DISH Network Corp (DISH) 2015 Q1 法說會逐字稿

Good afternoon. My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to the DISH Network Corporation first-quarter 2015 earnings conference call.

(Operator Instructions)

Thank you. Mr. Jason Kiser, you may begin your conference.

Thanks, Eric. Thanks for joining us, everybody. It's Jason Kiser. I'm the Treasurer here at DISH Network. I'm joined today by Charlie Ergen, our Chairman and CEO; Tom Cullen, Executive Vice President of Corporate Development; Roger Lynch, CEO of Sling TV; Bernie Han, our COO; Steve Swain, our CFO and Stanton Dodge, General Counsel.

We're going to go straight into Q&A, but before we do that Stanton needs to cover the Safe Harbor disclosure. So for that, I'll turn it over to Stan.

Thanks, Jason. 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 you to 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 that we make during this call should be understood as being applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks described in our reports and should not place undue reliance on any forward-looking statements, which we assume no responsibility for updating.

Operator, we will now open up the call first for Analyst Q&A and then media Q&A.

(Operator Instructions)

Your first question comes from the line of Marci Ryvicker with Wells Fargo.

I have two questions, the first related to spectrum and the second to the core business. Charlie, not that I think that this will happen, but should the FCC find you violating some rule with regards to the designated entities that were used in the AWS-3 auction, first of all, how do you think about the $3 billion? And does that concern you at all? And then, secondly, I would assume if you had to pay the $3 billion that the restructuring the designated entities have with that spectrum go away, so then you'd have free and clear use of AWS-3.

And then the second question is more related to the core business. Now with Joe Clayton gone and you back in the CEO position, are there any priorities that are different at this point? How do you think about deploying capital to the pay TV business? Thanks.

This is Charlie I guess. I'll probably take the first shot at both of those and then maybe somebody will jump in on the core business. But on the auction, all I can say is I'm confident that DISH and the DE followed the rules of the auction. And I do not think -- I think the discount will be allowed.

I think you are correct that if you don't get a DE discount, the encumbrance will fall away. Obviously DEs get a discount for a couple reasons. One is the encouragement by the federal government and Congress and the FCC, who have passed these rules for economic development.

And the second is that the DEs have restrictions on their spectrum, so it's less valuable so therefore there's a discount. And obviously, they can't lease more than 25% of the spectrum to an entity for five years. They can't sell the spectrum without a penalty. So that devalues the spectrum to a DE.

It's probably one of the reasons that maybe some of the bigger players didn't use DEs because of the restriction on leasing, because they would like to deploy that spectrum into their networks immediately, and where they've used DEs in the past. And this auction they did not.

As far as the core business, I probably do look at things a little different than Joe. I'm certainly going through a review. I'm look at it economically and long term, so I look at the value of a customer and when you make an investment in a customer you can get return on that capital. Not all customers are created equal.

Certainly I see room for improvement in terms of how we allocate capital to customers and we've really gone along two different fronts. One is, I think there's room for improvement in terms of getting a better credit customer, and a customer that we believe will stay with us longer term and that is capable. Some of our products are pretty sophisticated so I think there's a bit of right-sizing for us in terms of making sure we're getting the more sophisticated customer to sophisticated equipment and maybe a little simpler equipment to some of our customers.

There will be some questions on this later so I'll just try to be brief but I think Sling TV adds a total different dimension because there the economics are much different. The cost of churn is very low. The cost of acquisition is very low. Those customers have a different set of economics than a linear core customer that we have today, and we want to take advantage of some of those things.

So, this is not as dramatic as perhaps what Netflix went through, but Netflix, when they looked -- so I'm not trying to insinuate that this is anything like this dramatic -- but it's somewhat similar in the sense that when Netflix went from a DVD business in the mail to being able to deliver something to people instantly through the internet, they started focusing on that side of the business because they knew long term that was going to capture more of the public.

Now, I'm not saying that's going to happen here but I do thing things like Sling TV are going to become more prevalent in the business. And the way you deploy capital will be different as a result of that. I think I'm fundamentally going top down and looking at those things.

Got it, thank you.

Your next question comes from the line of Phil Cusick with JPMorgan.

Hi guys, thanks. Charlie, can you talk about just the difference between the collusion that some have talked about you being charged with and the coordinated bidding you did with your DEs? Thanks.

Yes, I'm not an attorney so let me just -- I think we have been accused of -- I can only say that DISH and, to my knowledge, the DEs followed the rules, did not violate any FCC rule per the auction, did not violate any anti-trust law, and that the procedures -- the SEC has a procedure to go through. And they can verify that and they should do that, and that's a procedure that's been out there for 20 years, as long as the DE program has been out there.

People will be able to reply to the DEs application by tonight, by today, and then by early next week, I think on Monday or Tuesday, the DEs and probably DISH will have reply comments to that. and then by the 26th of May will be replies to our reply. So next week, we'll reply to any formal thing that people file in opposition, which I'm sure there will be some opposition. Then we'll file comments to that. But I can assure you that DISH and the DEs followed the rules and did what the rules -- and only participated in this auction the way the rules allowed.

Okay. Maybe if I can try a different one. I understand it's a little early on Sling to be giving subscriber counts, but can you give us an idea of order of magnitude of paying customers today? Maybe tens or hundreds of thousands -- is that measured in?

Roger may want to jump in here. Look, the results are encouraging. It's a brand new thing. The people, it eliminates some pain points for customers like contracts and it's instant gratification, and it works on existing devices for a lot of people. So we're really encouraged with it.

We don't think it's a flash in the pan. We think that it's long term, that IPTV is here to stay. Obviously Sony is rolling out a different strategy, CBS is rolling out a strategy, HBO is rolling out a strategy. So, we're going to see more and more of it. And we're hoping DISH and Sling TV will be a leader there.

We have our work cut out for us. It's much more complicated to do live TV than just a stream TV. We are on multiple devices in different makes and models with different processors. So even within the same device there's different processors and generations.

We're working with multiple programmers, they have different rules so we have some inconsistencies in the rules with our customers, which is a little bit frustrating for our customers. And we're not as good as we need to be technically.

On the other hand, again, you can go and read the reviews of the product for yourself but for the vast majority of people, they love it and they're really excited, and the vast majority of them are new entrants into the business, people who weren't paying for television before. So, we're excited about where it's going to go and I think it's going to be meaningful revenue for DISH.

We have to scale it. I think it will be not only meaningful for revenue but I think it will be meaningful value to the Company. Roger, do you want to maybe add something there?

Yes. When we launched it we really had three categories of customers we were going after. First and foremost was cord-nevers, which tend to be Millennials.

Second was cord-cutters. When we talk about cord-cutters we're talking about people that may have cut the cord two, three years ago as well as the ones cutting the cord today. And the final is supplementers, which are people who have traditional pay TV, will take Sling TV on top of it. And those are in order how we thought about how we would get subscribers, and that's really borne out.

We're seeing momentum across all three of those categories, with our main focus being cord-nevers, but increasingly, as cord-cutting continues, we'll see more and more coming from that category. And -- it wasn't surprising to us but I think it's surprising to many people -- there are people who have traditional pay TV and will buy Sling TV on top of that.

Thanks guys.

Your next question comes from the line of Craig Moffett with MoffettNathanson.

Hi, thank you. Charlie, I wonder if you could just reflect on the health of the traditional video business for a moment. You talked about -- I guess it was a couple of years ago -- your kids thinking you were crazy to be in video. I know your own subscriber losses were attributable in part to some programming disputes, but those subscribers didn't show up anywhere else in the industry. How much do you feel like we're seeing the decline of the sector? Is that happening sooner or more slowly than you would have expected?

And then a related question on Sling, if I could. You once said before the idea of skinny sports bundles, without regional sports but with ESPN, probably didn't make a lot of sense for you in the linear business, but something must have changed in that that's where you are with Sling. Can you talk about the role of regional sports in the Sling packages, if you would?

Okay. First, I would probably disagree with you. I think the losses in subs that we had probably did go to the other players. I think one of the reasons, I think that DirecTV would probably privately tell you they got a fair share of some of those customers. We know that when they took Viacom down the pass, for example, we got calls from people we'd never got calls from before. So, we know that it translated probably to some cable companies and certainly to DirecTV.

People didn't stop watching Fox News or CNN or Turner. We had back to back take downs of major programmers. Almost 100% of those people didn't quit watching TV. And if you're a Fox News guy the only place you really can get it is on linear TV. There's really not another avenue for it.

I didn't mean that literally. I just meant the sector had its weakest first quarter ever and actually contracted for the first time in the first quarter.

Yes, so then that leads to the health of the industry. I think it's mature. Again, I don't have every piece of data that every content owner has or our competitors have, but my general sense is that the linear paid television business probably peaked a couple years ago and that it's in a very slight decline in terms of number of households that will pay for the big bundle.

But it's not declining as fast as I would have thought it would. And the bundle is here. For the vast majority of people, it's still the best economic value. And I think that there's creative things being done to continue to make sure that people have good products.

You see what Verizon is doing to give customers a bit more choice. We've been doing that for a long time. I think people are going to have products for customers that satisfies their need without having them having to leave the bundle. But I think the world is changing and, I've said it for a long time, we're missing a generation in pay television.

And what's really nice about Sling TV -- the second part of the question -- is that we're really taking an approach with Sling TV where we had some visions of how we might do it. It ended up being that not all programmers wanted to work with us or weren't willing to work with us at the time. So, we're really working with the core programmers that we have and the discussion is more about how do we build our business together, because almost all Sling television customers are incremental customers for our content partners.

So, the discussions are much different than they are -- if we're talking about Fox, Fox News, they want us to pay a penny more and we want to pay a penny less and that's the extent of the discussion.

With Sling TV, it's a bit more about how do we get more customers who aren't paying for television now. What kind of bundle would it look like. Should we do things like pause or lookback? Or should we let them have a network DVR. How do we do advertising? How do we get customers to look at multiple devices? How do we get more minutes from the customer? How do we share data so we know better how to serve the customers?

Those are conversations where both parties win. It's not a zero sum game. The advent of Sling TV is probably going to go more the direction of content partners who want to participate within the guidelines we have today versus whether it's regional sports or sports. We would love to have regional sports in Sling television but I don't know that you can burden every single customer with the regional sports network when the vast majority of them don't watch it and it's very expensive.

On the other hand, the regional sports provider, it's all incremental business to that regional sports provider. So, they have to look at it and decide whether that a place they want to go. And if they want to go that route I think Sling television is a great platform to get them there.

Are you concerned that the cost of ESPN and the base bundle makes it so that it's really only sports fans that are going to be very interested but that sports fans also want regional?

What I would say, I'll make a general statement, is that probably within a household, a vast majority of the people watch ESPN. They may not all watch it every day but the vast majority of a household watches ESPN. I don't think the vast majority of a household watches regional sports.

So, I think they are two different animals. And, of course, with ESPN comes Disney and a lot of other channels. I think it would be difficult to do any kind of bundle without ESPN. I think that's not the case with regional sports.

ESPN goes across all -- they just have too many events. People are going to watch a national championship football game. There are just too -- they're going to watch the SEC network.

The nine states in the South, there's nobody that doesn't watch SEC football. There's people who don't watch the regional sports network from Tampa.

And we have real data on what our customers watch. This isn't Nielsen data. We have years and years of experience with customers. And ESPN is a valued partner, and Disney is a valued partner. They are the companies that took a chance on Sling TV so they are just invaluable in terms of putting that together.

Thank you, Charlie, very helpful.

Your next question comes from the line of Ben Swinburne with Morgan Stanley.

Thank you. Good morning. I wanted to ask Charlie about the quarter again. How much of the results are related, do you think, to the Fox dispute versus execution? Did any of your competitors actively market the fact that you had lost programming against you in the quarter? Because I noticed the connects were down quite a bit. I'm trying to figure out if that's a piece of what drove that year-over-year decline?

Bernie, you might want to follow-up. I'm just going to give a general statement. I'd say there's probably three big buckets.

One, I think the biggest bucket would be not just Fox but the fact that when you take something down, there's a tail on it for several months while customers have decided to leave you and they are waiting on installation from somebody else even when you bring the programming back. It started really last November and went through mid January with takedowns. So, that went on really throughout the quarter although they had tailed off by the end of the quarter.

I don't know that our competitors actively started running we-have-Fox-TV ads, but Fox certainly ran ads more and certainly connected them. If you're a satellite guy, you know there's another guy called DirecTV out there. I think everybody else somewhat benefited from that.

Fox is one of the few stations that you don't want to take down but the deal just didn't make any sense for us and we were prepared to live without Fox. And if we had to live without Fox we would have lost more customers but we would have gained customers long term because of the cost savings. So, we were certainly prepared to do that.

The second bucket would be that I am looking at the credit scores and overall economic, and I think we're probably a little less aggressive today than perhaps when Joe was here because I'm looking at getting a customer long term and I'm not trying to get a customer to make a bonus or get a customer to show to Wall Street because I'm very confident in where we are going so I don't need a play to do that.

And the third thing is that we are in a transition to 8PSK modulation scheme which essentially gives us 50% more capacity from our satellites. And we have MPEG2. We have only MPEG4 on our eastern satellite but our western satellites have MPEG2. They have the ability to do 8PSK modulation on that satellite but we still have MPEG2-only boxes that don't have 8PSK.

So, we're in the middle of a transition, or transitioning those customers out. And as we transition those customers out, there are times, either when we touch the customer and we lose them because we don't touch them correctly or we touch the customer and we lose them because it's a vacation home or it's a customer that hasn't been paying us, or he calls too many times, or he's just not a real good customer for us that's economical, and we may touch the customer out of our system. That is going to continue on to the end of this quarter before we do that.

The benefit of that is we pick up about 30% of a satellite in additional capacity. So, it's a very meaningful transition for us to pick up a lot of capacity that we can obviously generate more revenue with going forward, and have a more modern subscriber base out there than we do today. And of course all providers have that problem on set-top boxes. When you have set-top boxes that are 7, 8, 9, 10 years old out there, your whole system can't move as fast.

Bernie, do you want to add to that?

Yes, just to add to what Charlie said, on the churn side in the quarter, most of the variance of churn versus prior first quarters I think was the impact of the takedown. And in the case of churn, the tail on the takedowns is shorter compared to the acquisition side. So, we think most of the impact from the takedowns that we saw, or potential takedowns we saw, have run itself through the first quarter.

With respect to cord-cutting, as Charlie alluded to, the effect of cord-cutting has been much less than any of us expected. We do track where our churn customers go and that might have eked up just a little bit in the first quarter, on the order of maybe 1 point higher, but very immaterial in the scheme of things as far as churn goes.

On the acquisition side, the variance versus prior year first quarters, I would say most of that is actually due to what Charlie's talked about in terms of credit scoring and qualification roles. We had already started doing this a little bit towards the end of 2014 in terms of honing our profitability model and making sure that all our new subs are indeed profitable. Every subscriber is a mini investment for us.

The stock is an up-front investment, and obviously the churn is how long we're going to get recurring cash flows to pay off that investment, and then our margin on our business is how much cash flow we get for each month. And we've been continuing to refine it. Charlie, I think, is putting more of an emphasis on that than ever and that's had a bigger impact on our acquisition side in the first quarter than the Fox.

The Fox impact on acquisitions, when we do takedowns, like I said, the churn side is sharper, it's easier to measure. On the acquisition side it's a little bit harder to measure. And we think the tail is much longer on the acquisition side. It's smaller but the tail is longer just because it's the perception. We get a lot of negative press during a takedown, of course, and the tail is a little bit longer.

One thing I failed to mention on the churn side is our price increase. We do a price increase every year in the first quarter. This year was no different. We had a price increase go into effect essentially February 1.

The churn we saw from this year's price increase was not materially different than past years. In fact, possibly a little bit lower. And, if anything, we think that the churn that we saw from the takedowns may have pulled forward some of the churn that we would have gotten in the price increase.

That's great color. I just wanted to ask one follow-up on Sling, maybe for Roger. How do you think about taking the product to the next level? And I'm curious, particularly on VOD and On Demand content, it would seem it's largely a live linear stream today but VOD is a big piece of probably where you want to go. Can you just talk about how realistic it is to get those rights factored into a $20 price point?

And any comment on ad sales? I know you have a small base but it's different because it's streaming and IP. I would imagine there's some opportunities on the advertising side wIth your avails to do something interesting with this product that you don't do on the DISH linear service.

Sure. On VOD, there's actually quite a lot of VOD that's available today. I think we need to do a better job of making it easily accessible to customers. But with the different programming partners we have now, there's probably over 10,000 hours of VOD content. That's probably going to increase.

We have, as Charlie mentioned earlier, it's a bit inconsistent, depending on the channel partner, whether we have VOD and lookback rights. And whatever it is today is, frankly, the worst it will ever be. It's only going to improve from there because as our channel partners secure the rights that they can grant us, or grant us additional rights that they have, we'll continue to make that available.

It started off live, and obviously sports are consumed mostly live, but I think as this business evolves, you'll see probably more and more viewership in aggregate go VOD. And we already see channels that have lots of VOD content and On Demand content. Frankly, the majority of their viewing is of the On Demand content and not of the live channel. So, I'm quite bullish on what we will see on VOD.

On ad sales, there's a lot of interest from advertising partners in this model, for obvious reasons. It's reaching a demographic that's highly valued. It's also the ability to do highly targeted advertising.

We're just in the very beginnings. And, frankly, the main thing we're focused on right now is making the technology work, because it's quite complicated to make the dynamic ad insertion model work on live television, especially when you have sporting events where the commercial break, you think it's going to be here but somebody called a time out so it's came in earlier than you expected. So, the main focus right now is really making sure the technical infrastructure works as it's supposed to.

And we're seeing no lack of demand from advertisers to want to participate in it. So, that will be something we'll ramp up later in the year. But right now, it's really more about the nuts and bolts of making it work.

Thank you, guys.

Your next question comes from the line of David Phipps with Citigroup.

Hi, thank you for taking my question. Can you just talk a little bit about the upcoming 600 megahertz auctions. And the AWS auction, as a run up to it you built a substantial cash balance in order to become a big bidder in that. How are you thinking about the upcoming 600 megahertz auction?

This is Charlie. I think, A, we would like to participate; B, I think, as we said probably last call, our focus is on getting through the AWS-3 auction and getting the licenses, the DEs, helping the DEs with whatever we are asked to do to get their license approved. Because that auction, in my opinion, probably has to get closed out before anybody can really start thinking about the incentive auction.

And obviously, one of the undercurrents of motivations that are out there with some of the people that have publicly commented on DISH is that there are some that perhaps would like to see that incentive auction delayed because there's really only two people that have low band spectrum, and they have a duopoly in the business if other people aren't allowed to compete with the low band spectrum.

Obviously, to the extent that could be delayed, would be a positive. And one way to delay it is to delay the AWS-3 auction results, potentially even blowing it up. That's some of the undercurrent. So, we have to get through that process before we think of the next one.

The second thing will be that later this week, people will be able to comment on the rules for the incentive auction and the DE rules, and so forth and so on. And we think there will be a lot of comments on that, as well, because we think there will be things that people want to change, as there always is after an auction. There will be rules that people want to change about how they perceive the auction. So, we'll have to see those rules and see whether it's conducive for us to participate.

But we have a core skill at DISH that we understand auctions. They're complicated. This one, the incentive auction, will be very complicated because it's at least two or three auctions, a reverse auction and then a forward auction, so it will be much different. There may be a reserve set aside of some kind of some amount of spectrum. We're confident that if we participate we can participate at a high level.

Thank you.

Your next question comes from the line of Frank Louthan with Raymond James.

Great, thank you. Just two quick questions around Sling. What do you think is the right target amount of content at your $20 price point? From the initial launch you've added a little bit of content. Is there an optimal point, do you think, that it will really get some more critical mass and take off? And then longer term how important is a broadband product of your own to be able to really be successful with Sling? Thanks.

Sure. This is Roger. We have added quite a bit of content since we launched Sling. When we launched it, it had 12 channels in the base pack and today it has over 20.

And I feel quite good about where we are with that content. I'd say there's not really another content provider that I feel we'd have to put in to be successful. I think we have a base of content that we can be successful with today. That doesn't mean we won't add more but I think we're going to be pretty focused on the price point because that's, I think, a key to our success, too.

When we launched, it was a bit skinny but we knew we had other things coming down the pike. And obviously we've launched A&E and we've launched AMC and HBO, and EPIX, and now we've started launching Latino. So, our focus is probably going to be more in filling out more genre tiers to keep more flexibility in it. But all-in all we're in a pretty solid position right now on the content side.

This is Charlie. We monitor what customers are asking for. And there's actually some surprises. And one of the surprising things is when we look at viewer measurement between, say, on the DISH side and look at it on the Sling TV side.

For example, one of the things that jumps out at you is, when you have those content providers that gives us the ability to pause their programming and give us lookback rights so we can start our programming from the beginning or start a programming that you might have missed yesterday, when you can do that, their viewership goes way up on Sling TV versus what they would get on linear TV at DISH. So we know there's things that, from a consistency point of view, we can improve the product on.

There's just no one channel that people are saying -- man, I've got to have this channel or that channel. My personal belief is there's one or two programming content partners I would like to work with that we're not working with today on IPTV because I just think their breadth of content is compelling and they shouldn't miss this opportunity and I love working with those companies. But whether we get there or not with them -- we don't think we need to from a business perspective from Sling, but I think that long term it would make sense to try to bring them on board and show them what we're doing.

Frank, on the second part of your question about broadband, in my view, the point of being over the top is that you can abstract your service from the underlying delivery mechanism. I think the risk there is what happens -- frankly, what the cable companies do, and does net neutrality protect online video distributors enough from either predatory pricing or cross subsidization from their broadband service into their video service or data caps or all the myriad ways they could use their broadband pipe or broadband monopoly to thwart online video. Assuming we get reasonable protection on that, then I don't personally feel the need to be bundling broadband with an over-the-top service.

Okay, great, thank you.

Your next question comes from the line of Vijay Jayant with Evercore ISI.

Thank you. This is David Joyce for Vijay. Just wanted to touch on the programming. You mentioned how you do have a lot of packaging choices but I was wondering what your view is in light of the new Verizon FiOS programming packs. How similar/dissimilar is that from what you do? Is that something you can do on it? And how could that be applicable both to your core pay TV service and to your Sling TV strategy?

I'll talk about it related to the linear service. Roger might talk to the Sling service. Each programming contract is different. There is some flexibility in programming contracts. We don't know what the Verizon programming contract says and we don't know who's right and who's wrong in that dispute.

It may be the way I might have handled it five years ago in terms of what Verizon did. I wouldn't do it that way today because I think that, ultimately, you've got to work with your content providers. I think there's just too many opportunities out there today that you could work together on that you'd probably, even if contractually you could do something, I don't think we would normally go in and do something that would be harmful to one of our content providers. Certainly, I'd have a discussion with them before we would do something perhaps that drastic.

I think customers are looking for choice. Customers are looking for saving some money on video. Whether the Verizon approach is the right way to do it or not I don't know. I think the way we do it today is still a pretty good approach. We have good, better, best packages.

We've contractually done that with our content providers. They know where they are in those contracts, they know where they are in those bundles, and it's pretty good selection for customers. When you get a bundled product you get discounts as a consumer, so it's still probably, for most customers, the best value.

The more concerning thing, the elephant in the room, is all those customers the last 3, 4, 5 years that have cut the cord, or those customers for the last 10 years aren't paying for TV as they graduated from college and they didn't pay for TV. And I think that's where Roger and Sling TV come in. I think that's a much bigger segment of the market and it's incremental business. So that's where we are shining the flashlight a little bit more just to say I think that's a better place to go. Roger?

Our packaging strategy is really largely about two things. One is to make the price point attainable for people who aren't willing to pay for the big bundle. And two is to give lots of flexibility. But when you see some pay TV operators, and some of the cable companies now, getting more aggressive with their skinny bundles and trading people down so they can try to retain video subs, that may be -- some people look at that and say it's similar to what we do. I actually don't think it's similar. I don't think this is just about the size of the bundle.

If you want to go to a cable company and get a skinny bundle, you're calling their call center, you're passing their credit check, you're scheduling your installer to come, you're signing a two-year contract, you're going through all of the traditional pay TV hoops that you have to subscribe. If you contrast that with Sling, most people pick up their mobile phones, create their account through their phone and start streaming. It's a mobile-first service.

So, even if some traditional pay TV companies created exactly the same bundle that we've done, we'll still reach different customer bases, because our technology enables us to have a fundamentally different business model. And the customers that we're targeting for it are people that are used to and comfortable consuming content on mobile devices. Obviously, we stream to TVs and, frankly, that's the majority of the hours of viewing, but it's not the majority of the session.

Great, thank you.

Your next question comes from the line of Tom Eagan with Telsey Advisors.

Great, thank you very much. Just a follow-up on Sling. Obviously there are a lot of over-the-top services that could compete with Sling. Roger, what does your research tell you about these 10 million to 15 million OTT or OTA households, like how much do they want to spend?

We did some research in the beginning on price elasticity but, honestly, Charlie would probably tell me we wasted money doing that because, when there's so many launches of a service like this, because there's nothing really to compare it to previously. We felt like the $20 price point for a base pack was really the magic number to hit. And we were pretty focused on making sure that we get enough quality content that we can appeal to a broad enough segment in the market and an attractive price point.

If you're a cable company, you have a very different business objective. You have to get high penetration within a small geographic footprint. That's where your economics are driven by. Therefore, you have to construct packaging bundles that can appeal to a broad segment within a geography.

We're the opposite. We don't need deep penetration in a single geography. We can get broad penetration across the entire US, or narrower penetration across the entire US. So, that fundamentally should drive a different pricing and packaging strategy, which we do deploy. And in ways that's an advantage that we have.

We don't need to be what the cable companies are doing. We can do something different. We're not replicating that big bundle because we don't have to. It enables us to be different which lets us go after this segment for whom the big bundle is not meeting their needs.

Right. Do you think that your customers are also taking HBO Now and Amazon and anything else over the top?

We know that customers that subscribe to Sling TV are very likely -- they over-index in subscribing to other streaming services, too. That shouldn't be a surprise. In the case of HBO, they can take HBO Now from HOB or, as many of them are doing, they are taking HBO from us directly.

All right. And then I have a follow-up. Charlie, with the Friday's appellate court decision out of the FCC, the FCC lost the decision to the programmers, but there's still the implication that the FCC wants to sign the light on the TV network bundle. Do you see any risk to the operators of the industry going more a la carte? Thanks.

I think it's something the FCC has looked at and should look at and Congress should look at. But I think that there's just -- we think a la carte is a good consumer thing. We are one of the few companies that have supported a la carte consistently.

But having said that, I think there's real practical ramifications about how you might do something a la carte. In that particular proceeding it's not just a bundle of video. I think the bigger problem is a bundle of tying broadband, maybe bundling broadband or wireless in a way that would be non-competitive to people who have video services over broadband.

So, I think there's other kinds offer bundles that might be problematic. I don't know whether they will look at it a la carte or not but I think they certainly should. We all, and they probably should, look at the different bundling techniques that are out there that are beyond just a la carte video.

Right, thank you.

Our final analyst question comes from Jonathan Chaplin with New Street Research.

Thanks for taking the call. A question for Mr. Ergen. On the last quarterly call you said now that the auction was done the discussions would begin with a host of different parties through which you would decide what to do with the spectrum. I'm just wondering how those discussions have been going, what you've learned during the process, and where your thoughts are on potential uses of the spectrum now. What have you crossed off the list? What looks compelling?

I think there are lots of discussions that have gone on since the auction, A. B, I think probably the primary thing is that the spectrum that DISH already owned is much more valuable than perhaps the analyst community gave us credit for, and perhaps much more compelling than you'd give us credit for today, even. I think the combination of video and spectrum is compelling.

And we're also learning that the technology is changing. When technology changes, basically virgin spectrum is a real advantage. And the technology is changing -- maybe I'll throw it over to Tom because you're a lot more close to that than I am -- but the technology is changing in terms of how you might add spectrum to an existing network, or how you might build spectrum. Technology is changing materially in terms of how radios and the cloud interact, or the RAN.

The technology changes in terms of how unlicensed spectrum might be used in terms of with license spectrum. You've heard terms like LAA and LTEU. So, position-wise, we're in a situation where we always thought it was really good but we know it's really good. Tom, you might want to just add some color to that.

Yes, Jonathan consistent with what Charlie said, we have non-disclosure agreements with many companies that we've been having discussions with since the auction ended. We're continuing those discussions in parallel with the DEs' process that they will be moving through with the FCC in Washington. And as Charlie mentioned, there are trends that are going on, like virtualization and like unlicensed and licensed working in a complementary fashion.

We're also continuing to work 3GPP and the standards effort to get our bands incorporated. And then as a back drop, you all know just in the last few months the emergence of things like Periscope and MeerKAT and the various OTT services, we know, and obviously many people in the industry have acknowledged, that a lot of those sessions are not only wireless but they're mobile.

So, while a good portion of that is occurring over traditional Wi-Fi in a world with larger bit buckets or unlimited data plans, the consumption patterns of video consumption over mobile devices on LTE networks continues to grow. It's opening up conversations with non-traditional players for us and we continue working those discussions.

Thomas, as you go through those discussions, are you getting more enthusiastic about, A, wholesale model for deploying the spectrum, particularly as guys like Google come into the industry, as well? Or are you equally balanced between deploying it yourself and potentially selling it to one of these guys?

I don't want to indicate which one has more enthusiasm than the other, but we clearly are exhausting all avenues. The wholesale discussion is an increasing priority, I think, in the minds of some players whose business models are more dependent on high speed, high capacity, low latency cloud connections.

Got it. Thank you very much.

We will now take questions from members of the media.

(Operator Instructions)

Your next question comes from the line of Phil Goldstein with Fearless Wireless [sic -- FierceWireless].

Hi, Charlie. This is Phil from FierceWireless. I had a question regarding something that John Ledger said in his remarks on their Q1 call where he was talking about how there are adjacent industries next to wireless. And his exact quote was -- As content and entertainment and social are moving to the Internet, the Internet is moving to mobile, these industries, adjacent industries are in the same game we're in. I continue to think about the cable industry and players like us as not competitors but potential partners and alternatives for each other in the future.

Given that stance that T-Mobile has laid out, do you see them as a more natural partner and ally in wireless than anyone else or are you still keeping all options open?

As you might expect, we're keeping all our options open. But obviously we admire what John and his team have done at T-Mobile, and certainly we follow what they do.

Okay. Do you think that his commentary about the adjacent industries to wireless being partners is the right way to think about the industry at this point?

I do generally agree. We probably even go a little farther in the sense that, if you look at where things are going -- and I say long term, it's not even that long a term -- in the next three to five years, if you just look at that time frame, everything has to be -- basically the cloud is a second brain and you've got to be connected to that brain to do things.

It's not just wireless spectrum and video. It's going to be all kinds of other peripheral things that are all going to come together. You get backhaul and you got all kinds of information on entertainment sources, they're all going to be coming through one pipe. And there's consistency of service and how you would do that and how customers can grow to rely on that, and what they will pay for and what they won't pay for, and how unlicensed spectrum gets used in perhaps a better way than it gets used today,

All those things come together. It's a little bit easy for us to play in that market because we're a new entrant. And it's probably a little easier for T-Mobile to play because they aren't quite as big and bulky as the Big 2. They're probably a little bit more innovative in what they're doing. But I don't know whether our paths will cross or not.

Okay, thank you.

Your next question comes from the line of Malathi Nayak with Reuters.

Yes, hi thank you for taking my question. Charlie, now that you've been back in the CEO seat for three months, I was wondering if you'd elaborate a bit on your wireless strategy for DISH moving forward. Have you also had in recent months any talks with Sprint or T-Mobile, perhaps, in terms of partnerships? Both those companies seem eager to work with you. That would be great if you could just provide some color on that. Thank you.

Okay. I think I've been CEO for about six weeks. Let's start with that. And obviously the wireless strategy I've been working on a long time. And Tom is working a lot more on wireless strategy probably than I am right now.

I think that where we are, we have two time horizons, which is a little bit longer term. But the short-term focus is clearly to answer any questions about the wireless auction that the FCC might have. That's a process that's going on through final comments on May 26 so we're involved in that. And then we start looking at the next incentive auction in terms of where that goes.

That's one side of it. The longer-term side of it is really the same answer to the previous that Phil asked, which is how do you put all of that together in a system design that's meaningful to the American public and the consumer, and something that makes their life better and something they are willing to pay for. Tom and his team spend a lot of time looking at those things.

Obviously, I don't think it would be a surprise that as we go through this process that we probably will be talking to everybody in the industry, and that would include by definition T-Mobile and Sprint.

Your next question comes from the line of Shalini Ramachandra with Wall Street Journal.

Hi Charlie, Roger, everyone. I had two questions. What ways do you think an AT&T and DirecTV deal going through will affect you? And, secondly, as cable operators are looking more seriously at Wi-Fi first solutions and Google on the edges, how soon do you have to find a partner to enter the wireless?

I didn't quite hear the first one. I think it related to AT&T and DirecTV and how it might affect us?

Right.

We believe that -- we're public about that one that we believe there should be conditions on that merger, which we certainly will make our points known. And obviously they'll have scale in programming in an unprecedented way in the industry. They own some programming, including regional sports. And they obviously have broadband connections to the large number of homes.

We'll have comments on those kinds of things. But certainly they will have enough scale that they could cause mischief in the marketplace and to the consumer. We hope the regulatory bodies will be vigilant, as they have in the past, and look at that and decide whether the merger is good for the American public or not, and if they decide that it can proceed that they would put meaningful conditions on it.

In terms of the cable and Wi-Fi I'm not sure. Maybe I'll give that one to Tom.

The question I think, Shalini, was how does the cable Wi-Fi activities influence our timeline. I don't think it does. We're clearly monitoring what's going on there and I think it's a potential solution in some areas and not others. I think there's probably a fallback (inaudible) in most cases. But, again, that's not really impacting our timeline.

Okay, thanks.

Your last media question comes from the line of Mike Farrell with Multichannel News.

Hi, Charlie, and thanks for taking the questions. I've got two really quick ones. I'm just wondering along the line of consolidation that is happening, going to happen, does the Charter Time Warner Cable combination present more problems to you than a Comcast TWC merger would have? And just one additional thing just on the overall concept of bundling, do you see the bundle starting to loosen up enough where distributors are actually having an advantage in negotiations now? And just along those lines, how are your Viacom talks going?

I'll take the first part of the question. Charter Time Warner, should they do a transaction, we'd certainly look at that transaction and see and I'm sure, just like the regulatory bodies, look at it. Each transaction is a little bit different.

Obviously Charter and Time Warner bring different things to the party than Comcast Time Warner, not the least of which is Comcast owned NBC. So, there's a whole section of business on the content side that I don't think Time Warner has today, or that charter has today. So, there will be differences but there will also be other things that are more problematic in a different way.

Yes, I was just thinking from the concept of their rural footprint. Would that have more of a direct impact on you if Charter itself got stronger and could get more aggressive?

I think they're pretty strong and aggressive now. We have to look at anything. I don't want to prejudge anything in terms of what -- I think we've always looked at it with a pretty fair and open mind. We're trying to compete and as long as we're allowed to compete we're okay with most things. It's just when there's things that don't allow you to compete that we like to point those things out.

As far as the bundle I would say -- it's a good question -- I'd say, in general, the tilt has moved a little bit more in the distributor's favor. But the content owner still has some advantages and it's probably a little stronger in negotiations than a distributor. But I think it has moved in the distributor's direction some because you just can't force -- there comes a tipping point for content providers when it's $100 a month that you lose more subscribers than you gain. And you start missing, like I say, you start missing a whole generation and it's hard to get it back.

There's channels in the Top 20 channels that Sling TV doesn't have, and the Sling TV customers aren't asking for them, for the most part. That makes it interesting. When we get to distribution negotiations with providers, we are armed with real data in terms of the affect it will have on our business.

We knew Fox News was going to have an affect on our business. It was probably the number two channel we'd never want to take down as a company. We'll take anything down if it's a horrible deal because it costs you more money than you save. It was a horrible deal, so that's why it went down. And if we get a horrible deal in the future from somebody based on n our data, we'll run the economics.

We feel very confident to run the economics whether taking something down makes sense or not. I always tell my people if you're going to take something down, be prepared to live without it forever, otherwise don't take it down. And ESPN would be the number one thing I wouldn't want to take down. Fox is probably number two. Fox News is probably number two.

So talks with Viacom are going on and look encouraging?

We're not going to have a discussion of Viacom in the public domain other than we've had a great long-term relationship with Viacom. They're a valued partner. We just did a deal with EPIX with them, I think last quarter or maybe the quarter before. We've had a good long-term relationship there.

Obviously, the distribution of their content is a bit more diluted now. If you're a Netflix customer and you can watch Sponge Bob or something, maybe you don't place as big a value on the linear side. It depends on the strategic direction of how content players go. But Viacom is fairly well distributed on most platforms out there, so we have to take that into consideration when we look at it for our platform.

Great. Thanks.

All right, I think that's it. All right, thanks, everybody, for joining.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.