DISH Network Corp (DISH) 2015 Q3 法說會逐字稿

Good afternoon. My name is Kyle and I will be your conference operator today. At this time I'd like to welcome everyone to the DISH Network Corporation Q3 2015 earnings conference call.

(Operator Instructions)

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

Thanks, Kyle. And thanks for joining us, everyone. My name is Jason Kiser. I'm the treasurer here at DISH Network. I'm joined by Charlie Ergen, our Chairman and CEO; Tom Cullen, EVP of Corporate Development; Roger Lynch, CEO of Sling TV; Bernie Han, our COO; Steve Swain, our CFO; and Paul Orban, our Controller; and Stanton Dodge, our General Counsel.

Before we open it up to Q&A, we do need to do our Safe Harbor disclosures, so for that we'll turn it over to Stan.

Thanks, Jason. And good morning, everyone, and thank you for joining us. We ask that media representatives not identify participants or their firms in your reports. We also do not allow audio taping and ask that you respect that.

All statements that 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 that we make wherever they appear. You should carefully consider the risks described in our reports and should not place undo 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 we'll follow that up with media Q&A.

(Operator Instructions)

Your first question comes from the line of Tuna Amobi from S&P Capital IQ. Your line is open.

Hi, good morning, and thanks for taking the call. Charlie, it seems to me there's been some pretty significant developments on the DE front since the last call, with the two DEs. In your communication with the Bureau, with the FCC media bureau, I'm just wondering if you can update us, the core things that have transpired. And the two DEs, I'm wondering, the 10-Q alludes to potential capital raising, loan exposure, so as you think about where you go from here and what also that means for your various options, given those developments, can you summarize perhaps for us the thought process here/

And, separately, I don't know if Roger Lynch is on the call, but any update on the trial conversion for your OTT subscribers. In other words, what are you seeing in this past few months for the trial in funnel? And any update when you can launch your dual stream or multistream offering, that would be helpful, as well. Thanks.

Okay. This is Charlie. I'll try to take the first part first and maybe Stan you will want to jump in here. Obviously we decided to partner with DEs because that's what the rules allowed people to do, and everybody had done that in the past. So, we were disappointed when the FCC ruled that the DE discounts would be disallowed.

As a result of that, and discussions with the DEs and the ultimate decision that they made was to return licenses rather than pay $3.3 billion of lost discounts. And then those licenses will be reauctioned at some other point. Our thought process is that we will participate, we plan to participate in the reauction of those licenses, and the DEs will decide whether -- they have filed a notice to appeal the decision. So, there's still about $2.5 billion of discounts at issue with the FCC. They have filed a notice of appeal. It would be up to them as to whether they appeal.

I think when I look at it, I think they have a strong case and I'm confident that they followed the rules. So, that's the state of that. To make sure people understand, the current risk now is that the licenses would be reauctioned and the DEs would owe the difference between the auction price that they bid and the auction price that the licenses actually go for.

I think we disclosed the maximum exposure if the licenses were to be sold for $1. That's probably not a realistic case. Obviously we plan to participate, and I think we would bid more than $1. And I think the licenses in general are pretty valuable and I expect that they are going to go for pretty high prices. But there is some exposure assuming that any legal resolution would be unfavorable to the DEs.

So, that's the gist of where it is. From a practical point of view that's not something that's keeping me up at night. Stanton, what did I leave out there?

I think it's a pretty good summary.

And, Roger, do you want to take the OTT questions?

Tuna, on your question about trial conversion for OTT, there's a couple of ways that we measure that. One is what we call the role to pay -- so, how many convert at the end of the trial. And then what we also see is subscribers who didn't convert at the end of the trial who then come back as a paid subscriber in the next month or so. We are seeing in line with our expectations with the conversion for OTT. And we see it really coming in those two categories.

Strategically the way we think about it is that's a number that it can be good to be higher, it can be good to be lower, depending on your action. You may take actions to drive lots of activation knowing you will get a lower role to pay but end up with more subscribers. That's not a bad thing. That could be a good thing. It's something that's really dependent on the promotion that we are doing. But overall it's in line with our expectation. And multistream, we don't have anything to announce on that.

Okay. That's very helpful. If you can allow me one follow-up question for you on the answer you just provided, as well as Charlie, I have a follow-up on your answer, as well. Roger, just real quick, the conversion rates, just get a pretty rough ballpark. Would you maybe say 10%, 20%, 30%, 40%? And how is that trending? Just to get an idea of this early stage. And then, Charlie, thanks very much for those answers. One thing I was also looking for is some type of assessment of what this all means for how you view your options at this point. Thanks.

Yes. I'll take that and then you comment on OTT. At the end of the day, I think because of the DEs in giving back licenses and not spending another $3 billion, I think it probably leaves, as DISH, most of our options still open in terms of where we go. Obviously, in general, with our DE partners we have an interest in basically 20 megahertz uplink, 50 megahertz downlink of spectrum that's in, for the most part, high capacity spectrum, which they are not making any more of and it's a pretty sweet spot in terms of frequency for the data demands that we see coming for networks. So, I think we are very well-positioned there. I think most of our options are still open.

I think on my last conference call, I think our thought process has shifted somewhat in terms of looking at partnering or building out with somebody else or selling or leasing licenses because we needed the FCC to -- the FCC has been on a competition focus for a long time and I think the ruling against the discount didn't really help the competitive side of it. It makes us worry a little bit about where the government is going on decisions, because obviously that decision was very beneficial to the two big incumbents. And they've done a lot of stuff to help for competition, not the least of which is the reserve spectrum set aside in the 600 megahertz. But that ruling was a bit inconsistent with that competitive message we've heard in this Administration, and which they generally have held to.

We think the risk factor for us is a little greater -- more standalone, let's put it that way. And OTT, before Roger answers it, I think one of the things in OTT is, OTT is a little different and people can move in and out of it pretty easily because you do it all on the internet, so somebody like Netflix sees a lot of people moving in and out. They don't generally do that as much on linear television. There's also probably a seasonality to OTT that's probably maybe a little bit different than what we see in linear TV. So, we don't know all those answers, pretty early in the process.

OTT also, we are far enough along to know that for certain customers, particularly millennials and in particular people who are not in the pay TV universe today, or not in the pay TV universe in a big way, we know that it's a pretty attractive product for them. And we know that we are bringing our content partners new incremental subs that they are not able to get any other way. So, I think the future is probably pretty bright for OTT in general and hopefully for Sling.

You're asking for specifics. We don't release the specific numbers but I do want to emphasize that the way we think about free trials is not just the conversion, which is in line with our expectations, but it's also, once people try it, even if they don't convert, we do see a good percent that come back a month later and subscribe to the service. For us, getting people to try the service is a big objective of ours because we know the more people try it, the more we end up with paying subscribers.

Got you. Thanks, both.

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

Thanks. Two questions, please. First on Sling, any color on what buy-ins are on the additional tiers -- what kind of ARPU are we seeing for the product? And, second, Charlie, I think there was some talk that there could be some accounting rules that may allow you to amortize a spectrum before you relaunch service. Can you talk about that? And if that's the case, what kind of tax shields could we create from that? Thank you.

Okay. I'll start, Vijay, with your question about buy-ins. The add-on packs, we don't release specific numbers on them but the add-on packs are quite popular. You can imagine right now sports being in particular popular with college football. But I'll just talk strategically what we see is people come in, try the service, they try out on packs. Those who stay, we do see people who, throughout their tenure with us, will increase the add-on packs. Some will decrease it but we do see a net increase over time in how people take those services as their tenure increases.

I think I'd also say with OTT you have to realize that we are really trying to have a platform that's an alternative for our content providers to reach a market that they don't reach today, or to keep a customer who may drop out of linear TV in the future, and then also an advertising model that at this point doesn't have the DVR issues where people can skip the commercials quite as easily, but also has realtime data that allows automatic ad insertion to be a totally different model for our content providers in terms of advertising, which we don't think goes away the way it might go away and the way it might be more challenged in linear TV, and also the ability to change those commercials all the time so that you're not stuck with a commercial. When people view it seven days later that's going to be a materially different viewpoint.

And also it allows people to take their VOD library, monetize it, and allows people to watch it on multiple devices. So, it becomes more competitive to the Netflix and the Amazons of the world because we give people the ability to binge view, watch on all their devices, and have more meaningful, maybe ultimately less advertising load but more meaningful commercials. So, it ends up being a way for content providers to put the genie back in the bottle a little bit on some of the leakage that we see out there from their value proposition.

And they are going to have alternatives. Some people are going to go outside the pay TV universe to new entrances, as people have done with Sony or Netflix or Amazon. And some people may feel more comfortable in the pay TV universe. But we are an alternative for that. We are building that platform and doing all the things technically that you need to do. It's difficult and we are not perfect yet technically, so one of the obstacles we have had is to perform technically to the level that we can on linear TV. We are not quite there yet but we have made a lot of progress there and we are certainly getting closer to that.

On the amortization for spectrum, I'll leave Steve Swain handle that.

Yes, this is Steve. We and an advisor believe the FTC granted certain spectrum rights early this year. These rights were a triggering event for tax amortization, so I'll just leave it at that.

But I think it's fair to say we don't believe we are a net -- we probably don't have a tax liability for 2015.

That's correct. You can see in note 4 of our 10-Q the current cash taxes paid year to date. And with the tax amortization, as well as being in an overpayment position from prior years, we don't think we are going to be a cash taxpayer in 2015.

And to clarify, that's on a federal basis. The $15 million that Steve alludes to that's disclosed, that's state tax cash that we paid.

Steve, you might -- before I get the question, but when you look at the payment that was imposed by the FCC on the spectrum auction, I think that's probably a deductible item, too. And that's in the fourth quarter.

That's correct. Because it's probably going to come up, a couple notes as you update your fourth-quarter estimates, things that I want to highlight from the Q. Because the FCC payment was announced and made in October, you will see the bookkeeping for that in the fourth quarter. There will be roughly an incremental $500 million of expense on the consolidated P&L and roughly an incremental $400 million of operating cash use on the consolidated cash flow statement.

And then while we are at it, one additional note. In late October the FCC granted certain wireless licenses with a carrying value of approximately $10 billion. As these licenses are prepared for commercialization, we anticipate capitalizing interest expense related to the carrying value of these licenses, which we expect will significantly reduce interest expense in the fourth quarter.

Great. Thank you.

Your next question comes from the line of Tom Eagan from the Telsey Advisory Group. Your line is open.

Great, thank you. A follow-up also, for Roger. Last quarter you mentioned on churn that the single-stream nature of the service was a bit of an issue for subs. So, first, is that still a factor? And then I have a follow-up. Thanks.

I would say it is still an issue. I think people are a little less vocal about it than we had seen previously, maybe because people understand it's a single-stream service. But we know as a single-stream service that it does have some limiting effect on service.

Great. Okay. And then for Charlie separately, on Sling TV and the programmers, with the continued decline we have seen in the overall pay TV base and the stock pullback among the entertainment companies, have you seen an increase interest among the programmers to be on Sling? Thanks.

I would say in general, yes, I think obviously where there are early adopters and Disney being the most open-minded about trying some new technologies and others have followed that. And I think other people are taking a hard look. Obviously a lot of people have done deals with Sony for multistream service. That's a different model. So, I think they are getting data now on -- certainly all our content providers are getting the data from us in terms of how the business is going. So, I think there's renewed interest in where OTT can go.

What's happening is, I think there was probably a market over-reaction last quarter, where three years of data all got -- we have been talking about it in a conference call for those three years but finally the cat was out of the bag and the numbers were just too great and everybody had to come clean. But those trends weren't -- the last quarter wasn't as bad as everybody thought it was. Those trends have been building for the last three years and everybody caught up at one time.

This quarter, it's probably more representative of still continued pressure on the linear model. It's somewhat masked in the sense that what a lot of companies have done is you will take a customer with a mini bundle or a skinny bundle and they still count as a subscriber but their ARPU obviously goes down. So, you might have some people out there with a package of network and HBO for $15. That person still counts as a subscriber but he's not paying the $89 average ARPU that they had before.

Linear TV is still a mature to declining business. People do want to keep customers and that ARPU just goes down. We have taken a little bit different approach where we said let's go get new incremental customers in a declining market, let's don't let the millennials and the next generation not get involved in pay TV, let's give them a skinnier bundle of channels but let's make sure it's attractive channels and charge for them.

So, that's the two things that are happening out there in the marketplace. We think Sling TV offers a pretty attractive alternative to our content providers for them to get incremental subscribers and get involved in an advertising model that's more lucrative than linear TV. So, in general, when you are able to articulate that with content, they are pretty much all interested in that.

So, I think over time, our goal as a company would be that we realize that we are going to lose, all things being equal, subscribers in linear TV, we hope we gain subscribers in OTT and Sling TV, and when you put those two together, we hope that our subscriber counts grow positive in the future as opposed to negative when you combine the two. And we hope that the OTT customer today is as valuable or more than the linear TV subscriber that we get today, because the linear model is challenged.

This is the way I look at it -- and other people could argue different ways to look at it and this is probably the most conservative way to look at it. I look at the fact that you have, for a linear subscriber, I look at all the free programming that you give that subscriber, and I look at that as my total SAC. So, our SAC is a lot more than $700 because we give discounts for a year or two, and our competition gives discounts. So when you look at that, you get well over $1,000 today in terms of SAC. That's point number one.

Point number two is, that customer, he may be in a two-year contract but in two years he's going to have materially different options than he has today. He's going to have not only cable companies and phone companies and satellite companies as an option in two years but he's going to have multiple OTT providers, whether it be Apple or Sony or Amazon or Sling or whatever. He's going to have multiple OTT opportunities to switch from linear television. I think, logically, the life cycle of a customer today in linear is less than it was three or four or five years ago. That life cycle has continued to decline. So, when you put all that together, we have just taken an approach that we think is more economical to move with the trends and offer alternatives.

Great. Thank you.

And not be worried about whether we lose subscribers in a particular quarter, but make sure that long term we put ourself in a position to gain subscribers, and, probably more importantly, put ourself in a long-term position that the subscribers that we add and the subscribers that we invest in are going to be profitable for us as opposed to just a statistic and a number on the balance sheet.

I don't think that $19.99 is a sustainable model for this industry for a package of linear television. First of all, you're not being honest with the customer, because nobody is paying $19.99 for linear television because all the equipment fee. By the time you add all the fees, you've got to add another $40, $50 to it. So, it's just not a very honest way to approach consumers and I think consumers ultimately see through that.

So, I think our industry will probably move away from $19.99. I think they ultimately will probably move away from some of the heavy discounting for content because economically that's the only logical place you can go, once everybody goes over the sub counts to the street every quarter.

You're next question comes from the line of Brian Kraft from Deutsche Bank. Your line is open.

Hi, good morning. I had a few questions. First, on churn, it was elevated for both DBS and broadband, so wanted to see if you could talk about those trends and how you're planning to manage that back down. I wanted to also ask you how about you're thinking about the upcoming broadcast incentive auctions and potential participation there. And then lastly just on Sling, can you talk directionally about the net add trend in the third quarter relative to 2Q? Was it similar? Did it decelerate? Did it accelerate? Any color there would be great. Thank you.

Steve or Roger might want to jump in. But in terms of the overall trends, one of the things -- I hadn't really been in the day-to-day operations for a long time but as I got back in and looking at it, we were being overly aggressive to get subscribers that I didn't feel were going to make a long-term return for us. We were getting subscribers, some subscribers, that did not have a positive net present value for us, or had a very low net present value for us and we were probably better off spending our money elsewhere.

So, we certainly got more conservative on the kind of subscribers that we want. And, in fact, we don't really take many subscribers now below at least $50 ARPU, and below a certain credit score. So, we certainly are getting a better quality subscriber today. But that certainly will impact our gross adds on our linear television but I think it's the right thing to do long term.

And then what was the other part of the question?

The incentive auction.

As far as the incentive auction, we haven't yet decided whether we will participate as a company or not, primarily because this auction is going to be very -- first, it's a one-of-a-kind auction, there's never really been an auction like this with a reverse auction and the forward auction, number one. And, number two, this is an auction where there is a lot of impairment on the spectrum, and that impairment has a dynamic in it, it depends on which broadcaster' licenses they give back and how the FCC repacks those licenses and frequencies. So, it's a bit of a dynamic situation.

There's three buckets. There's zero to 15% impairment, there's 15% to 50% impairment, there's over 50% impairment. The impairment is like what we calculate, we think it's going to be, kind of. So, we've got to do a lot of homework to see whether we are able to model that into something where we would feel comfortable participating in the auction.

I'll just give you an example. An AWS-3 auction in the unpaired spectrum, it was the only other place that there was really impairment. The other AWS-3 spectrum was clean, or going to be clean. And all the spectrum that we own, and our DE partners own, is pretty clean spectrum. The AWS-3 unpaired spectrum had some impairment.

There were companies that bid on that and bid hundreds of millions of dollars on permanently impaired spectrum. Now, we scratch our head as to that, as to why somebody would do that. And we don't want to be in a situation where we go to an auction and waste our shareholders' money. So, that's the big thing that we are looking at. We are going to spend a lot of time on analysis. And the FCC is still providing data to potential participants on that.

Last question on Sling activations, we continue to be pleased with the progress we're making on Sling on the activation front.

And, Charlie, just a follow-up -- you were talking about the gross adds, it sounds like, and how you have tightened your requirements on bringing new customers on. But what about the churn in the quarter? Was that related because you were flushing out some of the lower quality subs?

Some of that. But some of that is the seasonality. Churn is always past practices. It is not what you're doing today, it's what you did two years ago, what you did a year ago. So, I think there's some of that. I think some of our churn in 2015 will probably be elevated from where it otherwise might be because of past practices in 2013 or 2014 or 2012. So, I think there's some of that.

Having said that, one of the other things that we are looking at is that we do have customers that are unprofitable for us today. And they are unprofitable because they call multiple times during the month, they are always asking for discounts. Even if you gave them the discount they asked for they would be an unprofitable customer. And I think it's just smart business that over time we wean those customers off of our service, and we have done some of that. It doesn't make sense for us.

I'd rather have 13 million customers that are probable than 13 million customers that are profitable and 1 million customers that are unprofitable. For us it's all about economics and what kind of return we get. And sometimes the best return you get is to let a customer go, and just a variety of reasons. If you have a customer that calls you 50 times a month or 30 times a months, he or she is an unprofitable customer. And everybody in the industry has those type of customers. I've challenged our guys to make sure that we have alternatives for them.

Thank you.

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

Thank you. Charlie, in the last call you talked about that Jason was going to look at maybe some structures that you could put your existing spectrum in or separate your existing spectrum in. I wonder if you can update us whether there's any progress on that.

I wouldn't say there's progress because we haven't made decisions. But based on strategically where we see Sling going and what we decide ultimately to do in the incentive auction or the AWS-3 reauction, there are potential scenarios where corporate structure might change and where it would make economic sense to change corporate structure. There's a lot of factors in that.

Some of that is tax planning, some of that's how we could manage the business and what's the best way for us to properly manage it. I think we feel comfortable in looking at that, and once we have all the pros and cons of that, making a decision, which could be to stay exactly where we are or it could be some kind of change in structure.

Is there anything that drives specific timing on that? Is it going to happen when it happens or do you think it happens before the end of the year? How do we think about the timing of knowing when the corporate structure, if and when it would change?

It would just happen when it happens. When in doubt, there is no doubt. You wouldn't do something. It would take a lot of positives to change corporate structure.

In the investigation that Jason has done so far, is there a way to put some of the spectrum assets, not all, but some, into an entity and have some greater tax efficiency than just basically booking a gain on whatever sale that would happen? Or is it too early to tell even that?

I would say it this way. From a tax perspective, because of the FCC payment that was made, it's less compelling from a tax situation today than it otherwise might have been. But there's other positives about different corporate structures. I think it will be driven by strategic decisions whether we would stay the same or do something different.

Look, I think it's good management. It's something that our Board of Directors -- it's going to rise to the level of our Board of Directors, and there's going to be a lot of opinions on it. If the evidence is compelling that we can do something different that makes sense, then we will do it. If the evidence is it's 50/50, maybe yes, maybe no, I don't think we will do something.

Got it. Greenfield's got a follow-on, on the other side of the business. Thanks.

It sounds like we are the only guys that take your guys' questions.

We appreciate it very much.

I don't know what that says about you guys. (laughter)

You and John Legere. Legere takes questions, also, but everyone else is afraid. Thank you for taking the questions. Real quick, Charlie, when you think about, if you were sitting in Jeff Bewkes' seat or Bob Iger's seat, what should these companies be doing in terms of SVOD? Some of them seem to have gotten seller's remorse in terms of selling to places like Netflix. Some are now shifting over to focusing more on Hulu, although I'm not sure how that fixes the problem. What's your advice? What should people be doing who are running big broadcast and cable network companies?

The truth is, I go to Bob Iger for advice. I haven't found -- he's generally more competent than me. But I would say that the biggest thing I think that the content providers should be looking at is long term. It's easy to get to the end of the year, end of the quarter and sell some content out the back door, don't think it's going to hurt your core business in the short run, and you got a one-quarter gain or you make your bonus, your guys all make your bonuses. There's always in a company a risk of short-term decisions.

The way I look at it more fundamentally is, where -- content is always going to be a valuable commodity -- where can you take content to maximize your long-term value. I think that there's -- we preach this a lot and some people agree with us and some people don't -- but we think that -- you can look at what Netflix has done. It's wildly successful. They took a lot of risk, they had a moral compass of where they were going and they have been rewarded for it. But they made sure their content was available on every device. And they made sure their content, you could binge view it. And they made their content advertising-free. And they have been fairly consistent in their pricing.

That's why people have gravitated to it. And I think they are now becoming competitors to the incumbent. If I was an incumbent, I would just look at what can I learn from that and which companies are moving in that direction and how can I partner with them to get my content out in a way that people will consume it and pay me for it.

A lot of what we do -- obviously we did that with satellite TV, a lot of what Roger and the Sling team is doing is being an alternative for them to do that. So, I'd just say think long term because it's fairly easy to sell $100 million of programming content to somebody but you got to look at it in the big picture and look at it in the total universe.

I would say this -- that every major content company is probably going to make different decisions, and some are going to make great decisions that turn out for them long term and some are going to make some poor decisions. In a vacuum, decisions are made based on their alternatives. And what we can do as a company is be an alternative for them.

We have a vested interest in linear TV. We have a vested interest in advertising, being part of the economic model because we know it will reduce content costs to customers. And we have a vested interest in people getting TV everywhere. And I think Roger's team and DISH in general have shown great leadership on that.

Thank you.

Your next question comes in the line of Brett Feldman from Goldman Sachs. Your line is open.

I just want to clarify some of the math earlier around taxes. Correct me if I'm wrong but you were talking about how you believe there was a triggering event around receiving your AWS-3 spectrum licenses from the FCC. I just want to be clear -- you're referring to the opportunity to amortize those licenses, I believe, over a 15-year period for tax purposes. Or did I misunderstand what you were alluding to?

Tax can amortize licenses for15 years. The rights I was alluding to were granted prior to the actual licenses being issued. That was the triggering event that I was mentioning.

Okay. And then you also mentioned you would be capitalizing interest, so that would obviously be increasing your taxable net income because your interest expense would be lower. What I'm trying to make sure is we don't overshoot on estimating what the annual cash tax savings could be. So maybe anything you can do to help us get that right in our models would be helpful.

And then just a follow-up here as we were talking about Sling, whatever the direction the numbers were in the quarter -- and we all have our own estimates -- it's obviously still a nascent product. So, I'm just wondering, what are the conditions that you think need to be in place for Sling to become the kind of product that starts putting up net add numbers, that looks like a successful mass market product, whether it's the state of the market or the state of the product itself. I would be really interested in hearing what you're trying to get to to make it a real game changer.

For interest expense real quickly, that is for book purposes, to help you guys out on EPS.

Net income will be higher.

Higher, correct. You're 100% right on that. For taxes purposes, tax will still deduct the interest expense or cash interest expense immediately.

So our tax expense will be less -- tax cash outflow will be less.

That's right. It's no impact to the tax deduction.

Okay.

Brett, it's Roger. On your question on Sling, there are a number of conditions that are necessary for continued or accelerating growth. Let me just say in OTT in general, not even just with Sling because we know there will be competitors, one Charlie already alluded to which is, can you make a live streaming OTT experience as consistently reliable as you can on linear TV on satellite or cable? That's something that I think, since we have launched, month over month we have closed the gap on that, but there's still a gap. That's something that we always have to continue to improve on. And anyone who comes after us will have to go through their lumps and learning curve like we have.

As I think I've said before, streaming live television is a lot more difficult than doing VOD. You have much less margin of error when you're streaming live television. I think there are other things, too, like what happens in broadband, what happens with data caps, that are certainly risks in general to OTT. We see cable companies getting very aggressive on low data caps. That could have a chilling effect both on subscribed activation and also investment.

It is a nascent business. We launched eight, nine months ago. We have been pretty pleased with the growth so far, but I would expect, like any industry, as long as you don't have those extranalities I talked about, like with broadband caps, you will see a traditional S curve adoption. And we're not even to the first kink of that yet because it's just too new.

This is Charlie. One is technical -- you have to be very good technically. Second, I think the user interface has to be -- Sling, I would say, had an A-plus user interface for 20 channels but now they have got 80 or 90 channels and that user interface has got to change for people to navigate. Third, I think that there's certainly consumers, particularly and certainly millennial consumers, who would like multiple streams and would invest in a pay TV universe if they had multiple streams, which they don't have today, because they have multiple streams through Netflix, and so forth.

And then I think there's things like network DVR and lookback rights and startover rights and dynamic ad insertion where you have meaningful interactive ads that actually can become a positive to consumers. All those things would be positives to consumers and we will design Sling for all those things. And then it's just conversations with more forward-thinking content providers that it's a platform they want to be on/.

I think that Sling has got the core programming content providers today. There's probably room for one or two major groups to join that. But it's probably not for everybody. Again, what I would say as a company that you should think about from an investor point of view is that our goal is to combine OTT and linear together, and that we hope that our business will start to grow as a result of that, as opposed to being in a mature to declining business.

Do you consider broadcast networks to be potentially core content?

I do.

Thank you for taking the question.

Consumers have an alternative on broadcast networks. But broadcast networks have been our partners for a long time so we certainly would like to provide them a pathway, if they so choose.

Great. Thank you.

Your next question comes from the line of Ric Prentiss from Raymond James. Your line is open.

Thanks for taking the question. Obviously a lot has changed over the last couple of years, but looking back at a slide you guys did two-and-a-half years ago when you were looking to potentially buy Sprint, you had a really interesting slide talking about $24 billion of revenue synergy from bundling and cross-selling and new opportunities. Three points to the question. Is that opportunity still there? What does the AT&T and DirecTV deal, now having closed, do to your opportunity to pursue that? And what are your options and time lines if you think there's still an opportunity there?

I can't remember exactly, I know that with Sprint we had a materially different strategy on how to build their network out. Our strategy, really, was to use our spectrum on their towers because it fit on the towers from a propagation point of view. They ultimately obviously pursued a strategy of 2.5, which doesn't propagate exactly the same, and some new technology that they decided to use. So, they went a different direction.

I think a lot of that synergy is probably long term still there but certainly not in the short-term framework. But I don't know exactly where Sprint is on their network build today and how much they have gone down a path that's hard to put the genie back in the bottle. But we had a materially different strategy in how we would integrate Sprint and our spectrum together.

If you put sprint aside, obviously there's other carriers, as well, out there, so just say if the opportunity with a wireless carrier and you was that way, are there other opportunities that are still there today that might be of interest with your strategy?

Any of the existing wireless carriers our spectrum fits pretty well with. Sprint's maybe less -- may or may not be, I just don't know how they have done their network build. I know a lot about the other networks. Obviously all the other providers have spectrum, they have AWS-3 and AWS-1 spectrum that propagates essentially the same as our AWS-3 and AWS-4 spectrum, so, they fit really well. And obviously any current provider, if we were to partner with or do something with or lease something to, they obviously would have more spectrum than anybody else. To the extent that somebody wanted to be aggressive and have more spectrum, obviously we are somebody that they would probably take a look at.

There was another part of the question. Yes, I think that the AT&T DirecTV, they are obviously in the process of still integrating that. I do think -- correct me if I'm wrong, I'm looking over at Steve -- but there was probably a little bit in the third quarter. They put together a pretty aggressive bundling effort with AT&T and DirecTV. There's a lot of advertising and contact and direct mail to their consumers. And that probably did affect us in the third quarter. I think they were successful somewhat in bundling, getting some cable and satellite companies from DISH, that took a bundle from AT&T that otherwise might not have, with aggressive communication and promotion.

But I think the jury is out as to how they integrate that long term. I think there will be some positives for them. They certainly have scale and video today so that's certainly going to be a positive for them. But ultimately it will boil down to what their competitors do as a counter strategy to what AT&T did. And to the extent that they do nothing, then I think it's going to be a very attractive acquisition for AT&T. To the extent that people did other things, there's probably strategies that could counter attack that strategy and make it less of an attractive acquisition.

Got you. Thank you.

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

Hey, guys, thanks. Charlie, it seems like there are a lot of conversations going own between spectrum owners and buyers with the [VU on] on January or so deadline. Given the complexity of any deal you might do, do you see DISH doing a spectrum deal or corporate structure change before that auction deadline in January?

I would say the odds are greater that we wouldn't do something before the deadline than we would. But you just never know. My experience with deals are that people can sit around and talk about them and they're just not going to happen, but when somebody decides to do something, they move pretty quick. I agree with your statement, there are a lot of complexities around this auction that are going to take some time.

I don't think that anybody really knows exactly what this auction is going to entail, including probably the FCC. It's a courageous act on the part of the FCC to try to do it on this time line, and I commend them for that. But it is complicated.

And then just real quick, if you were to choose to bid in that auction, any idea how you would raise money for that, at what point in your capital structure?

No.

Thank you.

Your final analyst question comes from the line of James Ratcliffe from Buckingham Research. Your line is open.

Thanks. Two quick ones, if I could. First of all, Roger, any thoughts on offering DVR, effectively service and Sling TV, how much the lack of it is a limitation on the growth of the service? Is it a technical challenge or rights or both? And, secondly, just generally thoughts on the importance of being the front end for customers in terms of their use of OTT products given the fragmentation we are seeing across OTT services? Thanks.

James, sorry, can you just clarify your second part about being the front end?

Essentially, if you or somebody else needs to be the consolidator of OTT services to provide a unified experience to customers, regardless of whether the content they are looking for is Netflix or Amazon or Sling or what have you.

Yes. Okay. To your first question about DVR, I think it is something that our customers do request. And as Charlie mentioned, we have development underway on a lot of different things that could enhance the product, whether it's multistream or DVR or other features and things like that. There's nothing to announce right now but it is something that we look at. What we are trying to do is trying to follow what our customers want, really, and deliver what they want.

In terms of your question about being the front end, as you see more and more these segmented OTT offerings, whether it's HBO or CBS or Showtime, I think you do get to a situation where it will become more complicated for customers to assemble their bundle that they want because they may not be all on the same devices, even. Or if they're on the same device, you have to switch between this app and that app. It does cause a little bit of -- I think it increases the complexity for content discovery.

As you know, we have HBO within Sling TV but we also increasingly participate with some of the devices on their strategy for content discovery where we will feed them all our metadata about the programming that we have so that they can surface it not only to existing customers but no non-Sling customers. There's a lot of people that are focused on solving that problem that I think does have the risk of getting more complicated with more fragmented OTT services launching.

We'll now take questions from members of the media.

(Operator Instructions)

Your first question from the media comes from Scott Moritz from Bloomberg. Your line is open.

Hey, guys. Thanks. Charlie, given that the odds are greater that you won't do a deal by the January deadline, how does it make you feel to be in a sideline position in the next several months, maybe even into summer? Does this threaten your overall strategy or are you patient enough to hang out with that?

I think you answered your own question. First of all, there's a ton of stuff that we need to do regardless of how we go strategically. There's just a lot of stuff we have to do anyway.

But we don't have any particular -- for the most part, I hope our investors are long-term investors and people aren't trying to trade in their stock to make a quick buck. Certainly from a management perspective we only have five rules but one of them is think long term. And I think where we as a team have thought about things long term, it's normally paid pretty good dividends for us. They got a different perspective.

But we are six years into a wireless strategy, I think we are six years into it. Whether we go another year or two years or three years before we go in a particular direction I don't think is that material to us. I know that there's always a lot of angst on the press and investors for things to happen. We don't make a lot of decisions but the ones you do make on the strategic side better have good chance of success.

Great. And just to follow up on that, Verizon seems to indicate that they would be interested in some sort of swap or lease arrangement. How would you characterize your talks, if any, with Verizon these days?

We have private conversations with people and we are not going to talk about them on a public conference call. Look, I think that any number of companies would strategically commit malpractice if they didn't look at the spectrum position that we have because it would be a strategic advantage over their competitors. The need for spectrum is only getting greater. The government, congress has passed rules to go look for more spectrum, but I think it's 30 megahertz by 2022. So, there's just not a lot of spectrum in the mid-band, high-capacity spectrum that's going to be available.

If you're in the wireless business or you use wireless spectrum, you have to look at protecting yourself. Real estate is important and spectrum is real estate. We are well positioned to do something with our spectrum. We will do something with the spectrum. It will get built out. How it gets built out and whether we do it with somebody else or whether somebody else buys it and leases it and builds it out remains to be determined. The alternative for us would have been to do what DirecTV did, which was just to buy back our stock and then sell to a company, sell our video business to a company, and we decided to take a longer-term strategic view of it.

Cool. Thank you.

Your next question comes from the line of Shalini Ramachandran from Wall Street Journal. Your line is open.

Hey, Charlie, hey, Roger. A quick question for you. Two things. The first one, if the cable companies do end up getting into wireless or the server WiFi first service, how does that affect DISH's competitive prospect, if that happens in the next year or so? And then, secondly, there's a lot of interest around Viacom and your upcoming contract renewal. How are those talks going? Is there a chance the two sides decide to part ways?

In answer to your second one, Viacom has been a long-term partner so it would take a lot for us not to do a deal with them. But they have to be realistic that their ratings have deteriorated over the last three or four years, in some cases in a material way, and that the world has changed somewhat. And to the extent they were given a fair deal, I think, and there's a reality embedded in that deal, I think we will get a deal done with them.

My challenge to our team is look for every reason that you can to do a deal with Viacom. Internally we are not looking at the alternative of not doing a deal with them. It's just that we know what bureau measurement is, we know, within our consumer base, what people watch and place a value on. We know there's alternatives for their product today that weren't there three or four years ago. You can get kids programming on YouTube and Netflix, and it's quite good. And some of it's even Viacom product. So, the world has changed a little bit.

But, on the other hand, they have great content. They still are big part of what we have done. They have helped us. I think we are a pretty loyal company. They have helped us be successful so it would take a lot for us not to do a deal, but those things can happen.

What was the other question? Oh, the cable industry -- it's probably a better question for the cable industry. First, there's consolidation in the industry, and is that allowed to take place or not, and if so are there conditions and what are those.

But I think the cable industry is potentially poised to be a serious competitor in the wireless industry. They certainly have the ability to put their toe in the water and just do an MVNO deal. The cable industry has had stumbles in the past in the wireless industry. In fact, they have sold out of it. So, whether you jump back in again with both feet or whether you maybe look at the MVNO deal and see how it goes, they have a lot of options as to what they may or may not do. To the extent that they got in the industry, obviously it would put pressure on the incumbents, and certainly put spectrum pressure on the incumbents.

And does it affect DISH's --?

I feel like we are positioned pretty well.

All right. Thank you.

Your next question comes from the line of Alex Byers from POLITICO. Your line is open.

Hey, guys, thanks for taking the calls. You recently came out against the Charter-Time Warner cable merger. Should we expect similarly aggressive pushback to that deal as you saw with the Comcast deal where you launched what was ultimately a successful coalition to block that merger? Basically the question is, do you see the Charter deal as just as problematic as the Comcast deal, or are there different levels there? And is there anything that can be done to alleviate those concerns?

Yes, this is Stanton. We see them as pretty darn similar, although obviously there are less ultimate broadband subscribers involved in the Charter-Time Warner consolidation. But the fact of the matter is, this merger also has additional concerns that Comcast didn't, which is you still have Comcast out there and the two Comcast and a Charter-Time Warner with parallel action, not necessarily concerted action, could be just as damaging to the consumers. So, that's why we are opposing the transaction.

The details are pretty similar, the two cases. The one difference is that Charter doesn't own NBC. Other than that, it's the exact -- if you look at what the FCC and the Justice Department said, there's nothing about the Charter deal that varies from that to be allowed. As we know, Washington picks winners and losers. I'm sure that Charter is well aware of that and they will spend a lot of time getting their deal done.

Yes, and keep in mind, between Comcast and then a combined Charter-Time Warner, those two sets of companies control 90% of the high speed broadband connections in the United States as defined by the FCC of 25 megabits before.

Which essentially means consumers have one choice for broadband, and broadband has become -- you only have one choice for electricity but that's regulated. So, an unregulated market where you only, from a practical reason, have one choice of broadband is a serious issue and something that this Administration has been very focused on. But it will have repercussions throughout the industry, for sure, either way that they decide.

Your next question comes from the line of Jimmy Schaeffler from Carmel Group. Your line is open.

Good morning and thanks for taking the call. Charlie, a question for you. You've been pretty good in the past about addressing future vision. Can you address the future vision of bringing the traditional linear one-way content distribution of 14 million subs on the one hand together with the two-way system tied to DISH's AWS H block and 700 megahertz spectrum on the other? In other words where's the fit and what would be some of the new advantages that would come from, let's call it, that new connectivity? How do you integrate the two?

It's certainly, I believe, is a path of where video is going to go. In China already the vast majority of viewing minutes are on mobile devices for video. If you're a content company, you just can't -- again, it would be malpractice to put your head in the sand and not think about how you're going to get on mobile devices. And, of course, the advertising for mobile devices is now close to 80% of Facebook's revenue and it was 0% three years ago. All the trends are moving in that direction, Jimmy.

Obviously, one of our visions was to use our spectrum for video because it's, again, high-capacity spectrum. I think some companies will see it get there sooner than others and they will set the rules. I don't think you want to be a follower in that.

The way I would say it is we have some of the building blocks of that in terms of we have technology, we have spectrum and we have video customers, we have an in-home installation network, we have encryption, we have billing, we have customer service. So, we have a lot of the building blocks but we don't have all the building blocks. We don't have things like back haul and WiFi and things that the cable industry has.

No one company today has all the building blocks. AT&T is probably closer today than they were before the DirecTV acquisition. We just think that ultimately that's going to sort its way out. And typically what happens is something happens in the industry and somebody makes a move and somebody starts gaining market share because of it and the other people have to react to it. And whether we are on the front end of that or the back end of that, I would much rather be on the front end of that. But whether that happens or not, I don't know.

Great. Thanks.

There are no further questions at this time.

Okay. Thank you all. See you next year.

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