DISH Network Corporation (DISH) CEO Erik Carlson on Q2 2018 Results - Earnings Call Transcript

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About: DISH Network Corporation (DISH)
by: SA Transcripts

DISH Network Corporation (NASDAQ:DISH) Q2 2018 Results Earnings Conference Call August 3, 2018 1:00 PM ET

Executives

Jason Kiser - Vice President, Investor Relations and Treasurer

Charlie Ergen - Chairman

Tom Cullen - Corporate Development

Erik Carlson - Chief Executive Officer

Brian Neylon - President of DISH TV

Warren Schlichting - President of Sling TV

Steve Swain - Chief Financial Officer

Paul Orban - Chief Accounting Officer

Brandon Ehrhart - Associate General Counsel

Analysts

Philip Cusick - J.P. Morgan

Jonathan Chapman - New Street Research

Walter Piecyk - BTIG

Jason Bazinet - Citi

Marci Ryvicker - Wells Fargo

Tuna Amobi - CFRA

Doug Mitchelson - Credit Suisse

Scott Moritz - Bloomberg

Sheila Dang - Reuters

Shalini Ramachandran - Wall Street Journal

Operator

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

Jason Kiser

Thanks for joining us everybody. I am 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 give their prepared remarks we’ll go and get our Safe Harbor out of the way. So we’ll have Brandon read that.

Brandon Ehrhart

Good morning, everyone. Thanks for joining us. We ask that 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 are not historical facts 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 forecast. 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 been 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 Carlson

Thank you, Brandon. This is Erik, and good and good morning, everyone. At the Company, we're working with the time horizon that’s approximately five to 10 years out. We've organized the business in a way that let’s us take advantage of not only our present opportunity, but it sets us up for prosperous future. In DISH, we've got a legacy business, it really serves as our cash engine, it remains the source of opportunity in a variety of the distinct markets, including small-town America, commercial markets, premium markets, and really value the choice and technology that DISH delivers.

In Sling, we've got a growth business. It 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. In 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 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, the delivery of 100% digital TV to all of America with DISH TV TES. And Sling is at a new frontier in value and flexibility. It’s the first live over-the-top Internet Pay-TV service. These first three waves each reflect the company that deeply values, an entrepreneurial spirit, innovation and disruption. And with our work to transition to wireless, we’re returning to our route. And as Charlie has said and I’m sure he’ll speak to it later, we’ll 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 nationwide NB-IoT network that will serve a diverse set of markets. Tom is here to answer any questions you may have on that front. And 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 the 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 JD power wins for team past quarter. In past quarter, we’ve seen additional recognition from [indiscernible] ACSI and Forster. And 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 announced a couple weeks ago, introducing Apple Business Chat as a tool to make service interactions simpler, faster and really more natural for both customers and agents.

We also validate our customer experience investments through churn. As 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 to first-class customer support experience we provide actually matters, not are we seeing the external recognition for that but our internal metrics are telling us that too in the home to the agent experience we are playing a much tighter game. Bottom line, we’re tracking 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 to a couple broad categories of customers; those who rely on Sling TV for their everyday television and occasional; individuals who pride 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 and demand; free content and subscription video-on-demand; all without having to subscribe to a 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 is 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 its flexibility that brings us and TV a step closer to that à la carte ideal many customers crave. We believe there is business opportunities found in this new flexibility. So expect to hear more developments on that front 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 DISH Latino 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 seven 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 DISH Latino and Sling Latino customers. So we are offering customers price relief. As of August 1st, bills will reflect a five dollar per month credit for DISH Latino monthly packages. On Sling TV, customers who subscribe the best of Spanish TV standalone service will also be issued a monthly credit of five dollars. We are also making over the air antennas available for free to DISH Latino and Sling Latino customers in eligible areas.

Now I would like to thank our customers for their patients. We probably serve the U. S. Hispanic community for more than 20 years. Univision has long played a role in their heritage and they’ve been a good partner. Now if you're just Latino or Sling Latino customer, I apologize the disruption to your service and I’d like to recognize our frontline service team. Those agents and test were really working tirelessly to feel customers concerns. We appreciate their patience and working through a difficult situation.

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

Steve Swain

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 of items. Last year, our second 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 $748.4 million. And this year, it is important to quantify the positive impact of the new revenue recognition standard, which was $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 mix of customers taking higher-priced packages and add-on revenue, such as ad-sales and cloud DVR's. Please note there was no impact in the second quarter from Sling's Orange package price increase. The impact of this $5 dollar 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 expense. 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 number one in customer service by JD 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 post-tax litigation accrual of $280 million from last year's net income and excluding revenue recognitions, post-tax 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 $1 billion maturity with cash on hand.

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

Question-and-Answer Session

Operator

[Operator Instructions] We’ll take our first question from Philip Cusick with J.P. Morgan.

Philip Cusick

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 you had couple weeks ago? Thanks.

Charlie Ergen

I guess I’d say that, A, you know we -- and this is all public. We met with every FCC commissioner and FCC staff on our network build-out and our plans, our two phase plan into the marketplace. We also of course not the first time we've been talking about it with the FFC, this is, we've been talking about the narrowband IoT network for about two years. And when we first started talking about it, I think there was a high degree of skepticism that an IoT network -- that narrowband IoT network was the 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, companies in China very far ahead in IoT. So 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 option 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 number one in 5G and the goal that we have a DISH is exactly the same. And so we’re very pleased about that.

And in the world where the incumbents are going at 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 -- technology went digital, we were one of two companies that seize that opportunity to lead in digital.

And it took the cable industry more than 10 years to go from that 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 were first with HD, first with 4K TV. We were the first company with spot beams of local channels to constituents. So we have a track record of being innovative, disruptive and it may be on the -- maybe being on the very, very leading edge of where technologies go and we have another opportunity to do that in 5G.

And I think that the FCC is maybe just like many people in this call and many investors and 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 made, you turn that into people coming to the realization that we can in fact -- we face same skepticism when we were going to launch satellites and compete against with -- compete against incumbents and major corporations. And we 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.

Philip Cusick

So if I can follow-up, the difference I would think from your digital DBS plan was you could go up and do digital DBS 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 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?

Charlie Ergen

Phil, so I think -- I apologize that this call may sound a lot like the last call. But the big paradigm shift in 5G, not the market in 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 of 2019, that's when the specification comes out. It allows you to do three things that you can't do in 5G today; it allows massive broadband; it allows massive IoT connectivity; and it allows the network to have low latency, so very, very low latencies.

We also are in a position with clean sheet of paper to do one -- two more things really; one is to virtualize the network in a day 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 at 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 of 2020. So we can't build a modern network. The state-of-the-art we can’t start building that until 2020. 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 -- it’s the 600 megahertz, it’s 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 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 that some of the things that we’re going to do aren't going to be that attractive from a cost to 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 big part in that.

Philip Cusick

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

Tom Cullen

Not for phase two but phase one, as I mentioned on the last call, we’ve made a lot of good progress and it's the number one 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, it can be funded off of cash on the balance sheet.

Operator

We’ll go next to Jonathan Chapman with New Street Research.

Unidentified Analyst

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?

Erik Carlson

First of all, what was filed by our outside counsel is the standard protective order that is filed with the FCC, and it's you know its normal course to do that. 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.

Unidentified Analyst

And then as I think about the merger, there are two 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 are 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 two type network? And how do you just think about those two options?

Charlie Ergen

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 fillings that they have. We certainly see their logic for why they’d want to merge, but they still become two 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, the competitive concentration, the HHI index that the Justice Department looks like they would be very high -- very high over limits on that or suggested standards for that, both on prepaid and postpaid. And as the justice may decide which of those are really markets, is that one market or two markets. And so we’ll analyze that stuff. And so I think for T-Mobile and Sprint what happens is they’ve 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 questions you're talking about. And maybe they would get regulatory approval for just as it stands. And the second option that could happen is that no matter what they do it's just too anti-competitive situation that that AT&T and T-Mobile were in where there’s probably virtually nothing they could have done, they’d just be denied.

And then there is the middle ground where perhaps they’re 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 cable the companies NBNO or small -- there maybe opportunities for other people to work with them to help solve those issues.

Unidentified Analyst

Got it. Thanks.

Erik Carlson

I think, it’s small cable companies -- I mean small wireless carriers…

Operator

We’ll go next to Walter Piecyk with BTIG.

Walter Piecyk

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

Charlie Ergen

I will 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 and the number of towers is changing as we make 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 four to six months. As far as the monthly cash burn, I don’t think Steve we’re disclosing the at this point. Right?

Steve Swain

That’s right, we’re not.

Walter Piecyk

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

Tom Cullen

Yes, I would only say that 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.

Charlie Ergen

I think you can assume that we would have materially less towers in phase one than phase two as you get into some of 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 and $1 billion on wireless through 2020. So they give you’re a range where we think it is no matter how many towers it is, we're probably going to be in that range. 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 test, we could verify that the specifications that the RF design and the vendors have said to us, is accurate. And so we’re -- the answer is we don’t surely know, but we do know it's materially less towers than perhaps the incumbents have today on a nationwide basis just because the range is clearly farther to the spec.

Walter Piecyk

And Charlie, you’ve been known any auctions, any of this 5G CBRS or anything…

Charlie Ergen

So on auctions, I mean one is we don't have a lot of cash on 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 with -- along with DEs has has been the major players in those auctions but we’re cognizant of our financial situation. And one of things in our build-out for 5G is that that we’re able to is that our spectrum is mid-band and low-band spectrum that's ideal for macro sales. We've never thought that that was going to make sense from a small cell perspective.

And we believe the small cell should be a different frequency than your macro cell, something that incumbents haven't -- the incumbents have done at least a plinth, their first small cells were always the same frequencies than macro cells, which obviously brings up a lot interference issues. So we've always thought small cells should be a different frequency certainly that in CBRS and C-band, that looks to us to be potential frequencies. It did make small cells. Obviously, Verizon and others have looked to 28 gig for small cell. So we think that's a valid strategy for those guys and a valid strategy going forward as more spectrums become available. Most of the spectrums 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.

Walter Piecyk

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 -- kind of like it shows DISH losing subs, its DISH, its Comcast, its Charter, everyone is now losing subscribers. And I've been surprised that over the last few years, we haven't seen any real, permanent drops of programming given the breakdown of the price value. Cost of programming keeps going up and you're losing subscriber -- everyone is 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?

Charlie Ergen

The short answer is, yes. This is probably an inflection point. At least in our company -- at least this time, I'm maybe a little bit more pessimistic to 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 the -- Univision is a good company, we had a good relationship, have good product. It's nothing. We’re not mad at them we’re not -- that kind of stuff. It's just that the peers wait the way things happen. They go to their owners and investors and say we have a budget and they penciled-in DISH for a 75% increase in their programming fees.

We look at it that DISH, which is what is happening to with our customers and where is the price value shifting. So we've noticed and this is public document in article that they've lost 50% of their primetime viewership over the last several years. And they lost the World Cup, which was their number one short-term attraction. And so we see declining value, not a 75% increase, but we actually see some declining value in there. They let go of their programming, head of programming, that doesn't mean -- they didn't let go to somebody who is successful, they’ll let go somebody who wasn’t performing on the programming side. It’s not all their fault, they're caught -- 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 -- novellas isn’t striking the quarter with the younger viewers. So that's becoming a little long in the tooth as programming sometimes does. So they’re getting whipsawed on their side.

And then what would further exasperate things is that their programming is available for free with an offer 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 799 directly to customer. So it would make sense that DISH and Sling would never pay more than 799 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 -- and their product does not become more valuable to DISH today. In other words, the people who want Univision is going to come at 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 799; they may get it from one of our competitors in the future; they may put an offer 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 offer antennas and we've given that -- we've taken care of tens of thousands of customers. Majority of those people are leaving the ecosystem. In other words, they’re now become satisfied with what they get off air and they have Netflix. And Netflix continues to improve their Hispanic programming. And what going to happen is number one -- just telling you, the number one provider to Spanish 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 -- they just -- management just doesn’t do that, it's too hard to take a half a step backward and reinvent yourself, right…

Walter Piecyk

And I assume it’s fair to say that most of the subs that you’ve lost are gone, like you’re not loosing lots of subs now the way you might have been week-one. If you really cared about Univision you’re probably gone by now?

Charlie Ergen

I would say that it -- 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 start given up on you, it peak somewhere between week-four and six and then it starts to decline. But I think we’re probably closer to week-six than four. And so where the Univision would come in -- where we were willing to pay Univision more four weeks ago, you got to think we paid a little less today. And so -- we certainly have fewer customers that 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 or Chief Programming, they’ve had massive programming change. I've never heard from -- and Erik is -- our team has never heard from their new CEO. I think we might've 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've 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. And we’ll readjust and work with other Hispanic providers. And my gut feel is that Univision who use used to be number one in Hispanic programming that they have they been behind the primetime, they’ve not been number one 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 have 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 we’re not going to gouge them. And we have other ways to get them that program at 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’re very attuned to the Hispanic community. I think we probably have the number one service first for Hispanic and we want them -- we may lose them in subscription but won't lose them as a customer, because we’ve got wireless and other things coming that we want to be dealing with them on.

So that's a really long answer. But 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 declining ratings certainly on the magnitude of the Univision are going to have to start lowering their price not raising their price. Are you going to have massive just -- you are going to have some pretty big -- I think Comcast is one -- Comcast is in one now with the sporting company, so just going to be more of this in the future this isn’t just DISH.

Operator

We’ll go next to Jason Bazinet with Citi.

Jason Bazinet

Just had a question for Mr. Ergen. In your prepared remarks, you talked about paying off the '18 bonds and I think you’ve been in the market buying your '19 bonds. Some investors are a little bit concerned about that maturity profile beyond '19. And so my question is, would you consider doing something, call active, like issuing debt to the spectrum box and getting cash over the DISH TV as to lay the ground work for you to refi maybe at a lower rate and I think even help your equity value? Any comment would be helpful.

Charles Ergen

Jason, I don’t think I've talked about that, because I don’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 focus on that. And then obviously if there's -- we've been opportunistic when there's things we can do that are available. But we do think that our debt maturities do require focus, and they are certainly doing that.

Jason Bazinet

But there is nothing that is off limits in terms of issuing debt at the spectrum box?

Charles Ergen

I never say never I’ve learnt that long ago. So I think that where there's opportunity -- look there's a ton of opportunities in the company. We have really, really, really strong assets. We need to focus on the DISH side and we focused on some strength 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 ability to build a standalone clean sheet paper 5G network and we think that’s going to be amazing value creation for our shareholders and that's what we’re focused on. And we understand we have debt maturities that we need to pay.

Operator

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

Marci Ryvicker

I am a media analyst, not a teleco analyst, so the talk about tower 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 one 5G narrowband network will not satisfy their mark to 2020 build-out? Is there any risk to those licensesAnd then the second question, we’ve seen your stock underperform quite significantly over the past two years. I guess what made you decide to buy some shares in the open market now? I know, it isn’t a lot but you did it relative to other times when the stock has underperformed. I guess what message did you want to send to the marketplace with that purchase?

Charles Ergen

Well, the first -- to answer 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 realized I don't have much money outside of DISH and EchoStar. But where I could spend that money, that was the best purchase I personally could make versus buying Facebook, or something else that the masses go to. So that was just a personal decision so read into what you may or may not want to read into.

From an FCC perspective, I think -- again, I don't know the motivation to the FCC -- motivations for the letter that received. But clearly there wasn't -- the questions were about IoT, they weren’t about any 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-out. The build-out -- 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 to have people build-out licenses. And we’re confident that IoT is a accepted way to build out a network, because it's -- the narrowband IoT is a service around the world today, so it's not something that was invented just for a build-out.

so I don’t know -- only thing I can suggest is that people in this call should read the license and read the letter of the FCC and come to your own conclusion on that. But I think we’re confident that narrowband IoT, 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 it's hard to lay out every single part of what our business plan is for the street in detail. Obviously, we have competitors who then learn about those things. And obviously we would 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 as that overhang kind of goes away. I'm hopeful that the FCC will rule on the DE issue, which that overhang hopefully, will go away. And I am confident that what you 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. But the way we look at it is what’s the stock price five years from now that stock price is materially higher five years from now then we made the right decisions as management. If it's not, then we made the wrong decisions. I mean just long-winded but five years ago, everybody want us to buy our stock back. They want us go get more subs. We said, hey, world is changing, OTT is coming. We were probably three 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, hey, we’re going slow, we’re going to put money where we get return, we’re not seeing the same return in subscribers, new things are coming, new technologies coming.

So we didn't buy back our stock, probably wouldn’t have been a good idea to buy back 60, if it’s a 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 have made a massive investment. The FCC is well aware that this company has spent over $20 million, that's not somebody who speculate -- $20 billion to enter the wireless market, that’s not a company who is speculating, that's not a company who is not serious, that’s a company who is seriously possibly good about going out and competing and trying to make this country a better place in connectivity.

And we did it in video and I think we have a chance to make much-much bigger impact in connectivity, because this -- even the government decided it might be strategically important to have their own government 5G network. And it is strategically important for the government that it certainly makes sense to be supportive of what we’re trying to do.

Operator

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

Tuna Amobi

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 are 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 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 on less than we were expecting. I'm wondering if what you're seeing there in terms of the profile of those 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. Thank you.

Erik Carlson

I'll start and maybe I'll turn it over to Warren for a little bit of more color on Sling. And Charlie just mentioned 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 whole home 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. And when you think about dish, I mean, obviously it doesn't require 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, we’ll be there and we’ll definitely offer Sling and we’ll try to round out that experience with an offer antenna, and all other things that Sling provides but we don’t have an active migration process. And I think of 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 comment on maybe the Sling experience a bit…

Warren Schlichting

We think, Ron, it’s something good. I mean we were the first with the skinny bundle and seen subscribers appreciate that. So we've continued that disruptive approach. And really it continue to knock down the barriers with smaller subscription package, pay per view, advertising supported VOD, really is 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, and we like that. We think if we follow the consumer, we’re going to be on the right track.

Tuna Amobi

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 quantifiable metric would be helpful as well?

Warren Schlichting

So I guess I would say on the Sling advertising front, we've seen a number of first there, so we’re excited about the business. Really the two key piece of that and we got high quality of video where we know somebody is watching with all the targeting attributes of digital. So we've -- not only have we grown that business and we like that business but we've also struck a number of first 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 that how we’re cutting -- breaking new ground with advertising, I think I’ll probably just leave it at that.

Tuna Amobi

Thank you.

Charles Ergen

Operator, we have time for one more before we go to the media.

Operator

We will now take our final question from the analyst community. [Operator Instructions] Our final analyst question comes from Doug Mitchelson of Credit Suisse.

Doug Mitchelson

Couple of questions for Charlie. So you answered Marcy's question and probably answered this one, but I am going to ask it directly anyways. There is some investors who are hoping you'll just sell the spectrum as 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?

Charles Ergen

Well, I don't think you've ever heard about -- I don’t think you've heard me talking much about selling spectrum even, question number one. And then analysts have talked about that but I think that we see such an opportunity for 5G in terms of what that does realizes is our network is going to be different as a standalone network, it’s a little bit different. And we think the 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 is relevant 30 years from now. And so that's a tough transition and tough on investors to be patient while it goes through that. But that has been our focus and has always been our focus.

We originally want to be built an LTE 4G network. We just -- the rules on H-block got changed where we suddenly lost some of our -- from interference perspective and we had to change course and then we had to go downlink this is all 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.

Doug Mitchelson

I think the next question, which is I was hoping if you could talk a little bit about the $10 billion of funding for phase two and with the range of possibilities might be. And I get where I’m going with that as I’m trying to understand how to think about how much of the value of the phase two network build-out goes to equity holders versus what might go to those who finance the build-out, whether it’s -- giving percentage of future capacity exchange for capital or have you do pick prefers, or equity. I was just hoping you could give us an update on your conversations on fundraising and how you think that's going to be structures? That would be helpful.

Charles Ergen

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 is no question that we need to raise capital for the build-out. But realize we’re two-thirds of the way there -- more than two-thirds of the way there in terms of capital for total 5G network. So run the math on that and it’s something like dollar megahertz per pop with a totally standalone 5G network, right. The number of people that might be attractive to is very long. What way you might structure partnerships and the ability for capital are many, many, many, many options to how you might do that.

And so that's -- it's no different than -- and we’re going to launch satellites way back when we didn’t have -- we knew we needed partners to help us get there and we knew we need 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 assessment. And people throw billion dollars for guys whose going to put bikes out there. And I think our business plan is going to be more solid than that. And by the way, bikes need IoT to work.

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 goes to healthcare, they need a piece of what we have; tens of billions of dollars goes in utilities, they need a piece of what we have; tens of billions dollars is going into artificial intelligence, they need a piece of what we have; tens of billions of dollars are going in virtual reality, autoimmune reality and need a piece of what we have; tens of billions dollars is going into smart cities, they need a piece of what we have.

So first class I ever took in business school, I had to go borrow money to start my business, it was exercise. You got have a good business plan. And we’re going to have good business plan. We have a good business plan but we’ll be something that people will be attracted to.

Steve Swain

Let me just clarify the math that Charlie was doing around one dollar 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.

Charles Ergen

And we’re hopeful that the FCC will be – I 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. It turned out the FCC was right. And so the course 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 has taken that and we have taken that extreme seriously. We realize that the FCC -- the point that we were contesting are 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 reserve 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 realized that maybe we aired and how we structured that. And we were wrong, and now we’re trying to make it right. And so we’re hopeful the FCC will be supportive and we’ll get a decision on that this year. And that would be a major positive for us to move forward.

Operator

And 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.

Scott Moritz

Charlie question on the IoT network, as you point out FCC is a bit skeptical on 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?

Charles Ergen

Well, I guess -- I think there has been skepticism at the FCC, I don't know for sure but I think that's probably a logical conclusion. But that was when IoT was -- nobody was talking about IoT, I think that's material. It would be hard to be skeptical of IoT today given what I've seen in China, and Europe, and United States, in terms of what people are doing in investment in IOT. I mean that would like being skeptical of electric cars. This is going to happen, 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 that we don't have -- we and the FCC would want to have a much more comprehensive network. You want spectrum to be used in something in efficient manner for consumers and we want to do it for our shareholders and employees and consumers. So obviously, more massive network is on both of our agendas. But you can't get there with 5 megahertz of uplink spectrum. You can't get to that network with only 5 megahertz of spectrum clear. We’re waiting on the FCC and the broadcasters declare spectrum. We’re waiting on the DE situation to get cleared up.

And we have 582 days to build a network so we can't wait on those things to happen, because it takes three years to build this first phase. But the first phase leads to the second phase, which I think everybody is going to be pretty thrilled about, including the FCCs and 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 for our license that’s not required and there is practical reasons why we can't make it more massive today.

Erik Carlson

And just in 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 used cases for narrowband IoT as far as you can see out. Did I say little battery? I mean long battery life.

Operator

We’ll go next to Sheila Dang with Reuters.

Sheila Dang

It looks like Sling TV added a 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?

Warren Schlichting

We‘ve always said that competition is good for the category along the lines of all boats rise rising tide. And we are very focused on long-term, I mentioned it 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 those that come and go, we like where we are, we like the innovation. And so sure, I mean there has 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 second tier. Could you ask that again?

Unidentified Company Representative

It was sports package…

Charles Ergen

Do you have plans for non-sport package?

Warren Schlichting

No plans that we’re ready to announce for sure.

Charles Ergen

I’d just add one thing I think that the category is new. And we’ve kept our powder dry a little bit perhaps to go where people -- other people don’t go. And some of the content providers like CBS, GoDirect 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. And some people are going to 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 that you can do. And so I think one this team has staked out an area that’s very consumer friendly, because a lot of choice to consumers. And then it has to wait a little bit to see where the industry goes and where Sling plays a role doing things other guys don't do.

Erik Carlson

All right everyone. Thank you for your time and interest -- we have one more from the media. This will be the last question, go ahead.

Operator

And ladies and gentlemen, we’ll take our last question from Shalini Ramachandran with Wall Street Journal.

Shalini Ramachandran

On the Sprint T-Mobile 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 more broadly, how do you see that merger and these other big mergers that have happened in media, telecom, affecting your position?

Charles Ergen

I already answered [Multiple Speakers], because it’s due we’re going to answer it again. We wouldn’t do this to anybody else. But I think that look -- we understand the logic of why they want to go together from their perspective. And we think there's two -- 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 have three times as much spectrum as DISH and our DE partners would have, so an as an example in some places.

And the HHI index for concentration of business is already high and would go much-much higher, and 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. And the regulators may accept that and the merger may actually be approved as it is based on the logic they have for the merger. There may be a situation but 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 could do on the remedy with any number of companies out there that that might be attracted to them.

Operator

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