DISH Network Corp (DISH) 2018 Q4 法說會逐字稿

Good day, and welcome to the DISH Network Corporation Q4 and Year-End 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jason Kiser. Please go ahead, sir.

Great. Thank you, and thanks, everybody, for joining us. I'm joined today by Charlie Ergen, our Chairman; Tom Cullen, EVP of Corporate Development; Erik Carlson, our CEO. Brian Neylon, the President of DISH; Warren Schlichting, the President of Sling; Paul Orban, our Chief Accounting Officer; and Tim Messner, our General Counsel.

Before we get into Erik's prepared remarks, we do need to do some safe harbor disclosures. So with that, we'll turn it over to Tim.

Thanks, Jason. Good morning, everyone.

Statements we make during this call that are not statements of 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 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 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.

As part of the process for the upcoming FCC Auction 102, we filed an application to potentially participate as a bidder for those spectrum assets. Because of the FCC's rules, we are not able to discuss what, if any, spectrum resources we may intend to bid on, and we will not be answering any questions about the auction on today's call.

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

Well, thank you, Tim, and good morning, everyone. Both Paul and I have a few opening remarks before we open it up to Q&A.

On the wireless front, we're 388 days away from our March 7, 2020, build-out deadline, and the deployment team is in full swing. Crews are working at meeting, staging, installing gear on towers across the nation. A lot of work is ahead, but progress is definitely (inaudible), and Charlie and Tom are both here for questions on wireless.

Over the past year, I've been fairly consistent on the theme of excellent customer experience as a strategy for DISH. Delivering the best in service, technology and value has been a consistent goal. This is intentional. In a category as challenged as this one, this is a rational way for us to stand apart.

Our internal metrics confirm our path. For the year, we reported 1.78% churn at DISH TV. That's the full picture, including Latino. If you were to look at just general market, we continue to deliver historic company lows for churn.

Part and parcel of the customer experience is having the right customer, and you may have noticed we're a bit higher on SAC year-over-year. A couple of factors to consider. As many of you know, we've been pursuing a strategy for finding the right customer in the right geography and delivering to that household the right service technology and value that will deliver us the profitable, long-term relationship for DISH.

The emphasis has led to higher commissions at our independent retail channel and an increase in hardware costs as a higher percentage of our new customers are activating with higher-priced receivers like the Hopper 3 instead of some of our remanufactured gear.

Now another dimension is the SAC picture. In 2017, we had more low-SAC Puerto Rico subscribers, those that were impacted by Hurricane Maria, reactivate as compared to 2018, which effectively lowered our DISH TV SAC during 2017.

Let me touch on programming for just a moment, first on Univision.

It's fair to conclude that we've been unable to achieve a reasonable deal for our customers. And at this point, customers who are heavy Univision viewers have likely found alternatives, including our customers who installed off-air antennas and who are able to receive Univision programming at no cost. For our part, we expect the situation to offer some advantages over the long term, especially as you introduce an OTA into the picture and we're able to charge less for DishLATINO to our customers.

With regard to HBO and AT&T, there hasn't been meaningful movement. HBO is demanding a contract that would have forced DISH customers to subsidize both HBO and Cinemax even if customers chose not to subscribe to those services. So our view hasn't changed. AT&T's stance remains on the fundamental negatives of their merger with Time Warner. Consistent with the guidance I shared with you in the last call, it's fair to say that together, HBO and Univision account for a little bit more than half of our net sub loss in the quarter.

Let me close out with a few observations on Sling.

We're pleased that sub growth continues in the right direction and that we continue to lead the category live OTT. I think that's the product of several points coming together. We continue to invest in platform stability. We found that customers are incredibly sensitive to performance. And the ad experience in Sling continues to improve. And by that, I mean we're delivering on DAI-driven advertising: programmatic, addressable and cross-platform. That's great for us. That's great for the brand. And it creates an advertising environment that's better for customers. In fact, we've seen ad revenues on Sling grow threefold in the past year, and that's on top of the 10-fold increase I shared with you on last February's call.

We remain margin positive on every sub we bring into Sling, and that's reflective of a discipline -- there is rational program that Warren and his team are running. We're offering the right content, the right add-ons like DVR and with the right technical expertise on the mobile and fixed platforms that our customers love. We remain bullish on live OTT, and the experience that the Sling team is shaping and delivering is really second to none.

So with that, I'm going to turn it over to Paul, who has a few brief remarks on the quarter, and then we'll open it up to Q&A. Paul?

Thank you, Erik. Good morning, everyone.

Our core pay-TV business made positive strides throughout 2018. Our DISH TV team continue to focus on acquiring and retaining high-quality subscribers with long-term profitability. Our Sling TV team added content and grew their subscriber base.

Consistent with previous calls, I want to outline the impact of the new revenue recognition standard. This had a $154 million positive impact to both operating income and EBITDA for the full year. The benefit from this new standard will decrease over time as the deferred costs begin to build up.

2018 operating income and EBITDA were both higher year-over-year by $580 million and $368 million, respectively. Adjusted for onetime items, such as rev rec and the impacts of the 2017 litigation expense and asset impairment, operating income would have been relatively flat, down $60 million year-over-year. EBITDA would have been down $228 million. In 2017, EBITDA benefited from $105 million of other income primarily related to gains on marketable investment securities.

Free cash flow continues to be strong at $1.2 billion.

Now for the P&L details.

Revenue is down 5% year-over-year due to fewer DISH TV subscribers and lower pay-TV ARPU, partially offset by the growth of the Sling subscriber base.

Subscriber-related expenses decreased 4% also as a result of fewer DISH TV subscribers. Our programming expenses were positively impacted by the Univision and HBO channel removals. Our variable expenses improved due to fewer subscribers and increased operational efficiencies.

Our satellite and transmission expenses decreased $81 million or 12%. Certain satellite leases expired and costs decreased in our digital broadcast operations.

Our subscriber acquisition cost decreased $435 million or 36% largely due to fewer DISH TV activations and the impact of capitalizing certain commission costs under the new revenue accounting standard. As a reminder, substantially all of our interest expense is being capitalized while we are building out our network. Also, our effective tax rate is lower in 2018 due to the federal Tax Reform Act.

Additionally, related to our wireless network, it's important to note that because we are currently building that network, much of our spend related to the build-out is being capitalized, which you do not see in the P&L.

Pay-TV ARPU is down due to a higher percentage of Sling TV subscribers in the Pay-TV subscriber base. In addition, we had a decrease in revenue related to premium channels, including the impact of the HBO channel removal and pay-per-view boxing events. This decrease was partially offset by DISH TV programming price increases and increases in revenue per subscriber related to Sling TV.

The Sling increase was mainly driven by the mix of customers taking higher-priced packages and add-on revenue, such as extras, Cloud DVR and ad sales. In addition, the impact of the $5 increase on our Orange package began in the third quarter and was fully realized starting in the fourth quarter.

With that, I'll turn it over for questions. Operator?

(Operator Instructions) And our first question today will come from Philip Cusick with JPMorgan.

Next, we'll move to Kannan Venkateshwar with Barclays.

Just a couple from me. First, on the refinancing risk. Charlie, I guess there's a little bit of a language change in the 10-K in terms of refinancing, and there's a risk that's been added there. Just wanted to understand, how are you thinking about the balance sheet and all the maturities that are coming up? Is there any difference in the way you're thinking about the balance sheet today versus maybe beginning of last year in terms of maybe raising secured debt or something on those lines, especially as you go into the $10 billion phase of the build-out, the phase 2 of the build-out? And secondly, more from a core performance trend line perspective. As we go into the first couple of quarters this year, should we see any change in trends given that the biggest impact of sub loss is due to loss of carriage spends who happened to close to when the loss of content actually happened? And should we expect that to moderate in the coming quarters?

Yes. Kannan, this is Jason. I'll take the first one. On the refinancing risk, I mean, we continually to monitor all of our capital markets options just like we always have. There's nothing really new there. And look, the market got tied up a little bit in fourth quarter, and we keep our eye on that type of stuff all the time. We're constantly reevaluating what's available to us. I think we've got many alternatives that are available to us, both for refi or for fresh capital. We look at things that are at the operating company. We look at things that are at the holding company. But I think right now, we're pretty comfortable that there's not any urgent need to do anything. Everybody is familiar with our maturity profile, and we -- as we move out and get into some of the bigger maturities, we'll continue to look at that and determine what's the best avenue to take. But we haven't any determination on anything at this point.

Erik, you want to take the (inaudible) question?

Yes, on -- Kannan, on the carriage, obviously I think that normally, you see a trend very close to the takedown of content. In this particular case, there's a couple of inflection points. On the Univision side, obviously we had a removal midsummer, I think, the end of January -- June, sorry about that. And then the [ports have] followed that in November -- early November along with HBO. So there's no doubt on the Univision front we are seeing a declining customer attrition. However, I wouldn't give guidance that we're through all of the customers leaving us. On the HBO front, obviously HBO had an impact, along with Univision, in the fourth quarter, and I think HBO has their Game of Thrones coming up in April. And obviously, that could impact us if we're not able to reach an agreement.

Yes. And this is Charlie. I think what happens is it's always disappointing when you lose a long-term partner. And both Univision and HBO, particularly HBO, were long-term partners, but there's different dynamics there. HBO, obviously, was acquired by AT&T, and AT&T has taken a very anticompetitive approach to carriage because they view DISH potentially as one of their larger competitors. And so that's an -- particularly, they've made a decision not to engage in any kind of conversation that any company would realistically take. The downside for them is that customers love DISH and are -- at least within the pay-TV business, I think we're the -- at least most polls and most surveys show us as the [most highly] rated. So they like their DISH service. They like their Hopper experience. And so some customers do leave us because HBO is a very strong brand and has strong content. But some customers find that they can live without it, and then some customers still stay with DISH and love it and they find another way to get HBO. That means they go -- and they'll go to their friend's house for 10 weeks during Game of Thrones, or they -- there becomes an increased usage of -- every young person knows how to go on the Internet and get a code and watch HBO for free. And so you end up with a piracy issue that unfortunately, we prefer not to see. But when customers get some taken away, they resort to other means. So -- and then we work with other partners that have movies which are very popular with our customers, and we see increased usage of that. It does affect ARPU. Obviously, when we sell HBO for $15 and Cinemax for $10, you lose those subs, you lose ARPU there. So that's one of the -- again, so with Univision, they really had a -- it's kind of like a perfect storm. They had a change of management who had -- who I think as executive management would say in private that -- the unrealistic expectations of what they're trying to do DISH on a renewal deal. So the management and DISH probably had a pretty good -- actually have a pretty good relationship, absent an ability to get to a deal. And the reason that we haven't been able to get to a deal is that most -- our best customers who love Univision, and we have a lot of customers who love Univision, but they left or they put an off-air antenna in to get the programming. So they've made adjustments to view Univision or leave us to go get it. The remaining customers on Univision still like Univision but not at the level of the customers who left. So that makes it really hard to put Humpty Dumpty back together again even though the relationship, I think, is -- I think that it's not for lack of trying on both the Univision management's part and the DISH management's part. So HBO is not trying, Univision is trying, but they're difficult situations. What our direction of management is that it's not an excuse to go -- to continue to lose subs, right? With Univision, we have an advantage in the marketplace now that Latino subs can get -- can save $10, $12, $15 from DISH and we'll provide a local antenna so they can get the program and save $10, $12, $15 over everybody else in the industry. And you got -- take advantage of that in some markets because we're the only provider -- major provider that's in that situation today. So we have a cost advantage and we can go out and start building our Latino base but -- based on that cost advantage. So it becomes -- there becomes a tail on it and then we move forward.

And next, we'll move to Philip Cusick with JPMorgan.

Sorry about that. I know you didn't get the 5G network up in the air. Charlie, can you talk about timing on the IoT build and the cash needs as we go through the year for that? And then second, what's the latest on timing of your 5G equipment? Assuming you have the money, when could you efficiently start building that network?

Okay, and Tom may want to jump in on this. But nothing has really changed on the cost or the timing. The cost of our network is between -- initial Phase 1 build of narrowband IoT now is somewhere between $500 million and $1 billion through 2020. We continue to make progress in building that network. We intend -- our expectation is we're going to meet the deadlines. We know there's going to be a lot of obstacles in the way, but we intend to meet that deadline. CapEx will accelerate in 2019 from where it has been in the past. And what was the other part of the question?

5G equipment.

Yes. Oh, 5G equipment. The -- because we're a -- our plan is to build a stand-alone ground for a 5G network. In other words, the only other country that's doing that today is China. So if you really want to compete with China in 5G, in my opinion, you need a stand-alone 5G network from scratch. And then you -- and then more importantly, maybe you need the architecture that goes with it. So if you want to compete with China, it's imperative that in the United States, somebody builds that stand-alone network. That specification for 3GP stand-alone specification is not out, at the earliest, until the end of this year. And then it takes several months to get equipment from that. So I would imagine that sometime in a little bit over a year from now, we'll start to have equipment in stand-alone 5G, then we can start deploying that equipment. And so today, we're basically architecting that network and putting the business plan together. So that we'll do to the rest of this year, and then we will have a business plan for a network like you may only see in China. And -- or however you believe we -- and we believe that with American ingenuity and other people help, we can build a network that can rival that or be better than that.

Has there been any change in the discussions with potential partners to help you on that, positive or negative?

We haven't had -- I don't know we've had any negative discussions. We certainly -- like everybody else -- I'd say it this way. People are very -- those people are very knowledgeable, so perhaps more knowledgeable than an analyst can be because they're in the business or they build product for them or they've studied the architecture for a long time. I think they're pretty positive. And I think that the real 5G and the architecture that goes with it, when you put those 2 things together, I think most people or virtually any business or any business in the United States realize that, that can be powerful compared to what they get today in a wireless network. And so we've had discussions from -- we've had interest and discussions for -- from unexpected places, but our strategy really is, where somebody has infrastructure in place or they do things -- they do a good job at it, we're going to try to partner with them. We may just be -- they just may be a vendor for us. We'll just pay them, right? There could be other things that happen there. We'll -- but rather than try to reinvent it ourselves, set an example, we're not probably going to build towers. We're probably not going to lay a bunch of fiber if somebody's already got fiber. So will we need to edge compute if somebody's in the edge compute business? So that's probably not a business we have to enter. If somebody doesn't do it or doesn't have confidence in us, then by all means we will do it. They are very similar to -- we launched our satellites in the DBS business. Some vendors refused to launch for us because they didn't think we can pay them. Some people refused to build satellites for us because they didn't think we could pay them or will be successful. But some people did believe we had a chance to be successful, and those people had become long-term vendors and partners for us for a long time. Now I think the same thing is going to happen here. Some people will be skeptical, as many people in life are. And some people will look at our track record and our commitment and our business plan, and they'll be opportunistic.

Are you being more willing to borrow money against the spectrum to raise that 5G money than you were before?

Well, we know it's going to cost us in the magnitude of $10 billion and we're going to raise capital. I think that capital will come and -- I think that capital will come from various different capital structures and sources. But I don't think we're -- we'll defend it (inaudible).

And next, we'll move to Mike McCormack with Guggenheim Partners.

Charlie, maybe just a quick comment on what you're hearing from Washington with respect to your narrowband IoT build. When will we get comfort that that's going to meet their desires or needs? And then with respect to Sling, just maybe a comment on the competitive landscape there, whether or not your share takers from DIRECTV Now losses and the impact of Hulu live, and YouTube TV.

Warren, why don't you take the first part first?

Okay, sure. I mean, there's -- I think it's probably fairly well known that DIRECTV was heavily promoting that product. And so we just follow our -- a, we listen to the customer; and b, we follow our sort of guidance internally of fiscal responsibility. So I don't know we'll look at it as taking share as much as we do. We just keep marching in a direction that works for us. I think Erik mentioned margin positive, and we continue to accumulate customers. And frankly, I'm not exactly sure where they come from, but it's a good story for us.

Yes, on Washington, the -- we don't -- I don't -- we haven't heard -- obviously, we got -- I've met with staff and the commissioners. We got questions -- follow-up questions and that we've answered those follow-up questions. So we haven't -- to my knowledge, have not heard anything since that period of time. And obviously, we're past the point of no return at this point to do something different. I don't think there should be any skepticism about narrowband IT -- or narrowband IoT build-out, meaning our commitment for the FCC because I think the rules are pretty clear in terms of flexible use. And it's pretty clear that the incumbents all have followed our lead with narrowband IoT in the United States, and, of course, other people are doing that around the world. I don't think we're happy that our network is not going to be as robust as perhaps some existing networks because we're limited by 5 megahertz of nationwide uplink spectrum. So we only have that cleared. The rest of spectrum is either tied up in interference studies by the government and from the auctions and also tied up in the DE stuff that's going to FCC, where that's -- where -- all the information is in, but the FCC hasn't ruled yet. And so that's -- it's just more difficult to plan for something that we don't control at this point, so.

In addition to the 600

In addition to the 600 which isn't going to be cleared until June. And there's always the risk that broadcasters will ask for more time there. So we've -- obviously, if we had a -- if we had ability to use the spectrum that we own and also work with our DE partners in a more robust way, we could build them a more robust network. So that's why -- so we're all disappointed that we can't do a little bit more. And I'm sure that given the kind of race to 5G and the -- I think within the Congress and the FCC and at DISH and also the incumbent operators, we want this country to lead in 5G, and I think we're going to play a big part in that.

And next move to Jonathan Chaplin with New Street Research.

A quick one for Mr. Ergen. So a lot of the comments you've made about the 5G network that you're planning in Phase 2 has echoed, at least for me, of what we saw GEO do with 4G in India. And I'm wondering to what extent you've looked at that example and some of the experience, the disruption that GEO brought to India you think could be replicated here. And then just following on from Phil's question, in looking for a partner, are your discussions primarily with strategic and financial players in the U.S.? Or could international players come into this as a partner as well?

This is Tom. Yes. We, of course, have looked at GEO and they graciously spent some time with us and -- to help us better understand how they approached the market. It's pretty well documented how disruptive they were in terms of elimination of many carriers and forcing prices and competition to respond. There's obviously differences between 4G and 5G. And as mentioned earlier on the call, I think everyone in the industry understands that 3GPP has yet to finalize the Release 16 documentation or codification of the standard, which really in Release 16 are the 3 pillar elements of 5G, which is enhanced mobile broadband, ultra-low latency and massive connectivity. So once that gets finalized late this year or early next, then the ecosystem becomes developed. What we're also excited about is what's happening around virtualization and the opening of interfaces within radio access networks, which we think will have a significant impact on capital and operating expense in a network in the 2021 time frame. And of course, having a greenfield with a clean sheet of paper gives us an advantage because you won't be burdened by any legacy previous-generation equipment and architecture.

Yes. And this is Charlie. I would just add that realize that what GEO did was clean sheet of paper in 4G. Very limited band. I think they ran 40 megahertz of bandwidth to work. And they had -- I think by last count, they're showing like 270 million, 280 million customers on that network after 18 months. So -- but the most important thing, I think, that we learned was how important architecture is to the network and the efficiencies that you get in both the CapEx and OpEx situation and flexibility that you get in your network when you architect it and spend your time on architecture. And then obviously, part of that architecture is the virtualization that Tom alluded to. That makes -- that -- I'd say it this way. The -- I believe that 5G, with the proper architecture, right, and a clean sheet of paper, has the ability to be far more reaching than the marketplace understands today. I think T-Mobile understands that, which is why they don't want us to be in the business. But I think the external -- when you're talking about 5G being 28 gigahertz to a couple of people in Sacramento, our 5GE being -- I actually don't know what that is. 5GE is something Sprint think that's illegal and AT&T thinks that's something the American public is going to latch on to. I don't know what that is, but what we're doing is different than that. That's all I'm saying. And I think that as we get farther into this, that will become more evident. And it's starting to become evident, obviously, to people that have spent time with us and really, really spent time in this industry.

And Charlie, the work...

(inaudible).

you're doing on -- sorry, go ahead.

No, I'm sorry, go ahead.

I was going to say just with the work you're doing with vendors on virtualization, could that result in a network that costs less than $10 billion to build? Or does that $10 billion still stand?

The -- we've seen estimates for less than that, and we've seen estimates for more than that. So I think one of the -- I think in taking on big projects, I think it's imperative that the strategic manager of our company, which is our board and our executive staff, that we set out those challenges. They need to be realistic, but they need to be -- they need to be realistic and achievable, but they need to be a stretch, too. And so I think that $10 billion gives you a feel for what we really think we're going to do. I hope -- we said $500 million to $1 billion on our initial phase. I hope we come -- I hope -- I don't know where we're going to end up, but I hope we come in a lot closer to $500 million than $1 billion. But I don't know. And $10 billion, I think we're going to be in that range. Could be a little higher, could be a little lower.

Jason Bazinet with Citi.

I guess a couple years ago, we were pretty confident you weren't going to get an adverse ruling from the FCC on the DE discount issue. And we were wrong. And I just wonder if you could spend a second and talk about what happens mechanically if the FCC does sort of rule that your network doesn't meet the build-out requirements, not so much what -- I'm just saying let's posit that that's true. What are sort of the next steps that happen?

Well, I guess I'm going to pre-posit that that's not going to happen. But obviously, to the extent you -- like anything else, if you thought in life -- if you think you're right, you then -- you go through the regulatory process, which could include up litigations, so both on the DE side when they ruled against the DE structure -- by the way, properly, the court agreed with them. It resulted in litigation. But the court also said that the FCC erred in not giving -- as they had every other DE, continue to give DEs the right to restructure to meet the DE. And I'm proud of what the DEs did and what DISH did in restructuring and taking those 36 things that the FCC had concerns about and restructuring all those 36 things. So now that the -- if the FCC is serious about getting spectrum put to use, right, we would expect that the FCC would at least rule on the current application in front of them, right, at least rule on it so we can get -- move the process down the road. Now, obviously, we'd like to have them rule in our favor than the DEs' favor. But to the extent that there are still issues, we'd certainly like to know it sooner rather than later.

And so as this winds up, so let's assume that they rule against you and it winds up (inaudible) in court, you can -- you would continue to just sort of build out your network as if you're ultimately going to win in court? That's sort of the plan if we go through that route?

Well, we're going to -- yes, we're going to continue on the IoT network and the 5G network. And again, we don't believe that's going to -- we don't believe that's going to come to a -- I think that's been -- again, one analyst said there's no way we will build the towers. One analyst said there's no way that narrowband IoT -- even T-Mobile, who's been a big adversary in terms of getting this to market, now -- I think, actually now admits in a filing that narrowband IoT does meet -- required -- does meet an obligation. So I don't put words in what they said, but that was a (inaudible). So I don't think it -- I just think that's a bit overblown, and I think -- I don't think that -- look, we have to execute. I mean, I don't think -- I think we are coming under a different level of scrutiny than probably any other wireless provider has. But having said that, I don't believe that the FCC is looking to change the rule on flexible use. A, I don't think they can do it legally, but I don't think they're looking to do that. I think -- and I think that as they understand more this is up to us, right, that -- some of this is our fault, but as they understand more about what we're doing and as they start understanding what the rest of the world is doing and what we're doing and they understand the need to lead in 5G and what a stand-alone network does that the other guys can't do, maybe I'm Pollyanna, but I think that the FCC, for the most part, will be supportive of that. And I think they'll be very supportive of that because they've got -- because they are -- this is a great FCC for being supportive of trying to get wireless assets used better and to advance the technology and lead the world in 5G. They are -- to a person on the FCC and staff, they are very focused on that, and I think they've done just a simple example and very -- kind of controversial, but they did pass regulations for -- or improved regulations or lack of regulation for small cell. That wasn't easy politically, and that wasn't -- it's maybe not a popular decision, but that's important if we're going to lead in 5G, and they did -- this FCC did that. And so they do a lot of good things.

And next, we move to Vijay Jayant with Evercore ISI.

Next, we'll hear from Walter Piecyk with BTIG.

Charlie, 2 questions. First on CapEx. I think you were -- you've already started putting some radios on towers in 2018. There was -- CapEx was imperceptible. I guess it just seemed like a normal run rate. If you think about 2019, when would the bulk of CapEx hit? And then the second question is the Sprint-T-Mobile deal looks like it's coming to its final stages here. If the government blocks it and you have an opportunity to partner with one of those companies, which will be preferable? Now I would think that Moss and Sprint might be a little bit more desperate for a solution for Sprint. On the other side, T-Mobile has probably a greater need for mid-band spectrum. They got better scale. They can generate free cash flow and help to fund the build. So which of those 2 partners would you find more attractive if they were both an option to you for the 5G build?

It's Tom. I'll take the first one. Yes, as you know, in order to hang radios on towers, there's many steps that you have to go through in terms of milestones before you can proceed to construction. So much of that is moving through the pipeline in late fourth quarter and early first quarter. We've also had some pretty significant weather issues in some parts of the country. So to answer your question, I would expect second and third quarter to ramp activity pretty significantly in terms of tower activity and, therefore, the associated CapEx.

And then -- I mean, there's no -- I mean, this is probably -- we tried to buy Sprint, so -- right? And obviously, we're -- continued discussions with them prior to their merger with T-Mo. So the -- we'll have to wait and see what the regulators decide. I think Sprint and T-Mo have done a pretty good job on the political side of their merger, and I think we're sympathetic to some of the things that they're saying. But they've done a really poor job on the antitrust side through economics studies that -- their own economic studies that showed the prices would go up. And obviously, they would become the biggest hoarder of spectrum by going to the market by the limits that the FCC is screening them. And so -- but 300 -- you really almost 2.5x more spectrum than the other people. So I think they've got challenges there, but let's see where that ends up. And then regardless of where that ends up at -- from a DISH perspective, we want the -- we want a chance to compete.

And Charlie, if I could just follow up.

You might say we want a chance to compete.

It's Rich Greenfield. You had said...

Sorry. Go ahead, Walt.

No, no, it's Rich Greenfield. When -- you had said on the -- in the release that -- or in your comments before that roughly -- a little bit more than half of your 381,000 subscriber losses were due to your programming issues. So I'm just going to round and say roughly 200,000. But I think you were being pretty clear not just on this call but prior calls that most of the Univision pain was felt in those first couple of months after the drop in late June or early July. Does that mean that HBO or the loss of HBO contributed the majority of that 200,000 subscriber loss? Because it sort of surprises me with HBO still available on Amazon Prime and HBO NOW, which you can buy on broadband, like it just seems surprising to me that HBO would have that much of an impact when there's lots of ways to get HBO. So maybe you could just clear that up for us.

Yes. I don't know that I can clear it up for you, but I think, as Erik said in his comments, that with Univision, there wasn't -- there was a -- Univision per se went down in June, but Univision Deportes, which is their sports network and now with soccer, went down at the end of October. So there was what I would -- I don't have numbers in front of me, but my guess is that obviously, Univision had a pretty dramatic drop through the summer and then maybe started leveling off. And then when the soccer fans lost soccer, they probably had another drop there. And HBO -- I think that HBO will be interesting because as you say, people find another way to get it. And HBO -- at least, HBO hasn't had any real new shows. They're -- let me just put it this way. Their main claim to fame today in terms of show is Game of Thrones, and that hasn't been on during the period that -- our new shows haven't been on during the period that they've been down. So I think that realistically, you would expect that when Game of Thrones comes on, you may see a pickup in defections from HBO. But the losses are -- the losses -- for both takedowns, we have -- certainly have losses, and we would have preferred not to have takedowns because it's always painful for our customers, and what is painful for our customers is painful for us. Do you want to add something, Erik?

No, I think you covered it -- I mean, Charlie and Rich. I mean, roughly half -- I mean, your math works there, so.

I think the thing for analysts on the call is the underlying business is actually -- I think that steps that Erik and team have taken the last couple years, the painful steps of rightsizing our customers, of eliminating customers that aren't profitable, which we had some, of not doing crazy giveaways and just trying to have numbers for The Street and rather run it as a business and run it for the long-term profitability of that business, I think, is -- I think the core business, that's paying big dividends. I think AT&T, to their credit, is probably going through that similar process now. And so they'll have a few quarters where they have to rightsize that because they were very aggressive on some of their promotions that just couldn't possibly be making money. And at some point, you have -- at some point, there's race to the bottom until people realize they're at the bottom and then people start climbing their way back up. And I think we're kind of there -- we're already past that, for the most part, and I think others in the industry will get there. Then you'll see some stabilization as a result once that happens.

And next, we'll move to Marci Ryvicker with Wolfe Research.

I had a couple of questions. So first, the ecosystem is clearly changing, and it feels like it's just going to get harder for the core business to continue to run. So I guess why doesn't it make sense at this point to do a JV with AT&T and share costs?

Well, it's pretty simple. If they're sticking a gun to your head and taken HBO, well, you'll probably not have long conversations. I mean, last I looked, HBO was owned by AT&T. You can't -- you'll be -- can't -- you can't -- we're not real good with guns at our heads.

And then I want to ask a question on the core business. So without HBO and Univision, is it safe to assume that programming expense in 2019 should be lower than 2018?

It will be lower -- well, there's price increases, so you can balance those 2 out. They will be definitely lower than they otherwise would have been. Those are certainly 2 of the products that objectively, based on your measurement, might be considered overpriced. Got it?

Got it.

Yes. So..

And then third -- okay.

On a per subscriber basis, you'll see increases in programming costs even -- in spite of HBO and Univision being down just because [of losses] and other ones have -- you saw increases in them.

And then third thing. There's been some conversation, Charlie, that either you or DISH or both are backing locast.org. So do you have any comments on that?

No.

We will now take our final question from the analyst community. (Operator Instructions) We will begin the media portion of this call following the answer to this final analyst question. Our final analyst question comes from Gregory Williams with Cowen and Company.

My question is on G&A. It was up fourth quarter. I get the seasonal aspects to it, but it's up fourth quarter $7 million over fourth quarter last year. Just wondering if there's anything specific to call out. And then changing gears, just want to talk a little bit about spectrum. In the last quarter or since the last earnings, the C-band and CBRS spectrum band developments have been occurring. And for one, C-band, it looks like they're -- we going to see as much as 300 megahertz to market, higher than the 200 that was proposed. And just want to know or just be interested in your take on these developments and spectrum in general as it relates to your portfolio.

Yes, this is Paul. I'll take the G&A question. There are some small puts and takes there. There's nothing really to call out on that increase.

And I think as it relates to spectrum, I think that trying to get more spectrum available for satellite or for (inaudible) some competitions is worthwhile endeavors. And I think CBRS is -- C-band is a little bit tougher. CBRS seems to be moving along, and the rumors are they're kind of out and it looks like that's going to proceed. C-band -- the C-band test is a little tougher because basically, you have 4 non-U. S. companies, European and Canadian companies, that control that spectrum, and you kind of can't -- normally, you have -- you'll have an auction process where the government would share in any proceeds. That's similar to what -- maybe the incentive auctions. So I think that that's the normal kind of process there at least in the modern era. But that's a bit more difficult in this situation. So on the other hand, I think politically, windfalls to foreign companies that might not be paying U.S. taxes on it might be -- have tax treaties. And it might be interesting, the effect on CBRS from the interference perspective or things that people have to look at. But in general, we'd be supportive of both CBRS and C-band additions to the marketplace as long as that's done in a manner that's fair and equitable to both incumbent and new entrants and to the U.S. Treasury.

We will now take questions from the members of the media. (Operator Instructions) Our first media question comes from Sheila Dang with Reuters.

I was wondering if you could comment on whether you have any more programming contracts that are up for renewal this year. Do you expect to have conversations with anyone else coming up?

Yes, it's Charlie. We have -- I'd say a couple of things. One is we always have programming contracts coming up so that every year, that's -- that will be no different. I will say that one of the things that -- in the AT&T merger with Time Warner that was a positive was that they agreed to a baseball star Barney arbitration. Now they offered everyone baseball stuff-type arbitration. So the -- so that's a process where if somebody chose to get into that process or go through that process, those signals would not go the -- would not be subject to going down if those contracts were up.

And we'll next move to Scott Moritz with Bloomberg.

Charlie, you were pretty accurate with your prediction about HBO impacting the subscriber levels. And as you look ahead, you're already predicting that probably, Game of Thrones contributes to more subscriber losses. Just curious if -- and to follow Sheila's question, are there more contracts that might be significant coming up that you can point to? And is there a sense that, that presents a scent of blood in the water that maybe you might not have the leverage in negotiations for future contracts?

Well, we've never had any leverage. I don't think that's changed. We're a little pipsqueak in a world of really big companies, so we've never had any leverage. But we do write big checks to programmers, and we have real data. I mean, we approach it differently, right? We look at real data about what our customer views and how they -- and that's real data on what they view and what the cost per viewing hour is, a bunch -- along with a bunch of other data. And so we have a relative basis for what people watch and what they're willing to pay. And you also look at what the alternative is to get that product, right? So HBO, obviously, today is available from AT&T direct. They can get it a variety of different ways. So -- and then we have a feel for what it is. Most programmers, at least historically, have said, we have a budget to make. We got this much last year. We want an increase. We want a 5%, 10%, 15% depending on what -- if it's local TV, it might be more than that, an increase. And we have to meet their rationale. If they're going to make their budgets, they have to increase. But even the CEO of AT&T said, "In a world of declining ratings, 6%, 7%, 8% increases are not sustainable." I think we figured that out a few years ago that that's not sustainable. So look, we're -- we love the partners that we've had. They helped us grow our business, so I think we've done a good job at helping them grow their businesses. Where somebody wants to work with us, we'll do our darndest to get subscribers and make sure our product is good and our signal is good. And if somebody doesn't want to work with us, we'd like -- we'll move on and we're going to figure out how to run this company profitable and there's ways to do that. But I -- again, I think HBO is unique situation because of the AT&T acquisition with Time Warner. And Univision was a little bit unique because there was a management change, both at the C -- at the executive level and also on the other programming departments. So there was nobody there that had the history, other than a budgetary item in front of them, that the previous team had. So they -- we got off to a slow start, let's put it that way. A little bit of miscommunication.

And next, we'll move on to -- I'm sorry.

And look, (inaudible) look at -- by the way, I think when you look at history, we've probably done 10,000 -- no, I mean, I'll say 1,000 deals, we probably had a very small percentage that's ever lead to a takedown. And I think in terms of permanent -- and just a handful have been permanent losses. But if something's unrealistic and if you can make more money and service your customer better by taking some down, by all means I think you should do it. There's no certainty in this business.

And next, move to Dade Hayes with Deadline.

There's so much investment on the content side in direct-to-consumer offerings. Both of the companies you're in disputes with have those. And in HBO's case, they've taken pains to describe HBO NOW as a complement, it's neutral in terms of their core business. They're trying to do it collaboratively. But as you step back and kind of look at its evolution over these last couple years as well as other partners and other programmers, I mean, isn't it an irritant? How would you view the direct-to-consumer business? I mean, hasn't it made life more complicated? I'll just be interested in your thoughts there.

Well, I -- first of all, I'd take issue that HBO's collaborative. I think they really are wanting -- I think they clearly are going into competition with distributors if they're -- and they do 2 things. So AT&T sells it for free, right, in bundles. So it's actually free for life, but -- right, or has been in the past. And of course, they sell direct. So that's not very collaborative for people that helped build their business over the years. But having said that, that's where the world has gone. As management, you have to make decisions based on where things are going. So yes, the direct-to-consumer business is -- and that's why we started Sling. It's why we moved into connectivity -- transitioned to connectivity, because we saw those kind of things happen years -- maybe years before most people saw those things. The other piece of it is, that Erik and team -- the business is not going away. There are -- there -- we have real strengths. There are people in rural America that going to customer direct is not possible today. They don't have fast enough broadband connection to do that. There are people that love the fact that a viewing experience on a DISH Network system with the Hopper, with PrimeTime anything (sic) [PrimeTime Anytime], an ability to skip through commercials, with the ability to record 1,000 hours of programming, you never miss your show, the ability to get a second subscription for free with Sling and to watch your TV on any device and anywhere you are, the fact that we have a voice remote where you don't -- where you -- now you can discover a program in different ways, that's a pretty popular product with a lot of people. And I'm pretty omniscient about what's out there, and I still love my Hopper. And I'm not changing, right, because I -- because that viewing experience is far superior to whatever. And I can get broadband. I do have high-speed broadband.

So second thing is there's places where our competition can't go. If you want to -- if you're a truck or an RV or a tailgater at a game, right, you can't go there with -- if you ever try at a game to get a connection for streaming video, it just don't happen. You -- so we have unique areas of our business that our team can focus on and grow those lines of business. So absent HBO and Univision, I think you'd see this company in a little bit different light. We're not -- I'd say maybe we're not as pessimistic as the tone of the analysts on this call to our core business.

Erik, you want to add anything to that?

Okay.

Because we talk about it literally every day.

Yes.

Next, we'll move to Andrew Dodson with Denver Business Journal.

Charlie, you guys did some testing on the ATSC 3.0 standard that broadcasters are working to launch, I think, this last spring. I'm just curious what have you excited about that standard and how could DISH leverage it. As we're -- you mentioned earlier, you're putting up antennas to help people get Univision during this blackout. Is this -- could it -- is it something different because it had you more excited about it?

Well, it -- the way I would say it is ATSC 3.0 is a new broadcasting standard. And when I -- I don't know if you were on early when I -- we talk about we don't want to build infrastructure but we don't have to. And the broadcasting community, particularly the independent broadcasters, they have a whole set of what are they going to do long term in terms of growing their business, and what's the shift they need to. So ATSC 3.0 is a new opportunity from a broadcast perspective where we think there might be good partnerships between broadcasters and us in the sense that they could use that technology to broadcast in a different revenue stream from them that we probably wouldn't participate in, but we also can be the gap filler for them since we're going to be having towers in more rural communities, along highways where Tom is -- for vehicles and things like that. In addition, we have uplink spectrum that they don't have from a broadcast side. We put those things together, that looks to me like a potentially interesting match of technology, so we're testing -- we continue to test. We're going to do even more tests. And we continue to work with broadcasters to see whether -- where they want to go with that. And look at this point, we're in the early -- we're in the first inning of ATSC 3.0. I don't think anybody knows exactly where that can go, but we -- our -- I would just say that we normally see technologies. We're not always right, but we have a pretty good track record of identifying technologies and staying focused on them for a long period of time until they come to fruition. And ATSC 3.0 has that potential, but we don't know. At least, we'll continue to monitor and test it.

Operator, that's it for us today. Thank you all for participating.

And that will conclude today's call. We thank you for your participation.