DISH Network Corp (DISH) 2018 Q2 法說會逐字稿

Good day, and welcome to the DISH Network Corporation's Q2 2018 Earnings Conference Call. Today's conference is being recorded.

And at this time, I'd like to turn the conference over to Mr. Jason Kiser, Treasurer. Please go ahead, sir.

Thanks. Thanks for joining us, everybody. We're joined today by Charlie Ergen, our Chairman; Tom Cullen, who runs Corporate Development; Erik Carlson, our CEO; Presidents of DISH and Sling, Brian Neylon and Warren Schlichting. We've got Steve Swain, our CFO; Paul Orban, our Chief Accounting Officer; and Brandon Ehrhart, our Associate General Counsel.

So I think before Erik and Steve do their prepared remarks, we're going to get our safe harbor out of the way. So we'll have Brandon read that.

Good morning, everyone. Thanks for joining us. We ask the 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 does not speak to historical fact 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 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 this call should be understood as being applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks, uncertainties and other factors discussed in our SEC filings and should not place undue reliance on forward-looking statements, which we assume no responsibility for updating.

Erik?

Yes. Thank you, Brandon. This is Erik, and good morning, everyone. At the company, we're working with a time horizon that's approximately 5 to 10 years out. We've organized the business in a way that lets us take advantage of not only our present opportunity, but it sets us up for a prosperous future.

In DISH, we've got a legacy business. It really serves as our cash engine and remains a source of opportunity in a variety of distinct markets, including small-town America. Commercial markets, premium markets, that really value the choice and technology that DISH delivers. And clearly, we've got a growth business, gives us an opportunity as a company to deliver pay-TV to 100% of the country and a framework to deliver new business opportunities to both programmers and advertisers.

And at wireless, we have a future business. It allows us to serve as an innovator, a developer and a participant in the coming 5G Internet of Everything economy. Now our shift to wireless is now underway and it's going to set the stage for this company's fourth wave.

The first, of course, was our work delivering television to rural America with our C band products. We then forced industry innovation with the delivery of 100% digital TV to all of America with DISH DVS. And Sling set a new frontier in value and flexibility of the first live over-the-top Internet Pay-TV service. These first 3 waves each reflect a company that deeply values an entrepreneurial spirit, innovation and disruption. And with our work to transition to wireless, we're returning to our roots. And as Charlie has said, and I'm sure he'll speak to it later, we're a start-up again.

We have just over 580 days to meet our build-out and service obligations, and we're on track to meet our Phase 1 March 2020 goal to deliver a nationwide NB-IoT network that will serve a diverse set of markets. Tom's here to answer any questions you may have on that front. I do have a couple remarks in the business front before I turn it over to Steve.

Since I've been in the role, we've been focused on running a disciplined business and really shoring up our weaknesses, things like acquiring profitable subscribers and keeping them, improving stability of our online platforms, and providing an excellent customer experience across the board.

Given the historical service challenges of our category, we believe that a differentiation through service is one way we'll cultivate opportunity in our segment. Last quarter, I referenced a couple of J.D. Power wins for the team. In the past quarter, we've seen additional recognition from Temkin, ACSI, and Forrester. We take that as validation for the operational investments we've made as we pursue our goal of customer service leadership.

The commitment continues and just one example of that is our announcement a couple of weeks ago introducing Apple Business Chat as a tool to make service interaction simpler, faster and really more natural for both customers and agents. We also validate our customer experience investments through churn. As the Q2 churn results reveal, we are at historical low rates. Our focus on customer quality and service isn't new, though.

But our results remind us that our work continues to bear fruit. We're bringing on board the right customers, customers who want DISH TV in terms of the technology we provide, utility and overall value. And second, the first-class customer support experience we provide actually matters. Not only are we seeing the external recognition for that, but our internal metrics are telling us that too.

From the tech in the home to the agent experience, we are playing a much tighter game. Bottom line, we're attracting profitable customers who want DISH and who choose to stay with DISH. Now on the Sling side, we're presenting customers a more flexible, innovative and stable platform. Late in the quarter, we introduced the new Sling experience, an experience that brings programming choice and flexibility through a couple of broad categories of customers, those who rely on Sling TV for their everyday television and occasionals, individuals who tried Sling, but may want to dip in and out of a monthly service. For those users, we offer new ways to engage with Sling and content. Options that include advertising-supported video-on-demand, free content and subscription video-on-demand, all without having to subscribe to our monthly services. If you're an occasional, you can easily become a Sling Blue or Orange customer. All in all, we're working to promote a long-term relationship with Sling customers. It's not just about a binary subscriber status.

There's a lot of customer benefits to this approach. We offer an incredibly diverse array of content, and we're available on virtually every broadband-connected fixed and wireless device. And our pricing is scalable to match the content you want. So we believe in our new Sling experience. With this flexibility, it brings us and TV a step closer to that à la carte ideal many customers crave. We believe there's business opportunities on this new flexibility. So expect to hear more developments on that front in the coming weeks and months.

Finally, though it's not quite quarterly news, I'd like to address our dispute with Univision. Unfortunately, many of our DishLATINO customers were blocked from Univision at the end of the quarter. Customers are still blocked today. And that's because Univision continues to insist on rate increases that really have no bearing on its performance.

Despite reported primetime rating declines of 50% over the past 7 years, Univision has insisted we accept up to 75% increase over today's rates. That's really unacceptable, and it's not fair to our DishLATINO and Sling Latino customers. So we are offering customers price relief. As of August 1, bills will reflect a $5 per month credit for DishLATINO monthly packages. On Sling TV customers who subscribe to the best of Spanish TV standalone service will also be issued a monthly credit of $5.

We are also making over-the-air antennas available for free to DishLATINO and Sling Latino customers in eligible areas. Now I'd like to thank our customers for their patience. We've proudly served the U.S. Hispanic community for more than 20 years. Univision has long played a role in that heritage and had been a good partner.

Now if you're a DishLATINO or Sling Latino customer, I apologize for the disruption to your service. And I'd like to recognize our frontline service team. Those agents and techs were really working tirelessly to field customers' concerns. We appreciate their patience in working through a difficult situation.

With that, I'd like to turn it over to Steve for some additional remarks.

Thank you, Erik. I will discuss second quarter drivers in a minute, but first, to assist you in year-over-year comparisons, I will highlight a couple items.

Last year, our same quarter results were negatively impacted by the $296 million accrual related to our Do Not Call litigation. Excluding this accrual, 2017 adjusted second quarter operating income was $548 million and EBITDA was $744 million.

And this year, it is important to quantify the positive impact of the new revenue recognition standard, which was a $44 million benefit to operating income in the quarter. Excluding that impact, 2018 second quarter adjusted operating income was $529 million and EBITDA was $701 million. Comparing adjusted numbers for both quarters, operating income was down $19 million and EBITDA decreased $43 million.

Our financial results were driven by lower revenue year-over-year. In the quarter, we did see some improving revenue trends, continued lower acquisition expense and improved operational efficiencies. For DBS, revenue reflects a declining customer base, partially offset by higher ARPU. ARPU expansion in the quarter reflected the total impact of the DBS price increase, as well as a stabilization of customers in price log plans, where customers are now coming into and rolling out of price log plans at about the same rate. The ARPU expansion was partially offset by continued cord shaving.

Sling's top line grew. This growth was due to an increasing subscriber base and higher ARPU. Increased ARPU was driven by the mix of customers taking higher price packages and add-on revenue such as ad sales and Cloud DVRs. Please note there was no impact in the second quarter from Sling's Orange package price increase. The impact of this $5 price increase announced in late June will be reflected starting in third quarter.

On DISH TV, we have been pleased by the continued improvement in churn. Although we activate fewer customers, these higher-quality and more rural activations have had a positive impact on disconnects. That said, churn in future quarters will be negatively impacted by our continuing and potentially permanent Univision impasse.

Turning to expenses. Our operations team is focused on improving both efficiency and the customer experience. Several initiatives are in flight. Erik already mentioned that we are using Apple Business Chat. Also, bots are handling some routine online questions. These bots, through AI, are making the agent and customer experience better. And again, by focusing on the experience, DISH was ranked #1 in customer service by J.D. Power.

These initiatives have reduced total customer calls, including calls handled by agents, to multiyear lows, which is helping us variabilize our cost structure in an environment of declining subscribers. Interest expense decreased compared to last year, primarily due to an increase in capitalized interest. We expect that this rate of interest capitalization to continue throughout 2018.

Other income improved primarily due to an increase in net realized and unrealized gains on marketable securities. Income taxes decreased due to a lower tax rate as a result of tax reform, and in addition, last year's effective tax rate was negatively impacted by the $255 million litigation accrual, which related to the FTC action as potential payments may not be tax-deductible.

Excluding the posttax litigation accrual of $280 million from last year's net income and excluding revenue recognitions posttax impact of $33 million this quarter, adjusted net income was approximately $320 million and $406 million in 2017 and '18, respectively, making the adjusted year-over-year increase in net income approximately $86 million.

As we look at cash, free cash flow was roughly flat on a year-over-year basis at $297 million this quarter versus $289 million in the second quarter of 2017. And consistent with our general intent to pay down debt, early in the second quarter, we paid a $1 billion maturity with cash on hand.

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

(Operator Instructions) We'll take our first question from Philip Cusick with JPMorgan.

So Charlie, a few on the spectrum and the network, if you don't mind. First, can you talk about your confidence in the NB-IoT network fulfilling the build-out requirements, and address the letter from the FCC Wireless Bureau had a couple of weeks ago?

Okay. Thanks, Phil. I guess, I'd say that, a, we've -- and this is all public, we have met with every FCC commissioner and FCC staff on our network build-out and our plans, our 2-phase plan to enter the marketplace. We also, of course, not the first time we've been talking about it with the FCC. We've -- this has -- we've been talking about the narrowband IoT network for about 2 years. So -- and when we first started talking about it, I think there was a high degree of skepticism that an IoT network -- that the narrowband IoT network was a business. And of course, since that time, you've seen Verizon and AT&T and T-Mobile now has a national plan. All around the world, Vodafone, China -- companies in China are very far ahead in IoT. So I think it's now recognized that narrowband IoT is, in fact, a major contributor in the world moving forward. The letter, while granted, was unusual to receive a letter on build-out. It's an opportunity for us -- it's always an opportunity for us to continue dialogue with the regulators, and we always want to take advantage. And they've been quite generous with their time to meet with us. And in every one of those meetings, while those discussions are primarily private, the goal that they have to help United States be #1 in 5G, and the goal that we have at DISH is exactly the same. And so we're very pleased about that. And in the world where the incumbents are going to hybrid networks between 4G and 5G, and in a world where China is building standalone 5G networks and Japan is going to build a standalone 5G network, for the United States to lead in 5G, you're going to have to have, we think, standalone 5G network. And so we think we're the guys -- we're the company that's positioned to do that. And it's very similar to -- it's a long-winded answer, but it's important. In DBS, when the world went digital -- when the world technology went digital, we were one of 2 companies that seized that opportunity to lead in digital. And it took the cable industry more than 10 years to go from the hybrid legacy business to all-digital. And DISH played a major role. And the FCC was very, very supportive of what we did there, and we did things like 100% digitization, along with DIRECTV. We're first with HD, first with 4K TV. We were the first company with spot themes that brought local channels to constituents. So we have a track record of being innovative, disruptive and maybe being on the very, very leading edge of where technologies go. So we have another opportunity to do that in 5G. And I think that the FCC is, maybe, just like many people on this call and many investors, in that there is some skepticism on DISH's ability to execute that plan, it's a big project. And I think as the months go by, as people see the progress that we've made, you turn that into people coming to the realization that we can, in fact, we faced that same skepticism when we were going to launch satellites and compete against with -- compete against the incumbents and major corporations. And we had never done that before. It was a big project for us. But with a dedicated team of people focused on the right direction, we're confident that we'll be able to do that.

So if I can follow up, the difference, I would think, from your digital DVS plan was you could go up and do digital DVS really quickly, and it took the others with a huge embedded network a long time to do that. With DISH, you've got a massive network to build. And as the others start to build a hybrid 4G, 5G network, how long can you wait before you really need to start building the big network rather than the IoT network?

Yes, Phil. So I think -- I apologize if this call may sound a lot like the last call, but the big paradigm shift in 5G, not the market 5G that you're going to hear about, but the real paradigm shift in 5G is Release 16 from 3GPP, which for standalone network is December 2019. That's when the specification comes out. It allows you to do 3 things that you can't do in 5G today. It allows massive broadband, it allows massive IoT connectivity and allows the network to have low latency. So very, very low latencies. That -- we also are in a position with a clean sheet of paper to do one -- 2 more things really. One is to virtualize the network -- and virtualize every aspect of our network, not just portions of it, and to slice our network so that it looks like separate networks to potential partners and customers. So it's a huge, huge paradigm shift in terms of being 100% 5G with Release 19. So that release comes out in December '19, which means that people have to go build product for that. So product becomes available sometime later in 2020. The second thing that happens is that our uplink spectrum, let's take 600 megahertz as an example. That is not cleared by the broadcasters, fully cleared, until July 2020. So we can't build a modern network that's state of the art. We can't start building that until 2020. So -- and we're hampered today, just as a sideline, we're very hampered today in building network because our uplink spectrum -- we only have 5 megahertz of uplink spectrum. You can't build a massive broadband network with 5 megahertz of uplink spectrum. So we have a lot of downlink spectrum, but we don't have corresponding uplink. So we've got to get that cleared. And it's not -- 600 megahertz is still the DE issues that are outstanding. All those things need to get cleared up for us to be able to do it. But everything kind of comes together in 2020 for us to build a modern network. The competitors will start building hybrid networks, but they're not going to get to a full 5G platform without ripping out what they already have. And they have hundreds of millions of customers with phones. So the phone customer is not going to see that much difference in latency. So some of the things that we're going to do aren't going to be that attractive from a cost-benefit ratio to the incumbents. But if we want to lead in 5G, we want to lead in artificial intelligence, virtual reality, autonomous vehicles, smart cities, you're going to need a more modern network for that, and we'll play a big part in that.

So the way I understand your comment is, given the timing, we've got at least a year where you can experiment, talk to partners. But really no need to nail down cash from a partner for that year?

Phil, this is Tom. Not for Phase 2. But Phase 1, as I mentioned on the last call, we've made a lot of good progress, and it's the #1 priority here at DISH. And we've got a dedicated team working on it day in and day out. And we'll start seeing radios in the next -- in the coming weeks and the deployment will start in earnest later this fall. And that, as we've mentioned before, can be funded off cash on the balance sheet.

We'll go next to Jonathan Chaplin with New Street Research.

This is Vivek for Jonathan. I was just wondering, I saw you filed last Friday in the T-Mobile-Sprint docket. Does this mean that you intend to aggressively oppose the deal?

First of all, what was filed by our outside counsel is the standard protective order that is filed with the FCC, and it's normal course to do that. There's -- and we've done it in many other proposed mergers in the past. It just gives our outside counsel visibility to information as it becomes available. And we'll continue to analyze the merger as it progresses.

Got it. And as I think about the merger, there are sort of 2 opportunities that we see potentially coming out of it for you guys. One is, they need to shut down a bunch of cell sites. Is there any chance they could divest those to you instead? And then, the other piece of it is, they're going to be touching all of their 85,000 sites. Is there any chance that you would consider working with them to deploy your own spectrum, so that way, you can meet the 2020 build-out with a Phase 2 type network? And how do you just sort of think about those 2 options?

Yes. This is Charlie. I think -- I may answer your question a little bit broader, I apologize for maybe not answering it directly. But when we look at the merger and we're still analyzing, obviously, all the filings that they have, we certainly see their logic for why they'd want to merge. But they still become 2 fundamental issues, I think, that are out there. One is they'd be well over the spectrum cap in the marketplace. And so we certainly have concerns about where they might be on the spectrum cap. And the second area is the competitive concentration, the HHI index that the Justice Department looks like, they would be very high over limits on that or suggested standards for that, both on prepaid and postpaid. And then, as the Justice may decide which of those prevailing markets, is that one market or 2 markets. And so we'll kind of analyze that kind of stuff. And so I think for T-Mobile and Sprint, what happens is they've kind of announced this is the merger and then this is what they're going to do, and they really haven't talked about anything other than the kind of questions you're talking about. And maybe they will get regulatory approval for it just as it stands. And the second option that could happen is that no matter what they do, it's just too anti-competitive. Kind of situation that AT&T and T-Mobile are in, where there's probably virtually nothing they could have done, they'd just be denied. And then, there's the middle ground where perhaps they are able to work with regulators on remedies that would maybe attack some of the problems that the regulators might have, particularly in the spectrum and in competition areas. And so if that's the case, they may do things -- there may be opportunities for people outside of the cable companies or MVNOs or small -- there may be opportunities for other people to work with them to help solve those kind of issues.

I think it's the smaller cable companies. I mean ...

It's carriers, carriers. Yes.

We go next to Walter Piecyk with BTIG.

Tom, could you give us a sense of how many cell sites you're going have to touch for the NB-IoT at least to hit the March '20? And then -- and maybe what that translates to in terms of like a monthly cash burn? And then, Charlie, maybe on -- thoughts on CBRS target licenses in C-band; is that something you'd be interested in? And if so, do you have cash on the balance sheet or financing capabilities to bid in those auctions?

I'll take the first one, Walt. We're not, at this point, disclosing the number of towers. As you know, as you're doing RF planning and deployment, that's a pretty fluid environment. The number of towers is changing as we've made progress going down the road. So I can't address that specifically, other than as I said earlier, we feel like we're making good progress and we'll have pretty meaningful insight, I think, in the next 4 to 6 months. As far as the monthly cash burn, I don't think, Steve, we're disclosing that at this point, right?

That's right. We're not.

But Tom, is it -- can you give us something (inaudible)? Is it like a fraction of what an existing operator would have? Like any ballpark number in terms of -- because that obviously adds to the -- to how we look at the ability to execute on March '20. Like if it was 30,000, then we'd say like, oh that's hard to do March '20. But if you're saying hitting March '20 and it's 5,000 or whatever the number is, it makes everyone feel more comfortable about hitting the build-out requirement.

Yes, I'd only say this. The 3GPP standard today is about 35-kilometer coverage. But the 3GPP is currently entertaining changing the NB-IoT standard to 120 kilometers of coverage. And some of the vendors we're working with are able to provide 100. Now you can't do that in every area, obviously, because of clutter and urban density and so forth. But that -- because of that level of propagation, it reduces the number of towers necessary to provide the required terrestrial signal coverage as dictated by the license. Yes. I mean, I think you can assume that we would have materially less towers in Phase 1 than Phase 2 as you get into some of the 5G applications that once the Release 19 is that, you'll need a denser network for sure. We have disclosed that we expect to spend between $500 million and $1 billion on first -- on wireless through 2020. So they give you a range of where we think it is no matter how many towers it is, we're probably going to be in that kind of range. But -- and we're working with a third party for RF design in terms of how many towers. And then obviously, once we get it to task, we get it verified that the specifications, that the RF design and the vendors have said to us is accurate. So we're -- the answer is, we don't truly know, but we do know it's materially less towers than a -- than perhaps the incumbents have today, on a nationwide basis, just because the range is clearly farther to the spec.

And Charlie, are you bidding on any auctions? Any of this 5G CBRS, any of that stuff?

So in auctions, I mean, one is we don't have a lot of cash in our balance sheet to be a material player. Two, we have participated virtually every auction for the last 15 years. Most of those, we have not won anything in the auctions. It's only been the recent auctions where we've been probably -- along with DEs have been the major players in those auctions. But we're cognizant of our financial situation. And the -- one of the things in our build-out for 5G is that we're able to -- is that our spectrum is mid-band and low-band spectrum. That's ideal for macro cells. We've never thought that, that was going to make sense from a small cell perspective. And we believe that small cells should be a different frequency than your macro cells, something that the incumbents haven't. The incumbents have kind of done at least a -- Their first small cells were always the same frequencies as macro cells, which obviously brings up a lot of interference issues. So we've always thought small cells should be a different -- small cells should be a different frequency. Certainly that, and CBRS and C-band, that looks to us to be potential frequencies that make small cells. Obviously, Verizon and others have looked at 28-gig for small cells. So we think that's a balanced strategy -- balanced stretch for those guys and a balanced strategy going forward as spectrum -- as more spectrum becomes available. Most of the spectrum that's becoming available is probably, at this point, ideally situated for smaller cells, which is good for us because there's not really more macro cell available.

Okay. I think -- Rich, are you on the line? I know Rich is -- hasn't asked this question on any call these days...

A quick follow-up on the comments that were made at the opening about Univision. Charlie, you've been more open about the challenges facing the multichannel landscape than anyone else in terms of management teams in the industry. It's no longer -- it's not like it's just DISH losing subs. It's DISH, it's Comcast, it's Charter. Everyone's now losing subscribers. And I've been sort of surprised that over the last few years, we haven't seen any real kind of permanent drops of programming, given the kind of the breakdown of the price value cost of programming keeps going up and you're losing -- everyone's losing subscribers. Is Univision, like -- is this that inflection point like where it literally just no longer makes sense, and we really could see permanent drops because the programmer just -- their view of price value is just totally different than the distributors?

Yes, Rich. The short answer is yes, this is probably an inflection point, at least in our company. At least this time, I may be a little bit more pessimistic because the management team is in terms of the permanency. I believe this one, personally, is probably permanent. And the reason is not because -- it's not -- Univision is a good company. We had a good relationship. They have good product. It's nothing -- we're not mad at them. We're not that kind of stuff. It's just that -- here's the way things happen. They have -- they go to their owners and investors and say, "We have a budget." And they pencil in DISH for -- they've penciled in DISH for a 75% increase in their programming fees, right? We look at it at DISH, which was, what is happening to -- with our customers? And where is the price value shifting? So we've noticed -- and this is public document, an article, but they've lost 50% of their primetime viewership over the last several years. And they lost the World Cup, which was their #1 short-term attraction, right? And so we see declining value, not a 75% increase, but we actually seeing some declining value in there. They let go of their programming -- Head of Programming. That doesn't mean -- they didn't let go of somebody who's successful, they let go of somebody who wasn't performing on the programming side, all right? It's not all their fault. They're whipsawed because most of their programming comes from Televisa in Mexico, and they have increases that they had to pay Televisa. And that programming as novelas isn't striking a chord with younger viewers, so that's becoming a little long in the tooth, as programming sometimes does. So they're getting whipsawed on their side. So -- and then, what further exasperates things is that their programming is available for free with an off-air antenna and there's even a company, apparently, in New York that offers it for free through OTT. And then, they also offered themselves for $7.99 directly to customers. So it would make sense that DISH and Sling would never pay more than $7.99 for the product if you can get it for that directly, yet at least from what I've seen and maybe there's -- what they've asked DISH to pay is materially greater than what they sell directly for. So I've never been in a -- and their product does not become more viable to DISH today. In other words, the people who want Univision is going to come out okay. The customers who really want Univision at DISH will find another way to get the product. They may get it free in New York. They may go directly to Univision and pay $7.99. They may get it from one of our competitors in the future. They may put up an off-air antenna. The early read -- maybe Erik, you probably know better than I do, but I think the early read is that where we have given off-air antennas, and we've given that -- we've taken cared of tens of thousands of our customers, majority of those people are leaving the ecosystem; in other words, they've now become satisfied with what they get off air, and they have Netflix. And Netflix continues to improve their Hispanic programming and what's going to happen is number one -- just telling you, the #1 provider to Hispanics is going to be Netflix. It used to be Univision, but now it's going to be Netflix. And because Univision can't make that shift to work with their -- they just -- management just doesn't do that. It's too hard to take a half a step backward and reinvent yourself, right? DISH is going to (inaudible)...

And I assume it's fair to say that most of the subs that you've lost are gone. Like you're not losing lots of subs now the way you might have been in Week 1. Like if you really cared about Univision, you're probably gone by now.

I would say that -- look, our guys are probably better, but my experience has been that you probably go through a cycle where you don't lose a lot in the first week, then customers kind of start giving up on you. It peaks somewhere between week 4 and 6, and then it starts to decline. I think we're probably closer to week 6 than 4. And so whether Univision would come in -- where we were willing to pay Univision more 4 weeks ago, we -- you got to think we'd pay less today, right? And so while we certainly have fewer customers, they could get revenue from us. So it's a vicious cycle. And Univision uniquely had a management change. They don't have a CEO. They don't have a Chief Revenue Officer, Chief Programming -- they've had massive programming change. I've never heard from -- and Erik and our team has never heard from their new CEO, right? I think we might have been their largest customer, and we've never heard from their new CEO. And that doesn't sound like a relationship that they want to proceed with, and so that's why, I think, it's probably permanent. I think they'll be okay. I think they'll get half of the revenue they probably would've gotten from us previously or something to that effect. And we will save money versus what they would have charged us so we'll actually drop a little bit more money to the bottom line over time, even though we'll lose some subscribers, right? And we'll readjust and work with other Hispanic providers. And my gut feel is that Univision, who used to be #1 in Hispanic programming, they have -- they've been behind in the primetime. They've not been #1 in primetime for many weeks now, starting with the World Cup on Telemundo. So I just think that's where the momentum goes, and it's unfortunate, but I understand why they had the position. I understand that they're also caught between a rock and a hard place with their programming providers, but you can't take it out on the Hispanic customer. We have to be fair to the Hispanic customer, right? We're not going to gouge them. And we have other ways to get them that programming at a lower cost. Even though that's a short-term negative for us, we believe that they'll trust us more when we do that. We are very attuned to the Hispanic community. I think we probably have the #1 service for Hispanic, and we want them -- we may lose them in subscription, but won't lose them as customer because we've got wireless and other things coming that we want to be dealing with them on. So that's a very long answer, but it's -- this will -- I will predict, this will not be the first skirmish. Every single provider has got that same issue with programmers as they come by. And at some point, the programmers will have to -- have declining ratings certainly on the magnitude that Univision are going to have to start lowering their price, not raising their price. Or you're going to have massive -- you're going to have some pretty big -- I think Comcast is one -- Comcast is in one now with a sporting company. So just going to be more of these in the future. This isn't just DISH.

We'll go next to Jason Bazinet with Citi.

Just a question for Mr. Ergen. In your prepared remarks, you talked about paying off the '18 bonds. I think you've been in market buying your '19 bonds. Some investors are a little bit concerned about that maturity profile beyond '19. So my question is would you consider doing something proactive like issuing debt to the spectrum box and getting cash over to DBS to sort of lay the groundwork for you to refi maybe at a lower rate? I think you can help your equity value. Any comment on that will be helpful.

Jason, I don't think I've talked about that, because I didn't have any prepared remarks. As you know, I don't usually do that. But obviously, we're focused on debt maturities. And Erik and his team are focused in that. And we've been a good steward of capital, and we're going to continue to be a good steward of capital and we'd focus on that. And then, obviously, if there's -- we've been opportunistic when there's things we can do that are available and -- but we do think that our debt maturities do require focus on our (inaudible) manage team, and they certainly are doing that.

So there's nothing that is sort of off-limits in terms of issuing debt at the spectrum box?

I never say never. I've learned that long ago. So I think that where there's opportunity -- look, there's a ton of opportunity as a company. We have really, really, really strong assets. We need to focus on the DISH side. We focus on some strengths and maybe Erik can talk about that in a minute. There's some really areas of great strength that we can focus on, and we have a tremendous asset and the ability to build a standalone clean sheet of paper 5G network, and we think that, that's going to be amazing value creation for our shareholders and that's what we focus on. And we understand we have debt maturities that we need to pay.

We'll take our next question from Marci Ryvicker with Wells Fargo.

So I'm a media analyst, not a telco analyst. So the talk about towers sort of goes over my head. So my question is going to be pretty blunt. I guess, Charlie, has the FCC given you any indication that your Phase 1 5G narrowband network will not satisfy their March 2020 build-out? Is there any risk to those licenses? And then, the second question. We've seen your stock underperform quite significantly over the past 2 years. I guess, what made you decide to buy some shares in the open market now? I know it wasn't a lot, but you did it. Relative to other times when the stock has underperformed. I guess, what kind of message did you want to send to the marketplace with that purchase?

Well, the first -- the answer to the second question, I wasn't trying to send a message. I felt like that the price I bought it, that was versus where I could spend that money somewhere else and realize I don't have much money outside of DISH and EchoStar, but where I can spend that money, that was the best purchase I personally could make versus buying Facebook, okay, or something else -- that the masses go to. So that was just a personal decision. So read into it what you may or may not want to read into it. From an FCC perspective, I think -- again, I don't know the motivations of the -- motivations for the letter that we received. But clearly, there wasn't -- the questions were about IoT, right? They weren't about any kind of other network. Certainly, if you have -- I think that's probably -- you can certainly view that as an IoT network. It certainly meets the build -- the build that -- what we look at is discussions -- we know the history of working with the FCC. We know what our license says. We know that the FCC, including the current FCC, has been pretty flexible in how people build out licenses, and we're confident that IoT is an accepted way to build out a network because it's narrowband IoT is a service around the world today. So it's not something that was invented just for a build-out. So it -- I don't know, the only thing I can suggest is that people in this call should read the license and read the letter to the FCC and come to your own conclusion on that, but I think we're confident that narrowband IoT -- it's not the first time we've talked about it. We've been talking for a long time. Meets our build-out schedule, as long as we reach 70% of the population with the service, which we plan to do. So look, it's hard to lay out every single part of what our business plan is for the street in detail. Obviously, you have competitors who then learn about those kind of things, and obviously, we will do more of that as we get farther along in the process. But let's assume for a second that we'll meet the build-out schedule because that overhang kind of goes away. I'm hopeful that the FCC will rule on the DE issue, right, which that overhang, hopefully, will go away, and I'm confident that what we see happening around the world with 5G, people are going to come more and more to the realization that DISH has an opportunity to be a major player or a big player in the development of connectivity in the United States in a way that maybe the incumbents don't. So I think that's the path that's going to happen, and so we just need to stay focused and there's a lot of noise, and we know there's a lot of skepticism and we know stock price hasn't performed, right? But the way we look at it is what's that stock price 5 years from now? If that stock price is materially higher 5 years from now, then we made the right decisions as management. If it's not, then we made the wrong decisions. I can -- let me just -- long-winded, but 5 years ago, everybody want us to buy our stock back. They want us to go get more subs. We said, "Hey, world is changing. OTT is coming." We were probably 3 years ahead of anybody else saying that. But The Street was saying, "Why don't you get more subs? Why don't you get more subs?" We say, "We're going slow. We want to put money where we'll get a return. We're not seeing the same kind of return in subscribers. New things are coming. New technology is coming, right?" So we didn't buy back our stock. Probably wouldn't have been a good idea to buy it back at $60 if it's at $30 now. That's probably not a good decision. We didn't go after -- we didn't go chase subscribers that in the cities they weren't going to be with us long term. And we went and got -- went and had made a massive investment. The FCC is well aware that this company has spent over $20 million. That's not somebody who would speculate...

$20 billion.

$20 billion to enter the wireless market. That's not a company who's speculating. That's not a company who's not serious. That's a company who is seriously, possibly good about going out and competing and trying make this country a better place in connectivity. And we did it in video and I think we have the chance to make a bigger -- much, much bigger impact in connectivity because even the government decided it might be strategically important to have their own government 5G network, right? And the strategically important for the government that it certainly makes sense to be supportive of what we're trying to do.

We'll take our next question from Tuna Amobi with CFRA.

So I was just trying to understand a little bit better the trade-offs between your Sling TV and DISH TV offerings. I know that you mentioned that you're offering more flexible options on the Sling and some of those were free, et cetera. So as you think about the improved churn that you're seeing in the DISH TV offering, I know you talked about the better quality subs, but I wonder how that trade-off is working? Are you actively kind of migrating some of these DISH TV subscribers to the Sling offering with the expectation that you could get better economics out of it? Or in terms of your Sling TV, also, I did notice that the net adds this quarter was a little bit kind of less than we were expecting. I'm wondering if what you're seeing there in terms of the profile of the subscribers, any seasonality that's involved? So just any color to help me understand better the trade-offs between those offerings, in terms of economics. And also, what's the underlying drivers for the Sling TV, what you're seeing so far. That would be helpful.

Tuna, this is Erik. I'll start, and maybe I'll turn it over to Warren for a little bit more color on Sling. But -- and Charlie just mentioned this a bit in his remarks. I mean, from a DISH perspective, we really had a strategy to focus on customers that want a service like DISH provides with the technology, the utility, the price value equation, the ho-hum solution, et cetera. And we really focused DISH, over the last few years, as we've discussed, on getting those profitable customers in the right geographies, right? And when you think about DISH, I mean, obviously, it doesn't require a broadband. The service is obviously enhanced with broadband, but it pushes us to a less urban profile. And with Sling, obviously, one thing that's required to make the service work is broadband. And so it pushes that customer towards a more urban profile. We're not actively trying to migrate a DISH customer to a Sling experience. Although if a DISH customer in urban America wants to go to an OTT provider, I mean, we'll be there, and we'll offer -- we'll definitely offer Sling, and we'll try to round out that experience with an off-air antenna and all the other things that Sling provides. But we don't have an active migration process. And I think on the DISH side, obviously, you can see from the churn numbers, we're doing a better job of attracting profitable customers who want us to be with us long term. And we're not seeing a lot of increased pressure on the DISH base from cord cutting. Warren, do you want to comment any -- maybe the Sling -- new Sling experience a bit?

Sure. On the new Sling experience, we think we're on to something good, I mean, we were the first with the skinny bundle, and we've seen subscribers appreciate that. So we continue that disruptive approach. And really, we continue to knock down the barriers with a smaller subscription package, pay-per-view advertising-supported VOD really as a way of maintaining -- building and maintaining relationships with subscribers and with customers. And really, it becomes more of a user that comes in and out. We like that. We think if we follow the consumer, we're going to be on the right track.

Okay. Just a follow-up on the Sling advertising initiatives. I know you guys have had some efforts in that regard lately. And is there any color that you can provide us at this point in terms of the traction that you're seeing? And any kind of quantifiable metric would be helpful as well.

So I guess I would say on the Sling advertising front, we've seen a number of firsts there. So we're excited about the business. Really the 2 key pieces are that we've got high-quality video where we know somebody's watching with all the targeting attributes of digital. So we've -- not only have we grown that business, we like that business, but we've also struck a number of firsts where we have cross-platform household addressable advertising. That takes advantage of our existing DBS base and combines it with Sling. And so those are just a couple of examples of how we're cutting -- breaking new ground with advertising. I think I'll probably just leave it at that.

(Operator Instructions) Our final analyst question comes from Doug Mitchelson of Credit Suisse.

A couple of questions for Charlie. So you answered Marci's question -- your answer to Marci's question implied an answer to this one, but I'm going to ask it directly anyway. There's some investors who are hoping you'll just sell the spectrum and be a terrific risk-free quick return. And I know you keep all your options open. But it seems clear from these last few calls and your keynote at ConnectX that you feel the way to maximize value is to build out a 5G network rather than sell the company now. Am I reading your commentary correctly?

Well, I don't think you've ever heard about -- I don't think you've heard me talk much about selling spectrum ever, number one. I know analysts have talked about that, but we think -- I think, that we see such an opportunity for 5G in terms of what that does and realize that our network shouldn't be different as a standalone network, it's a little bit different, and we think the kind of customer we might go after might be quite a bit different than the incumbents. And we see that as the long-term future of how this company's relevant 30 years from now. And so that's a tough transition and tough on investors to be patient while you go through that. But that has been our focus and has always been our focus. We originally wanted to build an LTE 4G network. We just -- the rules on H-block got changed where we suddenly lost some of our -- from an interference perspective, and we had to kind of change course, and then, we had to go downlink and -- this is all kinds of things that took place. We had to wait for the next paradigm shift, and that's -- the good news is the 5G paradigm shift is much bigger than the LTE paradigm shift.

That takes me right into to the next question, which is, I was hoping you could talk a little bit about the $10 billion of funding for Phase 2, and what the range of possibilities might be. And I guess, where I'm going with that is I'm trying to understand how to think about how much of the value of the Phase 2 network build-out goes to DISH equity holders versus what might go to those who finance the build-out, whether it's giving a percentage of future capacity in exchange for capital? Or how do you pick preferreds? Or equity? I just -- I'm just hoping you could give us an update on your conversations on fundraising and how you think that's going to be structured. That would be helpful.

Well, that -- it's a good question, and it's probably one we'll be able to answer a little bit better a year from now. But I mean, literally a year from now. But there's no question that we need to raise capital for the build-out. But realize, we're 2/3 of the way -- more than 2/3 of the way there in terms of capital for total 5G network, right? So run the math on that, and it's something like $1 a megahertz per pop with a totally standalone 5G network, right? The number of people that might be attractive to is very long. The way you might structure partnerships and ability for capital are many, many, many options to how you might do that. And so that's -- it's no different than when we're going to want satellites way back when, we didn't have -- we knew we needed partners to help us get there, and we knew we needed capital to go do that, and we were fortunate to work with a lot of great companies that believed in us. And it really will boil down to, Doug, do we have a solid business plan that people believe that, that's a good investment. And people throw $1 billion for guys who say they're going to put bikes out there, right? And I think our business plan is going to be more solid than that. And by the way, bikes need IoT to work. So -- right? But again, there isn't an industry in the next decade that doesn't need what we're going to build. And tens of billions of dollars is going to autonomous vehicles, but they're going to need a piece of what we have. Tens of billions of dollars go to health care. They need a piece of what we have. Tens of billions of dollars goes into utilities. They need a piece of what we have. Tens of billions of dollars is going into artificial intelligence. They need a piece of what we have. Tens of billions of dollars in virtual reality, augmented reality. They need a piece of what we have, right? Tens of billions of dollars into smart cities. They need a piece of what we have. So first class I've ever taken in Business School, I had to go borrow money to start my business. It's an exercise, right? You've got to have a good business plan. And we're going to have a good business plan. We have a good business plan, but it will be something that people will be attracted to.

Let me just clarify the math that Charlie was doing around $1 per megahertz pop is predicated on the cooperation of the DEs in that network build. If the DEs went a different route, we'd still build the network with the remaining spectrum that we hold.

Yes. I mean, we're hopeful that the FCC will be -- I mean, look, I don't want to talk about that because the DE -- we had a difference of opinion with the FCC. The DEs had a different opinion with the FCC. Turned out, the FCC was right. And so, the court said that the FCC was correct in denying the discounts, but they also said that the FCC hadn't been correct in not allowing a cure period. So the FCC is now in that cure period. The DEs had taken that extreme -- and we have taken that extremely seriously. We realized that the FCC won the point that we were contesting or one of the points that we were contesting. And so we've looked at everything -- every single thing the FCC has said and the courts have said of why that structure may not qualify and changed every one of those things. And it just shows, I think, another indication as an objective observer, that this company is serious, the DEs are serious about trying to help this country be a leader in 5G. And to our detriment, we made changes there, but we realize that maybe we erred in how we structured that. And if we -- when we're wrong, we're wrong, and now we're trying to make it right. And so we're hopeful the FCC will be supportive and would get a decision on that this year, and that would be a major positive for us to move forward.

Okay. All right. Operator, we're ready to move to the media, please.

Ladies and gentlemen, we will now take questions from members of the media. (Operator Instructions) Our first media question comes from Scott Moritz with Bloomberg.

Charlie, a question on the IoT network. As you point out, FCC is a bit skeptical in narrowband network. They probably have bigger visions for that spectrum. But how do you convince them that this is a legitimate use of the airwaves? And if you can't convince them of that, what are your options?

Well, I guess, the -- I think there has been skepticism FCC, I don't know for sure, but I mean, I think that's probably a logical conclusion. But that was when IoT was -- nobody was talking about IoT. I think that's -- it would be hard to be skeptical of IoT today, given what I've seen in China, in Europe, in the United States in terms of what people are doing in the investment in IoT. I mean, that would be like being skeptical of electric cars, right? I mean, it's going to happen, right? It's important. So I think that's not an issue. I mean, I can't speak for the FCC. And I wouldn't want to, but I don't think IoT -- I think the bigger picture is, is that we don't have -- we and the FCC would want to have a much more comprehensive network, right? You want spectrum to be used in something -- in an efficient manner for consumers, and we want to do it for our shareholders and employees and consumers. So obviously, a more massive network is on both of our agendas, but you can't get there with 5 megahertz of uplink spectrum, right? You can't get to that kind of network with only 5 megahertz of spectrum cleared. We're waiting on the FCC and the broadcasters to clear spectrum. We're waiting on the DE situation to get cleared up, right? So we have -- and we have 582 days to build a network, so we can't wait on those things to happen because it takes 3 years to build this first phase. So -- but the first phase leads to the second phase, which I think everybody's going to be pretty thrilled about, including the FCC, the investors and consumers. The first phase is going to be important, but it's not going to be as massive as we all would like. But per our license, that's not required. And there's practical reasons why we can't make it more massive today.

And just -- and my opinion, narrowband IoT is here to stay. It will coexist with 5G, but because of its coverage characteristics, its low battery life and resulting low cost, there will be use cases for narrowband IoT as far as you can see out. Did I say low battery? I meant long battery life.

The next is Sheila Dang with Reuters.

It looks like Sling TV added fewer subscribers this quarter than in the past. And I'm wondering if you could talk about what you're doing to gain customers now that the price has increased. And do you have any plans to introduce a new tier, possibly without sports?

Sheila, it's Warren. Thanks for the question. Look, we've already said that competition is good for the category, along the lines of all boats rise with the rising tide. And we are very focused on long term. I mentioned before, what does that mean -- what does it mean for consumers? I think when you take a look at the way we're providing value and the way we're talking about folks that come and go, we like where we are. We like the innovation. And so, sure, I mean, there's been a little bit of a slowdown in growth, but we think we're well positioned and well poised. Second part of the question is about a second tier. Could you ask that again?

It's the sports package.

Do you have plans for a non-sports package?

No plans that we're ready to announce, for sure.

Yes. And this is Charlie. I'd just add one thing. I think that the category is new, right? And we've kind of kept our powder dry a little bit perhaps to go where people -- other people don't go, and it's -- some of the content providers like CBS go direct, and we wouldn't want to be burdened with something that you can buy somewhere else cheaper than it would cost us and that kind of stuff, right? And some people have gone about kind of all very big packages, which is going to be attractive as a cable and satellite replacement. But if everybody goes there, maybe there's something different you can do. And so I think Warren and his team has staked out an area that's very consumer-friendly, gives a lot of choice to consumers. And then, has to wait a little bit to see where the industry goes and where Sling plays a role doing things the other guys don't do.

All right, everyone. Thank you for your time and interest -- Oh, I'm sorry, we have 1 more from the media. This will be the last question. Go ahead.

We'll take our last question from Shalini Ramachandran with Wall Street Journal.

Sorry if I'm asking a repetitive question. I missed some of the early part of the call. But on the Sprint-T-Mo pending merger, would you guys be interested in acquiring any of their spectrums if they're forced to divest anything during this regulatory process? And sort of more broadly, how did you see that merger and sort of these other big mergers that have happened in media telecom affecting your position?

Already answered. (inaudible).

But because it's you, Shalini -- because it's you, we're going to answer it again. We wouldn't do this for anybody else. I think that, look, we understand the logic of why they want to go together from their perspective. And we think there's too -- we're going to go through their filings and we'll probably comment on what they're doing, but -- one way or the other. But certainly, the areas that I think that they'll be focused on will be that they're way over the spectrum cap. So as you mentioned, they're -- they'd have 3x as much spectrum as DISH and our DE partnership would have, as an example, in some places. And the HHI index for concentration of business is already high and would go much, much higher. That's slightly different between prepaid and postpaid, but that would be an issue. So they're going to have to -- they've indicated that they're not willing to make changes to -- or divest the spectrum today. So -- and the regulators may accept that, and the merger may actually be approved as is, based on the logic they have for the merger. There may be a situation -- there's nothing they can do like AT&T and T-Mobile in the past, where there's just nothing they can do. It's just anti-competitive. So it gets rejected or there may be something in the middle where they can have remedies. And they probably have any number of things they can do on the remedy with any number of companies out there that might be attracted to them.

Thank you, everyone. Talk to you next quarter.

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation. You may now disconnect.