DISH 4Q15 Earnings Call Notes

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DISH Network (DISH) Charles William Ergen on Q4 2015

Our spectrum is very versatile

” The thing that’s particularly nice about the mid-band spectrum that is predominantly what we have, it’s probably the most versatile of the spectrum that’s out there, in the sense that it can be used in for small cells with acceptable interference and also can be used in macro cells. So for coverage, so it can actually be used – it’s one of the – there’s not a lot of frequency out there that’s kind of in a sweet spot for coverage and capacity.”

The competition for DBS business has increased a lot

“five or six years ago, we put a customer on DBS, we had a cable company as a competitor and DIRECTV as a competitor. Today, you’ve got a phone company, you’ve got the cable company, you’ve got AT&T DIRECTV, and then you’ve got a proliferation of OTT companies with more to come. So the likelihood that you’re going to keep customers in certain locations as long as you did in the past to me is – that there’s more risk that you keep them less time, right?”

We’ve been more conservative than the rest of the industry

“And at the same time, the industry has gone to $19.99 and a year or two years of free programming, and so SAC has gone up when you count in all the freebies and the gift card and all kinds of stuff you do. So in the backdrop of that, I think we’ve been more conservative probably in the last year perhaps than others because we think that we want to make sure we get a return on the customer. So that has led to looking at higher credit scores, which is probably the best correlation of a long-term profit subscriber. Certainly, a concentration more on rural America where there’s more limited options.”

We try to spend money like a shareholder would want us to

“we just looked at it. If it was our money which, you know, if it was your money would you invest in that customer, and the answer is yes, we invest in the customer. If the answer is no, probably not.”

“I think that we’ve taken a long-term view of it and spend money like a shareholder I think would want us to spend the money and invest in – at least at the time we invest in a customer, it’s our belief that we have a high likelihood that will be a positive net present value customer, and as a result of that, we’re more conservative on the DBS side.”

We’re focused on the profitability of subs

“We’re not as focused on the number of subscribers we have, we’re a bit more focused on the actual profitability of the subscribers. So that’s just how we look at it and as a result of that, we’re a very good cash flow business, it’s going to continue, and we have a growth opportunity.”

We’re not as competitive on the low end but that’s not as good of a customer

“we’re probably not as competitive on the low-end at this point or the person who is looking for a great deal. But that person is going to be looking for a great deal every year and they call you and they want credits, and you go through a vicious cycle that is not as impressive.”

Sling still a science project but we’ve learned a lot

“we’ve learned a lot and we probably think we’d do different, knowing what we know today, but those lessons reminds very much of when we started DISH Network, it took us a couple years to really go to sleep at night knowing that we were more than a science project.”

Linear channels keep adding more advertising which continues to frustrate consumers

“we know what the value of particular content is to our consumers, right? And as a generalization, viewership of most cable and network channels has been declining for the last two or three years with the advent of Netflix, and their numbers are going up, right? And then there’s been, in general, more advertising on the linear channels that further frustrate consumers, and then they watch less because of the advertising. So that’s a trend that we’re not sure is going to change dramatically. And as a result, when programmers come in for a renewal, they typically just say we have a budget, we want a double-digit rate increase, and we look at it and say we should get a double rate decline based on your viewership.”

When you’re managing for the long term some times you take a short term stock price hit

“We’re making money over long period of time. We’re very fortunate in that regard because we don’t feel any pressure for short-term gains, right? And so we can make long-term decision. As a result of that, there are more opportunities for us than a typical public company because we can take a little bit longer-term approach to it. And sometimes we’re penalized in the short-term stock price for that, but that’s a small price to pay if you’re doing the right thing for your shareholders long term. And I’m selfish because I’m a long-term shareholder.”

Nothing will happen in the wireless industry for the next six months

“the next six months in the wireless industry nobody’s going to talk to anybody. I mean, there’s very little that will happen, if anything, until people see what happens in the next auction. And then the deck will be – the table will be reset from where it is today and then some people will be pretty happy where they end up and some people won’t be so happy, and somebody will have a strategy to go north and somebody else will say, just based on that, the counterstrategy is to go northeast or south or whatever, but we’re well-positioned within that industry.”

The wireless industry is bigger than people are thinking about. it’s the connectivity industry

“And it’s a little bigger – I hate to digress, but it’s a little bit bigger than the wireless industry what everybody is thinking about it. What you really got to think about it’s really the connectivity industry, which is all the information is in the cloud and you got to connect to it. If you’re going to be a living, breathing, productive human being or productive machine or productive industry or whatever, you’re going to have to be connected. And the most efficient way, in my opinion, that you can connect, the most efficient way is through wireless spectrum.”

People will want to connect

“So if people don’t want to connect, I’d probably stay up at night. If you believe that people aren’t going to connect and use more data and want more information and want to know when they’re going to have a heart attack before they have a heart attack or know how to save money on their electricity or whatever it’s going to be, if you believe they’re not going to want to do that then (40:39) go buy some oil because they’re always going to use that for a long time.”

Our job is to go where the ball is going

“There’s an old story about Pelé. He was a good soccer player because he wasn’t playing the ball, he’s playing where it was going and that’s I think what you have to do. I think that’s the CEO and the board’s job is to make sure that this company is where the ball is going, and I like where we’re positioned based on that. But not for the next three months.”

Charlie Ergen opines on oil

” if oil – it’s funny, if oil is not looking good, then how is solar energy and wind and all those things that weren’t – they weren’t economical when oil was at $80, now they’re looking at $30. So there’s always this – the new shiny car is always going to be better, right?”

Spectrum buildout deadlines don’t keep us up. Timeline will match well with 5G

“build-out requirements, yeah, it’s a bit complicated, and a lot of analysts get it wrong, but it’s easy. Some of our spectrum has to be built out by – there’s a deadline of 2020, some is 2022, some is 2026 or 2028. Some spectrum has – they still got to be cleared, and then it will have a date once it gets cleared. We don’t see that today as anything that keeps us up at night. The nice thing about the spectrum build-out is I think that’s interesting is we’re starting to spend a lot more time looking at 5G because you’re probably – realistically when you look at our spectrum being used, it’s most likely to be used in a 5G format by however it gets used and however it gets built out, and so those timelines kind of match up.”

5G is going to be a big leap

“5G is going to be 10 times, 100 times, 1,000 times more efficient. It’s going to allow for the Internet of Things in a way that 4G doesn’t. So 4G was better that 3G, 3G was better than 2G, and 5G is a big leap. ”

It would be tough to start a fifth network

“I don’t personally think you could start a fifth network unless you are somebody – at least DISH couldn’t. I mean, somebody of scale could, right? These companies that have money overseas that they could buy AT&T and Verizon tomorrow. So the world could change.”

We repaid the $1B maturity on Feb 2 brought down leverage

“Just because of the auction, don’t want to talk about financing, but obviously we have cash on hand to run our business today. The market liquidity has tightened up a fair amount in the last six months and certainly we were pretty conservative. I think we were five times levered, we’re more like four times levered now. That just feels like a more comfortable spot to be based on our existing business.”