DISH Network's (DISH) CEO Erik Carlson on Q1 2020 Results - Earnings Call Transcript

DISH Network Corporation (NASDAQ:DISH) Q1 2020 Earnings Conference Call May 7, 2020 12:00 PM ET

Company Participants

Jason Kiser – Vice President, Investor Relations and Treasurer

Brandon Ehrhart – Deputy General Counsel

Erik Carlson – Chief Executive Officer

Paul Orban – Chief Financial Officer

Charlie Ergen – Chairman

Tom Cullen – Exeuctive Vice President-Corporate Development

Conference Call Participants

Kutgun Maral – RBC Capital Markets

Jonathan Atkin – RBC Capital Markets

David Barden – Bank of America

Jonathan Chaplin – New Street

Doug Mitchelson – Credit Suisse

Walter Piecyk – LightShed

Rich Greenfield – LightShed

Philip Cusick – JP Morgan

Kannan Venkateshwar – Barclays

Amy Maclean – Cablefax

Paul Kirby – TR Daily

Drew FitzGerald – Wall Street Journal

Scott Moritz – Bloomberg

Operator

Good day, ladies and gentlemen and welcome to the DISH Network Corporation First Quarter 2020 Earnings Conference. Today's conference is being recorded.

At this time, I would like to hand things over to Mr. Jason Kiser. Please go ahead, sir.

Jason Kiser

Hello. Thank you and thanks for joining us, everybody. I’m joined today by Charlie Ergen, our Chairman; Tom Cullen, EVP of Corporate Development; Erik Carlson, our CEO; Paul Orban, our CFO; and Brandon Ehrhart, our Deputy General Counsel.

Paul and Erik will have some opening remarks. Before we do that, we need to do our safe harbor disclosures. So I’ll turn that over to Brandon.

Brandon Ehrhart

Good morning, everyone and thanks for joining us. 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 forecast.

We assume no responsibility for updating forward-looking statements. For more information, please refer to the risks, uncertainties, and other factors discussed in our SEC filings.

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

Erik Carlson

Thanks Brandon and welcome everyone to call. Before I share a few observations on the quarter, I want to wish everyone the very best. These are incredibly difficult times for many of us. The challenges are personal and I hope you've all been able to take time and space for loved ones, family, friends and neighbors.

In that vein, I'd like to take a moment to recognize the entire DISH team. In the past few months, this organization from top to bottom has really been incredible in its response to the COVID crisis. I'm incredibly proud and grateful for the flexibility, creativity, the compassion of our coworkers that we've demonstrated every day to one another to our customers since the commitments and communities we all serve.

Our team really answering the call for equipping our field-based techs to operate safely in hundreds of thousands of homes across the nation that we serve to moving in very short order, thousands of a front-line customer experience from sales agents as well as management to work-at-home posture. It's really been an incredible effort. And just another example, like our manufacturing distribution teams continued their usual high level of performance, but in addition to their day jobs, they drove into address shortages of protective gear for front-line healthcare workers and their own colleagues by manufacturing face shields and face masks. So big thank you to the entire DISH team.

Let's get started. I'll touch on wireless. Despite this disruption, the team has been hard at work on our wireless initiatives. First we start the NB-IoT effort in the quarter. Paul will have a bit of commentary on that. The wireless team continues to make progress on a standalone 5G networks and we continue to pursue closing the Boost assets with T-Mobile. Charlie and Tom are also here on the call and available to take your questions.

Now with regard to the quarter, DISH TV played a strong fundamental game, but the crisis was not without its impacts. We saw gross additions grow quarter-over-quarter by 56,000. We did see the rate of adds slow in March, especially in the back half that was due in part to some customers reluctance to similar marketing efforts like direct mail and to have folks working in their homes. You hear it from me virtually every quarter. Over the past four years our DISH strategy has been anchored on acquiring and retaining long-term profitable customers.

At that time, we focused on a more rural and higher credit subscriber base and we remain committed to that path. In the quarter, we saw DISH TV net subscriber loss of 132,000. Our Pay-TV activation slowed, we did adapt our activity to match conditions. We adjusted our marketing, we brought more value to customers at an important time, delivering more than 40 channels of content and free preview with the help of our programming partners. And as always, we focused on providing an excellent and safe in-home installation and service experience.

Now the country went into a shelter-in-place posture. We saw customers usage of our platform increased. We're pleased to see subscribers growing engagement with the excellent experience the Hopper platform delivers, including on-demand apps and our DISH Anywhere capabilities. Given the massive impact COVID had on the travel and hospitality industry including airline and hotel chains. We took the step of removing approximately 250,000 subscribers representing DISH TV commercial accounts or ending Pay-TV count. Paul will have more color on this in a moment.

Turning to Sling, in the quarter Sling lost 281,000 net subscribers compared to net adds of 7,000 during the period. This is certainly disappointing. We opened up the quarter, having rolled out a price increase watching Fox News and Blue base package and introduced a free cloud DVR, also Sling TV viewer engagement did increase.

That said, well, 5G coverage in late February and March was that more than 100% loss of sports and then the last part of the quarter changed the viewing equation significantly. And the competitive environment was also aggressive especially from commercial free streaming services that flooded the space with introductory offers and promotions.

We continue to focus on acquiring and retaining profitable customers and delivering a great customer experience when it comes to platform stability to user experience, but we still have room to grow. We'd have to execute at a much higher level. Before I turn it over to Paul, let me once again express my gratitude to the team, on behalf of leadership team here. A lot of people have been working a lot of extra hours to take care of our customers and take care of the broader community and I couldn't be proud of you.

So with that, I’ll turn it over to Paul for quick commentary on some of the numbers.

Paul Orban

Hey, thank you, Erik. Before we get into the quarterly results, I have two items to highlight. First is the impact of COVID-19 in the measures we have implemented to address it. Second is the impairments we took during the quarter. For our Pay-TV business, we have implemented a series of initiatives to address the impact of COVID-19. We have tightened our belts and put in place cost cutting measures to slow the pace of OpEx and CapEx. We are recalibrating the investments we're making in the business.

We have to pull back the marketing. We want to keep our powder dry for the time being. COVID-19 has reduced our in-person selling opportunities. It has also hindered our direct mail marketing because customers don't want to open their mail and some customers are currently reluctant to allow our technicians into their home.

We increased our bad debt reserve by $21 million because many commercial establishments are closed or running at reduced capacity. We have put these accounts on pause or provided temporary rate relief. These accounts included commercial accounts that have or will ultimately disconnect due to COVID-19 represent approximately 250,000 subscribers and they were removed from our ending DISH TV subscriber account.

We expect the vast majority of these commercial accounts to reactivate in the coming quarters. The reactivation will come with minimal costs. Therefore, we will not count them as gross activations and we'll add them back to our ending subscriber count in the quarter that they return.

We also took a $356 million impairment charge during the quarter, related primarily to our narrowband IoT build and our satellites D1 and T1. Now that the T-Mobile/Sprint merger has closed and there is more clarity surrounding our revised build-out requirements. We no longer intend to finish our narrowband IoT build. Accordingly, we recorded impairment in the quarter from the narrowband IoT assets and satellites that we currently do not plan to use in our 5G build.

And looking at the P&L, our operating income and EBITDA for the quarter, move down compared to last year. However, absent the impact of the impairment charge, the operating income and EBITDA would have increased versus last year. Our revenue increase due to higher Pay-TV ARPU, partially offset by a lower subscriber base. The increase in the Pay-TV ARPU was driven by price increase in Apple, DISH and Sling.

Our subscriber margins for the quarter were positively impacted by our continued focus on higher quality subscribers and also reduce costs related to channel removals including regional sports. DISH TV stack is up this quarter due to increased subscriber activations and the cost per activation increased slightly from $828 last year to $861. This was driven by increased advertising spend pre-COVID-19 offset by more subscribers activating with remanufactured equipment.

In Q1 2020, satellite and transmission expenses decreased by $65 million, as discussed on prior calls, this reduction in expense was related to the acquisition of certain satellites from EchoStar during the third quarter of 2019. G&A expenses were up this quarter as a result of cost to support our wireless initiatives. Our free cash flow of $537 million for Q1, benefited from improved operating performance and working capital.

We ended the quarter with approximately $3.4 billion of cash and marketable securities, which we used to redeem $1.1 billion debt maturity on May 1. That leaves us with $2.3 billion, which will allow us to purchase Boost and fund our wireless initiatives for 2020. We still expect our 2020 wireless expenditures to be between $250 million to $500 million. Given the impact of COVID-19, we may end up closer to the lower end of that range.

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

Question-and-Answer Session

Operator

And ladies and gentlemen, at this time we will take questions from analysts. [Operator Instructions] And we'll go to our first caller. It’s from Kutgun Maral, RBC Capital Markets. Sir, please check your mute function. Your line is now open.

Kutgun Maral

Hi, thanks for taking a question. Two if I could, first, Charlie on Pay-TV. A lot has been said over the last few weeks about sports rights opinions and things, how there should be some sort of release to consumers. I know there are quite a few steps required to get to the scenario, unless we set up a topping and consumers have come down $20 to $30 a month and not throughout the summer. And when sports come back on, sales go back up again. And so in what is already a challenged ecosystem and continue to build to reflect the sports costs. Seems like there would be a significant churn event across the entire ecosystem so I was just curious about how you think about the sustainability of your Pay-TV subscriber base? Should all of this play out and then I have a brief follow-up.

Charlie Ergen

Yes, I think I heard that question. I think it was about sports and how it's going to play out in ecosystem. Well, first of all, the consumers are – the sports are always seasonal, so to begin with. And the real question would be whether sports come back or not, when the seasons are canceled or when the seasons – or parts of seasons are canceled. The second question would be whether the content owners get reprieved from the leagues and to directly or indirectly. And then if they did, would they pass that onto the distributor distribution network, what I would – so all those things are going to lay out and I think it'd be premature to try to speculate on how that's going to happen. But I don't see bills going down and going up.

The way you described it, I think we try to do that more – whatever we do, need to be a one-time credit or it'd be something permanent. What I would say as a DISH, we do a couple things. One is first of all, we fought really hard for our consumers that they have more flexibility and how they can actually subscribe for us. A lot of our customers like regional sports take for example, they're not required to take regional sports, they can take a lesser package. It doesn't have regional sports in it. So regional sports lost – the sports they could downgrade that when we make that pretty easy to do.

The second thing I would say is that the extent that the content owners credit us, we'll pass that on to consumers. So and we'll work with our distributor package and customers because at this point, like the NBA has been canceled, CBS has been canceled so they're not running position. That's probably to make a determination there.

The one place that maybe is worthy of discussion today is on the NCAA tournament where CBS and the Turner Networks maybe have – maybe in discussions and maybe there's some things that have happened within that realm. But we'll just stay tuned like everybody else. But certainly anything – it starts with the leads, they don’t have your credits to the network – to the ESPN networks and so forth. And then they give credit to us and then we will pass it off. Absent that, that's hard to do.

Kutgun Maral

Understood, great. Thank you. And if I could, I'm going to hand it off to my colleague, Jonathan Atkin for a follow-up.

Jonathan Atkin

Yes, thanks very much. I'm just interested in where you stand on the 5G network planning. As you kind of evaluate the potential Sprint sites that you could utilize and working stand on that and the pros and cons of taking over some of those leases, signing new ones on your own. I imagine there's a trade off in terms of cost versus speed on air, but how are you thinking about that and where things stand currently?

Tom Cullen

Hi, this is Tom. I think it's a little too early in the process for that. The first step is we need to close on Boost. Once we close on Boost that initiates the consent degree requirements. And so as you probably know from the order, the obligation for them to give us visibility to decommission sites would not commence until after we closed on Boost.

That being said, our deployment team is already doing RF planning and we're far down the road with our tower company discussions. So the deployment planning has begun on our side, but it's not dependent on the decommissioned sites at this point.

Jonathan Atkin

And again, when did you anticipate then getting equipment up in Mavenir and activated under either scenario?

Charlie Ergen

Well, we’ve probably seen that we announced a deal with Mavenir as their first vendor selection. Mark continues to work on the architecture and further vendor selection. So I would anticipate more of those announcements in the third quarter. And then we'll share our deployment plans once those are formalized likely on the next call.

Jonathan Atkin

Thank you.

Operator

Our next question will come from David Barden, Bank of America.

David Barden

Hey guys, thanks for taking the question. Appreciate it. Charlie, I think last quarter we talked about Rakuten and the OpenRAN architecture, which Novena is your software vendor now for, it's kind of the first RFP awarded, you talked about, how you would be able to kind of get some learnings from them being out in front on this kind of new architecture, slings and arrows in the back, I think you said. They've launched now for a month, I was wondering if you've had any kind of incremental contact with them about their learnings and kind of why you chose to go the Novena route rather than some other route from an OpenRAN software vendor. Thanks.

Charlie Ergen

Yes, so yes, we have continual discussions with Rakuten, we serve and share thought process and learnings. I wouldn't speak for the – I'm not in Tokyo today, so I can't speak to all their results, they certainly will do that as a public company.

But the Novena, we negotiated with lot of people Novena is the first company really that met the kind of guidelines that we needed there by no means will be the only vendor that we use and we certainly – there's certainly room for. As you get into virtualized network there's lot of parts that can be interchangeable and certainly we would expect that there's other people in the space in our network.

David Barden

Got it. And if I could ask a follow-up, which is, I think that there's been a lot of concern about the lack of movement on some kind of funding visibility for the build, I think that it's probably a mistake to look at it as a monolithic $10 billion thing where you need to have $10 billion in the bank today. Can you kind of talk about, what your comfort level remains with your access to the bank financial markets, your access to other funding markets to kind of support the plans that we're talking about here today.

Charlie Ergen

Yes. Well, I mean we look at – we look at what our funding needs are and then we look at where the marketplace is and we try to be opportunistic. And obviously the market's not particularly opportunistic today, number one. Number two, we don't have a funding need today in the short-term. So there's – let me give you a little bit, what we have done is over the last 13 months, we’ve paid down $2.5 billion of debt and we raised $1 billion of equity. So it's not –we're not standing still, that $10 billion now is $9 billion because we raised $1 billion of equity in terms of things we have to do.

And we continue to obviously generate a fair amount of cash flow. So – I guess let's put the math there, with $900 million of cash in the balance sheet during the quarter, I think you can anticipate that we're positive cash flow. We're going to spend $1.4 billion to purchase boost.

And I think I heard Paul say, we're probably in the low-end of the $250 million to $500 million CapEx expense for this year. So you can see that we get into this time next year before we have a funding requirement due the next debt payment. So a lot of stuff's going to happen between now and then and we're focused on that. The funding part is not the private thing that's keeping us up at this point.

Certainly the things we don't control, like the changing the COVID crisis, that's not where it is today, but where it might go, that probably does keep us up, is that the fear of the unknown, but where it is today, we're – we feel like we can manage through that, so that's kind of where we are on that.

David Barden

Enough. Thanks guys.

Charlie Ergen

It's off the answer. But I think internally we're able to see this maybe a little bit better than people on the outside. But if you look at where we were a year ago and where we are today, it's been one of the most productive years I've ever been, this is my 40th year, this has been one of the most productive years at DISH.

A year ago, when we're building a narrowband IoT network that wasn't exactly what we want – wasn't what we wanted and certainly wasn't what the FCC wanted, because it wasn't – it started out it made sense, but it wasn't a move the needle and how people communicate in United States. And certainly going to put us in a leadership position and it certainly wasn't going to compete against the Chinese vendors and everything else.

And when you fast forward and by the way that narrowband IoT network we built and then we had to build the broadband network on top of that and the broadband network had to be built and we had to build virtually the whole country before we could turn it on and start generating revenue, because it would need a national network.

Fast forward a year later, what's changed there, while we had write-off, we spent a lot more than what we just wrote-off obviously, but we spent again $0.5 billion in narrowband, we just had to flush not break, write-off is the right thing to do. But now we're building a broadband network that will be the envy of the world. That broadband network now is going to be using open architecture, it's going to be cloud-based, you hear words like ORAN and ORAN compatible.

So we're building a state-of-the-art network, we're aligned with the FCC, we're aligned with the executive branch, we aligned with both houses of Congress on where that needs to go. And we have a timeline that says that's manageable to do that. We've also have MVNO deal work for seven years where we can start generating revenue with and we are purchasing boost, so we start generating revenue day one with purchase of booth. We also can generate very profitable revenue as we build city-by-city.

So when we build a city and get owner economics in that city, then the profit – there could be a profitable business for us and we can do that on a city-by-city basis. So we're not waiting to build the whole network together. And as I said, we paid down $2.5 billion and raised $1 billion of equity.

So the negative is right, the money we spend on narrowband IoT and the COVID crisis that's affecting every part of our economy, those are the two negatives. But even putting those things – putting those in the pile, this company is materially better off and materially less risky than it was before this time last year. And we felt like we had a plan to be successful last year. And now we just – I think we just have a higher degree of confidence in terms of where we're trying to go.

And we now know based on working with the vendor community that we now know that ORAN is real, it's not pine that’s gone. We know that there's vast support in the United States and around the world for and we know that at least our approach is, if we're not allowed to use Chinese equipment because there's a national security issue for whatever reason, Huawei has been really good, the Chinese equipment is really good, it's best-in-class. The only way we're going to be better is to out innovate and we shouldn't just try to be as good as what the Chinese manufacturers are doing, we should be better. And to be better, you got to innovate. And the innovation is things like ORAN, open architecture, cloud-based automation. Those are all things that can make any network better.

And at DISH, we get to help lead that. We can be part of that team along with some other of course. But we get to help with that. Just as this company in the early 1900’s led, the 1990’s led and digital. This company was the first company in the world MPEG-2 standard digital compression. Right, we've led in digital compression and our digital video, we'll meet again and how wireless operates.

There's a silver lining in COVID, it's shown us how – just how imperative and how much of a necessity good communication and connectivity is. So we feel like – and not to give a long speech here, but I will, when Tom and I started on this, I think it was about, I mean, you'd have to go back to conference calls, but we're the first people that said the linear television that is going to get challenged out there unless the linear programmers changed what they're doing and it will be challenged. And we pivoted and started to look at the connectivity business in a serious way and made our investments there. Because we knew that was not likely to linear TV providers would change.

So I think that strategically, we're well positioned now and I think it's even though, we took some arrows for and we took some punishment on conference calls for years where our numbers weren't up to what our competition was doing, we were building long-term customers with long-term cash flow in a business that is sustainable, even if linear television is going to be challenged and we're well positioned for where the industry's going, where the consumers are going, I should say and not just the consumer but enterprise and businesses.

Tom Cullen

That was a long answer.

David Barden

That's awesome. Thanks Charlie, really appreciate it.

Operator

Our next question will come from Jonathan Chaplin, New Street.

Jonathan Chaplin

Thanks guys. I'm wondering if you can – you said in the past before you go out and raise capital, you would lock-in an anchor tenant, good to know you're building the network before you raise capital. When do you think we'll get an announcement on who the partner, or partner that are going to use it, so the first users of the network would be. And then the second question I had was around the 600 megahertz, T-Mobile is borrowing at the moment in the merger agreement, it was contemplated that they would lease that spectrum for year, but you hadn't completed the negotiations by the time the deal needed to be announced. When do you – where are the – what's the status of those negotiations? Thanks.

Charlie Ergen

Yes, let me start at the 600 megahertz piece. So you're correct that the consent decree did require that the companies negotiate in good faith and the T-Mobile needs all or some of the 600 megahertz spectrum. Those negotiations have gone for a bit of time and that's now both companies have presented to Judge Department and the Judge Department will make a decision as to what the definition of all, some with the length of any lease agreement with the payment would be. So we would expect something to be respected to know that in the near-term, whether there is going to be at least and if so what it might be.

Clearly, T-Mobile based on their advertising – we made it available to T-Mobile during the initial stages of the crisis for free. It was the right thing to do, because obviously usage had gone up dramatically and they were able to take advantage of lighting up right away. They've certainly bragged about it in the commercials and the fact that their speeds have doubled, so it certainly has value for them in their networking. And certainly, their customers are benefiting and they're probably gaining market share as a result of it. So that's hopefully a positive for us, but we'll see what we now expect that in our control at this point right now. Tom, do you want to?

Tom Cullen

Yes. Hey, Jonathan, it's Tom. Regarding anchor tenants or partners, consistent with what I said on the last quarterly call, that's not something that we feel any urgency around. If anything, the momentum around ORAN has vastly accelerated in the last quarter.

And so the potential and the opportunity associated with the network that can facilitate both consumer wholesale and enterprise, that recognition is growing within the industry and global. So our three real swim lanes of activity right now are preparing for the boost integration, completing the architecture and vendor selections, and deployment of planning.

And as I said on the last call, once we have a market built and we're able to demonstrate the capabilities of what a virtualized network can do, we think that's a better time to attract third-party interest.

Charlie Ergen

This is Charlie, I’d add little bit, first of all, there is a lot of third-party interest already, but the way that we look at is there's two kinds of vendor – there's two kinds of partners for us. One is a traditional vendor relationship they've got a product that's best-in-class. We'd like to buy that product and we buy that product as best-in-class. And they make money and we get the product we possibly can.

There's another partnership arrangement and I think the one that you're alluding to is, when there is strategically an alignment and a vision alignment that a vendor says, we think things like OpenRAN and virtualized network that’s cloud-native makes a lot of sense. That would be really – that's something that we want to promote, because it would be good for our business and it'd be good for our customers and we would be aligned in the sense that obviously that would help us get the network built. And perhaps we would get customers through that relationship that we otherwise wouldn't. So both companies would benefit from a common vision.

And in that particular thing, the one reason that we're probably going a little slower than maybe people might've expected the marketplaces, there is some zero, some gain problem for us there and that some vendors have a service that's very similar to another vendor and both of those vendors might share the same vision. So we've got to pick one, when we pick one we might leave out the other one. And so we have to be pretty confident that we're picking not only best-in-class, but also this shared vision. Because once you do that, you're kind of married and so that takes a little bit longer to make sure that you're going down the same path and it's not just a – it's more than a vendor relationship and you've picked the best-in-class customer to share the vision with.

So it's exactly the same kind of thing we had to do back in DBS and through our history of our company. But some of it's personal, some of its management teams that just work better together or some of it's you know somebody longer or sometimes it's somebody who is more aggressive on the pricing, but you're just as good as somebody else, so a lot of factors there. But there's not any question in my mind that at least over the last year, checked over the last three months or six months, the momentum for the kind of things that we're trying to do are clearly recognized outside of Wall Street and analyst community. It's totally recognized for the people who know what a modern network should look like.

And it started to be recognized internationally now. And it's certainly recognized by the people who know what a modern network should look like. And it started to be recognized internationally now and it's certainly recognized now by the regulators and the legislative and executive branch of the United States. So that's been a big, a mark difference saving than six months ago. So again, I think we're on the leading edge of that in terms of thought process. We're certainly on the leading edge of that in terms of our ability to do it. As I said one thing is that, well vendors and technology companies are perspective partners. The consideration set of partners is broader than that universe.

Jonathan Chaplin

Right. Thank you, guys.

Operator

Next up, you will hear from Doug Mitchelson, Credit Suisse.

Doug Mitchelson

Thanks so much. Charlie, we've heard you talk a lot about the advantages of the network you're building. Any chance you've sort of calculated and want to share what the cost per bid advantage will be versus the traditional networks that are out there?

And as part of that, I think when I listen to these calls for last a few years, I sort of had an expectation that you were headed more towards the wholesale path with your wireless network build, wireless operations and today, talked a lot more about sort of retail and making money from the Getco with the MVVNL. What are you thinking about retail versus wholesale in terms of where you're going to end up when you look out a few years? And one more after that. Thank you.

Charlie Ergen

So, second part first. We've always thought the wholesale model was the one we focused on the most. But with the opportunity for the MVVNL deal and boosted, we thrust into the retail business in a way, we didn't expect. So that'll be both the positive and negative, but we have to advantage, boost prudently and we had to prepare for being against three pretty entrenched incumbents and we have to do that in a profitable way long-term.

So we think we can do that. So we think that, the way I would look at it is that our retail business will just be a slice of our network. And that wholesale part of our networks deal is the slice. So if it's a smart city, that’s a slice for that smart city and DISH retail is just a slice of that network. So we kind of get an added thing that we didn't think. We got a cherry on top that we didn't think we’re going to get or we didn't have plans for.

What was the first part of the question?

Doug Mitchelson

Cost per bid?

Charlie Ergen

Yes. Cost per bid. I would say – I would say this way because we – until we have all the costs in from all the vendors and we started building and I don't know that we, but we know enough to know it will be materially less expensive than a cost per bid today. With material less expensive to operate, because we’ll be able to use a lot more automation than people can do today. So we know that. And from a business perspective, again, I left the University of Tennessee so – and I wasn't the smartest guy, but the one thing I didn’t figure out that – it’s down...

Doug Mitchelson

I can hear you.

Operator

Yes.

Doug Mitchelson

Okay. I can hear you.

Charlie Ergen

The one thing is what you really look from a macro point of view is, can you build a better product that's less expensive? And if you can do that, you can be a very successful business. You can build a better product that's less expensive. You may be able to stay in business if you build a better product that's more expensive, certainly Mercedes car was cheaper than a Ford, I mean Chevrolet Chevette, they stayed in business. But if you build a cheaper car that's better, then you're going to gain market share and there's no question in our mind, we are going to build a better network that's less expensive and less expensive to operate and more flexible. So, therefore we think that we’ll be materially less cost per bid. But it's more than just cost per bid it's going to be more flexible in terms of how the network is architected; it’s Netflix versus Blockbuster, right?

Doug Mitchelson

So that leads to the second question, which is this $10 billion number. You've had that out there for awhile and it sort of stuck out there. I think there's a pretty healthy debate among investors as to how much eventually this will all cost to build out. Are you able to share with us at all? What does that $10 billion get you? Does that get you to your regulatory required build-out and it gets you to any kind of coverage and any sense of what that $10 billion gets you through would be helpful? Thank you.

Charlie Ergen

Essentially gets us to scale nationwide coverage, which is materially more coverage than the network. So the $10 billion is not to meet the FCC regulatory, but it's to build a network that can be competitive.

Doug Mitchelson

All right. So that's helpful. Thank you very much.

Charlie Ergen

That’s not, we haven't done a good job of – we haven't done a good job of presenting that and articulating that. So you're asking a really good question and I think people think its $10 billion just to get to the milestone for the FCC. But it's really beyond that, right? That doesn't include spectrum purchases; it doesn't include a lot of millimeter wave, build-out and those kinds of things. But it includes a total macro layer that's competitive in the United States. Well beyond the FCC – well beyond the FCC requirements.

Doug Mitchelson

Got it. Thank you.

Operator

Our next question comes from Walter Piecyk of LightShed.

Walter Piecyk

Hi, this is Walt from LightShed. Charles, do you expect to still launch a 5G network? Well, I think you had mentioned a trial. You'd hit one network by year-end? And then also on the network side, Verizon in addition to T-Mobile has been using your spectrum for free during the kind of current situation. Is there an opportunity to lease spectrum to Verizon or AT&T either to help generate some cash flow to fund the network build or even as kind of a way to more quickly roll out your own network?

Charlie Ergen

So in sidebar question, yes. I mean there always is an opportunity; they clearly are using some of our spectrum. I think one of them is using some of the DT spectrum and obviously, if you look at the – looking at the patterns of where they're using it, that it's certainly increased their capacity and increase their speeds at a time of crisis. So it certainly opens up the possibility of discussions for that. But certainly it's also possible that nothing would come of that as well.

And the first part was...

Walter Piecyk

Was that you’re expecting 5G by the year end. I think you said one market at trial at year end?

Charlie Ergen

Yes, I think that we have two things we're working on. One is to launch a market by year end and I believe we will do that with the core that will integrate with T-Mobile to extent that they cooperate. And then the other thing we're going to is postpaid, so that we expect that a year from now we'll have – we'll be in the postpaid business, which isn’t when you're paying for a network, well post-paid business is just about the business. So if you look at postpaid and prepaid, prepaid is not nearly as good a business as postpaid business. So...

Walter Piecyk

Yes. I mean, I'd like to ask a follow-on like if you looked under the hood of boost yet, but I'm going to defer and let Rich chime in with one of his questions.

Charlie Ergen

We're the only company who let you guys ask questions, right?

Walter Piecyk

I think someone is trying to rub, I think this is – well that's true. That’s true.

Rich Greenfield

Charlie, I appreciate you taking our questions. This is a philosophical one for you. Based on everyone's results, it looks like the Pay-TV Universe probably lost at least 2 million subscribers in Q1. If we're on track to lose 8 million to 10 million subscribers from the Pay-TV Universe and the programmers are all coming to you asking for annual rate increases whether it's Viacom which is up for renewal soon or RSNs or whatever? Do we see a new normal like, is it time for prices to start really rolling back? You've got viewership collapsing. I mean, even in a pandemic, we've got viewership down other than for news networks in 18 to 49 like, who – does it finally hit a wall in terms of the rate increases for all of this programming because there's just such a collapse in the universe?

Charlie Ergen

Well, a logical person would say the answer to that, yes, there is a – that if your ratings are down and that you're not going to, then people are watching less hours of your program and you're not going to be able to get more revenue for it. And – but it's much broader than that. It's not just about that, but the product itself from a consumer point of view isn't good enough and so – and everybody on this call probably, watch more television in the last eight weeks. And everybody that I see that I just watch human nature, they – they're gone to Disney+ or Netflix or Amazon because there's no commercials. And because you can then view something, you can watch whenever you want to. You can watch and it's easy to watch in any device, because it's an app. So TVs become an app without commercials.

And there are commercials, [indiscernible] linear TV where we might have 16, 17 minutes of commercial time during an hour of show. It might be a really good show, but you it's painful, right? Once you've seen some of the commercials and then the second, so that ad load needs to change and be different. And then if you want to bend something, you got to push a bunch of buttons to watch the next show as opposed to sit there for eight seconds and watch something. So the user experience has to be better. And the final thing is that a lot of people's programming you mentioned back on a lot of their contents being sold in other avenues.

So the branding of the predictor channel is kind of gone away and people are used to a particular show but not necessarily the brand of the channel. And so they're used to getting a show somewhere else and they don't want to pay for it twice. So all those dynamics are out there and we – the way we approach every negotiation is, here's how much value your station or your broadcast or your content is to our customers because here's how much they watch of it. And here's how much the cost per hour is, when we do all that analysis in real time and we have a dozen years of history of that. And we can see those trends and see kind of what cut consumers, right?

And so obviously regional sports became the most expensive thing in our portfolio that customers didn't and it is a gross generalization customers didn't see the value in it, on it and certainly 100% of people didn't watch them, very small minority watching the regional sports, so that made for tough negotiations once they went down, right? But others are maybe as egregious, but they have similar issues, yet they have budget – they have, most programmers come and say well we paid this much last year. We want an increase, there's no logic, there is no math behind it. It's just we need – that's what we need to make our budget. I mean, the argument is we need to make our budget that's the argument. And those people...

Rich Greenfield

Right, but who cares about what their budget is? When I look at – I look at FX – FX is telling you to go to Hulu now to watch their programming and not to go to DISH.

Charlie Ergen

That's – and so that's what’s going to – that's what's going to happen, right? So let's fast forward, right. And we talked about this years ago with Netflix, when one of the programmers sold other stuff to Netflix for $25 million a year, we pointed out that you’re going to create a monster, right, that's going to get leverage over you. You're in the content – they're going get leverage and then it could become a competitor, and the same. So now if you’re going to YouTube and Hulu and yes, you might be getting some pretty decent rates today, but the next negotiation, they're going to own you, right. If linear TV, if the other distributors aren't out there, they're going to own you, right, and that's what's getting created.

So Eric, my thought to this as a result of those things and those trends, which sometimes you point – you guys have correctly pointed out, I think we see similar things, something's a little different. Eric, maybe you talk about what our strategy has been for the last several years and how we counterbalance that.

Erik Carlson

Sure, Charlie? Rich, how are you doing? Hope things are well. I mean, I've been a pretty consistent and comments on the call and our approach especially on the linear side of the business, just to really target customers who won still find value in linear TV and to have less of an opportunity to, may have densified broadband or go to, OTT type providers. So look at our strategy has been to look at rural America, has been focused on high credit quality customers. Customers that find value in linear TV, find value in skipping commercials, find value in all the things that the Hopper platform brings and try to insulate on ourselves a little bit or mitigate some of the decline.

Now, go ahead Charlie.

Charlie Ergen

Yes. I was going to say, we build value into the Hopper platform in a way that's beyond linear TV. And so you can’t get Netflix, you can’t get Amazon, you can’t get YouTube from our platform but you also can search and search something. Something might be on DISH and it might be 399, it might be free on Netflix, it'll show you Netflix for free. So we put the customer first and say, here's your best value and so this is...

I find personally, but I still by far love the Hopper experience better than any OTT experience, because I can record everything I want to record, and keep it as long as I want. I can skip commercials I want to, if I forget to record something that's already recorded for me, if it's important prime time. So there's feature set there and when me and my family want to watch Netflix and one of the OTT apps, it's easy – we're easily able to do it without having all other [ph] TV sets, without having to do anything, and I can do with my voice, right. And so, I think Erik and his team's credit that – and that's going to continue to pay dividends for us.

Rich Greenfield

Thank you.

Operator

Next we'll hear from Philip Cusick of JP Morgan.

Philip Cusick

Hey guys. Thanks. Charlie in your earlier comment, is it fair to say that you have your choice of partners to work with at this point, especially on the strategic side? And isn't there a trigger at which point you have to make that decision, maybe it's the sort of construction or an auction or something like that? Thanks.

Charlie Ergen

Well. I can only go on experience, where my experiences has been. But everybody kind of moves at their own pace and you end up with three kinds of companies, right? And with one that want to lead and make – and if they believe, they get to help them make the rules, and you end up with some fast followers and you end up with some stragglers, right? You maybe don't even get to play in the game. Same thing is going to happen with us, is we're – we believe we're leading and we believe that there'll be some companies that want to lead and help make the rules. And those are likely, where we share a common vision and that pace will be chocked, will be different, right?

Simple example would be, you saw a Facebook announcement in GEO in India, that Facebook has said, we're going to jump in and help make some of the rules and how commerce is done in India, right? Other people looked at – probably looked at that and maybe didn't feel comfortable for whatever reason, right? But they – but I don't think Facebook was the only company who were saying, look, I'd like to make some rules in India, it's a long-term play, right? But there a company that went in and I think there is some more companies that will say that similar things in the United States and say, we want to help develop what a modern networks should look like, and here's how it helps us and here is a – and we'd like to participate in play.

And so, I guess I'd say a lot of the things that people are skeptical – clearly are skeptical based on our stock price, you can totally see people are skeptical of our ability to compete and to build a network. But I don't think, – we're not skeptical and we're just going to go – Disney gave talks about it, we're just going to go do it. We're just going to go build it. And you'll see, I’m going to be right or wrong, right? And it's not the first time we've been in this situation.

And the second thing I'll say is that our company has built in a funny sort of way is entrepreneur, we’re better in a crisis, we're better in – and I think the COVID thing is the crisis. And I think we're better in that environment, we’re leaner, we make decisions quicker, there's visibility, we're not layered in management. It’s the environment that at least personally I feel more comfortable in. And it's where I think we've excelled as a company. And I think it's where we have made our – the most creative times in the marketplace for us, take scrambling back in 1986 where our business went to zero overnight and we came back the next year and doubled our business and doubled again and doubled again and doubled again, because we made – we had a plan – long-term plan and we make sound decisions and move quickly.

And I think those are the things that we challenge Erik and his team every day to make sure we're – we have long-term plans and they're good and they're – in a funny sort of way, the markets move in that way and then we just got to move quick and execute. And if we do that, we're going to be a much bigger company and a much more profitable company and we'll gain market share in a place where – in a – in economic situation where a lot of companies are going to drop that. And if we don't do that we'll be one of those struggling companies and the skeptics will be right.

Erik Carlson

All right, operator, we have time for one more analyst question.

Operator

Thank you, sir. 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 questions. And our final analyst question comes from Kannan Venkateshwar, Barclays.

Kannan Venkateshwar

Thank you. Charlie, when you think about the $10 billion number that you put out, I mean, based on some of the comments you’ve made, it looks like that's largely CapEx, but as you go into the retail business, there is also going to be operating losses in the first few years as you scale the business up. When you think about the total funding need, overall beyond just the build out, how should we think about the scaling on your total capital requirements, maybe over the next three or four years? Thanks.

Charlie Ergen

Well, couple of things. I mean, I think there is two things that could require additional funding, right, potentially. But one is if you're in spectrum purchases and there is certainly auctions coming up, the second would be I think if you enter the retail business and you have losses, I think is what we said, those would certainly require. So a couple of things, one is, we would hope that as we ended the retail business, that we don't have significant two years of funding gaps there from a cash flow perspective, right? I do think – I think a lot of that to manage that, I think let’s pay close attention to that, I think that will be difficult, right, but not impossible by any means to do that. And obviously our balance sheet is our balance sheet when it comes to auction.

So, I think we're really focused, I think we're mostly focused on the network and what it takes to get to where we want to go. And then there is maybe revenue opportunities for us as we talked about spectrum releases and so forth and maybe other revenue opportunities for us as well. So you bounce all together and I think while we're cognizant of the markets and we keep an eye on it, and we certainly would be opportunistic if the marketplace were open in a favorable way, that's not our focus for the near-term. And I think Tom articulated where our focus is as a management team. And if we execute those things in the near-term, I think we'll be fine.

Kannan Venkateshwar

Yes. Thank you, Charlie.

Operator

We will now take questions from members of the media. [Operator Instructions] And we'll take our first question from Amy Maclean, Cablefax.

Amy Maclean

Hi. Thanks for taking my question. I was just wondering if you could provide any color on negotiations with ViacomCBS?

Charlie Ergen

Not really. I mean we tend to keep the part of negotiations private and we – they’ve been a long-term valued vendor for us. But the reality is, that certainly, a lot of their content is available from other sources then the people are already paying for it. And obviously from a ratings perspective or viewership perspective, they've had declines over the last several years. And a lot of their investment has gone into the Pluto now and that's free. So we’d hope, we get there with the transactions, because as I said we have a long long-term, they helped build this company. We like the company a lot personally. But there is reality out there of where the market is and it's probably not the same as it was in your past.

Operator

Thanks. Up next we'll hear from Paul Kirby, TR Daily.

Paul Kirby

Thanks for taking my call. Just wanted to see if there is – do you have any expectation timelines of the FCC resolving the DE issue?

Charlie Ergen

I'd say, so let’s talk a little background of some of the – I mean, obviously we're coming up on, I think since the end of the auction – almost five years, since the auction, there is been a court case where the court found that the FCC was corrected, that perhaps the DE didn't qualify, but they are incorrect and they didn't give the DEs a chance to cure. The DEs in our opinion have cured and they have – and that has been in front of the FCC for well over 1.5 years now and the FCC hasn’t ruled on that.

So that's disappointing, given that I think this FCC has been incredible about bringing new spectrum to the marketplace, this FCC has been incredible about advancing 5G in the United States and put the country in a position to compete against China. I mean, it's incredible really what they've done. It's disappointing that the one thing that was the one thing that affects Dish in a big way potentially hasn't been ruled on yet. And as management, you always want certainty, right? And we have uncertainty, which makes it tough for us to – tougher to manage the business. So we would encourage the FCC to make a ruling on that.

And then more importantly maybe is that some of the spectrum would be ease and DISH paid a penalty on and that could get resolved if you get used a lot faster and be put into business plans, particularly as we are designing our network, we have this big question mark out there, what do we do with the AWS-3 spectrum out there. So it's a bit frustrating. But we hope in the national interest that at least we get a ruling on that. And I think that the current crisis is more evidence that maybe that's a place we could get a ruling.

Paul Kirby

Thank you.

Operator

[Operator Instructions] And for our next question, if you could please announce your name and company name once your line is open, and your line is open.

Drew FitzGerald

Yes, hi. This is Drew from Wall Street Journal. Drew Fitzgerald. I think there was a technical difficulty earlier. So apologies, if this has been answered before. But first, I'm just curious about where you see in general most of the impasse in negotiations over rights to sports content being, has any of the leagues, waived fees or even refunded some of what their programmers owed them? Given the fact that there are no games on right now or as you issued more between the programmers and distributors.

And then second, I'd just be curious, given the social distancing new norm that we have with the coronavirus crisis, whether that's changed your thinking at all as to the value of physical stores, pick up from Sprint or elsewhere? Thanks.

Charlie Ergen

The first question was answered, asked and answered, Drew. But – so you'll see that in the transcript. Second part, I do think that – I think the modern economy stores are probably – stories of any kind are probably – had to be reevaluated and there is certainly need for stores and there is certainly needs, but I think you can see it across all segments of the population that the people will reevaluate that within Boost, of course the Boost doesn't own any stores, and their distribution is all independently owned and operated, are retailers themselves. So it's not a huge issue for those, other than this is very similar to DISH, the DISH doesn't own stores either, but we would rely on small business people that promote our business and perform sales and service functions and Boost is heavily dependent upon those recruiters for that.

So we don't quite have the overhead of the stores, they still have costs, indirect costs provided us and so we're looking forward to building those relationships with the independent dealers and although Boost – when you look at Boost, we see some things there that they probably aren't the best business practices from a DISH perspective, since we won't own a network day one. And obviously there had to be some changes there, but there's huge opportunity there because, we have a really good network and a network that more devices can work on and we get away from CD&A voice for example. And so there is lot of positives and we're going to have to feel our way through there and manage it closely and be prudent about what we do.

Erik Carlson

All right, operator, we have time for one more question. Please.

Operator

Thank you, sir. And we'll go to our next question, if you could announce your name and company.

Scott Moritz

Oh great. Thanks. It's Scott Moritz from Bloomberg. Charlie, on wireless, what kind of timeline are we looking at in terms of closing the Boost deal? Maybe changing the name if that works and then selling your first guns.

Charlie Ergen

Well, you probably were on the consent decree. First of all, probably – most likely because of accounting and everything we closed in the first of the model, so that should lead. And then the second thing is for the consent degree, there are certain things that have to happen before close, it can happen, that's probably one of the biggest ones as an example has cross provisioning, so that we – when we own Boost that our customers can – we can provision all our customers and new customers on the T-Mobile network, because we don't want to go back and – new and existing. We don't want to – we don't necessarily want to go back and we don't want to necessarily put people on the Sprint network, and then have to go back and switch them later, and the cost of switching later to T-Mobile network.

And obviously every time you switch a customer, you have excess churn. So we want to be able to be – we want to be just comparable Metro and T-Mobile, so device can be provisioned on T-Mobile, Metro, we want to be able to – that boost can do the same thing. So that condition hasn't been met yet, so June 1st would be the earliest that – but it could be July 1^st, if that condition can't met. So that's kind of a time, that's timeframe that we're looking at today.

Erik Carlson

All right, everyone, thank you for your time and interest and we'll talk to you next quarter.

Operator

Once again, ladies and gentlemen, that does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.