For Dish, 5G wireless business is the next frontier

5G wireless business

Dish Network (NASDAQ: DISH) Chairman Charlie Ergen is insulted by critics who question the company’s ability to create a viable fourth wireless carrier in the wake of its deal to acquire $5 billion worth of assets from T-Mobile and Sprint. And, he said, during the company’s Q2 call with analysts today, while he isn’t a gambler, he’s sure Dish will be a “competitive threat” in the 5G wireless business.

“There’s only one country building a standalone independent 5G network… China,” he said. “And we’re the only company in the United States building a standalone, independent network. This country is going to be the envy of the world and this transaction will have had a lot to do with it.”

Typical of an earnings call at the satellite company, a lot more time was spent looking at the future than at the past.

Yes, Dish lost 31,000 pay-TV video subscribers (losing 79,000 satellite subs, and adding 48,000 SlingTV subs), which was better than the 151,000 it lost a year ago. And, yes, its quarterly revenue was down 7% ($3.21 billion) year-over-year and it missed Wall Streets 65-cents EPS (it made 60 cents per share).

The next target: A robust 5G wireless business

But, like every other pay-TV operator during earnings calls this quarter, Dish has its eyes on a different prize than pay TV: Connectivity. In the case, connectivity in the form of a killer 5G wireless business.

It plans, in addition to the $5 billion it spent to acquire Boost Mobile, 800 Mhz spectrum, customers and other assets from T-Mobile and Sprint, to spend an additional $10 billion building out its 5G network.

CEO Erik Carlson said Dish plans to make 5G wireless access available to 70% of the US population by June 2023, reiterating that it will be a standalone 5G wireless network.

Reaching that market should come reasonably quickly as Dish already has a customer-facing retail business, with marketing billing, call centers and other infrastructure already in place. And, as part of the deal, it gets 9 million Boost subscribers to start with.

So, Dish won’t have to build a completely new sandbox.

Piggybacking on T-Mobile

The deal with T-Mobile/Sprint allows Dish to piggyback as an MVNO on T-Mobile’s 5G network as Dish builds out and provisions its own 5G network for up to seven years.

“We can be in business as soon as we build out our first market,” Ergen pointed out.

And Dish plans to use that network simply as a stopgap while it constructs its own, and to allow it to focus resources where it expects the biggest return.

“We’re in a very good position to put our network where it’s best suited,” he said. The T-Mobile MVNO deal lets Dish focus on high-revenue areas – like cities – while planning long-terms buildouts in rural areas.

And, both networks will work seamlessly, allowing roaming across Dish, T-Mobile and Sprint networks without dropped calls, a first in the US, Ergen said.

Differentiating Dish from existing 5G network operators won’t be difficult, according to Ergen, as legacy operators are still going to be basing their networks on voice networks architected in the 1980s.

“The reality is 5G can do so much more,” he said. “This is 2019, we don’t want a 1980s network.”

“Our network and our phones will be different,” he said. “We get the best of both worlds: We get to use the old (telco) world as long as we need to. And, we get to build the new world. It’s a very good economic model for us. Dish also plans to redeploy current narrow band IT resources, which will further reduce initial OpEx and CapEx costs.

5G will be very different from the pay-TV model it currently is part of. Content costs continue to rise as usage declines. With 5G, the expectation is that usage will increase dramatically as costs drop.

Keeping content costs in line, despite the customer cost

Dish historically has been a tough negotiator in terms of content costs, holding the line where other operators haven’t always been willing to, regardless of customer erosion.

Earlier this year, it allowed HBO to go dark. Ergen said it didn’t regret the decision.

It also pushed back on price demands from Univision – which also eventually went dark on the carrier. That, Ergen said, changed when Univision management changed, allowing the network to come back into the line-up.

“That was painful for both companies,” he said. But in the end, “the deal they coulda had and the deal they got was different. It’s economics for us. They tried to charge us more money than (they charged) anybody else.”

RSNs may not be back on Dish

But that situation was different than Dish’s latest content dispute, this one with Fox’s regional sports nets.

“We offered a 30-day extension, we tried incredibly hard,” he said. But, “the (traditional) model is broken – we have real data, real viewership” that shows RSNs just aren’t a good fit for Dish or Sling TV.

In fact, said Warren Schlichting, who heads Sling TV, he’s recommended that the RSNs not be brought back. “The RSNs are just not a good deal,” he said. “I’ve recommended that we leave them off the service long term.”

But, said Ergen, even though Sinclair Broadcasting, which is in the process of acquiring the RSNs from Disney, is a company he’d like to do business with, “we have real data that shows the channels are overpriced.”

“Emotionally I want to keep ’em, but my nose tells me that’s not the right thing to do,” he said. “A month from now, we won’t have (any subscriber) that wants a regional sports net… and that’s just a tax on our customers.”

And, although Dish may lose some customers as a result, it’ll be a small number of them.

For the “vast majority” of subscribers, not paying for the RSNs will be “a price break.

“It doesn’t look good that the regional sports networks will ever be on Dish again,” he said.

At the close of Q2, Dish had 12.03 million pay-TV subscribers in the US. That includes 9.56 million Dish TV subscribers and 2.47 million Sling TV subscribers, making it the third-largest operator behind AT&T and Comcast.

Stay tuned.

Jim O’Neill is Principal Analyst at Brightcove. You can follow him on Twitter @JimONeillMedia and on LinkedIn