DISH Network Corp (DISH) 2018 Q1 法說會逐字稿

Good day, and welcome to the DISH Network Corporation Quarter 1 2018 Earnings Conference. Today's conference is being recorded, and at this time, I would like to turn the conference over to Jason Kiser. Please go ahead.

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

Before we do our prepared remarks, turn it over to Tim for safe harbor.

Thanks, Jason. Good morning, everyone.

We ask that media representatives not identify participants or their firms in your reports. We also do not allow audio taping and ask that you respect that.

Statements we make during this call that are not historical facts constitute forward-looking statements that are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from historical results and/or from our forecasts. For more information, please refer to the risks, uncertainties and other factors discussed in our SEC filings.

All cautionary statements that we make during the call are applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks, uncertainties and other factors discussed in our filings.

You should not place undue reliance on forward-looking statements, which we assume no responsibility for updating.

With that, I'd like to turn it over to our CEO, Erik Carlson.

Thank you, Tim. Good morning, everyone. I'm going to make a few brief comments on the quarter, then I'm going to pass it along to Steve to discuss our financial results.

So on the last call, I discussed that we view the business through the following lenses: we have a mature business in DISH TV; a growth business in Sling TV; and developing a future business in Wireless, and Charlie and Tom are here, of course, to answer any questions on that.

Now with respect to DISH. While the subscriber trends have changed and our subscriber results reflect that on a macro level, I'm pleased with the operational discipline the team has brought to the business. The discipline's showing itself in churn, service, customer experience. And earlier this year, we celebrated 2 J.D. Power awards. We built upon our #1 ranking in customer service nationally, awarded to us by J.D. Power and our customers. And this quarter, we added to it as DISH ranked highest in customer satisfaction for in-home service technicians by J.D. Power.

Now look, I usually don't like to dwell on our accomplishments, but a lot of work by thousands of dedicated DISH front-line employees goes into that kind of recognition, and I want to give credit to where credit is due.

That gets us to our strategy. We ended the quarter just under 11 million DISH TV subscribers, and as we've said, among our gross adds, we're focused on acquiring and retaining long-term profitable subscribers. The recognition from J.D. Power, among others, points to the way in how we're really managing the retention side of the story.

And a few focus points. Churn's at its lowest rate in 4 years. Our acquisition strategy really boils down to quality over quantity. We've improved our subscriber mix by increasing the overall credit profile. We're focused on key geographies like rural areas where we have deep roots and a long history. We're attracting and retaining subscribers who are investing more in their entertainment and are really seeing the value of a powerful platform like the Hopper and are staying with us longer.

Now because of the disciplined approach to not only acquisition but retention, subscriber losses are slowing. And as of this last quarter, we're now seeing 4 consecutive quarters of year-over-year churn improvement, which is exciting for the team.

As for Sling TV, we're the leader in live OTT streaming. We ended the quarter with 2.3 million paying TV subscribers, and that's a 36% year-over-year subscriber growth despite some increasing competition in the area.

Now as with DISH, Sling's focused on a deliberate strategy to attract and retain long-term, profitable, economically rational subscribers. Sling TV offers something really no other service does and that is the most choice and control. Sling TV has the most choice in programming, starting at just $20 a month. Sling has the most choice to customize your programming; you know, it's not just a large bloated bundle. Sling TV has the most choice in devices for a 10-foot -- that TV viewing experience or on-the-go. And Sling TV has the most choice to integrate free local channels with an antenna and an AirTV.

Our leadership position in Sling has allowed us to stay ahead of the curve in customer experience and I want to give you a quick example. Recently, we shaved seconds off the simple act of changing channels on Sling and it provides a smoother, more elegant viewing experience. It's really a small thing, but details matter and it's making a difference for our customers.

Because OTT services, as you know, don't often require a contract and customers are able to come and go as they please, our approach is to serve customers and think long term. In our view, it makes no sense to heavily fund subscriber growth through unprofitable offers. We think that short-term strategy is not financially sustainable.

So as we think long term and with rising programming costs, we're focused on margin expansion in areas we're better able to control. So we're pleased by the increased adoption of add-ons like our extra packs and our Cloud DVR, which really increase the value of a Sling customer. And as we continue to grow, we're growing also our Sling TV ad sales. For example, during March Madness, ad sales for Sling revenue nearly tripled year-over-year, which is driven by substantial growth in programmatic and addressable advertising sales, really tapping into digital advertisers.

So as we move forward, as a management team, we're focused on a deliberate, disciplined plan to deliver a great customer experience and value on both DISH and Sling TV as we look towards our future business in Wireless.

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

Great. Thank you, Erik.

First, some context for the results. In the quarter, we adopted the new revenue recognition accounting standard, ASC 606. This adoption positively impacted DISH's net income by $27 million. Additional disclosures can be found in our 10-Q, including comparable results on the previous guidance. The numbers I reference today will be as currently reported using ASC 606 guidance.

So moving to the key results, starting with revenue. Revenue was $3.5 billion, down $222 million or 6% year-over-year. This decrease was driven by a decline of DISH subscribers, partially offset by increased Sling subs. In addition, ARPU declined $2.05 due to the higher mix of Sling customers as well as DISH cord-shaving and rightsizing. While our DISH rightsizing initiatives may create short-term ARPU pressure, they offer a better, more disciplined, longer-term customer solution in comparison to simply offering loyalty credits.

These initiatives, using customer-friendly save tactics as well as activating higher-quality subscribers, are working. As Erik mentioned, we've seen DISH churn achieve multiyear lows. Our rate pressure was partially offset by a DISH price increase in the first quarter and higher Sling ARPU, driven by improved take rates of higher-priced packages and increased ad sales and DVR revenue.

As we move to expenses, subscriber-related costs were $2.2 billion, an improvement of $58 million or approximately 2.5% year-over-year. This decrease is primarily the result of fewer DISH subscribers and a decrease in variable cost per subscriber, partially offset by significant programming rate increases.

Subscriber acquisition costs were $196 million, $94 million or 32% better on a year-over-year basis. This decrease is primarily driven by the adoption of ASC 606, fewer DISH activations and a decrease in acquisition spend for both Sling and broadband subscribers. At Sling, we're using a disciplined approach to acquire customers. We're not using the crutch of subsidizing Pay-TV with other product lines.

Prior to the adoption of ASC 606, certain sales incentive payments made to third-party retailers were booked as incurred. Now these costs are deferred over the average customer life. The impact of this change decreased P&L acquisition costs by approximately $40 million.

The DISH SAC metric was $707, an improvement of $57 or 7.5% year-over-year. This SAC metric, however, includes incentive payments as incurred, which makes this metric comparable to prior periods. The decrease in SAC was driven by lower hardware and advertising cost per activation and the reactivation of subscribers in Puerto Rico. Lower hardware costs were partially due to higher -- the higher percentage of remanufactured receivers, and expenses incurred to reactivate customers in Puerto Rico were lower on an average per-sub basis.

Satellite and transmission costs were $154 million, $23 million or 13% better on a year-over-year basis. This variance was primarily driven by decreased uplink services expense. Selling and admin expenses were $170 million. That's an increase of $39 million or 30% year-over-year. This variance was primarily driven by last year's favorable legal settlements. If you adjust 2017 for these onetime legal items, our G&A spend was roughly flat on a year-over-year basis.

Interest expense was $3 million on the P&L, a decrease of $26 million compared to last year. The decrease was primarily related to an increase in capitalized interest. We expect interest capitalization to continue throughout 2018.

Other expense was $35 million, an increase of $40 million compared to last year. This change primarily resulted from an increase in unrealized losses on marketable securities.

EBITDA was $670 million for the quarter. Excluding other expense of $35 million, noncontrolling interest of $18 million and revenue recognition's positive impact of $36 million, EBITDA would have been $687 million.

Income taxes were $116 million, down $91 million year-over-year. This decrease is primarily the result of income tax reform. Less pretax income of $96 million also contributed to lower booked income taxes.

Free cash flow was $387 million for the quarter, down $152 million year-over-year. This variance is largely attributed to last year's substantial working capital benefits and lower EBITDA this quarter, partially offset by lower PP&E spend and less cash interest.

Consistent with our general intent to pay down debt, last month we paid a $1 billion maturity with cash on hand. Although we do not provide targets, we continue to focus on free cash flow and leverage.

With that, we're ready to open it up for questions. Operator?

(Operator Instructions) Our first portion of Q&A is for analysts only. (Operator Instructions) And we'll take our first question from Philip Cusick from JPMorgan.

Two if I can. One for Erik. Sling is clearly a great product and growing nicely, but as content costs rise, how long can you afford to not raise Sling prices? And how do you think about the competitive landscape in the over-the-top space? And then for Charlie, can you talk about the hurdles of getting to the 5G technology that you're really focused on building with? And how could that network tie into an evolving telecom and data center landscape over the next few years?

Let me take it first, Charlie?

Yes, go ahead.

Phil, so obviously programming cost is a large expense for us and understand that's kind of where the market is with not only Sling, but OTT pricing. And so as I mentioned in some of my opening remarks, I mean, we have to be focused on obviously the customer experience and bring value to the equation. With that said, obviously, margins are thin and we have to constantly reevaluate not only what we're paying for programming, what programming is on the service, what programming we could have on the service to make us more competitive and pricing along with that.

Now one of the things that we are focused on, right, I mentioned in my closing remarks, was really trying to monetize the experience. So keeping our prices as low as we possibly can for obviously entry-level packaging and that would be either our $20 Orange package or our $25 Blue package. But then the monetizing our customer relationships with the add-on packs that I mentioned like our extra packs, obviously our Cloud DVR service, which is showing growth, and then the ad sales that we have on Sling, which I mentioned gave you some context to as it relates to how we saw March Madness ending.

Phil, this is Charlie. So I think there's clearly a number of hurdles for us to get to 5G. Let me just preface it with what we're doing in a 5G network is a little bit more all-inclusive in 5G than maybe what you read about with the incumbents and their 5G. They've got to focus on their 100 million customers or their 60 million customers or 120 million customers. So their 5G is going to be very consumer -- I mean, customer-focused on their phones. And where we see 5G, all of the benefits of 5G in the standards, a lot of that takes a lot more than just doing things for voice and data to a handset.

And you're correct that edge compute and storage is part of how you get low latency. And if you get low latency, it's how you get into things like autonomous vehicles and artificial intelligence and virtual reality and all these other aspects.

So there's a number of hurdles for us to get there. The one that we're focused in on obviously is our build-out of our first phase or IoT network, which is narrowband IoT network, which we have 669 days to accomplish. So if we don't do that one, then it's kind of hard to get to the second phase.

The second phase is way more encompassing; it gets to true nationwide 5G. So the focus really is on that first hurdle. And Tom -- maybe in another question Tom can speak to that, but that's really the focus. In my experience in business, is you have hurdles you can predict and then there are some you can't predict and you have to have a team that works together that trusts each other and you can overcome that -- you overcome those hurdles. And that's how we approach it and the -- it's not our first rodeo. We had those similar circumstances of hurdles. We decided to launch our first satellites back in 1990 and we had probably greater hurdles than we do in building the 5G network, but we had to focus on the task at hand and be -- and when I say focus, I mean, you're not -- there's -- you don't spend one extra second doing something you don't need to do. You focus totally on the task at hand.

And our next question comes from Jason Bazinet with Citi.

I just had a 2-part question for Mr. Ergen. The first one is not so much around debt covenants, but more around Delaware law. Based on where your stock is and what you paid for the spectrum, are there any sort of constraints that exist in terms of moving cash flow out of the DBS entity to help fund the network? That's my first question.

And my second question is, if there isn't a winner sort of in this IoT network space, doesn't it strategically make sense to recombine EchoStar and sat so you have a terrestrial network augmented by a satellite network? Or does that not make sense?

On Delaware law, I'm not going to try to be a lawyer here. I think maybe the gist of the question is how secure might our bondholders feel in terms of us paying back the debt. And I think there, I can only say we have a long history of being pretty good stewards of capital, and we understand that we have debt maturities that come up virtually every year. And we're -- again, part of what we[strategically] focus is we're going to pay those back. So I haven't really looked at the law stuff and I don't expect that I will.

The recombine of EchoStar and DISH, we do think, A, that satellite is a component of any IoT 5G network, that satellite would play a component. And you're reading a lot about certainly geosynchronous satellites can play a role, but you're also reading a lot about LEOs and MEOs. And so -- in that context, there could be some synergy between the combination -- recombination of the companies. Having said that, there are also the EchoStar guys that it's not necessary to recombine the companies to get the benefits of satellite, and some of the satellite communications that DISH might want to use might reside outside of EchoStar and might actually be with other players.

Jason, this is Tom. I would just add that regarding IoT, the S-band satellites are held by DISH and so our ability to use S-band associated with the NB-IoT network doesn't require any transaction with EchoStar. And to clarify, in your first question in terms of transfer of funds, as we stated on the previous call, we intend to be able to complete the narrowband IoT network with cash that's currently on the balance sheet.

Yes. And Jason, I think what you're trying to ask on the bond piece was do the bonds have the ability to move cash out of the DBS complex? And the answer to that is, yes, there's an RP basket there for restricted payments. It's -- we've had the ability to move money out. We've done it in the past. We don't have any intention to do it in the future. And I don't know that, that RP basket number is disclosed, but it's a big number and I think most of the bondholders are aware of it.

It wasn't so much the RP basket, it was just the stock market is, I think, sort of implying that your video business has negative equity value. And I just didn't know if that posed any constraints in terms of solvency to get cash out, but it sounds like it doesn't.

And our next question comes from Jason Kim with Goldman Sachs.

I have a balance sheet question for Charlie. So it's been well-known to the market, especially from bondholders, that the spectrum sits outside of the DBS credit. And as you alluded to, the covenants of the bonds are pretty flexible. So that's not new news. That being said, the investors are increasingly getting worried about the core business and your CDS spreads are actually wider today than it was at the start of the 2008 financial crisis. So I presume you still want the cash flows of the DBS business now. But to the extent your cash flow is not enough to offset the EBITDA declines at DBS and therefore your leverage is going higher, what options do you have to manage that ratio? And how do you look at the capital structure generally?

Well, again, I think I'd probably answer the question the same way I answered the previous one. So I mean, I think we're good stewards of capital and I hope our bondholders trust us that they're going to be -- going to get paid. But the only way we can -- sometimes, my experience has been things become pretty skeptical and the skeptics start winning the day. And the only way that you can really silence skeptics is to go out and execute. And when we pay back bonds and then the whoever is skeptical about that will be incorrect. If for some reason we didn't, I guess the skeptic would be right.

We spend every day here. Our job is to run our business, and regardless of the structure and regardless of the ratios and regardless of some of the financial metrics, to make sure that we have a plan in place and we execute on that plan to make sure that people who have had confidence in us to loan us money get paid back 100 cents on the dollar. And we're going to do that.

I also have an operational question. So on the subscriber-related expenses as a percent of subscription revenues, do you expect similar margin pressure year-over-year in 2018 compared to last year's levels? Obviously, content costs have been going up for a long time, but the jump in that line last year versus '16 was pretty noticeable in terms of -- again, from a ratio perspective. So I'm wondering if it's a new reality of the cost structure of the business going forward in terms of the margin impact? Or if there were some unique events that occurred in '17 that may have exaggerated year-over-year increase in the line item, again, as a percent of subscription revenues.

Yes, you want to take that, Steve, or you...

Jason, we generally don't give guidance, so that's number one. And then, secondly, there is going to be margin pressure on -- as rate -- as programming cost rate increases go up faster than some of our ARPU increases.

The -- we did have a price increase in the first quarter of this year and so that was kind of midway through the quarter, so we will have a little bit more upward help -- tailwind, if you will, going into the second quarter. But that's -- beyond that, we really don't talk too much about what's going to happen in future quarters.

I mean, Jason, I think the big picture is that this isn't the first time you've heard us talk about it. We've probably been talking about this for 4 or 5 years. But it would be difficult to have in the linear -- cord linear TV business, you can't have rate increases with declining viewership forever. And so several things will happen: sometimes -- the rate increases could abate for long-term players, different forms of revenue in terms of being able to target ads better and things like that, that we have the technical ability to do but some of the content providers have been slow to adapt; and in some cases, some programmers will get dropped from certain operators because they'll -- the customer is not asking for necessarily for more content from current providers. They're more balanced with seeing their rates not increase or not increase as much. And so there's certainly potential for -- and every company may have a different idea how about going doing that.

And then maybe hopefully they'll renew -- having said that, I think there's a lot of things that linear content providers could do to reinvigorate their business. It's -- I've been fairly amazed to watch the rise of Netflix and Amazon kind of go unabated for the last 4, 5 years with not a lot of strategic change other than perhaps OTT direct on the part of content owners. And again, there's a reason why people like things -- people like Netflix and there's a lot of things that we could do in the current linear-style business that would be more reflective of what customers want. It's just that every -- it's hard to corral everybody to put that on a -- so that we could do -- every contract we have is different. So sometimes you can take some content with you and offload it and take it on an airplane and sometimes you can't. But with Netflix, you can do that with everything. So content owners doesn't cost them or anything to allow us to do that. They just are slow to do that.

So there's just a ton of things we could do on the linear side of the business make that a much more robust business. It just takes -- it takes some creativity on their part and some ability to take some chances and see what works and what doesn't work. So that's always been disappointing, and one reason we got in the OTT business and certainly one reason we started transforming to a connectivity company.

And Jason, on the OTT side, as Erik mentioned, we are seeing margin and ARPU expansion on Sling so we expect that to continue.

And our next question comes from Walter Piecyk from BTIG.

Just 2 quick spectrum questions. Are you planning on bidding in these CBRS PALs if and when it happens? And then if there's an NPRM on the C band for this year, are you planning on commenting? Can you give us some kind of inkling on your thoughts on how that whole C band thing should go?

Short answer is, well, I don't know the answer to that question. I would -- but I would say that we've participated in virtually every auction in the last 15 years. And we tend to comment on rulemakings at the FCC when we think we have something to add that maybe others -- or different perspectives when others perhaps haven't addressed it. But to the extent other people address our concerns sometimes we'd -- or our comments or our ideas, if that is addressed, sometimes we don't. So I'd say we're probably -- historically, we're in the 50% range on rulemakings and comments in probably virtually every spectrum. Whether that streak continues, you know, a 2-year-old won the Kentucky Derby [-- it hadn't] in a long time, so the streaks sometimes end. Sorry, I really couldn't answer the question, Walt.

That's all right. I mean, does the satellite company that, I guess, have ownership or rights or whatever you want to call it in that band, does it make sense to try and do something with them ahead of any movement on the C band just from...

It's an interesting question, because the FCC's got a lot of power to set rules. And so it's not clear whether they need satellite -- how much permission they need from satellites or how much they're going to go to a market-based solution versus regulatory solutions. So I don't know the answer to that question either.

But we understand satellites, we understand C band pretty well. I started -- in 1980, we were in the C band business and we used that -- there was quite a bit of terrestrial interference from a terrestrial -- C band terrestrial interference to satellite at the time. So we're pretty familiar with it and I think it's -- I commend the FCC to look at really -- it's one thing this commission is doing is, they see 5G as a strategic technology for this country. And I think they're correct and they're looking in a lot of different places and I think they're being creative and I think -- I applaud them for doing that.

And have you had any discussion with Sprint or T-Mobile in terms of things that you can do with them and partnering with them to build your NB-IoT network that might help them along with their approval process?

Well, if we did, we wouldn't talk about it here. But I mean, I think that -- suffice it to say that we, from time to time, have a number of discussions. I think we pride ourselves as a company that we don't leak things and we don't disclose things differently to some people than others. And I think we're a company that can be trusted to keep our mouth shut and have private conversations. And we've had a lot over the years, we'll continue to have those.

Got it. So maybe Sprint will just leak it in the next couple of weeks if it happens to be that way. I think Rich wants to hop on with a quick question.

Charlie, just as you've been so outspoken on the topic of sports and the bundle, AT&T sounds like if their deal with Time Warner closes, that they're going to launch basically a bundle that for all of AT&T wireless subscribers, essentially a sports-less bundle of, I don't know, 30-ish channels from all of the nonsports family of cable networks. Does that -- I know with Sling, you've kind of -- you've got the 2 different packages, but do you think there's an opportunity to be more aggressive in a bundle without any sports if you look at what AT&T sounds like they're proposing to do?

Well, I think the answer is that OTT opens up a number of potential minefields for content owners that I'm not sure they've totally thought through. But from a consumer perspective, it can be a great product. So OTT gives you -- OTT opens up, on the one hand, tremendous piracy opportunities for consumers because Internet is just not that secure, as we all know. And you also are able to password share. You can share, I think, in the Google you can share 6 e-mails. So it's probably not a -- it's probably an area, if I was a content owner, I might focus a bit more on.

The second thing is that, as you get into bundles, OTT is going to get pretty close to à la carte. And so not only would you have a sports package or a nonsports package or maybe a news package only or maybe a -- you're going to end up with -- I would predict you're going to end up with packages, nonsports packages, that have certain channels for this constituency and you have a different one for different constituencies. And then consumers can move, with a stroke of a -- click of a button, they can move from package to package. So you're going to end up with a more à la carte world probably. And the concept of channels is going to start going away and it's going to be more content-related. And it's going to be interesting to see how all that turns out.

For Sling, I just -- I challenge Warren and Erik to say where in that continuum of where we think this thing is going, do we think we can make a profit, and let's go there. And just don't go to the place where we lose $40 on every customer or lose $10 a month on every customer so that Wall Street has a number that analysts can write about. Let's be prudent about how we do that. And if there are going to be skeptics out there, we're going to take some arrows, so be it. But we're going to do the right economic thing. And we think there's places -- Sling has a tremendous technology, so we have a lot of value in that technology. We can do things that other people can't. And then second, I think we've got reasonable flexibility in our contracts today to go maybe to places that others don't. And we could go where -- other places, but we're not going to go where there's just no money.

And our next question comes from Marci Ryvicker from Wells Fargo.

Two questions for Charlie and then probably one for Steve. I guess, Charlie, we all see the stock price, we sort of know what the market is pricing in, in terms of your core business. But I'm curious as to your view of the pace of the decay in the satellite business, given that you need these cash flows to service debt and pay for Phase 1 over the next couple of years. The second question for you is, curious how the IoT build-out is going for Amazon. We've heard you're using 10-megahertz spectrum over 40,000 towers so any comment there would be great. And then for Steve, can you just tell us what percent of your sub base is rural?

Okay. On the first thing, in a funny sort of way, the linear business hasn't decayed as fast as I would have thought it would. And to Erik and Team's credit, we kind of took -- we kind of cleaned -- did our spring cleaning over the last couple of years and so we've got a little bit of stronger base. I think Erik has told me some percentage that we're unprofitable is very low today. It was probably in double digits before, it's in very low, low, low single digits today of customers that are unprofitable. So it's not like people getting free programming not to turn them off or we're giving them credits as maybe in the past people have done. So we got a pretty good solid base there. And again, we think that, that cash flows [up] for the reasonable future for us.

And then on IoT and Amazon, no comment on that. I'm going to throw it to Tom to comment more on IoT network in general, though, because I think it's important for people to know that we are, in fact, focused on that 669 days and we're going to meet that date.

Yes. So since the last -- I think on the last call, I mentioned that we had signed development agreements with base station vendors to build radios around this frequency specification. Since then, we've signed dozens of other contracts, including master lease agreements with tower companies, chipsets. We're working the deployment companies now. We've signed the core network agreement, which has been -- that core is being installed next month. So we're -- we've ramped up the number of resources internally working on it. The RF planning is underway now so I don't -- we'll see the results of that sometime towards the end of this quarter. And then from there, we'll move into site acquisition and permitting. Expecting to get the first radios in the fall of this year and begin installation late this year and then throughout '19.

And I guess, Steve, on...

Rural.

Yes. So on the rural question, the good thing about DISH and Sling is we have a solution for rural, which is the focus for DISH, and Sling which is -- tends to be a little bit more in the urban corridors. We are gaining ground in small-town America. It is our focus on both more loyal customers where there's less competition and high-quality customers. We don't necessarily disclose the exact number, but we are focused there, gaining ground and that's about I'll need to say on that.

And our next question comes from John Hodulik from UBS.

Maybe 2 on the wireless side. Charlie, a couple of questions previously on potential partners. Is there a way that you could sort of characterize for us or categorize for us where or if we should expect you guys to announce some partnerships as it relates to either the infrastructure or maybe an anchor tenant for capacity?

And then getting back to the -- is there a way that you could help us size the narrowband IoT opportunity? It's just -- I think it's one of these things that's difficult to model and if you could give us sort of any sense of how you look at the size of that potential market, it would be great.

Yes, I'll take the second part of the question first.

It's going to be difficult to size the narrowband IoT network because part of it is it's kind of the first step you have to get to, to get the total 5G network and we're not even able to build the IoT network in 5G because the standards aren't -- we had to order the radios before the standard was set so -- and we're using -- some of the spectrum that we really need is still -- has to be cleared by broadcasters or still has to be cleared by some of the government-regulated agencies. And that doesn't come online, as you know, on 600, for example, it doesn't get all cleared until December of 2000 so we end up with -- 2020. So we end up with a little bit of an oddball frequencies that aren't exactly the standard we'd like to use.

So the -- the way I would look at it is I wouldn't look at -- we've disclosed we're spending less than $1 billion on the narrowband IoT network and you shouldn't expect that we're going to make a big profit on that network but -- at day 1, but what it does is it's foundation then for where things go.

And then the first part of the question was, I don't think you should expect announcements on partnerships and anchor tenants kind of thing. We're working with -- I mean, we're working with partners today in a general sense. I mean, the equipment manufacturers, tower companies -- maybe not all the tower companies you've heard of, but tower companies and others we're working with today already.

And then there'll be other people that I know are willing to help us and we're going to need help and we're going to need partners, and those partners don't have to be people who put in capital, they don't have to be anchor tenants. It's very similar to when we launched satellites. We ended up with a lot of people that helped us and we had never built a satellite before. We'd never launched one before, we'd never built an uplink center before. We never built a digital set-top box before. So we had a lot of people that helped us and some of those companies people have never heard of. And they did a great job to help us and we're going to need help on this one as well.

But the scope of what 5G can do and the scope of how 5G -- every industry needs 5G, meaning that there's a lot of willing participants out there to help us. And I hate to be long-winded here, but there is virtually no industry that doesn't need a connectivity network, all right? And when you look at the industries of the future, where things are going, you look at artificial intelligence, you look at autonomous vehicles, you look at Internet of Things, virtual reality, augmented reality, smart cities, right, all those -- robotics, health care, agriculture, industrial production.

What's happening is that the digital revolution is going from digitization of the software to digitization of physical things and processing. And you're only -- the current networks weren't built for that. And so you need a network that's built for that. And there are just so many people that need that, that we're really in a pretty good spot there. So -- and I realize we're not -- we're cognizant that people are skeptical. It's a big project. I'd probably be skeptical if I was on the outside of this company, too, all right? But I'm not, I'm on the inside of this company and therefore I'm not skeptical and I know that there's people putting -- there's a dedicated group of people who are putting their heart and soul into making sure that we get there.

And our next question comes from Craig Moffett with MoffettNathanson.

It's Cathy Yao in for Craig. I actually have 2 questions. The first is that there's been a fair amount of press reports recently on the shortage of labor available for tower climbs. Is that something that you've seen as you've begun to look at the process? And can backlogs negatively impact your build-out schedule? And then my second question is on accounting. Can you confirm that the $707 SAC for your DISH satellite base includes the $40 million in rev rec restatement or does it exclude it?

You want to take that second part first, Steve?

Yes, Cathy, the $707 does include the $40 million so this is comparable -- it's comparable versus prior periods.

No, I'm sorry, did you have a follow-up to Steve?

Yes, I just wanted to confirm that total satellite SAC was $210 million and Sling SAC would have been $47 million then?

We don't break out Sling and DBS.

But maybe somebody as smart as Cathy can figure it out, sounds like.

And there's other items in there, including for broadband and things. So it's not as clear.

And Cathy, this is Tom Cullen. I'm just -- as I said earlier, we're in discussions now with deployment and site acquisition partners around the country and we do not anticipate an issue with the tower climbing resources or construction. But you're correct, there are shortages of resources. We just have anticipated that and believe that, that is not going to be an issue for us.

And we will now take our final question from the analyst community. (Operator Instructions) And our last question will be from Kannan Venkateshwar from Barclays.

So just a couple for me. The first is on debt tallies. So when you think about the leverage levels right now and as debt maturities come up and you invest in your IoT network and so on and so forth, overall, over the next couple of years, do you see leverage levels remaining where they are roughly right now or going down coming? How should we think about leverage as we go forward? And the second question is more on the FCC communications recently with respect to the designated entities. Is there any time line on when the FCC has to come back with respect to the new structure that you've put in place? And is there any implication in terms of cash flow or any assets that may come back to you?

Yes, this is Charlie. I'll take -- on the designated entity, the court basically said the FCC was within its rights to decline the discount of $3.3 billion, but they also said that they should have negotiated with the parties. And so it was remanded back to the FCC to, in fact, negotiate, which is historically how the FCC has done it so that you could restructure a company to qualify if for some reason they felt you didn't qualify. That process looks like it's -- the FCC has come out with orders now that -- with the time line and that looks like, make a long story short, that the -- first, I think sometime in early June, is the first time that something's due from the designated entities and DISH. And at that -- then there's a couple of rounds and it looks like that goes into the fall and then the FCC would make a decision on that.

And again, obviously, we believe that -- and we've publicly made some changes with the DEs to the structure already that are very material already. There's not a -- there are potentially cash flow implications obviously because based on the current FCC ruling, the spectrum would -- that was to be -- $3.3 billion spectrum would be -- could be re-auctioned and the DEs and DISH would be -- have to make up any difference in the auction proceeds up to that amount. So that could be a negative cash flow in certain circumstances. Obviously, it would be a positive in the sense that to the extent that the negotiation is successful, and in fact, the DE -- the structure is acceptable to the FCC or to the courts, then there would -- there'd be additional assets but no additional cash. So that's the nature of that.

And then on the debt levels, the -- you'll have to make your own kind of estimates, but the debt maturities are well known. When those are likely to get paid down, then you'll have to take an EBITDA number on the company and run your own ratios there, right? And I think that you'll have to look at that, but we've always said that we're pretty comfortable with that kind of debt ratios we have today and that there is a limit to where we think we would go, where we'd be uncomfortable. We're comfortable now, but there's certainly a limit where we'd be uncomfortable.

We will now take questions from the members of the media. (Operator Instructions) And our first media question comes from Scott Moritz with Bloomberg.

Charlie, the Sprint/T-Mobile deal has now been announced, as you're aware. You have been, in the past, interested in both of those entities as potential takeover targets. Maybe now you can explain or give us a sense for what the landscape looks like to you in terms of your strategic options. And then a second question on 5G. How are you going to be able to finance a build-out of a 5G network without significant partnerships?

Yes, Scott, so the -- obviously, there's a logic to why T-Mobile and Sprint would want to go together. We certainly understand why they want to do that, and we will certainly monitor that situation with -- make sure that competition does -- to the extent that, that merger were to be approved in any way, that competition doesn't take a backseat.

And -- but I think in terms of what we're trying to do, it's a little bit different than where they are in terms of -- because we don't have handset subscribers, we don't have 300 million handset subscribers, we're tackling a little bit different market with what -- people who -- people in the industry who really know what a full -- what the capability of a full 5G network would be. That's -- with a clean sheet of paper, that's a bit easier to do than trying to do that with a legacy network. So that's a focus.

And we've said all along that we think we need strategic partnerships to achieve our goals. And it doesn't have to be equity and money. We just need -- we are going to need people with expertise that share a like vision of where 5G can go and all the things that, that does and all the industries that affects. We have to have people with like vision to want to see that happen. So we're not -- we won't be successful as a lone wolf out there. We're not that good.

And our next question comes from Sheila Dang with Reuters.

I wanted to ask what do you think about Comcast firming up its bid for Fox? And where do you see yourself in all the deal-making in the industry?

I didn't hear that, Comcast what?

Comcast, Disney-Fox.

I just read that Comcast looking to Disney-Fox. I think that -- I don't know the answer to that question. Obviously, they see that -- Comcast continues to see value in content and studios, and in some cases, distribution in the U.K. So I think that's probably a positive sign for our industry that they see value there -- or continued value there.

The broader question, I think, is going to be what's the regulatory environment starting with in 4 weeks we'll find out where the judge is on AT&T-Time Warner. Obviously, Comcast has said if that's approved, then there'll be a bidding war for Fox. And then if that deal is approved, there'll be another deal. So I think you're starting to see the seeds of some pretty -- potentially some major consolidation efforts out there or depending on the ruling of AT&T-Time Warner, you may see a bit more of a cold shower out there. So we'll have to wait and see. We don't have any insight into that.

And our next question comes from Mike Farrell from Multichannel News.

I just had a quick question about content. I'm just wondering if you guys see any opportunity or need for you -- for DISH or Sling to get into that business. And also kind of earlier on the analyst call, you were talking about how -- you were a little surprised about how Netflix and the rest has gained so much ground in that you saw opportunities that programmers could do to kind of combat that. I mean, I'm just wondering what your suggestions are. I mean, do you see programmers kind of opening up more to loosening the bundle for you? Do you see more opportunity in packaging and even thinner bundles than what you're offering with Sling?

Yes. I mean, I think that, A, we're not likely to get into content creation. It's a skill set we don't have. It takes a different skill set, it takes a lot of capital, it's a little bit hit or miss and we're just not that company. So we've stayed away. And we've always felt, from a distribution point of view, we shouldn't be in competition with our distribution partners.

And then on the current business today, I mean, I would hope that we would, as an industry, we'd focus more -- we'd focus on piracy and account sharing because I think there's a fair amount of money that's left on the table. And once you let that go, it's really, really hard to put the genie back in the bottle. And our company has concerted efforts to do that. Some other companies do, but they're not coordinated. With probably better coordination, we could do that.

I think that the advertising load has to be addressed. We tried to do that long before and ultimately came out with AutoHop because we just couldn't get anybody to look at that. Of course, the initial reaction was to litigate that as opposed to find good solutions. We were a little ahead of the curve on that one. Now I think it's not too late to go find some things.

There are simple things like how video on demand could be improved so that you can binge view channels, you can take channels with you, simple things that could make some sense. And I think, at some point, we're going to have to eliminate the channels that have no value, but you have to take them to get either retransmission consent or a channel that just nobody watches, but you pay for them because it's just an added tax to the channels that people do want to watch. And so you've got to address some of those things or start addressing some of those things. And there's probably -- I'm hopeful that there's going to be some content owners who are out there who will take some chances to try to do some things.

And our final question comes from Paul Gluckman from Communications Daily.

My questions have to do with ATSC 3.0. One month ago today, as a matter of fact, you announced the partnership of getting involved in the Dallas trials with Sinclair using your 700-megahertz E Block spectrum. I'm curious if you could comment on what those trials have told you so far. Also what your long-term ambitions might be in 3.0? And finally, your reaction to Sinclair calling DISH a surprising partner given that DISH and broadcasters haven't always been on the same page as the FCC.

Yes, Paul, this is Tom. Obviously, we wear different hats when it comes to these relationships. But with ATSC 3.0, we see it as a pretty intriguing technology and so therefore we are willing to co-invest with some of the broadcasters on testing the technology. Candidly, at this point, it's just a technology trial. We're measuring things like propagation and single-frequency network success. It's not at the point where we're at contemplating services deployment, but we think there are synergistic opportunities for us to work with the broadcasters in ATSC 3.0 not only with the 700 E Block that we deployed, but potentially with some of our uplink channels.

I think that's the last question, right?

All right. Thanks, everybody, for being on our call, and we'll be with you again in about 3 months. Thank you.

And this concludes today's conference. Thank you for your participation, and you may now disconnect.