DISH Network Corp (DISH) 2016 Q2 法說會逐字稿

Good afternoon. My name is Emily and I will be your conference operator today. At this time, I would like to welcome everyone to the DISH Network conference call.

(Operator Instructions)

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

Thanks, Emily. Thanks for joining us, everyone. My name is Jason Kiser. I'm the Treasurer here at the DISH Network, joined today by Charlie Ergen, our Chairman and CEO; Tom Cullen, EVP of Corporate Development; Roger Lynch, CEO of Sling TV; Erik Carlson, President of DISH Network; Steve Swain, our CFO; Paul Orban, our Controller; and Stanton Dodge, our General Counsel.

Before we open up it up for Q&A, we do need to do our Safe Harbor disclosure. So for that, we will turn it over to Stanton.

Thank you, Jason. 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 don't 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 undue reliance on any forward-looking statements which we assume no responsibility for updating.

As part of the process for the broadcast incentive auction, we filed an application to potentially participate as a bidder for those spectrum assets. 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 and we will not be answering any questions about the incentive auction during today's call.

Operator, we will now open up the call for analyst Q&A and then follow it up with media Q&A.

(Operator Instructions)

Your first question comes from the line of Mike McCormack from Jefferies. Your line is open.

Hey, guys. Thanks. Maybe just a comment, if you will, on what you are seeing out there with respect to the Sling multi-stream. How much of an impact are you seeing as far as demand goes?

And then I guess thoughts as we go into the fourth quarter with AT&T/DirecTV launching DirecTV Now. Do you anticipate that to be a significant competitive threat? I'd be interested, that would be great. Thanks.

Okay. This is Roger Lynch. The multi-stream service we launched in Q2 in beta, and then we took it out of beta at the end of the quarter in June. We saw a pretty strong growth for it, and we are pleased with the launch which is why we ended up taking it out of beta.

It is a service that we also see some level of overlap with our single stream service, where customers were paying for both services because the content offer is different. And obviously towards the end the quarter, we added a lot more content in the multi-stream service with Viacom and NBC. So that was the reason we took it out. We saw a demand for it that -- we expanded the content offer quite significantly, and been pleased with the update of it so far.

There's some migration that we see from one service to the other. So after the multi-stream came out, people for whom the multi-stream aspect of it or the content offer that was in that was more appealing to them than the single stream. We saw some migration from the single stream service over to the multi-stream service, and we expect that probably to continue.

On DirecTV Now, we obviously have always expected that we're going to see more competition. I've been a little surprised that it's taken this long for anyone to really launch. My expectation is that as new entrants enter this market, we're just going to see faster growth over the top. Obviously it will affect the market share that we have right now, but I don't expect that it's going to materially affect the growth of our business.

If I can just add one more just on your thoughts on cannibalization and anything you're seeing from your traditional satellite customers moving over to the new products?

We've never seen much at all migration from DISH Network over to Sling TV. Historically, it's been a different customer base that we attract for Sling versus the satellite business.

Great. Thank you guys.

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

Yes, thanks. Maybe you guys could just give us some more color on the broader video market. The losses were a little bit more than we expected in the quarter. So maybe first on the DBS side, did you see any impact from the -- some of the programming dispute with Tribune or anything on the competitive side that was different this quarter?

And then as relates to Sling, I know guys don't break them out. But maybe just qualitatively, was there any seasonality or something in the quarter that potentially slowed the growth? I don't know, maybe like a hangover effect from March madness? Any color you could give there would be great. Thanks.

This is Charlie. I will take a stab at that, and maybe Roger or Erik if you want to add a comment.

Overall, on the -- lets just take overall video marketplace. I think where we've gone strategically we've been talking about it for a couple of years is that we think that the industry, the pay-TV industry, the linear industry, as we know it, we think is a mature declining business. It's clearly been a declining business for DISH for a while.

And we've really looked at that and said, we've really over the last really six months for sure would look at every customer as a P&L customer and say, do we think we can make a profit to add a new customer during the lifecycle of that customer. Or if we have a current customer, do we think that they call in for upgrades or credits and do we think that continued investment in that customer is going to be profitable.

We know there's a high correlation example for credit scores. We know there's a high correlation for a profitable customer. There's a high correlation geographically where they live. We know there's a high correlation in terms of what equipment that they get from us.

So we take a lot of those factors. And I think we've just gone to a strategy that says it doesn't make sense for us to invest in a customer if we don't think we're going to get a return. That was never an issue 10 years ago, but that's an issue as competition has come online that wasn't there against DBS.

OTT is certainly competition, but the cable industry is much stronger now because broadband now is a necessity for consumers even in a way beyond where video is. So that's kind of a -- it's the new normal, new reality where the marketplace is. It's been moving that direction and I think it's going to continue to move that direction.

Counter to that, the Sling OTT is where the needle is going to move. It's for us at DISH, it makes sense because we enter new markets that we can't get to today. Apartments where you can't physically put a dish in the apartment or on the balcony, or you don't point south, or in inner cities where you can't put a dish in downtown Manhattan. It opens up new places for us to go that we haven't been able to go in the past.

So that's how we look at it. Obviously, you would prefer to have a robust subscriber growth. But were not going to do that, we'd rather also make money and it doesn't make sense to invest.

When you invest $1000 -- we realize that the SAC for a customer in the linear business is probably over $1,000 because we also count the programming discounts that you give people. And if that customer is going to have -- you have to look at the choices that that customer has today, and then you have to look at what choice is that customer going to have two or three years from now before you get your payback. And as one of the earlier questioners to ask about DirecTV is going to launch or AT&T is going to launch their own OTT service, others will launch OTT services.

So customers are going to have -- they're not going to have two or three choices, they're going to have 10 or 15 choices for their video products. So we think it's just going to be a more competitive environment.

There is a seasonality, I think we knew going in and were not shocked by it. But there is a seasonality to an OTT product that's not there in linear, because it's one of the great advantages of an OTT product. It's very easy to sign on or sign off a month at a time.

So as people go on vacation, as they become a -- there's not a -- until the Olympics start, there's probably not -- and football season starts up -- there's probably not compelling content on in the summer. So you do have a seasonality to it that's maybe more exaggerated than what we would see in linear TV, where it's kind of a hassle to turn on and off, it's more of a hassle to turn on and off, although we have some of that for sure. Roger, I don't know if you had anything.

What we're seeing is certainly a secular growth in OTT marketplace for us. But overlaid against that is the seasonality that, as Charlie mentioned, can affect both top line and the bottom line in terms of people turning the service on and off. So it's similar to what we saw last summer against the backdrop of secular growth though.

I think -- and I forgot to answer part of your question, John. In terms of second quarter, I think that there are some contributing factors maybe that are a bit more abnormal from a growth perspective or a churn perspective I think in our case. Which is we did have a price increase because the market is more competitive and the consumer is starting to have more choices, those price increases where as before maybe people didn't look at it as much. They certainly look at price increases today in a way that they didn't before.

AT&T's acquisition of DirecTV, they certainly have been very aggressive with AT&T customers who don't have DirecTV, and they have a different mailing list, a different credit profile of those customers that we wouldn't have access to. Because they've got 100 million wireless customers, not all those people have DirecTV. So some of that I think goes on.

And then we do have -- although not as big an impact as you might think this quarter, but certainly Tribune and even NFL Network are two channels that are down currently on DISH in dispute. So those things all contribute to some abnormality that aren't normally they're present the rest of the year.

Got it. Thanks, Charlie.

Your next question comes from the line of Craig Moffett from Moffett Nathanson. Your line is open.

Hello, Charlie, and maybe a question for Roger. Roger, I wonder if you could reflect on the operational characteristics of Sling for second. We always see reports of issues associated with jitter and pixelation and freezing that come along with a live service.

And I'm guessing that your internal data turns up all different kinds of explanations for where those problems occur in the network, whether it's congestion for back haul into a particular neighborhood or what have you. Can you just talk about what you've learned about the technological challenges of a service like Sling and how ready the infrastructure is to really support a very large scale growth of a service like that?

Sure, Craig. The first thing I would say is, what we are seeing overall is significant improvements in performance, and that is across the ecosystem that we have to work in. So part of it is our internal systems, but also our network partners and content delivery network partners. I think I've said on previous calls, if you were going to architect a network to deliver video, you wouldn't architect the internet the way it was architected.

It wasn't architected for synchronous video delivery. And so a lot of effort goes into designing systems to counteract the way the internet was designed with it's random discard of packets and things like that that happen at routers.

So what we've found is the content delivery networks that we work with, they largely had architected their services around delivering files. And as our business has grown and we've put more pressure on them to always improve performance, they are figuring out ways to work with us to improve performance for live video streaming (technical difficulty).

We certainly see quarter-over-quarter improvements in the performance of our service, but I think we're going to be chasing that for years. Trying to always improve it, because it's a new service and it's new technology that we're having to deploy to stream at high quantities of data and high peak in current usage.

Are the biggest bottlenecks for your response in the content delivery networks or are they elsewhere?

No. I think it's how we architect systems to work with content delivery networks to deliver video in a seamless way. So I wouldn't say it's all in there, in the way they are architected or all in the way -- It's all just about optimization so that we can knock out increasingly corner cases.

I think when we first launched, we had issues that I would call more systemic. I'm sure you wrote about them and others when big events came up. We don't tend to have those issues anymore. We don't have the systemic ones, they're more corner cases that we have to knock out where we find in certain situations a customer is having some problem. And what's the root cause of that and how can we architect our systems or have our CDN Partners optimize their systems to knock out more corner pieces. So much of what we do now is more whack-a-mole on what I call more corner cases rather than big systemic issues.

Thanks, Roger.

Emily, do we have any more questions in queue?

Your next question comes to the line of James Ratcliffe, Buckingham Research. Your line is open.

Hey, guys, thanks for taking the call. Two if I could.

First of all, on the SAC, can you just talk about how scalable that is to and I presume we are declining DBS gross adds in particular? And if there's any really meaningful portion of that cost associated with Sling? And secondly, broadband has tailed down a little bit this quarter, can you talk about that business in general and what the opportunity you see there to be? Thanks.

James, I didn't understand the first part of the question. Something about something being scalable?

So how do we think about SAC and expense in terms of what's really linearly or close linearly fixed to DBS gross adds versus what's really a fixed cost for the business as a whole? How do we think about how SAC [expending] trends over time assuming that DBS gross adds may be in an ongoing decline?

I got it. This is Charlie.

The one big cost that we have to watch pretty closely when it comes to the linear side of the business is the advertising budget. And the extent that you are spending the same amount of advertising, and getting less gross adds, obviously your SAC could go up. So that's the piece that we'd focus on.

The rest of it is probably not material at this point, but that particular one is. And again, we count the programming discounts in there as well, so that's a place that we think we can -- we think that the industry has gotten a little bit more mature and a little bit better on that. I can remember last year, we were all sitting around talking about [1999], and even our team was we got to be 1999 because the industry is 1999. And it doesn't make -- there's not a profitable customer coming at 1999 for anybody in the linear business.

So the world has changed to be -- there's more discipline in the marketplace today and you are normally starting customers in the industry today certainly well over $50 or $60. So your SAC can actually go down. If you look at it the way we do with programming discounts and all that in it, then your SAC can actually go down even though you may not be as efficient on your advertising side.

On the broadband side, that is a satellite broadband, that's a business that's not mature yet. That's the business where there's still demand out there, but the satellites that we use in the high demand markets are -- the beams for the most part are full. So all we're doing is treading water until EchoStar launches a new high throughput satellite in December, and I think the first quarter ViaSat launches their new high throughput satellite.

So we should have a lot of new capacity coming online in the first and second quarters of next year from EchoStar and ViaSat, and we think that reinvigorates that business in two ways. One is, it opens up additional capacity for new customers but it also allows us to give a better product to customers and give a existing customer more capacity for the same amount of money. And that should lead to the reduction in churn.

We are still optimistic about that side of the business, even though even though we know that there's not really much we can do between now and the launch of new satellites to grow that business.

Great. Thank you.

Your next question comes from the line of Tuna Amobi, S&P Global Market. Your line is open.

Hello, good afternoon. My first question is on addressable advertising. I know that you guys had rolled it out recently to more Spanish-language networks. So now that you've expanded it, I was wondering if you can provide some color of your efforts there, how you see the monetization opportunities going forward.

And I think a few years ago, you guys and DirecTV also were collaborating on addressable. I think that was specific to the political campaign, but I don't know if you've extended that effort during this election cycle post the DirecTV /AT&T merger. So overall, I would appreciate some additional perspective on all of your efforts in that area.

Hello, Tuna, this is Tom. We formed a JV, if you will, with AT&T to address -- sorry to use the term -- address the political market in using the addressable technology, and it was quite successful for us. We're for seeing similar demand this year, and we are still collaborating with them jointly. And obviously, we are right in the heart of the political season so are we are encouraged by where we are on that front.

In terms of DISH addressable, we have expanded the number of markets over the last couple years. Very encouraged by both the CPM growth, as well as the possibility to expand to additional markets.

So the technology is now mature. We are in a sales cooperative there with others in the industry, and I would expect that you'll see more of our inventory moved into addressable and away from the spot market based on the positive developments that we have experienced so far.

This is Charlie. I think the bigger picture is that there are things -- obviously the biggest energy is you could merge the two satellite platforms together. But short of that, there's still quite a bit of synergy where neither company would -- neither AT&T or DISH would have a marketing edge against the other company. And certainly combining advertising resources and utilizing the number of DVRs and addressable technology is certainly a place that could be growth for both companies.

And the other big thing is the backhaul, we all backhaul from -- we were the only two companies that really have connected to all the broadcasters in the United States, and that's a redundant network for both of us. And obviously that could be shared, particularly since AT&T has a lot of backhaul resources themselves.

So there's probably a fair amount of synergy in that where no competitive advantage to either company, in fact it would be improved -- it would be improved customer service for both our companies to look at those kinds of things. And those kinds of things can be looked at external to the -- while we're in a quiet period, there are other parts of both our companies that can talk during a quiet period on those kinds of things. And I would expect that that's something that at least internally we've looked at and think it makes a lot of sense. I won't speak for AT&T.

Okay. I know you've come a long way in terms of your technology, but do you still see any major technological hurdles at this point? And also related to that, are you -- where you booking those revenues now? I realize it's still relatively small, but I'm trying to get a sense of if you can give us some color, quantify or where you're booking them in other revenues.

No, we booked the addressable advertising or advertising revenue in general in the subscriber related revenue line.

So it's in our ARPU?

It is in the ARPU. And it is a small driver of incremental ARPU year over year.

Okay, that's helpful. And last question, Charlie, just a little more color on your comment about the Tribune and NFL Network dispute. Is it something that you expect to linger for a while, and can you provide some perspective of how we should think about the second half subscriber impact that this might have?

Well I don't think -- first of all, the subscriber impact of any kind of takedown of popular channels is never positive. So although the marketplace is getting a bit more fragmented and of course networks are continuing to lose market share, so it's not as impactful as it maybe has been in the past but it certainly can have a negative impact.

The two really different contract negotiations, one is within NFL, it's a bit more in a funny sort of way positive in the sense that we're spending a lot of time trying to think of how we can do things together on a broader picture. And it's a bigger picture way and it's not as much about dollars and cents, it's a bit more strategic I would say.

I think with Tribune it's an honest disagreement on pricing. And it's -- we do hundreds of retrans deals, so we know where the marketplace is. And we think that they are out of line on where they are trying to go.

And they're complicated because they are a tweener. And by that I mean, if you just have networks for retrans, if you just have the big four networks, that's one set of contracts. And there's another set of contracts where you can end up with the O&Os that have -- not only do they have the networks, but they have other channels like NBC has USA Network and so it gets tied up in a bigger negotiation.

Tribune is in the middle, and they have WGN America where they've strategically tried to take that channel from a superstation and tried to make that into a pop or entertainment channel. And they've invested to do that, but it's not a super popular channel for DISH customers. And we certainly wouldn't see the same value in that channel -- our customers wouldn't see the same value in that channel as they would.

So it would be a little bit easier if we were just talking about network channels or if we were just talking about WGN America, it would be a lot easier to get to more common ground there. But I think when you put those two things together, you end up with a wide gap and disparity in terms of where both companies see the values. So that takes a bit more art to compromise to figure that out, and that sometimes takes time.

Okay, thanks for the color.

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

Thanks. Just I guess generally on the use of cash going forward. Any view on, all things considered, obviously you have this auction going on and you have you leverage where it is, whether you would consider additional secondary market purchases of Spectrum with obviously LightSquared being one of the larger ones -- larger possibilities that are out there?

And then I guess more on the intermediate term, if you are able to sell assets and have a much different cash position, does that cash come to the shareholders? Or is the debt leverage on a gross level something you maintain with your existing pay TV business and then basically just give that cash to the shareholders instead of paying back some of the debt that you used to purchase some of these assets in the first place?

This is Charlie, Walt. I guess I'm going to have to answer the question a little bit fairly broadly. But I think, A, there's a number of opportunities out there we see in the marketplace.

We think -- and we look at mostly opportunities that would fit into something that would be -- something that we, A, have an expertise in and, B, would be synergistic to what we do today. And if you look, we see ourselves as a connectivity company or are transitioning to a connectivity company. So anything in that realm, and that's a lot of stuff, is interesting to us.

And obviously when we look at those things, we look at certain things strategically, the long term, but some things you might look at might be accretive day one, some might be dilutive day one. But we'd look at it long term and say is that a good business that we should get into, and we are one of the few companies that really is able to think long term and execute long term.

It took us almost 4 years to design and build satellites to get in the DBS business, and we didn't have much going on for those four years. The big dish business was -- we weren't putting new money into the big DISH business, even though it was a very robust business. Two years before the launch of DBS, it was still a robust business.

But we knew that the industry was going to change, and we put our money into where we thought the future was going. And I think that's really what we are doing, and obviously Spectrum has been a piece of that, Sling is a piece of that, and there's other things that we think make sense in that realm. Today, you probably wouldn't be buying back debt because for the most part, debt gotten over par. And as long as we have use for the money, and we think we can get a better return than what we'd pay on the interest, that's more likely where we'd go.

So one of the uses could obviously be giving it back to shareholders as well, rather than just paying it back?

Well, we always look at that. I think as management we would say, if we have a dollar to spend, what is the most efficient way for us to issue. Can we invest that dollar and make more money than returning it to shareholders or can we not?

Each day might be different. The Board might come to a different conclusion. But heretofore for the most part, we have decided to reinvest that as management.

We have -- I think we've over the last 20 years, we've paid dividends three or four times where we thought, at least based on where we were at that point time, that was the right thing to do. Sometimes it was tax motivated because the tax law was going to change, and sometimes it was we had more than enough capital to do anything we could see on the horizon.

Our first priority is, can we deploy the capital at a greater return to our shareholders than by returning -- paying a dividend or buying back stock. If not, those become serious considerations, and we've bought back stock and paid dividends in the past.

Got it. And it doesn't sound like you're ruling out LightSquared, and obviously they've made some progress with the GPS community. Your view on that that Spectrum was very different a year or so ago, so now I guess is this a change that maybe you don't necessarily definitely pursuing it, but something you wouldn't rule out if you could get it at the right price?

I think LightSquared is -- we're fairly knowledgeable about LightSquared obviously, and I got the cuts and bruises and the stitches to prove it. But it's obviously Spectrum, it obviously has some value. They obviously have challenges with interference that they are working to overcome.

It is something we'd look at. I think it may be more likely that one of the incumbent players would be more interested in that than we would, but it's certainly an asset that's in the connectivity space.

Got it. I think Rich wanted to ask something on Trib. Rich, are you on?

Yes, I just wanted to follow up on Tribune. Because, Charlie, now you've talked before that when you drop something, you don't look back any more. That it's a purely an economic equation and there is no going back.

Is this different in some way that you would look back and you are still actively interested in adding Tribune stations and WGN back to DISH? And I'm just -- I guess in the context of this, is it would seem like most of the sub losses that you experience from a drop happen pretty quickly just looking listening to like Jerry Kent and what just happened at Suddenlink. At what point is it not even worth negotiating anymore because the subs that you've lost are lost?

You're right in the sense that if we ever get into a takedown situation, we have to be prepared that we will never put that channel back up again. So obviously, we were so far apart with Tribune that that was the situation that we were in.

It's a little bit -- and I would say for WGN America, it's probably in that realm of anybody who wanted WGN America has probably left us. We don't think that's a big number, but they probably left us. So the value of putting WGN America back up is declining by the day.

But on Fox and NBC and ABC channels, the Tribune or CBS channels that Tribune owns, that's probably not -- it's probably going to approach the point of no return as football season comes online. But because it's during the summer, it's -- Fox -- and CNN News is getting more people watching them today than the networks. So it's not as big a impact and so there's probably still time to piece something together.

But we're certainly prepared to live without Tribune and WGN America as a company. We know we would lose some subscribers, as a result of that, we would save a lot of money in terms of fees. And we're certainly prepared for that.

If there's a deal that can be done that's market price and takes into consideration the expenses that we've had up to now. For example, we've shipped out an awful lot of off-air antennas. So a lot of our customers today don't need satellite to get the Tribune channels, then maybe you can piece something back together again.

This is like a strike. Once you go on strike, nobody ever gets back to where they could have been if they could have resolved it before hand. But when you have honest disagreements between where people think the market is for whatever reason, somebody's dad is wrong or somebody's dad is different, then think disputes happen.

But in terms of this being one of the largest interruptions of broadcast television in history, and this is gone on for five plus weeks, it sound like the losses to date have been pretty minimal on your business.

Well I think you have two kinds of losses, one is churn and one is the inability to attract new customers. You look at both then and you look at the impact on your customers, but you also look at the fact that maybe you don't have to raise price for your customers and that has a longer-term impact on your customers. So you have got to balance those things out.

It would be easy if we were a penny apart, it would be easy. But when you're tens of millions of dollars apart -- this isn't our first rodeo. We know when a deal makes sense, we know when a deal doesn't make sense.

So at this point, we believe the long term, based on what we've been offered, the long term proper answer is, is to live without them and take care of our customers that we can within off-air antenna. And then perhaps to replace the WGNA product with other product, that there's a serious amount of interest in other programmers to replace that product, and who would have higher ratings and lower costs than WGN America. So that's what we look at.

Having said that, Tribune has been a good partner for a long time, and we use data from the company. But we've been with that company for a long, long time, we don't walk out the door easily. But if they kick us out the door, then the door shuts, then so be it. But we go the extra mile with partners that we've been with a long time. We're probably stupid to do that, but we spent and an inordinate amount of time talking to people who've helped us build our business and Tribune is one of those.

Thanks so much, Charlie.

Our next question comes from Brett Feldman, Goldman Sachs. Your line is open.

Thanks. So over the course of this call, we've heard you talk about how your linear business is in a mature market and how your streaming business is in a fragmented market. And typically when we see those conditions, industries consolidate.

And so I'm curious, do you think one or both of these industries that you participate in should be or need to pursue consolidation? And if so, what would be your goals if you proactively sought it? And I guess as a subset of that, to do you think regulators would even allow any of this?

This is Charlie. I don't know anybody else -- Tom, you want to jump in.

I would say that there probably will be consolidation within the video business, because I think there's just some synergies between OTT and linear and even linear and linear. So I think there will be consolidation, and I think that regulatory issues will probably be less of an issue in a mature market than it would be a growing business, particularly if consumers have multiple choices that they didn't have in the past.

So, I think there will be consolidation and they're probably will be -- I think there will be a lot of people who start in OTT business and there will be consolidation of that business between players. Because some people will get it right and some people won't.

Roger and his team have spent a lot of time on the technical side. They still have work to do, but it's not easy to work on -- to have live TV on multiple devices that all have different operating systems and different coding requirements and it's not easy to insert advertising on the fly. It's not easy to respond to consumers who sometimes have their broadband connection go out or sometimes have conflicts in their -- that it appears that your channel has that issue, and it may or may not be outside your control. So there's a lot of things that do that.

There's blackouts for sporting events that cut consumers don't understand, and if you make one mistake it's on the internet. These customers are on broadband, I think they have their Twitter button ready to go and as soon as they have a buffering they are hitting it. Which is good for Roger's team to have to be at a different standard, but it is a much, much higher standard for OTT than it is for linear television.

We all remember every time it rains or there's a hurricane. Your cable goes out or the satellite goes out or somebody cuts the fiber connection or the cable and it goes out for -- Sling doesn't go out very often for multiple minutes.

Would you ever consider separating your video businesses if that facilitated consolidation, or do you think that inevitably these business feed on each other and they are better off together?

Brett, this is Tom. I think, as you know, we are going to do what's best for shareholders in the long run and assess opportunities as they present themselves.

Okay. Thanks.

The assets were built go together, but as the world changes sometimes one asset is more valuable to somebody else and it's less valuable to you, then you can do some things differently. I think we're confident and our Board is confident to look at all those opportunities.

Thank you for taking those questions.

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

Hey, guys. Thanks. Just to go back to the DBS business a little bit.

Charlie, you've talked quite a bit over the last couple of years about how when you came back you thought that the business had gone too far out on the credit curve, gotten too aggressive. And it seems like for the last year, you've been backing off.

I wonder if this quarter is an indication that you decided that we needed to be even more careful with credit spending and less acquiring a customer. And so is this a new normal level or is this a bit of a blip given price increase, increased competition, et cetera. Thanks.

I would say on the credit side, I think we made those changes in a pretty timely manner. I think on the retention side, I think there was discipline that was a bit out of control in terms of the amount of credits you would give. In other words, we were making a pretty good choices in terms of bringing new customers in, but we weren't making as good of choices in terms of upgrading customers or giving credits.

So if you gave a credit to a customer where you suddenly were below -- you weren't even covering your variable costs. It should be no surprise to you that when you give a customer credit, when the credit is over, they call you up and ask for another credit. Strategically, that was a bit out of control.

I think it's more the other factors I talked about which is price increase and very competitive -- the AT&T, DirecTV consolidation. Some of the things they were doing along with cable having advantage with broadband, I think all those things still continue to be headwinds where we're going.

And I think strategically, one of the things that we've done differently is rather than give credits to people, it's really more about right sizing that customer into the programming that they actually watch. And in that regard, we've made great progress in the sense that we are rolling out now, at least on the retention side, packages where we can right size the customer.

We had resisted that, that's probably my fault in terms of resisting that. Really trying to work with the content guys not to go that direction, but we just didn't get enough support from the content guys to allow us to do it. It didn't make sense for us to give a credit and pay all the cost to the content guys, at some point we had to reduce the content for consumers.

An example would be somebody who doesn't have children, maybe doesn't necessarily want to pay for children's programming. Or somebody who is in a retirement home and doesn't watch sports, why would they pay for sports. So I think we've done a pretty good job on the retention side now of having alternatives for customers that fit their budget and give them more flexibility in the choice of what they're doing.

Thanks. And then a little more strategically, you've talked in the past about interest from foreign or technology players to get involved in wireless. Have you seen any increase or fall off in that interest in the last few months?

Phil, I think because of the anti-collusion period, we're going to steer clear of post auction industry structure opportunities as directed by the anti-collusion roles.

Understood. Thank you.

And your next question comes from the line of Marci Ryvicker from Wells Fargo. Your line is open.

Thanks. If I look at the last two quarters and we just assume that we are sort of at a new norm. So churn would stay elevated, subscriber related expenses would be more or less steady as a percent of revenue.

Am I correct in just thinking about DISH as a positive low single digit or mid single digit EBITDA growth company? Charlie, is this your strategy? And then I have another follow up.

Well, our strategy is not to be a low growth EBITDA company. Our strategy really is to be a high-growth EBITDA company, but over the long term, Marci. So I think you would say that -- we can grow EBITDA in the linear business, but it would come at the expense of cash flow. So given those choices, we would tend to go more towards cash flow.

And second, Roger and his team have work to do to be successful, but we do see that as a growth opportunity. And once you have the finished product, that business is going to grow quite rapidly. And a lot of things have happened, but the content owners bought that technology for a long time, now Roger has more people who want to get on the platform that he has room for.

The technology side is still not where it needs to be. There's still the RS DVR technology, which Roger and his team have not rolled out, they still have standards they have to set for dynamic ad insertion which is another revenue opportunity for our content partners and for Sling. and they still have to prove they can take a big event and get millions of people watching without significant service interruptions.

So we still have -- it's still not going to be a finished product for a while, and we're educating ourselves and we're educating content providers. Because they all do it different -- we get advertising from multiple sources in different formats, and that doesn't work very well when you try to going to multiple devices and try to insert an ad when you don't know when the timeout is going to be. So everybody does blackouts differently.

So at some point, there has to be some compromise to get stuff on more standardized platforms. And as new people come in like Sony and DirecTV and maybe Hulu, you'll start to see that standardization because everybody is going to have that same problem, and then everybody is going to figure out, we really do need to solve the problem.

So a lot of work to be done there, but it's got a bright future. OTT has a bright future, and Roger and his team will have a bright future if they execute.

I guess the disconnect is I think the market believes that your EBITDA is actually going to go down. So it sounds to me like even as you're going through this growth phase or transition phase, we should assume that your EBITDA is actually going to be up.

I think our EBITDA is going to be up in the long run is the only thing I can say. That's what we focus on as management. I don't worry about quarter to quarter, but I think we have to put the things in place that we are prepared for where things are going and take advantage of it. And when you do -- when you get -- and you go the right place and you get your company in the right place that things happen in a positive way pretty dramatically.

And my second question is unrelated. The designated entity lawsuit, do you have any update there, any sense of timing?

I feel like a lot of the wireless companies are getting ready to bid for the AWS three licenses. And I would assume if you lose and they go up for auction, something like that would happen after the incentive auction. So we'd be in another quiet period.

This is Stanton, Marci. There's really no update other than all the briefs have been filed on the appeal, but we don't have a date set for oral argument yet. So it's TBD at this point.

Thank you.

Operator, I think we have time for one more from the analyst community.

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

(Operator Instructions)

Your next question comes the line of Jonathan Chaplin from New Street Research. Your line is open.

Great. Since I'm the last question, two quick ones if I may. Charlie, if you failed to do anything else with your Spectrum by the time the last build-out requirements [loomed], how long would it take you to meet those build-out requirements with some sort of a save build in order to hang onto it?

And in looking at what LightSquared was able to do with the CCI spectrum, it looks like they managed to do a save build for about $34 million. So I'm wondering what it would cost you to do that?

And then the second question is, is there value in once LightSquared spectrum has gone through its various processes to incorporate that into Band 70 to make a bigger band. Would it be worth going back through a 3GPP process in order to increase the size of that band or is Band 70 basically done?

The buildout -- I guess there is the half-empty guys -- people out there, but the buildout is still a long way away and obviously, as you correctly point out, people do things that -- they do things to save their buildout requirements relatively inexpensively. That is not we're we hope we are headed. Doesn't mean that that's not a possibility, but we think that with 5G coming and the timelines being about the right period of time that there's a lot that can be done there.

Part of the buildout -- the best way to build out is to build out with somebody else who's also building out so you get some synergy in the buildout. Once the quiet period is over, that's a bit more logical way of looking at it. But you can rest assured that we're not going to risk tens of billions of dollars of spectrum value without making sure that we meet every obligation that we have.

In terms of -- Band 70 is set, but obviously to the extent that there is a strategic reason to go to a new band that might -- in other words might include Band 70 and other spectrum in a new band at 3GGP, that's not something -- I mean, it's something we'd certainly look at. I think the -- it's one of the things that's been so positive in the last quarter where Band 66 was approved. And [70x90], what's our AWS-3 and AWS-4 downlink spectrum, should be -- right, we have expectation that that will be in the vast majority of radios and handsets long before we launched a service. And that's big because the day you launch a service you can get -- that means you can get revenue as opposed to having to seed the market to get your spectrum in a handset.

The finalization of Band 70, which is our other AWS-4 spectrum, is positive. So we are making a lot of progress on the things that we can. It's a bit unfortunate that the incentive auction has a quiet period. But it's a little bit unfortunate that we've been in a quiet period for the vast majority of the last two or three years. But we expect there'll be a little bit of break -- we think there be a little bit of a break in that.

Thanks Charlie.

We will now take questions from members of the media.

(Operator instructions)

Our first media question comes from the line of Scott Morris from Bloomberg. Your line is open.

Thank you. Hi, Charlie, guys. Appreciate this chance to ask a question. I'm curious as you folks try to improve the quality of your customers, what you think of Comcast's announcement today about wanting to get into a prepaid cable and Internet offering through Boost Mobile.

This is Charlie. I haven't seen the announcement but I think -- if you're going to go to a less credit-worthy customer, prepaid is a good way to do it. We do some of that today at DISH. Again, there are profitable customers in the prepaid world, and certainly in the wireless world. I wouldn't -- I would think that that is something that would make sense for Comcast to look at.

I guess I could add, you're probably not dealing with the $1,000 SAC to get that customer. I think you have to balance your SAC versus your churn rate versus your ARPU and margins. It's just a different customer.

Great. Thanks.

Your next media question comes from the line of Malathi Nayak from Reuters. Your line is open.

Hi. This is Malathi from Reuters. Thanks so much for taking my question. My first question is for Charlie in relation to the 27 buildout requirements. What is your thinking ahead of that? Have you begun any preparation? As we sort of get closer to that deadline, what are you guys doing and thinking?

Second question is for Roger. I was curious to get your thoughts. You talked about the seasonality that you are seeing with Sling TV. What are you really doing, we saw with Netflix, they're really struggling to bring new customers on board. I was wondering if you guys are taking any specific steps in terms of churn and how to tackle the seasonality. Thanks.

I'm not sure -- I think you're asking about 2017 buildout? I think it's kind of misunderstood by, I think by a lot of people but we have -- there's usually multiple interim -- there's only one buildout deadline for us, and that's essentially 2021 is the first one that we have. But there's an interim step that you can build out, and if you do then your deadline is, for the final buildout is 2021. If you don't build out an interim buildout, as you referred to in 2017, then your 2021 buildout for some of our spectrum would be 2020.

Because of the advent of 5G and the just recent 3GPP approval of our spectrum, so it's not enhanced as today, it is not logical, I think, that we would build out in 2017 for an interim deadline. And it's more logical to assume that at least for some of our spectrum, our AWS-4 spectrum, we actually have -- we will have a 2020 buildout requirement. But we will have no effect on that. There's no effect on us if we don't build out an interim 2017. So I think the proper way to look at it is, is that our first buildout requirement is 2020.

Even in terms of 2020, I'm trying to get a sense of what you are thinking is, is you prepare for the 2020 deadline?

Again, I think I answered the question earlier. But we're not going to risk tens of billions of dollars of spectrum because of a buildout. We certainly will -- we believe that we will build out into a business that's good. And we think we potentially will do that with others, right. But there are many options available to us. And there's always a failsafe option of building out a network that meets the FCC qualifications at a much, much, much, much reduced price.

If you didn't have anything else that happened, which we don't think is going to happen, but I guess for the people who always looking for clouds and the worriers, I guess you always look at the worst-case scenario in that respect. And I think if that's the way you want to look at it, it's the earlier questioner summed it up where he said LightSquared met a buildout requirement for something like $34 million. There's lots of options available. I don't think buildout schedules should be something that would be a big worry today to investors.

On your questionality -- question about seasonality for OTT, as I mentioned earlier we are seeing secular growth in that -- really in that industry. But we are -- we know that we are subject to some seasonality, in particular because of sports. When we launched Sling it was primarily a sports offering, very strong sports content with ESPN and all the March Madness basketball that we carried.

Over time we are migrating to more general entertainment content. You see just in the last several months we launched Fox, we launched NBC, we launched Viacom. And I think that will help over time smooth out some of the seasonality. But I do think that, as Charlie mentioned earlier, the fact that the great thing from a consumer standpoint about OTT services, you can turn it on and off whenever you want. From our standpoint there's really very little cost of a customer turning on and off. It's not like on our linear business where we have set-top boxes and installers involved. It's all just done through the Internet and managing your account. I think we'll always see some of that seasonality because it's the nature of this business. I do think over time as our content offer gets a little broader, it probably helps smooth that out somewhat.

Thanks.

Your next media question comes from the line of Mike Farrell from Multichannel News. Your line is open.

Hi, guys. I just had a quick question. Comcast just recently formed the Comcast Mobile for its -- initially for it's MVNO agreement with Verizon, but eventually for it's mobile plans. Just wondering if that creates a sense of urgency on your part as to what you do with your spectrum. Or does it, I guess, create another potential buyer for it?

Hey, Mike. This is Tom. Similar question was asked earlier. Obviously Comcast is also a registered participant in the auction. So because of the anti-collusion rules we can't really comment on opportunities or post-auction industry structure.

Okay. Thanks.

Operator, we have time for one more from the press.

Your last media question comes from the line of Jeff Williams from Satellite Business News. Your line is open.

Charlie, thanks. Can you give us a reaction on what you thought of the FCC deciding not to make any changes to the retransmission consent rules? Also one other thing. Can you talk about with the decision -- or why the decision to not break out the Sling TV numbers compared to the DBS numbers?

Jeff, you finally got through on a question. Congratulations. We don't break out the Sling numbers because we see the customers as being comparable. The SAC is last, ARPU's last, but they're comparable from a balance sheet perspective.

On the (multiple speakers ) on FCC transmission, I think it's -- I don't know what their thinking was. I mean, some of the thinking was that, I think they came to the conclusion that the totality of the circumstances, they have really all the ability they need to look at -- both parties have an obligation of good faith. And so I think they may feel like they have what they need to properly look at it. It could be that's the broadcasters put enough pressure on that the FCC's got other things on their plate that that's not the place they want to go with all the other things they got going on with priority perspective. So we don't really know. I mean, obviously there something in front of the FCC with Tribune today, and it'll be interesting to see what conclusions that come from that.

This is a consumer FCC. And they've talked about the consumer almost from day one. And obviously this, at least from a video perspective probably the number one issue facing consumers today because -- I don't see it getting any better.

We would encourage -- look, the best thing is for companies to talk to each other and reach deals, and not have government involvement. That's the best thing. But short of that, there should be a mechanism to resolve disputes. And we've been very vocal about the fact that baseball arbitration is a good way to do it. And by baseball arbitration I mean each side picks a number of what they think they should be paying, and the arbitrator has to pick one of those two numbers. When you do that, people get pretty close before you ever go to arbitration. And 9 times out of 10 they resolve the issue without that.

It's just a stimulus to get to a deal that makes sense in the first place, and the consumer never loses their channel. We've done -- the baseball arbitration is something that Comcast signed in the consent decree, regional sports have had it in the past. It's worked very well in the marketplace. Broadcasters typically haven't wanted to go there. And Tribune didn't want to go there. But that to us seems like a more reasonable approach to solving the problem.

Great. Thanks a lot.

Thanks everybody.

Thank you.

Operator, that concludes the call.

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