Dish 1Q17 Earnings Call Notes

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Charles William Ergen – DISH Network Corp.

Spectrum pricing was less than we expected it to be

“You never know what an auction is going to do. So – but our strategy going in, first, we thought it would go for materially higher than it did. But our strategy was to get one nationwide block of low-band spectrum because it does so many other things for our spectrum portfolio. Obviously, 600 low-band propagates farther. So in terms of penetration through walls and basements and things for your signal, that was an important part of where we were trying to go. Second, when you start looking at the Internet of Things and all the devices you’re going be connecting in the future, low-band is ideal for Internet of Things and that technology is going to change quite a bit with 5G and so there’s a focus there. We were pleasantly surprised that as the auction went on, it became clear at the end of the – the first round or the second round that the price was not going up; that it was going stay sub-$20 billion based on our projections. And we felt that was probably in excess of $0.50 on the dollar in terms of real value for the spectrum. So we were then able to not only get our nationwide spectrum but also then to stay in the bigger cities where we felt that the – particularly the Internet of Things would be beneficial.”

Cities are at discounts if you look at it as mHz per thing

“So one of the things about auctions today is that the way the FCC does it it’s based on population. So everything – every analyst and everything, I always quote megahertz per pop. But the last several auctions, we’ve kind of looked at where we think things are going and we look at it on megahertz per thing, not megahertz per pop or megahertz per microprocessor. So whether it’d be streetlights or heart monitors or automobiles or drones or whatever, we’ve always looked at it as a megahertz per thing. And when you do that, obviously the more densely populated cities are quite a bit of a bargain discount, if you believe our theory is right on that. So that was the strategy. We were pleasantly surprised. ”

You’re not going to see true 5G until 2020

“you’re not going to see true 5G until 2020 and probably 2021 in terms of 5G. And the main things that – 5G is going to – it does a couple things, but one is much lower latency, which brings in things like autonomous vehicles, health care and things into a network that maybe won’t work ideally on existing networks. It certainly brings in Internet of Things in a way that with millions of devices it can connect at one time that you really can’t do on existing infrastructure today. And of course, obviously it’s more – it’s going to bring 10, 20, 100 times more capacity in certain areas and adds things like millimeter wave technology. So it is a very transitional, it is a very big paradigm shift. And I think from a marketing people – marketing thing, people are going to want – jump the gun and call things 5G, but I don’t think, you’re – as an American consumer you’re going to get anything truly 5G standard, just the total standard, until at least 2020. ”

Committed to building out network

“Okay, Amy, on the build-out, one of the things I learned long ago is we focus on the things we can control. So while there’s going be a lot of noise and there’s certainly going to be talk of consolidation and lots of rumors about this company and that company doing something together, the one thing we can control is our build-out. And we have committed to the FCC that we will build out a narrow-band to IoT network to perfect our license by March of 2020. Because of our spectrum position with the different bands we have, now with 600 megahertz in the mix as well, there are several different ways we could build that network out. Ideally, we’d like to build out 600 in the IoT network. ”

Cable companies and Silicon Valley companies are potentially players

“And then on your question about Silicon Valley, I do think that it’s not really – let me answer broader. I do think that now that the quiet period’s over and for the foreseeable future most of the spectrum is auctioned off in the United States with minor exception, that there – and with technology and the paradigm shift to 5G, that I think we’ll see a couple of things. One is, I think, obviously, you could see consolidation within the wireless industry today with incumbents consolidating in some form or fashion. But I do believe that the cable industry has to take a good hard look at how they participate in this industry and potentially much more so than an MVNO deal. And I do think that one or more people from Silicon Valley will look at it more seriously, not just because of perhaps net neutrality regulations being weakened, but because their business depends on connectivity.”

There’s also the possibility that someone will put together a global network

“there’s a third entrant that may come, which is less likely but still possible, is on the international side. I think that somebody ultimately is going to put together worldwide connectivity and worldwide – both on the satellite and a terrestrial basis. Obviously, the things like OneWeb on a satellite basis with low-earth satellites that could do worldwide connectivity and then you’re going to do the same thing on the ground. So you’re going to end up with possibilities there. So there’s going to be a lot of movement. There’s probably going to be a couple of phases of movement within the connectivity industry. ”

We’ve made a huge bet on connectivity

“By the way, just as a thought, there was nobody in the last two auctions that has risked more capital in the connectivity business than DISH along with our DEs. And in the auction that was – the third auction, the H Block auction, we’re the only major participant in that. So we’ve been the most aggressive in that. History will prove it’s a good strategy or bad strategy. But for the investors on the call, all your investments that you’re making today, whether it be – that you’re looking at in the future, whether it be autonomous vehicles or augmented reality or virtual reality or artificial intelligence or how do we get healthcare costs under control or how do you get productivity in industrial manufacturing or agriculture or what do municipalities do to make their cities safer and more productive, how you do education, how you do entertainment; not one of those potential investors can survive without connectivity in the future. Not one of them.”

We’re building with or without partners

“Okay, Marci. On the network build, our focus today is to build out our network to meet our 2020 deadline with or without partners. So we’re prepared to do it within our balance sheet. And with – again, it’s going be a new narrowband IoT network that doesn’t exist today. So it’s going to attack the market from a little bit different way, but it’s certainly very much needed in terms of the United States. Obviously, I believe that there would be opportunity – I hope that there’s opportunity the next three years where other people – for a lot of different potential partnerships.”