DISH Network Corp (DISH) 2017 Q4 法說會逐字稿

Good day, and welcome to the DISH Network Corporation Q4 and Year-end 2017 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Jason Kiser. Please go ahead, sir.

Thanks, Michelle, and thanks, everybody for joining us. We're joined today by Charlie Ergen, our Chairman; Tom Cullen, EVP of Corporate Development; Erik Carlson, our CEO. We also have Brian Neylon, President of DISH; Warren Schlichting, President of Sling; Steve Swain, our CFO; Paul Orban, our Controller; and Tim Messner, our General Counsel.

So I know Erik and Steve have some prepared remarks, but Tim's going to do our safe harbor disclosures.

Thanks, Jason. Good morning, everyone. Thanks 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 we make during the call that are not statements of historical facts constitute forward-looking statements. Those include known and unknown risks, uncertainties and other factors that could cause our actual results to be different from historical results and from any future results expressed or implied by forward-looking statements. For a list of those factors, please refer to the front of our 10-K. All cautionary statements that we make during the 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 don't place undue reliance on any forward-looking statements, which we assume no responsibility for updating.

With that, I'll turn it over to Erik Carlson, our President and CEO.

Thank you, Tim. Welcome, everyone. We announced a new organizational structure at the end of last year, so I wanted to take a moment to review that. Then I'll make a few comments on our results. And I'll turn it over to Steve Swain, our CFO, who will go a little bit deeper on the financial results.

As you may recall, Charlie stepped away from the CEO role last December to dedicate himself day-to-day to the development of our wireless business. And as Charlie has shifted roles, I've been appointed President and CEO, so I thought I'd give you just a little bit of background on me. One is, 23 years at DISH. I joined the company before we launched our first satellite, EchoStar 1. I've been here for every DISH TV and Sling TV subscriber that we have served. And I've held various roles: sales, operations including leadership in our in-home services department and customer care organizations. And most recently, I've served as President and COO, overseeing the company's day-to-day operations.

So as we're starting out 2018, we'll look at the business through the following lens. Within our pay-TV business segment, we've got a mature business in DISH TV, and we've got a growth business in Sling TV. And we've also got a future business in wireless. So I'm going to speak for a few moments on Pay-TV, and Charlie and Tom are both here to take any of your questions on wireless.

So at DISH TV as we said over the years, satellite business is definitely a maturing business. We don't have the growth dynamics that we had in early years, but we still see some opportunity. We believe that DISH provides the best TV pay experience that you can get. We offer, no doubt, the best technology, best customer service, and the best value. And DISH TV is really the engine that's funding our future.

So for 2017, we ended sitting just above 11 million DISH TV subscribers. And we spent really the last 2.5 years improving our subscriber mix really by focusing in on acquiring or retaining long-term profitable customers, despite the tough competition with both cord cutting and aggressive bundled offers. The percent of newly acquired customers in our low competition or stable rural markets is definitely growing, and voluntary churn is down, as we get back to our roots, really, and focus in on adding rural customers, as well as we're equipping our front line and loyalty agents with more customer-centric save tactics. In addition, higher quality new customers are driving nonpaid churn to a multiyear low.

Now we're committed to putting the customer first and delivering on superior technology, outstanding service at a great value. And we continue to challenge the sector through innovation. We've got the best DVR on the market with Hopper. We're the first major pay-TV provider to integrate with Netflix. We're the first to offer hands-free TV with Amazon Alexa. And by the way, coming later this year, we'll be integrating the Hopper with the Google Assistant product.

All this really complements what we're doing with our newest voice remote control, which launched in November, and customers love voice control. Those customers that use the features have lower churn and definitely higher margin.

Now on the service front, we rank #1 in customer service nationally by J.D. Power and our customers. And that's really a testament to our commitment through our frontline employees, who are taking customer calls and who are installing DISH TV every day across the country. And we've definitely been providing value to our customers through innovative programming packages. For example, we've got the ability now to right size customers through skinnier packages like Flex Pack. And we're the only provider that offers the option to get locals over satellite or through an off-air antenna. With our technology, customers who have an antenna can easily receive free local programming and integrate that content right into their guide on the Hopper. It's a seamless experience that can help save the customer $12 a month.

Now looking over at our overall Pay-TV segment. Net Pay-TV subscribers increased by approximately 39,000 in the fourth quarter. Now that includes 75,000 reactivations in Puerto Rico and the U.S. Virgin Islands, where we incurred certain expenses in connection with the reactivations of these returning subscribers following the devastation of Hurricane Maria.

I want to take a moment to thank our team in Puerto Rico who has really worked tirelessly to help get customers back up and running, even while looking out for their own families and friends in a very challenging environment. Our retail partners have worked long hours, and our DISH team members from the mainland have spent many weeks away from their families to help our customers return to service.

We've also had team members assisting in the broader recovery effort as part of our DISH Cares corporate citizenship program. We've installed satellite broadband across the island, connecting hospitals, FEMA sites, pharmacies, emergency command centers. And I just have to say I'm incredibly proud of the work that we're doing there and the effort that the team shows. And just a few weeks ago, we launched Sling TV on the island, to provide folks -- to help folks immediately get that news, sports and entertainment that they may have been missing since the storms last fall.

Let's take a moment and look at our growth business in Sling TV. No doubt you've taken notice of the fact that we've individually reported DISH TV and Sling TV subscribers within our Pay-TV segment. Sling TV was the first and it remains the leading live and on-demand Internet streaming service, and we're pleased with its growth. Sling saw a 47% year-over-year growth, closing in -- closing 2017 with 2.2 million paid subscribers.

And when Sling TV launched more than 3 years ago, we really set out to create a completely different model. Our vision was to give consumers more choice and control in how they watch TV. And it really set a new standard for the future of television, to give consumers the ability to customize that entertainment experience with things like optional add-on packages, optional cloud DVR, and the option to get free broadcast locals with an antenna, even the option to come in and out of the service.

So throughout 2017, we've seen steady improvements in our stability of the platform. This has translated into more engaged subscribers watching 27% more Sling per day. And in fact, during the college football playoffs, we broke a Sling TV record for the greatest number of live concurrent customers using the platform.

With programming costs that continue to rise, we've been focused really on margin expansion in areas that we're better able to control. For instance, Sling TV ad sales has increased tenfold year-over-year due to really pushing technology forward. And that leads to higher CPMs that really reflect the more targeted nature of the Sling TV service. Also, our customer-driven ARPU is up double digits, and this growth has been led by DVR penetration as well as our pay-per-view events and our programming add-ons.

Now one final item, before I turn it over to Steve, that really touches on the whole business. And I've mentioned putting a focus on the customer first. And that leads to another one of our goals, which is really fielding the best team possible. And then, to that end, I'd like to officially welcome our new Chief Human Resource Officer, David Scott, who joined our team earlier this month. He comes from Walmart, where he served for 20-plus years in various HR leadership roles. And he'll continue to work to attract, retain and develop the best team to serve our customers.

With that summary, I'll turn it over to our CFO, Steve Swain, to briefly walk us through a few notes on the numbers.

All right. Thank you, Erik. Looking at the P&L, 2017 revenue was $14.4 billion, down $821 million or 5.4% compared to 2016. This decline was driven by DISH TV subscriber losses, partially offset by Sling TVs subscriber gains.

ARPU pressure was also seen due to a higher mix of Sling TV customers as well as DISH TV cord shaving. Rate pressure was partially offset by a DBS price increase and increased take rate of higher-priced Sling TV packages and an increase in Sling TV's ad sales revenue. While rightsizing initiatives may create short-term ARPU pressure, they offer a better, more disciplined, long-term customer solution in comparison to simply offering loyalty credits. As Erik mentioned, because of this strategy utilizing customer-friendly save tactics as well as our focus on activating higher-quality subscribers, we've seen DISH TV churn decrease to multiyear lows.

Turning to expenses. Subscriber-related expenses were $8.9 billion, essentially flat year-over-year. This primarily is the result of fewer DISH TV subscribers offset by significant programming rate increases. Our subscriber acquisition costs were $1.2 billion, decreasing $252 million or 17% compared to 2016. This decrease is primarily related to fewer DISH TV activations and lower cost per DBS activation, partially offset by increased marketing expenditures at Sling TV.

Selling and administrative expenses were $687 million, down $49 million or 6.6% year-over-year. This variance was primarily driven by favorable litigation settlements and fee reversal recorded early in 2017.

At the end of 2017, we concluded that the carrying value of one of the satellites we acquired from TerreStar in 2012 exceeded its fair value. As a result of this assessment, we wrote down the net book value from $246 million to $100 million, and recorded a -- an impairment charge of $146 million. This charge did not impact cash flow.

From an income tax perspective, due to tax reform, we remeasured our net deferred tax liabilities to the new 21% federal statutory rate. The remeasurement resulted in a noncash benefit of $1.2 billion and can be seen on the income tax line of the P&L.

In 2017, we did not pay federal cash taxes, largely due to lower pretax income as well as the amortization of our spectrum licenses, including our newly acquired 600 megahertz licenses. As we have mentioned in the past, spectrum is amortized for tax purposes, but is considered an indefinite-lived asset and not amortized for book purposes.

In 2018, changes resulting from tax reform, including limitations on the deductibility of interest, may increase cash tax paid to -- for federal taxes. However, the ultimate impact of tax reform will depend on several variables, including our 2018 results and tax planning strategies.

Our free cash flow of $1.4 billion in 2017 remains strong. The year-over-year decline of approximately $122 million was primarily attributed to a decrease in EBITDA and an increase in cash interest payments associated with debt raised in 2016, partially offset by lower cash taxes and lower CapEx. We have a senior note maturity on April 1, 2018. The remaining debt balance on this maturity is approximately $1 billion. We expect to fund this obligation from cash. As of December 31, 2017, we had approximately $2 billion of cash and equivalents on hand.

In terms of the new revenue recognition standard, the first thing to note is that prior periods will not be recast. So as we report results in 2018 under the new standard, we will also show what 2018 would have looked like using the old standard. We do not anticipate a significant change to our revenue. The biggest impact to us will be related to commissions' costs, which we currently expense as incurred through subscriber acquisition costs. But in the future, commissions will be capitalized and amortized over the estimated customer life. Therefore, 2018 costs will be lower than in previous periods. We expect commission expense will return to a steady state run rate in 2021.

Lastly, there will also be less significant impacts to other items such as upgrade fees and commercial contracts. Of course, all of these changes will be related to timing and classification and will not impact cash flows.

So with that, I think we're open -- we're ready to open it up for questions from the analyst community. Operator?

(Operator Instructions) The first question comes from Philip Cusick of JPMorgan.

Charlie, can you talk about the wireless network, the progress so far on your plans and the OpEx that's happened so far, and the drag that happened in 2016 versus '17, as well as both CapEx and OpEx that we should expect in 2018?

Yes. I'll let Tom -- probably, Tom has a little bit -- kind of has a bit more than I do. So I'll let you answer that.

Phil, yes. We're making good steady progress on the network buildout. We've significantly enlarged the team and continue to add resources there. We've negotiated and executed many agreements from network equipment to towers to chipsets to deployment partners. So lots of activity in progress. Steve, I don't know the actual number in '16 associated with wireless...

The change between '16 and '17, that variance is negligible.

Okay. So -- but as you probably saw it in the disclosure this morning, Phil, we're now estimating that we would spend up to $1 billion to complete this Phase I of the network, which is, as we filed last year in the first quarter, to comply with the license requirements by March of 2020. In the meantime, we continue to look at Phase 2 of the network deployment, which would be a broader use of the spectrum beyond narrowband IoT, and there's a few practical gating factors associated with that. One is the 3GPP standard that was approved for 5G in December, that contemplates -- that's what they call the non-standalone network. So understandably, the incumbent carriers prioritize that in the standard process. And that particular standard contemplates that you would have a 4G cord to roll back to. Since we're a new entrant, we would be waiting for the standalone 5G standard, which is expected to be ratified later this year. The second practical gating point associated with any Phase II deployment, is the availability of the 600 megahertz spectrum. Since the auction ended in 2016, the broadcasters have 39 months to clear. And so that clearance of all those licenses probably won't occur until early 2020.

And then, the $1 billion, is that both CapEx and OpEx, to March '20?

Yes. So that will be -- we'll begin to incur that in '18, clearly, and the bulk of it in '19. And then, some will fall into 2020.

The next question comes from Marci Ryvicker.

Steve, can you just walk us through EBITDA for the fourth quarter? Because I think there are a bunch of different numbers out there just from an organic perspective. And maybe talk about what the EBITDA number is that you used for your leverage calculation. And then, there's a little bit of concern on how high your leverage is, that you may have to tap the capital markets at some point. Can you talk about how comfortable you are with whatever the height of your leverage target is?

Sure. Okay. For the fourth quarter, Marci, what we look at is essentially OIBDA, which is -- was about $600 million, excluding the impacts -- the noncash impact of the asset impairment. So that's kind of a -- the run rate number in -- for the fourth quarter. As you and others have written, it is down on a year-over-year basis. As we look forward to 2018, we are projecting to bend that trend. As Erik mentioned, we have our strategic focus on acquiring and retaining higher quality subs even if it's -- even if that impacts the overall acquisition of fewer subs. The good news story was we're seeing proof points. We have a multiyear low in churn, which is helping our profitability. And another proof point is we just went through our price increase last month, and those results were better than expected. So our acquiring and retaining higher quality subscribers is working. On the Sling side, Erik mentioned a couple of things. We do see ARPU and margin expansion in 2018. So we'll see ARPU tailwinds coming from addressable advertising as well as increased penetration on add-ons such as DVRs. We look at -- so that's EBITDA bending the trend. Wireless, Tom talked about, that the -- we're still in the planning phases. And we'll start the $500 million to $1 billion spend in 2018 with the bulk in 2019. And with paying the debt April 1, we expect interest expense, cash interest expense to be down on a year-over-year basis. And I already talked about income taxes. So if you add up all the pieces, you're -- the modeling should be -- come out to healthy free cash flow. We're certainly aware of our debt maturities, this one in 2018 as well as another one 18 months or so from now in 2019, and we are planning accordingly.

Okay. Is there a -- do you have a leverage target or a high end that you just absolutely won't go above?

Yes, Marci, this is Jason. We really have never put out a leverage target. We're pretty comfortable with where we stand right now. We do plan to pay off, as Steve mentioned, the maturity that's coming up in April. We've got a pretty wide gap before the next maturity hits. We don't have any plans to go to the capital markets at present. But we have never, as a company, really put out a formal leverage target.

(Operator Instructions) Our next question comes from Jason Bazinet of Citi.

I just had a question on the quarterly EBITDA that you guys put up. Was there any impact from the 75,000 reactivations in Puerto Rico that was material that may have depressed the EBITDA in the quarter? Or is that not really a factor?

It wouldn't -- it doesn't have a material impact to EBITDA. It was included in the subscriber acquisition costs. And those 75,000 reactivations were below the average cost per add that DBS normally sees, on average.

Our next question comes from Bryan Kraft of Deutsche Bank.

I had 2 questions I wanted to ask on the DE situation. First, I wanted to know if you could clarify whether or not the $400 million penalty, I think it was $400 million, that you had paid at the DE case, will be refunded given the court's decision? And also, whether or not that is dependent on whether you come to a satisfactory remedy with the FCC. And then, secondly, wondering how realistic it is that you might be able to come up with a remedy that would satisfy the FCC without overly diluting DISH's governance rights. In other words, is there any -- is there a structure there that could work for you and the FCC? If there's any light you can shed on that or any comment, that would be great.

This is Charlie, Bryan. We're certainly pleased that the court has remanded it back to the FCC, and we're hopeful that we can address the FCC's concerns. Obviously, we don't believe we've ever controlled these entities, but the FCC has stated some concerns. And so we're pleased that we get to negotiate. We're not really as pleased about the process and public notice, and so forth, but at least we have a chance to address, with the DEs, their concerns. The penalty was not addressed -- it's about -- I think, it's about $500 million, maybe a little more than that. I don't believe that was addressed by the court. We did ask the question, but it wasn't addressed by the court. So I think that's still an open issue with the court. So there's about $3.3 billion of discounts at issue and potentially as much a little over $500 million in penalties.

The next question comes from Ben Swinburne of Morgan Stanley.

Charlie, could you talk a little bit more -- or Charlie or Tom, about what the network's going to look like at the end of the $1 billion or up to $1 billion in 2020? What is the service offering we should be expecting? What kind of coverage and product offerings that this build may bring to market? Any more color would be helpful. And then, just for Steve. Steve, you made a comment about cash taxes may be going up. I don't know if you can help us at all. We all have our own EBITDA estimates, but what the right calculation may be on interest deductibility, so we can think through the implications there. And then, related, or related at least to Steve, any help on how much of the subscriber acquisition costs last year were represented by commissions, so we can think about the benefit you're going to get in '18 and beyond from capitalizing and amortizing those costs?

This is Charlie, and maybe Tom will want to jump in. But the network, as we talked about and disclosed to the FCC and the -- last year, is a narrowband IoT network. It will cover 70% of the population that live -- at a minimum, across the country. And obviously, after we came out with a narrowband IoT network, you've seen major communication companies around the world and in the United States also declare their intention for a narrowband IoT. So it's -- the connectivity side of where the world is going is being recognized by people at all levels. Obviously, it's the first step in our networks. It's not -- we're only cleared -- the DE situation has -- because it's not resolved yet, is another factor that kind of ties our hands a little bit, because we obviously don't control that spectrum today. So we have -- our uplink spectrum is probably not the ideal spectrum we'd like to use in the network. And then, obviously, 5G standards, product for 5G standards, will come on the marketplace, not in time for us to deploy the broader network in Phase II that we'd like to. So we built a great team, we got a really passionate group of people here. Obviously, my day-to-day focus now is on that network, but not just that network. It's all the things that go along, satellite plays a component of it as well, video plays a part of it. So we're well-versed in what we think the next-generation of network should look like. Like anything else, the foundation will be that narrowband IoT network, but that's really a -- just a small part of where we'll go with that network, in terms of total 5G networks. So I think the short answer is it will cover at least 70% of the country. It will connect to those devices that don't need -- it's not going to connect to a jet engine off an airplane that has a lot -- downloads a lot of data, but it will connect to people and sensors and microprocessors, where they can fit within frameworks of data rates. And that's a -- just every day, you start reading about all the growing applications for that. We -- as an example, we went out and we acquired a company called Parkifi, an IoT company that's -- it was a leader in the parking space in terms of parking meters and parking and so forth. And so that has rolled into some of the things that we're doing in terms of where we could go beyond parking and applications in cities and municipalities and things like that. So we've got some -- we've got to add some expertise to our team that's done IoT and had real business and real customers. So it's a bit new to us, it's like -- it reminds me a little bit when we decided to build satellites in 1990. We never built a satellite. So we got there because we've got a great dedicated team that's passionate about doing it. And we've put our hearts and souls into doing it, and that's what we're doing with wireless. Tom, you want to add anything to that?

Yes. Brett (sic) [Ben], just a couple of clarifications. The 70% requirement, we will be -- the plan is to provide terrestrial signal coverage to 70% of the population in each of the 176 license areas. And so it's not on a U.S. population basis. As far as product and services development, that's still work in progress. As Charlie said, we see several -- there's consumer applications, clearly, but there are also enterprise/commercial verticals as well as municipalities. We're encouraged by the activity, actually, globally. You're seeing quite a bit in Asia and Europe around narrowband IoT. And so we'll be monitoring what applications and services are succeeding elsewhere. And as I said earlier, we've already executed agreements for chipsets and modules. And so now we're looking at end-user devices and business -- specific business cases.

That's helpful.

I think to Steve [a couple of questions...]

So cash taxes, we're not really giving a specific number on that. We'll have an update after Q1. And then, as far as rev rec impact, specifically commissions, we don't give guidance on EBITDA. And giving you kind of the impact to EBITDA from rev rec is -- because we don't give guidance on EBITDA, it's a little circular. I can say that it is a good guy, as I mentioned, and it's going to be less than 5% of EBITDA. But as I mentioned, in the first quarter, you'll see 2018 results under the new standard as well as the old standard. So you'll be able to see all the changes. But it's -- a, it's a good guy and b, it should be relatively small net impact to EBITDA of commissions and all the other line items on that measure.

The next question comes from Walter Piecyk of BTIG.

It's Rich Greenfield. Walt is reconnecting with nature somewhere and will be back on the next call. But a couple of questions, all on your -- on the video side of the business. So DISH has been able to keep the cost of programming down by kind of separating Disney and FOX content, so it's not in all of their packages. Do you think that's going to be sustainable in light of the in-process merger between Disney and FOX? Two, Sling nor really any of the vMVPDs that you now compete against, other than for adding channels, none of them have raised price. So your programming costs, I assume, keep rising, yet your retail pricing has all remained the same. Is that sustainable? And then, just quickly, on housekeeping. I just want to make sure that the Sling numbers that you've started reporting, that actually includes all the international-only subscribers that actually predated the launch of what we now call Sling in early 2015?

Yes, Rich. I'll try to take a stab. The -- we don't -- yes, we all -- well, obviously, we'll have concerns. We obviously have concerns about Disney, FOX and so forth. And obviously, consumers would like to pick and choose what they watch. And obviously the nature of the beast today is not quite that way for anybody in the marketplace. So -- and then, you've got, obviously, the AT&T-Time Warner merger. So I think the landscape will potentially -- can change one way or the other over the next 12 months, and we're -- built our company to be able to adapt to that. We don't make -- we're not a big enough company to make the rules in Washington. And we're subject to the courts, like everybody else. So we're just -- we've been around long enough to know we're going to have to be able to be adaptive to that and make sure that we plan for these kind of contingencies to the best you can. And I think we're as well positioned as anybody can be in that, that we -- there's nothing new on the video business, other than what we've been saying for the last 5 years, which is the video business is going to change. And I think that we're probably the first guys in the industry to take a real look -- hard look at the profitability of customers and adjust accordingly, and not try to be -- not try to have a number for a quarter, and make sure we spend our money where we could get a return. And we saw the world going to connectivity and video being a big part of that and had the opportunity to acquire spectrum. We're the largest acquirer of spectrum in the last 3 -- when you take the last 3 auctions. And that's where we put our capital and our biggest bet that we ever made. And that, we think we're going to be a major player in that. And if not, then we will -- then, connectivity is not going to be a business. And again, we haven't made a lot of big bets, but with big bets, we've been pretty confident. And when we've made them and we've gone all in, and we're certainly all in. And we think we have an ability to come in with a kind of clean sheet of paper. And we spent a lot of time talking to people about what they'd want to see in a new clean sheet of paper 5G network. We have a pretty good feel for what that should look like. We think that looks a little different than what some of the other guys are doing. We think that that's going to add to productivity and the health and welfare of this country and make it more competitive. And we think it's going to be profitable for us. And so the video business isn't going away. And Erik and his team are managing a mature business the way you should manage a mature business and not in an unhealthy -- in a healthy way. And it's still a -- well, cash business. I think you can extract out that as that -- as the industry declines in the linear TV business, that there's consolidation opportunities where you are going to need to be more efficient, and you're going to need to cut costs. And I think those -- and you think -- and regulatory rules will change, and so I think you can see a lot of different things that will probably come about in the future. So I think -- I don't think anything -- I don't think there's anything that's happened that we haven't kind of internally projected over the last 5 years. And I think we've positioned ourselves well for those changes that are going to come. And we've been a bit ahead of the curve on most things, and we're certainly ahead of the curve on the connectivity. What was the other question? I don't remember.

Well, Rich, maybe -- this is Erik, maybe just on the international customers. Just on our Sling subscribers, I mean, we're looking at paid subscribers. And we have, obviously, a number of different services, right? So you could take Orange from us. You could take Blue. You could take Orange and Blue plus international. For example, if you took Orange, plus Blue, plus international, that will count as one subscriber for us.

And the short answer is the 2.2 million -- in the 2.2 million subscribers are some international-only customers.

There are some (inaudible).

That was the question, then. And then, Charlie, but just to follow-up on what you just said about the DTV -- or sorry, the AT&T-Time Warner transaction. The government clearly shares your view. That's going to head to court next month. Obviously, we'll all see where that ends up. But if the government sees the consumer being harmed by that transaction, do you think -- how does DISH think about the Disney-FOX deal? And should the government view that the same way as they view the AT&T-Time Warner deal?

Well, I mean, I think, I've been around long enough to know that each transaction is different, and that the government will handle them differently. But to the extent that there are similarities between Disney-FOX, and I would argue that there are, then those should be treated consistently. And in my experience, with the Justice Department in particular, is that's typically the case.

The next question comes from Brett Feldman of Goldman Sachs.

A quick modeling question, then a bigger picture question. The modeling question is, if we look at some of the new segment disclosure you provided, including visibility into the wireless P&L, it looks like there was about $162 million EBITDA drag in wireless in '17. I was hoping you could clarify whether the AWS-4 satellite impairment charge is included in that. And then, the bigger picture question, Charlie, when we talk with investors about 5G, and really when you read about 5G, it's almost exclusively a discussion about spectrum bands over 3 gigahertz. And your portfolio is substantially below that. And I think there's just a view that that's kind of what the 5G playing field is built around. So I was hoping we could maybe just take a moment and step back, and you could talk a bit about how you see your wireless assets, your spectrum resources, fitting into the broader 5G ecosystem, and whether you think it is important for you to identify scale in even higher frequencies, either by acquiring it or working with a partner or something along those lines.

You want to take...

Yes. The first one, yes, the $146 million impairment did hit the wireless segment, noncash.

And then, Brett, on the 5G question, it's a good question. The -- first of all, I'd say as a general statement, much of the 5G talk is confusing, misinformed and inaccurate and spin-worthy. But there -- within that, there's obviously lots of good information that's very accurate. And the first -- the 5G has -- is -- initially been focused on the higher-end spectrum, even in the millimeter wave technology because you can take advantage of some of the things that 5G offers in terms of massive MIMO and things like that. And it was -- the spectrum frontiers, the efforts on the FCC part, which I congratulate the FCC on that, to bring more spectrum to the United States. They've really done a pretty fantastic job of that. In terms of -- that's been their focus. But having said that, you're going to see that 5G impacts all levels of spectrum starting as low as 600 megahertz. And T-Mobile has made up -- is making -- as will we, to make sure that -- as our network, we believe that 5G will be in our bands of our spectrum. We do own about -- most of the top 50 markets in millimeter wave technology in the 12.2 to 12.7 technology. We've asked the FCC -- we've actually gone to the previous administration to look at that. Chairman Wheeler didn't quite get it in the spectrum frontier side of it, but there's about 500,000 megahertz of terrestrial spectrum that we believe could be put into use pretty much right away, that we own a significant portion of it, but there's others that own it as well. And we're hopeful that this administration will -- and Chairman Pai be particular, because he's so focused on bringing additional spectrum will take a look at that and get that on, get a rule making for that to bring that into use. Because that could come into use before just about any other kind of spectrum that they're looking at. So we do have some of that. We do own some 28-gig spectrum in 4 states as well. So we've thought about millimeter. We think it's a bit more in the fixed wireless, at least initially, a little less (inaudible) about whether we can make that (inaudible) in terms of mobility use. But I think that -- like anything else, everything -- the data demands of where we're going as a country and a population continue to increase. The technology gets better, the efficiency gets better, the new bands come. But we need all those resources to meet up with. We haven't seen the effect of artificial intelligence and virtual reality and changes to our health care in the United States. We haven't seen those things come online yet, and autonomous vehicles just tremendous amounts of data. So we need all the -- we need every resource to play a part. The other thing I'd say in 5G, at least the way we look at it is, there's a bunch of things beyond 5G per se, in terms of technologies that we think that when you start with a clean sheet of paper, there are big improvements, notwithstanding the latency improvements you can make. But there's things like virtual networks. When you start going to your core network being virtualized and all of the things you can do and talk cost efficiencies and efficiencies with your network, when you think about, that's a huge difference. AT&T is kind of leading the way on that today, but we certainly believe that our network will be virtual from Day 1, the entire network virtual from Day 1 as an example. There's things that you can -- where you can slice your network so that multiple people could have access to your network almost as they own their own network. That's not in anybody's networks today. So there's things in security. When you start thinking about IoT and things that we could do in security that were never thought of in existing networks today, maybe make that network a bit more secure for our customers or -- making sure that somebody doesn't have use of your data you don't want to. So a lot of different things that we can do that are beyond the 5G side that make a clean sheet of paper network just that much more efficient and the cost per bit that much less than where people are today. It's a little -- again, my analogy, this is -- the world today is prop planes, and we just invented the jet engine, and we get to start an airline with jet engines. Doesn't mean the other guys won't have jet engines, but they don't want to write off all the prop planes day 1, and so it's going to take them a number of years to wean those prop planes out of their fleet. We get to start with all jet -- we get to start all 737s like Southwest Airlines. And maintenance costs are down and cost per mile is down, and safety is better, and it's the same thing.

If you don't mind, apologies. You talked about the clean sheet and the efficiency. It would seem like that would be most appealing to somebody who's not presently in the space, meaning they get all the efficiency and none of the legacy. Have you continued to talk to companies outside the traditional wireless space? Do you think there's a real appetite to partner with DISH as you build out that clean sheet of paper network?

I believe that, that clean sheet of paper approach is attractive to people outside the industry who maybe have huge data needs in their future than their -- when their planning people are looking at -- their data needs, that they look at that. You could think of some companies that might be in that situation. I think it's also attractive to people who are in this space where, particularly as you get below 3 gig and the answer to the other question, I forgot to say, that they got to -- they have to re-farm their spectrum. So that's changing the tires as the car is moving down the road. That's a little bit more difficult to do. So for those companies, potentially a clean sheet of paper would allow them to enter with a hybrid network of 5G and 4G, without having to go through the inefficiencies of farming their -- as an artificial deadline to re-farm their networks. So I think there's -- I think our network is appealing to any number of companies both in the market -- in the business today and outside the business today.

We will take our final question from the analyst community. (Operator Instructions) We will begin the media portion of this call following the answer to this final analyst question.

Our final analyst question comes from Lee Cooperman of Omega Advisors.

I have 2 questions directed to Charlie, really. First, you have more skin in the game than anybody. You have a mixture of businesses that are growth businesses, deteriorating business, sunrise, sunset, whatever. I'm just curious as you and your team are hard at work, do you believe that we are creating value, that those of us that are patient and wait for the long term, that you're going to have -- creating value here rather than being part of a business that's deteriorating? That's question one. And then question number two is, very hypothetical. Justice is going after the AT&T-Time Warner deal. I have no idea what Time Warner wants to do or not do. But if in the event they were willing to divest DIRECTV to get a deal done, do you think the Justice Department would allow you to combine with DIRECTV?

Okay. Your second question, pretty easy. I think that, today, I think that today, you could combine DISH and DIRECTV. And the reason I say that is when we tried to do that 10 years ago or 12 years ago, that was really going from 3 to 2 in terms of the marketplace, and so you start to bust out a lot of indexes. But today, you're already close to double digits in terms of people who have MVD-type product to consumer, so there's a lot of choice. So maybe you're going from 10 to 9. It's a different analysis. And the second thing is back in those days, the DBS business was growing quite rapidly. As you mentioned, it is suffering some -- from some deterioration today. So I think the marketplace is a little bit different. So I think that Justice would look at that positively. But that's my opinion, and I have no inside information on that. As far as value, I can tell you, every day we come into work, I can tell you as an executive and a personal shareholder here, that our focus is building long-term value every day. And we don't have a scoreboard. We walk in our office, we don't have our stock price. We have a countdown clock that tells us how many days we have to build our network. So we're focused on building value every day. And I can assure you that at least it's my belief, and I think our management team and our employees team, is we believe we're building value every day. And sometimes value doesn't get -- you can't prove it, you can't touch it, you can't feel it for a while. It goes a bit in stair steps, but eventually, that value gets recognized. So we built satellites for 3.5 years before we launched one. And not one person gave us any value for building those satellites until they're up and operational. And then, all of a sudden, we had value. So -- and then, we have hidden values in this company that our management team is challenged, Erik and his team are really challenged, which is we have nationwide installation network that can touch the dispatches and can be in somebody's home and climb on the roof and do some pretty complicated things. And we can grow that business. We have scale in programming. We have relationships with content providers that most people don't have. And that has value because we understand that business and how it works and how that can be a growing business, both in current technology and future technology. So -- and we're one of the few companies that touch satellite, video and wireless connectivity. So I'm confident that we're building a lot of value. I have no idea whether that's reflected or not reflected in our stock price of late, but we're building value.

We will now take questions from members of the media. (Operator Instructions) Our first media question is from Scott Moritz from Bloomberg.

I think someone's already won the M&A question betting pool. But I just hope Charlie was forced to pay more than $1 on this one. Referring of course to the last call.

Is there any other questions in the betting pool that I can help with? (inaudible)

I will add on to the M&A question, though. Things -- as you plan this narrowband network in 5G, I'm just wondering if your conversations have moved beyond the usual cast of potential partners, M&A partners in particular. And if you have any specifics on that, I'd love to get it.

As you might imagine, Scott, I wouldn't comment on any discussions that we may or may not have.

The next question comes from Shalini from Wall Street Journal.

Quick question on -- I noticed that Sling growth seems to have slowed year-over-year. And I was curious what would you say the #1 reason is that Sling TV subscribers disconnect?

Warren, you probably get that, but before that, Shalini, congratulations on the baby.

Shalini, it's Warren. So we have a 47% year-over-year growth. We like that. We like our position. I guess I'd just answer the question with, we have a different model. We have a unique model. And so we're not out there with fancy promos and giving the service away. We've been at this a while, we think we know what consumers want, and I think we like our position.

Well, I might add to that. I mean, why do people turn off of OTT? I think one of the big factors that I don't think was -- is recognized totally by everyone is it is somewhat seasonal. So if you can buy a sports -- March Madness is coming up. Somebody could get to, particularly, a free offer. You might be able to get a free offer, watch it and turn it off. You buy one month and turn it off. So one month churn is particularly high in the industry because people come in and out as a matter of convenience and can move around. The second thing is, as there's a number of people with free offers and free hardware offers, or free offers or discounted offers, you can move from player, to player, to player. And in theory, you could probably go -- I'm sure there's some college kids who are going a year and never paying a dime for multichannel TV, so -- and getting lifetime HBO from AT&T. I mean I -- that will -- people will get smarter about how they do that, and there'll be some discipline. People aren't suicidal out there in a capitalist society. So there'll be some discipline. You saw that, I think, one of -- one of them raised their price, added a couple of channels and raised their price. That's first -- I think, Sony has raised their price. And so we're starting to see a little bit more discipline, maybe.

Will you guys stop allowing to disconnect after 1 month? Or is there any plans of -- to change that?

No current plans. We like the -- we like where we are. We feel like we -- it really puts the onus on us to provide value. And I would throw out, by the way, that -- we see the demographics broadening. And so with that, I think, comes an expectation that the service works, that's it stable, so we've focused a lot on providing a good, stable, consistent service. And I think we're being rewarded for it.

And by the way, Shalini, I think -- we're working with programmers to look at some of that as we have kind of data across the platform to say what are the things we can do to have meaningful programs throughout the year on a particular network or a particular combination of networks. And so to the extent that programmers will work with us, sometimes they have their own ideas and maybe our opinions aren't as relevant. But to the extent that they'll work with us, I think we have meaningful ideas and meaningful creative things that can really help the programmers in terms of -- we both have a motivation to reduce the short-term churn within the platform. And so there's things that we can do proactively together with -- we can't do them unilaterally. But with the programmers' help, I think there's things that we can do.

The next question comes from Mike Dano of FierceWireless

I wanted to ask a little bit about the NB-IoT network that you're building out. I wanted to know what spectrum bands you're currently building out. And then, also, whether you would still be able to sell spectrum if such a transaction occurred. Whether this would sort of tie up all that spectrum in a build-out?

Mike, this is Tom. The specific configurations of the radios, we have not publicly discussed. But we will be meeting the buildout requirements for both AWS-4 and the 700 E Block. And I don't think this -- the deployment of this network would foreclose any future opportunities for us.

Even during the buildout for this spectrum.

Right. Okay, everyone. Thank you for your time and participation, and we'll look forward to catching up after the next quarter.

Thank you. Ladies and gentlemen, this does conclude the conference call for today. You may now disconnect your line and have a great day.