we're well positioned for the future. We've spent six years investing. Now that we're ready to harvest what our investments, we don't want to pay a value for something that's purely financial as opposed to strategic.

So, we look at that and just say for us you guys don't need to speculate in the press about us because that seems -- we could never outbid an AT&T or Verizon or anybody else for DirecTV because they would have a financial motive and we're really only interested in strategic motives. So, then for us the valuation is different or the analysis is different and I think and AT&T could easily pay triple digits for DirecTV and still be accretive to them. We don't mind getting in a battle, we've got to shot to win, but we have no shot at that, right, so.

What did you think of all the reports and analysts notes saying that AT&T actually is trying to smoke DISH out? What did you think of those reports?

Idle speculation. We're not -- we're a pretty simple company. We're a public company with a board of directors, there's no smoking us out, right. There's -- we have people who talk to us all the time about things and they know how to do it. They usually call us up and we usually have a meeting, and there's not -- smoking out sounds like some plot for a TV sitcom or something. It's just not the way it works with us.

We're -- Tom can answer this better than I can because he heads up corporate development. But I think in this industry everybody's talking to everybody, as you might expect. The only company that potentially seems to maybe have put themselves up for sale if reports are true would be DirecTV. So obviously that makes a lot of sense for people to talk to them because if they've hired bankers you know who to go to. You just go to the bankers and have a conversation.

DISH is just a public company where we have conversations with everybody and sometimes those conversations are about acquiring another company. Sometimes they're about merging companies. Sometimes they're about selling companies.

Sometimes they're about joint ventures and it's 1-800-DISH. It's not like you're going to go negotiate on the front page of Wall Street Journal. That doesn't make any sense.

Great. Thanks so much.

Your next question comes from [Scott Meritz] with Bloomberg. Your line is open.

Great. Hey, thanks. Charlie, the question maybe you can help us think about this. There has been kind of a chain reaction deal since Comcast/Time Warner talks of deals between DirecTV and AT&T, and yet you say you still have very good options. What would be your options if those deals all came together?

Well, they're the same things they've always been which is in the goal post we can build a network out ourselves. That's not likely, but that's certainly what changes in technology and virgin spectrum and the fact that we have more down link than up link there's ways you can go about doing that.

On the other end of the spectrum, we might sell the company. And then there's everything in between, which is whether we would merge with somebody, acquire somebody, partner with somebody, and so forth and so on.

And in any transaction there's winners and losers, right? So Comcast/Time Warner, there's a lot of losers on the sidelines for that one, right? Comcast and Time Warner, I think their shareholders would be winners on that one, assuming they get regulatory approval and there's not conditions that -- the conditions aren't very strong and they can be monopolised, they're going to be winners, right? But the problem everybody else that competes against them is losers, right?

And potentially the American consumers are losers. How do you put together things that would be beneficial to American consumers and beneficial to somebody that's shareholders. And AT&T and DirecTV might be one of those chain reactions but there would be others. And you can use your imagination on what would be for me to talk out of school, but you can use your imagination on it.

All right. With a follow-up on that. Is DISH prepared to oppose the Comcast/Time Warner cable deal?

We haven't -- we're going to read all the stuff and we'll make a decision. But we're not opposed to being opposed to something if it's not the right thing to do. I think we will have a strong opinion on how it would affect our business and how it will affect the American consumer. If the condition was that they had to do wholesale pricing like its done in other countries, we might think that might be good for consumers. That might not be good for us, but we might not oppose if it was good to consumers. If they were allowed to charge for a fast lane and be an unregulated monopoly, that would probably be bad for consumers and bad for our business and we'd probably oppose it.

So, we'll just have to wait and see. We very rarely win in Washington, so we're going to be a small -- a little small voice in this big, big merger and there will be much bigger voices than ours. But we will have an opinion and we participate in the political process, and we will participate in this kind of ground-breaking potential merger.

Your next question comes from [Alex Sherman] with Bloomberg. Your line is open.

Hey, guys. Hey, Charlie. Given DirecTV and AT&T are, in fact, talking about a deal which we have reason to believe is the case, with the Time Warner Cable/Comcast merger and Sprint essentially trying do with a deal with T-Mobile, my question for you is are we reaching the last episode of Senfield here? Is the end game near? Are we getting to a point where DISH is going to have to make a large transitional move or do you feel like your options still leave you with years of runway ahead of you?

If all those things happen, then we would evaluate that particular condition. But the only thing I can give you is -- I'm not that smart, but when I used to play poker and everybody was throwing chips and betting crazy on the table and I had really good cards, I always felt it was better to sit back and watch them go at it. And every time they went at it, I'd learn something. As I sat back they didn't-- they didn't learn anything about what I had and I learned to trust my cards. And I wasn't a very good poker player, but when a bunch of drunken fools were throwing money around, occasionally I was able to pick up a pot at the end of the day.

It's crazy how eerily similar it seems to me today with this crazy stuff in the press and everybody kind of going wild swings in the market. It just seems to me to be kind of similar to -- and it seems to me that my recommendations to our Board would be probably let's, let it all -- let's see what all happens because we know that there's an auction coming up that will tell us kind of what our value is. And strategically that auction is going to tell us whether we have a better hand or a worse hand and why not wait and see. Is there anything that I've read about that would, I'd worry about? No.

All those scenarios, if they all happened, I wouldn't worry as a shareholder of DISH and it's probably unlikely that all those things happen in the way that the press is reporting. It's always happens a different way. It just never happens -- the movie always has a twist and Seinfeld always has a twist. It never happens exactly the way you think it did and I don't think -- even the way I think things are going to happen isn't going to be the way it's going to happen.

So, that means that you want to have as good of cards as you can and you want to keep getting cards and you want to wait and see until it's all out there and then you make your move. I don't know how to explain strategy other than that.

Thanks, Charlie.

Your next question comes from [Tom Graytow] with Wall Street Journal. Your line is open.

Hey, thanks for taking the question. You talk about not being able to out bid for DirecTV and about the financial side of that. But do you think you can get it past regulators and what would be your case for that?

Well, I guess I would be cautiously optimistic that you could get it through regulators. I think you'd have to show them that as a result of the merger competition would be enhanced, from a big picture perspective competition would be enhanced, not eliminated or concentrated. And a more, a stronger DISH DirecTV in the wake of Comcast/Time Warner/Charter consolidation, new entrance into the marketplace, OTT and concentration of broadband is probably not a bad thing for consumers. And I think you can probably make that case.

What was the other part of the question? It wouldn't be a sure thing by any means. You'd have to spend some time with the regulators and make your case and they'll either decide yes or no.

And we don't know what they're going to decide on Comcast/Time Warner right now, right? I don't think it's a failure to complete. I don't think that it's -- I think people are afraid to talk about it because everybody has to deal with Comcast. But that's got serious consequences to the future of telecommunications and content and everything else in the United States.

That's a big merger. It would not be the one -- it would not be a merger that typically would sail through Washington, let's put it that way, even though obviously they're very well connected.

Do you think it would be helpful to get a DirecTV/DISH deal in front of regulators while they're considering the cable merger?

I would say strategically that probably would make more sense, but if you -- because I think people would understand the fairness of that, and you probably either would approve both of them or you would disapprove both of them, but I think people would understand the fairness of them.

If they can grow to 30 million subs and higher, somebody else ought to be able to go 30 million subs, too. That's the dangerous catalyst that potentially happens, but we're small guys, we can't afford DirecTV. Operator, we have time for one more.

Your last question comes from [Ryan McCashma] with Associated Press. Your line is open.

Thanks for the question. Charlie, I wanted to ask you, you said that you have enough programming contracts now for an OTT service. Could you expand on that? Do you have like enough broadcasters, enough range of programming to effectively market to this niche that you're looking at?

Well, let me put it this way, we wouldn't launch with Disney channels alone, so we would want to have enough critical mass between general entertainment and sports and children's to launch. We think we have that to do that. Although I would say that I think Disney by itself is a pretty good compelling content to the niche that we're going after.

We're not going to launch with just Disney, but I wouldn't be opposed to doing that because there's an awful lot of people who love their sports and have kids or love their sports and have kids that can't pay $100 a month. So, -- and we're not getting those customers today and Disney's not getting those customers today.

The cord cutter stuff is not this dramatic thing where it suddenly -- the video business is a mature business but it's hanging in there pretty well based on the first-quarter numbers and appears it's going to hang in there for a period of time. But it's a bit like the lobster that gets boiled. The old analogy, which is you don't really know your dead and boiled until too late.

DISH is just a company that would rather be out front and make some mistakes, be ahead of the curve than be behind the curve because then you can't shape your vision of what you think is important. So, we may be a little head of our skis here is so forth, and I don't think-- OTT is not going to move the needle for anybody this year, probably not going to move the needle next year.

There's a lot of programmers who are not interested in it yet or would have unreasonable demands that it wouldn't makes sense to do it. But I'm very comfortable with the content we have today that if we can get our systems all ready to go by the end of the year that we would launch with what we have. There's probably several others that well probably several others that will participate just because they're pretty creative and they're looking at the long term, but if we do, we'll announce it.

Okay. Great. Thanks.

All right. Thanks everybody. Sorry for monopolizing everything today, but I guess it was --

Thanks for everybody that joined the call and we'll talk to you all next quarter.

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