DISH Network Corp (DISH) 2015 Q4 法說會逐字稿

Good afternoon. My name is Laurel, and I will be your conference operator today. At this time, I would like to welcome everyone to the DISH Network Corporation fourth-quarter and year-end 2015 earnings conference call. I will now turn the call over to Jason Kiser. Please go ahead.

Thanks, Laurel. Thanks for joining us, everybody. I'm Jason Kiser, Treasurer here at DISH Network. Joined today by Charlie Ergen, our Chairman and CEO; Tom Cullen, EVP of Corporate Development; Roger Lynch, CEO of Sling TV; Eric Carlson, new President of DISH Network; Bernie Han, Executive Vice President; Steve Swain, our CFO; Paul Orban, our Controller; and Stanton Dodge, our General Counsel.

Before we open it up for Q&A, we do need to do our Safe Harbor disclosures. So I'll turn that over to Stanton, and I think Steve's got a couple things that he wants to cover as well before we open up for Q&A.

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

All statements we make during this call that are not statements of historical fact constitute forward-looking statements which involve known and unknown risks, uncertainties, and other factors that could cause our actual results to be materially different from historical results and from any future results expressed or implied by such forward-looking statements.

For a list of those factors, please refer to the [Form] 10-K. 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 to not place undue reliance on any forward-looking statements which we assume no responsibility for updating.

Also, as part of the process for the broadcast incentive auction, we filed an application to potentially participate as a bidder for those spectrum aspects. Because of the FCC's anti-collusion rules, we are not able to discuss what, if any, spectrum resources we may intend to bid on. Operator, with that I will now turn it over to Steve Swain.

Thanks, Stanton. Before going into Q&A, I would like to make a few brief comments about 2015. So looking at the income statement, our 2015 operating income was $1.3 billion, a decrease of $492 million year over year, primarily due to a couple of one-time items.

First item, we recorded an FCC auction expense of $516 million. This expense was discussed on last quarter's call. The second item is an impairment of $123 million. It was determined that the carrying value of our D1 satellite and its associated ground equipment was greater than the fair value. These assets were originally acquired in our DBSD transaction.

Moving to other income and expense. In 2015, although cash paid for interest increased $21 million to $854 million, interest expense on the P&L decreased $117 million compared to 2014, primarily related to the increase in capitalized interest. The increase in capitalized interest was primarily driven by the AWS-3 licenses which were granted in the fourth quarter and have a carrying value of approximately $10 billion.

This stepped-up interest capitalization will continue, meaning because the total spectrum carrying value is approximately $[50] billion. Effectively, all of our interest expense will be capitalized off of the income statement in 2016. For presentation purposes, also note that capitalized interest associated with spectrum was separated from PP&E, creating a new line on the cash flow statement. So, to maintain prior-period comparability when calculating free cash flow, we take operating cash flow and subtract out both PP&E and this new line, which is named capitalized interest related to FCC authorizations.

Looking at other income, in 2015, other income increased $347 million to $278 [million]. 2015 was positively impacted primarily by net realized and unrealized gains on investments. In contrast, 2014 was negatively impacted primarily by unrealized losses on investments.

Next is free cash flow, which for the full year 2015 was approximately $1.3 billion. The year-over-year increase in cash flow was $129 million, primarily driven by lower CapEx, excluding the impact of capitalized interest, lower cash taxes, and by a source of cash from working capital, partially offset by the FCC auction expense and decreased cash interest income.

Working capital as a source of cash in 2015 came from both assets and liabilities. On the asset side of the balance sheet, underlying operational changes drove much of the decreases in accounts receivable and inventory balances. On the liability side, the changes in balances were within historical fluctuations and may reverse or partially reverse in 2016.

Lastly, taxes. As shown in note 4 of our 10-K, in 2015, we paid $[16] million in cash for income taxes. Cash paid for taxes was reduced by, among other things, the amortization of our licenses and the AWS-3 licenses. Spectrum amortization for tax purposes is over 15 years, and of course, for GAAP, spectrum is not amortized but instead tested for impairment annually.

One other note on taxes. Although we capitalized a significant portion of interest off the income statement in 2015, cash paid, whether it is expensed -- cash interest paid, whether it is expensed or capitalized, is deductible for tax purposes. Now, we will open up the call for Q&A. Operator.

(Operator Instructions)

Craig Moffett with MoffettNathanson. Your line is open.

Good morning.

I know you can't talk specifically about your auction plans, but I wonder if you could talk about how you would finance your spending for the auction, if any. And then, as always, we're all interested in hearing what the latest observations are about how you might deploy the spectrum you already have.

In particular, I'm thinking about fixed wireless broadband versus mobility. Has your thinking evolved at all given how much talk there has been about fixed wireless broadband over the last couple of months?

This is Charlie.

Craig, you're right. We really can't talk about what we might -- I think we have taken a broad view of the anti-collusion rules just to be an abundance of caution. So talking about anything about strategy in terms of even including financing probably is off the table for us for awhile.

In terms of spectrum, obviously we have talked in the past about a lot of optionality. The thing that is particularly nice about the mid band spectrum that is predominantly what we have, it's probably the most versatile of the spectrum that is out there in the sense that it can be used for small cells with acceptable interference and also can use in macro cells for coverage, so it can actually be used -- there's not a lot of frequency out there that's in the sweet spot for coverage and capacity.

So when you talk about fixed broadband to an extent you haven't already seen, you are certainly going to see over the coming years about 28 gig, 38 gig, 60 gig and things like that. Those frequencies obviously will play a significant role long-term in wireless and broadband, But they are uniquely challenged really for -- they really can't do anything more than very small cells or in some cases backhaul and line of sight. That makes a lot of sense potentially in fixed wireless.

All I can say is what we have is pretty -- really the most versatile of the -- it's more of a Swiss Army knife-type spectrum in terms of a wide variety of uses that it could do. And then I think as other things develop -- there are a lot of developments going on, 5G obviously. That changes some of the dynamics in terms of Internet and things and speeds and so forth. There is unlicensed spectrum both in 3-1/2 and 5. There is 28, 38, 60 gig kind of frequencies.

So you have to look at the system design and kind of -- I believe that each piece of spectrum has unique attributes, and probably will be used as a result of that for its best economic use. But the frequency that we have, vast majority of the frequency we have has multiple applications. It can be used for fixed wireless, as well. But I'm not sure that's the best use of it.

Thanks. That's helpful.

And if I could press for one additional question just with the SEC just having voted on the set-top box rules, could you just offer some commentary on the set-top box rules as you see them?

I'll let Stanton maybe start with that.

This is Stanton, Craig.

As you know, they just voted to approve the interim today. We haven't seen the words of it, so of course we'll have to read that and reflect upon it. But generally speaking, I would say our view is that the video industry, as everyone is well aware, is currently undergoing a true wave of innovation and experimentation as evidenced by the success of OTT services like our very own Sling TV. Proliferation of devices in which consumers consume video such as tablets, mobile phones, Roku, Apple, etc.

So, as we sit here today, consumers have unprecedented choices in the terms of video apps and services available to them. So as we sit here today it is really not clear to us that any new regulation is needed to encourage innovation, and in fact would actually hinder it. But we have to take it in terms of the actual rules -- proposed rules.

Thanks, Ken.

Phil Cusick with JPMorgan.

I wonder if we could start with the DBS business. Can you update us, Charlie, on how you think of the strategy for this business? It seems like churn is doing well, but gross ads continue low. Should we expect you to continue to be fairly subdued in competing here? And do you expect to tighten credit more as you go forward, or should we think that gross ads have stabilized at this level?

Thanks.

Yes.

I think since I've come back as CEO we've taken a really hard look at the DBS business and said if we're going to put on customers, we want to put on customers that we think will be long-term profitable. So taking a pretty long view of it. And just as a backdrop for that, five or six years ago when we put a customer on DBS we had a cable company as competitor and DirecTV as a competitor. Today you've got a phone company, you've got the cable company, you've got AT&T, DirecTV, and then you've got proliferation of OTT companies with more to come.

So the likelihood that you are going to keep customers in certain locations as long as you did in the past to me is there is more risk that you keep them less time, right? And at the same time the industry has gone to 1999 and a year or two years of free programming, and so SAC has gone up when you count in all of the freebies and the gift card and all stuff you do.

So, in the backdrop of that I think we've been more conservative probably in the last year perhaps than others because we think that we want to make sure we get a return on the customer. So that has had to looking at higher credit scores, which is probably the best correlation of the long-term profit subscriber. Certainly concentration more rural America where there is more limited options. And so we just looked at it, if it was your money, would you invest in that customer? If the answer is yes, we invest in the customer. If the answer is no, probably not.

I think we probably made some mistakes last several years in the past and were probably done very similar things to people in the industry and got subs and didn't think it would be long-term and really take into consideration the change in dynamics that are out there. But on the same token, Roger and his team at Sling TV have said, in going to OTT you are able to get a different class of customer, a customer who is not in the Pay-TV universe today, or maybe was in the Pay-TV universe and left the Pay-TV universe, in part because the costs were so high. Or they were paying for channels that don't watch, and the SAC is relatively low there.

The churn obviously is higher, but they tend to come back over a period of time. They kind of go in and out, in and out, so the economics of those customers are interesting to us, because we think there's a bit of a wider field to play there long-term for profitable customers. So it's not that we're giving up on linear or satellite customers. It's still a great business and throws off a lot of cash.

And there is long-term customers that just aren't going to go anywhere given where they live. And there's a lot of synergy about how we do satellite broadband for those customers. But I think we've taken a long-term view of it, and spend money like a shareholder would want us to spend the money and invest. At least the time we invest in a customer, it's our belief that we have a high likelihood that that will be a positive net present value customer and as a result of that we're more conservative on the DBS side. And so that, in my opinion, is immaterial to declining business nationwide, and certainly a declining business, at least in the short term, for us.

Is there a point where you see the churn in gross ad dynamics with stabilizing the business? Or should we look at this as being a swift declining business for the next medium term three to five years?

I think there are 2 things. One is we probably had a little extra churn. Churn is what happens from what you did last year, not what you did today, right? So we probably have a little access churn based on takedowns of programming and also maybe, in my opinion, not the wisest decisions. In 1999, $29.99 you're just not going to get an economical customer at those levels.

So that will run through the Company. A lot of it has. Some will finish up in this year, and then I think we are more disciplined about how we go about it. So in that sense we could see some improvement. But there's not that many new household formations where satellite cable are the right product for them if they have OTT options and they are younger. They are just going to go to Netflix and Hulu and Amazon and hopefully like Sling TV and others.

Thanks, Charlie.

And the other piece that we have -- the other dynamic for us that is probably a bit more unique to DISH is that people do bundle and they look for broadband in many cases first before they look for video. And so we're disadvantaged there vis-a-vis the cable industry.

So that's why I think you've seen some better cable performance for two reasons. One is they have some advantages in bundling. And the second thing is that they are downgrading people to lower tiers, or maybe just the local channels and HBO for $15 and things like that. Those still count as a subscriber for them. And so they are less profitable customers and less ARPU customers, but they still count as a subscriber.

We're not as focused on the number of subscribers we have. We are bit more focused on the actual profitability of the subscribers. So that is just how we look at it.

As a result of that, we are very good cash flow business that is going to continue and we have growth opportunity. We have a significant growth opportunity in my opinion on the OTT side that we should grow -- our goal certainly between what Roger is doing at Sling and what we're doing at DISH, we expect to grow as a company or we certainly only hope to grow as a company on the video side and that is external to our wireless assets.

Okay. Thank you.

Brett Feldman with Goldman Sachs.

Maybe just extending this discussion. We look at your Pay-TV SAC that has been coming down, and obviously that is partially reflected by the mix of Sling, but I was hoping maybe you could just provide a little color. What is the underlying acquisition cost structure of the satellite TV business? Is that becoming more efficient as you're more focused on customer profitability?

And then just thinking more about Sling; the product has been in the market for a year now. Anything you can do to give us some sense as to the size and the growth trajectory of that business, or just key learnings from the last year would be really valued-added. Thank you.

I will try to answer and then I will turn it over to Roger on the Sling stuff. There has not been material change in terms of subscriber acquisition costs in the satellite TV industry. In fact, maybe in some cases some of the promotions out there, not DISH but others, the cost may be actually going up because hardware is still expensive and there is still quite a bit of discounting going on.

One thing we have done is we have moved pretty dramatically from starting people at $19, $29, or $39 and most of our customers are coming well north of $60 so that they are not getting hit with these big increases in the second and the third year. It's borderline dishonest to run a $19.99 ad knowing to the FCC's point about set-top box and everything else, the customer's ARPU is going to be $80, $90, or $110.

So, we just try to take a more long-term approach and be more up front about that. It appeals to certain kinds of customers, and those kinds of customers tend to have a little higher credit score, tend to be a better long-term customer for us. And we are probably not as competitive on the low end at this point, or the person who is looking for a great deal. But that person is going to be looking for a great deal every year. They call you and they want credits and you go through a vicious cycle that is not as impressive.

On the Sling side, it's in some a way science project, because there is a lot of complexity technically to it. But we certainly believe it's a high-growth business and a wave of the future for a class of customers we can't get today. For example, Sling TV works great in the city. Most people have high-speed broadband there.

So in a New York City and Manhattan we can't sell a satellite DISH there, but we can sell Sling TV there. So it brings up a truly incremental base for us and for our content providers. I think we have three main challenges there. And then I'll turn it over to Roger.

Our biggest challenge is probably technical. Life TV is more difficult because you can't buffer it and do all kinds of things you can do to video on demand or S-video on demand or things like Netflix does. So it is much, much tougher. There's all kinds of restrictions like blackouts for sports and local channels and things that just don't exist in the VOD world.

So it is very complex. We're learning a lot. We're on a lot of different devices. Those devices get replaced by new devices and you still have to maintain support for the old devices. So we've learned a lot and there are probably things we would do different knowing what we know today, but those lessons -- . It reminds me very much when we started DISH Network. It took us a couple of years to really go to sleep at night knowing that we are more than a science project.

The second thing is that we still would like to have two or three other content providers to participate in what we're doing at Sling, and we think obviously we can add incremental customers to them and incremental income to them and incremental advertising and a new model that's going to be around for 20 or 30 years. So we are working closely to try to find two or three people who also want to try to participate. And then we will probably done for a while there.

And then need our user interface; we started with 20 channels. Now we have like 80 channels or something, so the user interface needs to be upgraded to help people search and get through all the channels. Twenty channels is pretty easy, but when you start looking for 80, 90, or 200 channels, you need something a little bit better.

Maybe turn it over to Roger in terms of where he's trying to go with it.

We launched Sling just a year ago. And I think back just prior to our launch, I'd say we had questions about would there be demand for this product? It was something new to the market and that was certainly a risk.

The second big question is where would that demand come from? Would it come from existing Pay-TV subscribers, or would it come from people who don't have Pay-TV? I think those two questions have been answered pretty well for us.

First, there is demand for the product. We are definitely seeing that. Secondly, the vast majority of the subscribers we are getting are not currently Pay-TV subscribers. Either they have never had Pay-TV because they are 25 years old and it never crossed their mind to have Pay-TV, or they cut the cord sometime in the last one, two, three, four, five years ago.

So, there are some who come personal pay TV, but that is small, it's relatively small. In our analysis it's quite good for the overall ecosystem, which was our hypothesis in the beginning that we could grow subscribers overall for DISH Network and that OTT as a category would grow subscribers overall to the Pay-TV ecosystem. So far I'd say the evidence we are seeing so far is that is happening.

Great. I'm just curious. Is there a timeline you have in your head for when you might start breaking out the financial impact of Sling?

This is Charlie. I don't think we have a timeline but, obviously that's something that as we move forward and get it to the point where it strategically where we think it needs to be, that is certainly something we will consider.

All right. Thanks for taking my questions.

Tom Eagan with Telsey Advisory Group LLC.

Great. Thank you very much. There have been a lot of high-level disputes and network bundling recently and a while ago the US Court of Appeals preserved the bulk of the program set top box rules. I guess I'm wondering, Charlie, what's next? What's Washington's appetite to revise those rules and then I have a follow-up?

I'm not sure I totally understand the question. Something about bundling?

Tom, this is Stanton. In the immediate, what we're looking at today the FCC has rule making going on about retaking a look at the retransmission consent rules. So that is the biggest thing that is going on today and of course we have been participating in that. Think that there are some meaningful changes that can be made to level the playing field from where it is today.

That certainly is impacting -- the re-transition rules are so one-sided to the broadcaster, particularly the network broadcaster. That's probably impacting customers, consumers way, way, way more than set-top box rules. No matter what, in linear TV you're still going to have a set-top box, right, regardless of who's making it and somebody's not making it for free. When you add a DVR to it and you add encryption do it and you pay for intellectual property, it's going to cost money no matter what. But retrans fees have gone up 300% in the last few years and continue to go up, and there's no competition to that and the rules guarantee the broadcaster a local monopoly. So it's out of balance from that and that particular rule making will have much, much more impact on consumers, in my opinion, than even set-top box rules even -- to make the set top rules very aggressive.

And of course the senate commerce committee in the last Congress introduced the Local Choice Act, which we wholeheartedly supported, and are optimistic and hope that they will reintroduce that, which effectively allows broadcasters to set their rate and allows consumers to decide whether they want to take particular broadcast stations a la cart. Which we think is great because it ensures that the stations that are important to the consumers will remain up for those consumers.

Today we live in a world where broadcasters got billions of dollars of free spectrums in the most valuable spectrum under the cloak that they serve the public interest. In fact what they do is they hold consumers hostage when it's time to renew contracts. Some consumers lose their programming. We think that is ludicrous. We put forth many proposals to keep the programming up while we negotiate and remain somewhat optimistic that someday that will actually come to fruition to benefit consumers.

The FCC has proven really unwilling to get involved here. Do you think that that has changed?

It's hard to say. They have this rule making going today and we are hopeful they will make meaningful changes. The heat has certainly been turned up on this in the last four to five years. The number of blackouts increase year over year. Last year we had a particular situation where the FCC got immediately involved and (inaudible) seemed to really care. So hope springs eternal.

We would like them to go farther, but this has clearly been the best FCC certainly in terms of looking at imbalances in the system.

Right.

And then separately, DISH's fourth quarter subscriber-related cost per sub per month were up about $5 year-over-year, fourth quarter over fourth quarter occurred in gross margin this quarter. How does that inform your approach to any upcoming renewals in carriage agreements?

Thanks.

The subscriber-related costs last quarter -- so fourth quarter 2014 benefited from a one-time reduction in subscriber -- in programming-related costs. That was really the anomaly in 2014. We are on track, on a trend, if you will, the rest of the quarters, and so I would just follow that trend through 2016.

But in terms of how it impacts how you approach any upcoming renewals I was thinking? Thanks.

This is Charlie.

It's pretty simple. We have actual consumer data for millions of our customers, real data, not Nielsen data, which we look at as well. But we know what the value of a particular content is to our consumers, right? As a generalization, viewership of most cable and network channels has been declining for the last two or three years with the advent of Netflix and their numbers are going up, right. And then there's been in general more advertising on the linear channels that further frustrate consumers and then they watch less because of the advertising.

So that is a trend we are not sure is going to change dramatically. And, as a result, when programmers come in for renewal they typically just say we have a budget. We want a double-digit rate increase and we look at it and say we should get a double rate decline based on viewership. And so that leads to intense negotiations where 95 times out of 100 you ultimately come to a conclusion with the content owner. But we don't always, because sometimes you are just so far off between what the content person thinks this content is worth and what our viewers think it is worth that to protect our viewers we have to take it down.

And we are spending a lot more time thinking at this point that this isn't -- there's lots of creativity you can have. But if we take something down, we're probably not going to end up negotiating as we had in the past for the most part because we have already made the economic decision that it is not worth it. And so you just move on and get replacement programming.

So life has changed a little bit, particularly for some programmers. Their content is available on other outlets. So if the majority of our customers today have Netflix, then they probably have a lot of kids programming today they are paying for. And if they are paying for that kid program why should they pay for it again on us? And so they scratch their head when we go to them and say we have a price increase this year because our content cost went up.

So if there is a science show and it is on Hulu or Amazon they scratch their head;100 million people have Amazon potentially. So that makes negotiations difficult. But I think the way -- the escalating content fees, probably the balance has shifted now to some of the distribution people having more leverage than they did in the past because consumers have other outlets to get that content.

Right. Thank you.

Having said that, where we have relationships with content providers, particularly people who have supported us for 20 or 30 years, it would take a really, really material disagreement for us to not renew with a current content provider that has any kind of meaningful viewership. That would really have to be a big disagreement.

Okay. Thank you.

Marci Ryvicker with Wells Fargo.

I have a question for Charlie and then one for Steve. Charlie, looking at where your stock is today, the market seems to be assigning a per megahertz top value of well below $1, so why not buy back your own stock instead of participating in the auction, or why not buy back your stock in general? For Steve, is there any way to help us think about cash taxes and CapEx for 2016 and beyond?

I will let Steve take the second part. We certainly look at what -- we are cognizant of our stock price, we're cognizant of a strategy that could have, as you mentioned, could some logic, depending on appointment time, where you might be highly confident that the valuation is such that the best return you can do is to buy your stock back. We look at those things versus what you could do with the cash alternatively. So we continue to look at those things.

Again, I think our driving force in terms of management and what we recommend to our Board is what the long-term implications of doing those things are and then we balance the trade-offs of those things. So that's a lot. What you propose is logical, but there would have to be a bunch of other data you'd have to look at to say whether that's the highest priority for us.

You want to take the second part, Steve?

Yes, sure. Marci. Cash taxes and CapEx. I gave you a couple of forward-looking items in my preamble. One thing that we do do is amortize our licenses and the AWS-3 licenses. That is a cash tax help going forward, and I also mentioned that cash interest paid, whether it's expensed or capitalized, is deductible. So there are a couple of helps, as well as we take advantage of any accelerated depreciation or bonus depreciation in the tax department and that's a variance from book.

So there are a few helps going forward and that's really all I'm going to talk about on taxes. CapEx, to the extent you do a variance between DBS activations and Sling activations, the DBS applications, as Charlie mentioned, SAC has been relatively constant on the DBS side over the past several periods, so just continue that trend if you see that going forward as well.

I just have a follow-up for Charlie based on the answer to my question. You seem to be very confident you still have a lot of options, and I think the market feels like either those options don't exist, or they're much further out than what a lot of investors can handle. Is there any color or anything you could say today to give us confidence that there are still as many options in a reasonable timeframe as there have always been?

I think this hasn't changed since we went public in 1995 or 1996, but I think as management we are looking at things long term. So we're not looking at quarter to quarter so a shareholder can make money quarter to quarter. We are looking for long-term value for shareholders, making money over long periods of time.

We're very fortunate in that regard because we don't feel any pressure for short-term gains, right. And so we can make long-term decisions as a result of that. There are more opportunities for us than a typical public company, because we can take a bit of a longer term approach to it. Sometimes we're penalized in the short-term stock price for that, but that is a small price to pay if you are doing the right thing for your shareholders long term. I am selfish because I am a long-term shareholder, but we try to do the right thing.

The other thing is we try to look at where the world is going to be three to five years from now, not where it is today. As a result of that, I think we have a myriad of options to grow value in the company, and some of that is clearly going to be driven by what we do with spectrum and how to utilize that to grow the value of the company. We have talked about all the things in the past that are options there. And I think our value will be driven by how well we execute on OTT, and how well we run a mature to declining business in linear TV, and so that's how we look at it.

When we look at that, we feel pretty confident where we are. Hey, there is a lot less pressure on us when you are a $40 stock price than when you're an $80 stock price though. I think we can just go out there and do the right thing long term.

Obviously the next six months in the wireless industry nobody is going to talk to anybody. There's very little that will happen, if anything, until people see what happens in the next auction and then the deck -- the table will be reset from where it is today. And then some people will be pretty happy where they end up and some people won't be so happy. And somebody will have a strategy to go north and somebody else will say this can't be based on that. The counter strategy is to go northeast or south or whatever, but we are well positioned within that industry.

It's a little bit bigger -- I hate to digress but it is little bit bigger than the wireless industry when you think about. What you really have got to think about it's really the connectivity industry, which is all the information is in the cloud and you have got to connect to it. If you're going to be a living breathing productive human being or productive machine or productive industry or whatever, you're going to have to be connected and the most efficient way in my opinion that you can connect, the most efficient way, is through wireless spectrum. And it will be all kinds of different frequencies but you are going to have to connect.

The sweet spot of that, the most versatile spectrum of the toolbox is in that 2 gig range will have a vast majority of our spectrum. So if people don't want to connect, I would probably stay up at night.

If you believe that people are not going to connect and use more data and want more information and want to know when they're going to have a heart attack before they have a heart attack, or know how to save money on their electricity or whatever it's going to be, if you believe they're not going to want to do that, then go buy some oil because they're always going to use that for a long time.

That's the way we look at it. But I think we look at it a little broader than perhaps people are writing about today. A lot of people focus on the here and now. There is an old story about Pele. He was a good soccer player. He wasn't playing the ball, he was playing where it was going and that's what I think you have to do. I think that is the CEO and the Board's job is to make sure this Company is to make sure where the ball is going, and I like where we are positioned based on that. But not for the next three months.

Thank you.

Mike McCormack with Jefferies.

Thanks. Charlie, the comparison to oil is not looking so good these days.

Yes, but they're still using it. It's funny, if oil is not looking good, then how is solar energy and wind and all those things? They weren't economical when oil was at 80, how are they looking at 30?

There is always -- the new shiny car is always going to be better, right? If you run math, you're an economist and run stuff then you are going to come back to -- mid band spectrum is pretty damn valuable. The shiny car 60 gigahertz is very interesting, but it's not going to do with what you do at that mid-band frequency.

Right.

And solar is very interesting but without the government subsidizing it, even with the government subsidizing it's probably not economical at $30 a barrel. But it's not economical until you subsidize it. So that is my oil story.

I appreciate that.

By the way, they are producing more oil. They are not making more at spectrum.

That's true.

If you had a choice, I wouldn't flip a coin.

So I was just thinking of your thoughts on the overall wireless industry structure, whether or not you think there is in fact room for a fifth facilities-based provider. And then two more that might border on something you might not be able to answer, but just updated thoughts on your build out requirements. I've got one approaching in a couple of years.

I know that it is not hard and fast, you can push it back if you want to, but how do we think about or how you think about whether or not those initial requirements are a hurdle for you? And then just lastly with respect to the [Itibus] board downlink decision, I think, June 20 is your deadline. I'm just trying to get a sense if there is a benefit to wait until you get closer to that deadline, or are you just sort of biding your time?

There is no reason to make a decision on downlink until we have to. Not that I think the world is going to change or our decision will ultimately change, but you never know.

Right.

So what was the other question? Build out requirements. It's a bit complicated and a lot of analysts get it wrong, but some of our spectrum has to be built out by -- or there is a deadline of 2020, some is 2022, some is 2026 or 2028. Some spectrum still has got to be cleared and then it will have a date once it gets cleared.

We don't see that today as anything that keeps us up at night. The nice thing about the spectrum build out is, I think that is interesting, we are starting to spend a lot more time looking at 5G, because you are probably realistically when you look at our spectrum being used. It is most likely being used in a 5G format by however it gets used, and however it gets built out, and so those timelines kind of match up.

You would probably not think about building out an old technology -- you wouldn't build black-and-white TVs today if everything is color. Or you wouldn't build standard definition TVs if everything is HD. In fact, you would probably be able to build [4K] TVs today, because that is where it is going. So that's got the build out schedule. What was the other question?

We put out a note last Charlie identifying some of those requirements, and I think we have got a pretty good understanding of the dates on it. I just didn't know if those interim dates meant anything, or whether you just sort of --

The interim dates mean something only -- if you meet an interim date then you have a longer time to -- Then it would be 2021, 2023. You get an extra year or two if you meet the interim dates. But because of the transition to impact 5 where you're seeing a lot of people talking about it now and testing it, you will see it in the 2018 Olympics -- I mean 5G, it's not likely that we would build out interim spectrum in 4G.

That make sense.

Or that anybody else would.

I mean it's not impossible and maybe there would be some testing there, but that would seem like a waste of money if a year or two later you could do 5G because 5G is going to be 10 times, 100 times, 1000 times more efficient. It is going to allow for the Internet of things in the way that 4G doesn't.

So 4G was better than 3G, 3G was better than 2G, and 5G is a big leap. So you always want to -- if you're going to build something, build it with the latest and greatest, particularly when you get those efficiencies.

And on the fifth carryout, I don't personally see a fifth operator in the United States unless there was something like neutral hosting where the existing carriers could use it. So in other words it wasn't competitive. The competitive balance is pretty good. The government has it right. It's pretty competitive. It's pretty intense with four.

Maybe the government would always like more, but there is a lot of CapEx involved. So four seems to be, at least for the foreseeable future, seems to be where the sweet spot is. A lot of countries it is three. Some countries it is seven or eight.

It varies, but I don't personally think you could start a fifth network unless you were somebody -- at least DISH couldn't -- somebody of scale could. There are companies that have money overseas that they could buy AT&T and Verizon tomorrow, so the world could change.

All right, Operator. We have time for one more from the analyst community.

(Operator Instructions)

Bryan Kraft with Deutsche Bank.

I have two questions.

First, I think you had a $1.5 billion maturity due on February 2. I was just wondering how you handled that, if you repaid it with cash on hand, and if there is any plan to refinance it. And then separately on Sling TV, I just wanted to ask you how you're thinking at this point about the potential addition of the broadcast networks to the service and if you could talk about how those discussions with the broadcasters have gone?

And as you come up with the Viacom renewal, is getting their content on Sling a big focus for you in the negotiations? Thank you.

In terms of debt repayment, we set a wire for the $1.5 billion.

We did repay it with cash.

Repaid it with cash and it was cash on hand.

It was US dollars.

We tried to use bitcoin, but they wanted cash.

And just because of the auction we don't want to talk about financing, but obviously we have cash on hand to run our business today. The market liquidity has tightened up a fair amount the last six months, and certainly we were pretty conservative and I think we were five times levered. We are more like four times levered now. That just feels like a more comfortable spot to be based on our existing business.

For Sling on the broadcast network, certainly I think there's an opportunity for both Sling in the broadcast networks, but it's a bit complicated, because there is O and O networks and then there's the affiliates, and they're still fighting through their rights between the O and O's and the affiliates. And whether we would need to go to the affiliate and have an individual deal, or whether the network itself could speak for the affiliates is unclear to us at this point. And I think affiliates and O and O's all have different opinions about that. So they're working through that. Although we do have a couple of networks from an O and O perspective that we do have the rights to today.

So I think that that's one of the things that's a challenge for OTT writers and Sling and could be a benefit to the networks and to the consumer, right, because they are watching networks, but they are expensive. So that is the other piece of it.

Viacom renewal. Look, I think we're taking a long-term view, so any time we talk with the content provider, we want to know what their thoughts are on OTT and whether there is a way -- because we think OTT is additive to the content provider. We would scratch our head if the content provider -- excuse me. I understood three years ago where people were maybe skeptical in the business. But I think we have shown how it can work today to the benefit of the content provider. And I think I'd scratch my head if the content provider didn't want to play. But it has different values, depending on whether it's live TV or VOD or SVOD, or whether it's available on different platforms already.

So it gets a little tricky because some content providers sell some of their programming to one of the OTT providers like Hulu or Amazon or Netflix, and then we want to pay for it again, right. If you are watching that particular show, consumers shouldn't pay twice for it, and so some of the programming is chopped up a lot and it makes it very difficult.

Again, some people will make great decisions and content and how they handle OTT and they'll will be more successful in growth and some people will make mistakes. We are not the guys that get to make that decision.

If I could just ask a follow up on the broadcast side. I know that the affiliate network relationship can be complicated. Do you think it's just that they haven't hashed out who has what rights yet at this point, or do you think that some of the network -- the networks have a different view strategically on whether they want to be on the OTT services? Are some more motivated than others to work with the affiliates enough and get them on board?

It's hard to know. CBS sales theirs direct today, so they probably are less inclined. Other people would like to -- the O and O's and the affiliate agreements are complicated not primarily because of OTT, but because of reverse retrans and their own renewals, right? With the affiliations, because the network has options on where to go and a particular marketplace if they don't get an agreement, so those are very complicated.

We're willing to work with either party, either the affiliate or the owned and operated. We will work with either or both. Is that fair, Roger? I don't know.

Yes. We look at a number of things in working with these content partners or potential content partners. As Charlie mentioned, one of the things is that content already available? Obviously we look at is that content relevant for the target market we are going after, which is not the entire market.

And the final thing is is the programmer going to give us enough flexibility that we could actually package it in our products in the way that we would want to do it. And so it's a little bit different for us than a traditional Pay-TV operator where they are trying to appeal to the broad segment of the market.

And there are a lot of content partners that have decided they want to go direct, which is fine. That means from our standpoint it's a little let necessary for us to have them in a bundle, because the devices that we are on they are likely already on, and so our customers can go get that content if they want, or that they've made decisions to distribute their content through other SVOD services, which again are on the same devices that we are on. So, again, it makes a little less necessary for us to bundle that content into our basic package.

Thank you.

Operator do you want to move to media?

Yes, of course. We will now take questions from the media.

(Operator Instructions)

Scott Morris with Bloomberg.

Charlie, given your history with Sprint, I'm wondering if you see there is some scenario where you might be interested in purchasing their bond, say if they were backed by some of their licenses?

Yes, I don't think I can comment on that one. I don't think we can comment on that.

Because it mentions licenses?

Just that the anti-collusion is -- we know what the rules are on anti-collusion, but we don't always know that people are going to go by the rules and not change them. That was a rule yesterday, but the new rule is today and we just better to be safe.

Got you. Maybe just shift to another question following up on that last analyst question. Is there a timeframe that you see the log jam for local broadcast might be worked out and you could bring that to Sling?

I would say I think Sling is a potentially very powerful platform for all content owners, including broadcasters, and that they can grow their businesses by taking advantage of a new technology and a new generation of people who are not watching their content today.

The second part of it is to do advertising in a model that is not as obtrusive to the consumer in a way that the ad can be interactive and more meaningful to consumer and more powerful for them. I don't think executives at broadcast networks have their head in the sand. They are seeing a lot of advertising dollars go to Facebook and Google that used to go to them and that trend is continuing.

And there is a way for them to get a piece of that action and a big piece of that action and Sling has some solutions to that. So I think the progressive executives are very interested in terms of what Roger 's team are doing.

Thanks.

Shalini Ramachandran with Wall Street Journal.

Quick question following up on the Viacom thing. Viacom had said on its call that it has a short-term extension with you and I just wanted to ask whether you view that as a positive sign that you will hash out a deal with them to continue carrying their channels, or if it's still being worked out?

I think it is a positive because they are not down. So I think it is positive. Because I think that the approach that we really look at is -- the problem you have when you take something down, you take something down and you put it up a month later, a week later or whatever it is, you've already lost to customers that see that as valuable. So you almost penalize yourself twice.

So I think we've looked at things strategically to say for the most part on what I would term nonessential programming we will have to make a decision one way or the other. And we will do -- my direction to people here is look for every -- I don't want to look why we're not going to do a deal. I want to look why we're going to do a deal, look for every reason to do a deal. And the benefit of the doubt goes to our programming partner, because they helped us build our business.

So again that's what we are doing, and Viacom is one of those long term, really long-term partners for us. I mean they helped us build our business, so it would take a lot for us to not move forward. On the other hand, people have to be realistic that the viewership of their channel relates to the value of the channel.

The availability of their content and other places to our consumers they shouldn't be forced to pay for it twice. And, oh by the way, we have other ways for you to make money as well, monetize your product. So when you add all those things together, you put creative people in a room you will probably figure it out.

Got you. Thanks. One more thing. You mentioned for a while that you'd have some more interactive and targeted advertising on Sling and there had been some time when the ESPN ad spots were dark. And I wanted to ask whether that is going to change and when we will see that change?

This is Roger.

We are doing some dynamic ad insertion on some of the networks today, not currently as you pointed out on ESPN. As Charlie mentioned earlier on the call, the live OTT service is a bit of a science project, in that there is a lot of new technology, a lot of integration with third parties that has to go really, really well, and this is an example of the dynamic ad insertion where we have a number of third parties that all systems have to interact properly. So we've been doing a lot of work to make sure that we do dynamic ad insertion. It provides a benefit both to our programmers, but also to our subscribers, doesn't cause service issues on it. I think we're close to having those issues solved (technical difficulty - audio distorted) come back on, but we are still in development phase for finalizing technology to be confident that we can redeployed without causing service problems.

Got you. Thank you.

I agree. It is very frustrating to see the ESPN commercial break. I think I would rather see something moving. Part of ESPN is we have blackouts and things like that for ESPN that we don't have for other networks and that just adds complexity.

Got you. Thank you.

Malathi Nayak with Reuters.

I have one for Charlie and one for Roger. I will start with Roger.

Roger, some of the other OTT peers are experimenting with sponsored content and I was wondering if you were exploring that in terms of Sling TV and bringing sponsored content onto the platform? And for Charlie I was wondering if you had any advice [right now as they] try to revive that business?

I will take the first one about sponsored content. Where we have experimented is blending what they call traditional Pay-TV content, channels like AMC and ESPN and Food Network with nontraditional content that is available on Sling like content from [Baker] studios. But really our focus in all of that is figuring out what our consumers in our target demographic really want to watch.

It's not so much on can we get someone to sponsor content in a way that we can make money from the content, that's not our focus. Our focus is really on providing a service that the customers really want and content that they really want to watch. So, I think you'll see us do more experimentation with nontraditional TV content. But again with the singular focus on finding stuff that really works for our consumers and what they want to watch.

I don't have any advice for Sprint and (inaudible), other than I think they have good team in place for now and they are very focused. When you get a good team and you are focused, good things can happen. But it is a tougher environment because of liquidity out there, but we got our own. My job is to worry about DISH.

Operator, are there any other media calls in queue?

Yes. Thank you. Your final question from the media community comes from the line of Mike Farrell with Multichannel News.

I have two really quick questions. John Skipper said yesterday that ESPN was talking with a lot of other OTT providers about getting their channels on their services and the last Disney call Bob Iger spent a lot of time praising Sling and their relationship there. I'm just wondering if ESPN getting on a broader swath of OTT providers does that what you at a disadvantage?

How does that affect Sling?

This is Roger. Obviously we've always expected to have competition in OTT. I was a little surprised it has taken this long for (inaudible) to come in, but Sony is in today. That's true. My expectation really with OTT is its a new segment.

As long as we're performing well, right? We need to perform well; we need to provide value to our consumers, that other entrants coming in will expand the market and even though we will lose market share, right? Right now we have probably fairly material market share in it, but we will lose market share, but the market will grow faster and therefore we may grow faster.

So that is sort of -- if we look at new entrants and new markets that have developed that's historically what happens is it starts off slow -- development. You get an S-curve adoption. Others come in. They grow the market faster, and then at some point you have a shakeup between the larger providers. So we certainly expect competition. We certainly expected at some point ESPN will launch with other providers.

I think the interesting dynamic will be the OTT players that come in that are outside that don't have material cost and infrastructure. So even with Sony we don't have material cost and infrastructure. They are going to have different motivations about content. Amazon today makes no secret the fact that they sell -- they are trying to sell Amazon Prime and they use content as a way to sell shipping services and product, right?

For content that's a little scary because your product can get devalued because somebody wants to sell something else. So if somebody wants to sell hardware, they might devalue -- and if they're outside the -- if they have no infrastructure then it devalues everybody who is invested in infrastructure, which is a slippery slope for our content provider to go. And so I think that's the part that is most interesting to me to watch, will be who actually entered -- not only when and if somebody gets in, but who it is, and do they have infrastructure, or is there motivation to monetize something other than content?

Great.

Thanks. Thanks, everybody.

Thank you, Operator.

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