This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk18: Please stand by. We're about to begin. Good day, everyone, and welcome to the DISH Network Corporation Q3 2021 earnings call. Today's conference is being recorded. At this time, I'd like to turn the call over to Mr. Brandon Earhart. Please go ahead, sir.
spk11: Thanks, Alan. Good morning, everyone. Thanks for joining us. We're joined on the call today by Charlie Ergen, our chairman, Eric Carlson, our CEO, Brian Nealon, our EVP and group president, Pay TV, Michael Schwimmer, our EVP and group president, Sling TV, and Paul Orban, our CFO. And on the wireless side, we've got Steven Bai, our Chief Commercial Officer, Dave May, our EVP of Network Deployment, and John Syringa, our EVP and Group President of Retail Wireless and the DISH COO. We're not going to be making any opening remarks today, but we will start with the same safe harbors. Statements that 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 FCC filing. Also, as part of the process for FCC Auction 110, we filed an application to participate as a bidder for those spectrum licenses. Because of the FCC's anti-collusion rules, we're not able to discuss that auction, and we will not be taking questions on that during today's call. That's it. And with that, Alan, let's open it up to questions, and let's start with the analyst first.
spk18: Thank you, sir. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. A voice prompt on the phone line will indicate when your line is open. Again, this session first will be for analysts only. If you're not an analyst, please hold your question for now. But again, for analysts, star 1 if you'd like to ask a question at this time. We'll take our first analyst question from David Barden with Bank of America. Please go ahead.
spk02: Hey, guys. Thanks so much for taking the questions. I appreciate it. So I guess the obvious questions are, number one, how is Vegas coming along? When are we expecting the launch? How are the pieces of the network working together? And what's the game plan when we do get to market. And I guess the second question would be, I just noticed in your filing today, the work-in-progress CapEx is now about $820 million. That's up $400 million sequentially for about a $1.6 billion annualized run rate, up from about $250 million of CapEx year-to-date in the wireless business. Could you kind of elaborate a little bit on where that's going? Is that runway going to persist? Anything you can tell us about what's happening in wireless would be great. Thank you.
spk06: Thanks for the question, David. I think I'll start off talking about Vegas a little bit. We're actually in a beta test mode. We've got friendly users helping us test the network. We were a little delayed as a consequence of Frankly, the Vegas network was, I think about it as a pre-production environment or a development environment until fairly recently. And a little more color is just getting the radio software and the core network software to work well together and be reliable. We're still working through T-Mobile roaming and specifically handover issues. So Vegas is, I'd say, coming along. We're in the beta test mode and we'll progress that over the course of the next 90 days and look forward to launching Vegas sometime in the first quarter of 2022. As it relates more broadly to the development process, we're making great strides and great progress. around the leasing and permitting activities associated with the 70% milestone for 2023. And as it relates to the 20% threshold or POP requirement for 2022, as you probably saw, in the queue, we started 35 markets. At the end of the quarter, we're now up to 42 markets. that have construction activity. And as it relates to the sites that are required to meet the 22 obligation, we have building permits on 2 thirds of them, which I feel really good about that. We're months away from the deadline, and we've got building permits on 2 thirds. We've started construction on well over 30% of the sites required for 2022. The build's very focused. We're really just building in markets that we plan to launch in 2022 and we'll start the build activity on markets for 2023 in the new year. The dollars. Oh, yeah. And from a dollars perspective, you're right. The capex is ramped up and, you know, as you would expect, it's going to continue to ramp over the course of the first quarter and probably reach kind of a steady state until we finish the 70% in 2023 over the course of the four quarters of 2022. So Q1 will ramp up some more and then we'll flatten out because from a build perspective, we've tried to level below to the fullest extent we can only because it's really hard to build. We don't want the sawtooth effect because it's Difficult for GCs. It's just difficult to manage. So we're on a ramp I'll give you some color we had Last week almost 300 construction starts and now that number will continue to grow as we move into into into the first quarter and then we'll stable will stabilize that and midway through the first quarter, and it'll run throughout the balance of 2022 at that level.
spk02: Perfect. Thank you so much for that caller. If I could just ask one follow-up. The big debate has been, Charlie, maybe how you want to come to market. Does DISH want to be the last to market consumer smartphone broadband player? Or does it want to be a first-to-market wholesale provider or enterprise service provider? Any color you could share about what you're thinking there would be great.
spk05: I think we're going to do both. As a fourth player, we're not going to dominate the retail handset business, and I know a lot of analysts are going to look at us as this retail handset, but we'll get our fair share of that business. And that'll be a very profitable business for us. But obviously, the network and the amount of spectrum that we have from a wholesale perspective, we're willing to wholesale some of that spectrum. And particularly on the enterprise side, where that's kind of a jump ball. In other words, I think all the carriers are going to do well in enterprise. It's a new market segment. It's a market segment that can rival the kind of demands you see for consumers because because because on the enterprise side when it wasn't when they have when they can have their own private network so to speak a slice of a network they can they're going to be able to build their product safer cheaper better and gain on the competition so it's it's going to be a big market we're well positioned for that because I our opinion is that you need to be cloud-based and you need to be automated to do it to slice your network so we're going to have an advantage there But the incumbents have an advantage of incumbency and brand recognition and that kind of stuff. So I think everybody's going to do pretty well, but I feel like that's a place where we can get more market share than we will in the handset business. Steven, do you want to add anything? Steven, you know, runs that side of it for us.
spk03: I think Charlie characterized it very well. And I think what's interesting in sort of the enterprise space is sort of the move to sort of industrial 4.0 and sort of the opportunity that that presents for enterprise customers to build a more efficient operating model. With our platform, we do have some capabilities in that environment with the cloud-native architecture that we're deploying that gives us the opportunity to differentiate more and actually provides more degrees of freedom for an enterprise customer as well than what you would have with a traditional network. So we do think we have some inherent advantages there, but it's certainly going to be a good business for everybody.
spk02: Thank you guys so much.
spk18: All right, next question will be from Jonathan Chaplin with new street research.
spk14: Thanks, guys. Two quick ones. I'm wondering if just as a housekeeping matter, you can give us an idea of how many subs you still got left on the mobile network. And if you had your choice, how much time you you would need in order to switch those over. And then more interestingly, I'm wondering if you can give us a sense, Charlie, of how the market splits, or maybe this is a question for Stephen, between you, the enterprise market splits between you and the cloud service providers. You're obviously going to market with the likes of Amazon, AWS as partners. How does the enterprises spend on communication services get split between you and them in those kind of deals?
spk05: I'll take the first part of it. CDMA and stuff, and Steven, maybe take the business side question. The CDMA shutoff, you know, obviously, we have, since it's now extended to March 31st, we'll still have well over a million customers on the CDMA network, and if T-Mobile has their way, those customers will lose service on March 31st, and in fact, they won't even, based on T-Mobile's testimony in California, They won't even be, many won't be able to make 911 calls. So we look at it a little bit different than T-Mobile. We look at it for consumer first and say, why in the world do you want to disenfranch customers? We realize we're a for-profit company. We realize that T-Mobile is a for-profit company. But we play the long game and we want to make sure that we're taking care of consumers. And there's not, despite our best efforts and aggressive efforts, we know that we're Too many people will be disenfranchised. And these are more economically challenged customers for the most part, which is why we're not able to convert them. And it just seems like the wrong thing to do. And I get that. And despite, and there's other headwinds such as supply chain and having enough units to do it I would have preferred to work with with T-Mobile and and we're there for them that you know if they want to work with us and work together so that we can make sure we have enough units for customers and we a better way is to work together to convert the customers we want we would love to see we're not against the CDMA shutdown we believe technology needs to advance but you have to do it you can't do in the back of customers and so That's something they'll have to live with their whole life. They're going to have to live with the fact that they're anti-consumer to the extent of profits. And that's something that they're going to live with. And we've taken the other approach. And we spent a lot of money, some headwinds in this quarter that you see. We spent a lot of money to upgrade people for the false deadline of January 1st. And now we've got maybe another false deadline there. that we'll continue to go as fast as we can. But it's disappointing. I'm disappointed in T-Mobile, and I wish they'd taken a little bit longer-term approach to it, maybe a little bit higher-end consumer approach to it. But we're here to work with them to make sure that consumers aren't disenfranchised. Would that turn it over to Stephen?
spk03: Yeah, so just on the question as it relates to AWS, we do have a very good partnership with AWS. It's obviously very strategic. And we are working with them on enterprise opportunities. I won't comment sort of how the split works in terms of how we do that. Each deal is generally a custom deal, as you would expect, depending on the enterprise requirements. The other point to probably highlight is the arrangement with AWS is not exclusive. So we do have customers that have different requirements and different partnerships with other cloud providers as well. And so we'll work with them and complement that solution We also work with multiple systems integrators and we partner on different opportunities across different verticals based on kind of the solution that those customers are looking for. And that goes to my earlier comment about the degrees of freedom we have and the platform that we have allows us to be able to integrate that in different ways depending on what the customer requirement is. And just as an example, in some opportunities we're partnering with our sister company, EcoStar and Hughes, on certain opportunities that they're in segments that complement what we're doing on the terrestrial side as well. So it's a good partnership with AWS. They're a very important partner both in our network build as well as in the enterprise opportunities that we're exploring. But we are also working with many other SIs as we pursue this market opportunity as well. Yeah.
spk05: This is Charlie. Let me jump in. When you look at it from a big picture perspective, and this is, you know, it's hard to model now because we're certainly in the infancy of this. But the way we look at it from the network perspective, where do we get the highest profitability per bit, right? And for the enterprise customers, you don't have some of the customer service to consumers. You don't have the retail stores. You have a lot of costs you bring out of that. And because those bits are so valuable in terms of them being able to make their products better, we think that the enterprise business has more profitability probably, that's our guess, has a lot more profitability than kind of a very competitive retail wireless business where everybody's selling the same thing. We're the best 5G, we're the fastest 5G. We can differentiate a lot more in the enterprise business where we can say we're in the, I don't think a business survives the next decade if you don't, if you're not, if you don't have automation and you don't have, you're not using artificial intelligence and you're not cloud-based. I just don't think you should, with a rare exception. Some old school industries maybe do, but you're just not going to survive. And we're on the leading edge of that. And so we think that we move people there in a way that, or help move them there in a way, with our partners, in a way that they couldn't otherwise get there with the other carriers.
spk12: Got it. Thanks, guys.
spk18: All right. Next question will come from Walter Pajic with LightShed.
spk07: Thanks. Charlie, can you tell us what exactly does consumer beta service mean? What does that look like? And I think related to that, Dave, in his comments, talked about working through some issues with T-Mobile roaming. Are you hooked up with AT&T yet in terms of roaming or using their network? I was in Vegas last week. I didn't really see much of anything there. But in the stadium, T-Mobile didn't even work. So I'm just curious where you are with AT&T.
spk05: We don't have roaming with AT&T yet. And T-Mobile is first up for us. They remain a very important partner for us. And the roaming commitments that they've made are very, we can't launch commercial service without T-Mobile roaming. So, you know, if you can't, I don't think you have a commercial service if you drive outside of Las Vegas and you don't have any service. So, we have to get that done. You know, we're working through those issues. But, you know, it's not a secret that our relationship is not the greatest. So that's difficult, but they've made commitments to.
spk07: So why not prioritize AT&T and just use them instead?
spk05: They've made commitments to the regulators. And we, you know, we'll get through that with them and make sure we can get it. And then, you know, AT&T will come later. And then in terms of what our beta test today looks like, it looks like, you know, Our employees, some people who have signed up on our system are signed up to be a beta tester and then required to give us information. And then every day we go through all the tickets of the stuff that doesn't work and there's stuff that doesn't work. And then we go fix that and then we'll continue to add more and more people and load more and more system as we get it more stable. But, Walt, if you come to Vegas and you want to go test it out, we'll be able to do that for you. The next kind of big thing for us is end of November when AWS has their re-invent conference. It's around the first of December or something like that. And I think people will probably try to get to experience a part of our network then.
spk07: Okay. Maybe I'll come out for that. On a second topic, there's been some breaking news. Apparently the FCC is back down to the FAA and C-band is now delayed. They're claiming a month, but obviously we've seen with Legato that these things can drag on much longer than that. You're building in a couple of markets, but you have this depth of spectrum that is leasable to AT&T and or Verizon. Is that something that... you would consider or are you just going to hold all that spectrum back and because you know it's going to take you a while i think to build that who knows maybe this one month delay becomes nine months and you can make some money in nine months by leasing the spectrum so is that an option that you'd consider uh answer is yes we're we're we have been very public that we're wholesale and so uh we know it's public that we are leasing capacity to team up today
spk05: and we do think there are other interested parties in leasing capacity. And so, you know, I'm looking at Dave here because Dave is in a situation, as he looked at his build-out, where does he have pockets? But I think that that's certainly something that we would consider, and there are a number of parties that have asked about the ability to lease capacity in the short term. And obviously, I hadn't seen the news on C-band, but obviously that would, you know, if any delay in C-band, particularly for Verizon probably, where they really spent a lot of money on it, would not be, would be positive for T-Mobile probably, but not positive for the other guys.
spk19: Charlie, it's Rich Greenfield. Just wanted to jump in. You know, you're always so thoughtful on sort of the big picture of the video industry, and I know you're sort of now You've sort of been a blackout situation with Tegna. The Sinclair RSNs are obviously still dark. Major League Baseball and the NBA are sort of talking about doing their own over-the-top RSN service, or sorry, streaming local sports service. You know, in every media company I've just listened to over the last week, all they talk about is their streaming services and not linear networks that you pay a lot of money for. I'm just wondering sort of how you think about, like, Are we getting closer to the point where rates for channels actually start coming down? Like are, you know, do you think anyone's learning that they can't charge more every year, um, as viewership goes down and they don't even care about the assets versus their streaming services? And how does that affect how you negotiate re trans programming, et cetera?
spk05: I mean, I don't, I don't think it, it doesn't really change anything. I mean, it does change stuff because as, as something is available through streaming, your product becomes less valuable on a linear basis because people have another way to get there. So it relates to retrans. Now the biggest, really retrans today is an NFL season ticket to your local teams, right? That's the value there. And absent NFL, I don't know if they have a show in the top 100 that gets there, right? So maybe the Oscars or something, I don't know. But there's not much there based on what we see. So the viewership, We've seen beership decline 15 years in a row on the networks, and retrans go up by 1,000%. That's not sustainable, but we look at it for math, and we know we'll lose customers, so we know we'll lose Tegna customers if they're not up, and we are losing some customers, but not as dramatic as it might have been in the past. And once you're through football season and once people find a way to get football next year, That's going to be a permanent loss of viewers for Tegna. And, of course, people also can go get it from the networks. They can get Peacock from NBC directly. And maybe Tegna gets revenue from that. Maybe they get more revenue than they do from us, and maybe that makes sense for them. But we look at it economically. You know, Sinclair is bigger than Tegna, and we've had a long-term relationship there. You know, there's more conversation around that than there is, and they're bigger and would probably have a little bit more clout and scale in the marketplace. But, you know, I said it last time, I think the moves and retrans are down, not up. And I don't know what that does to valuations, but, you know, I saw, you know, Gray publicly said 50% of their revenues are retrans, and I think that's going to come under pressure.
spk19: But just to be clear, there hasn't been a deal signed yet from anyone.
spk05: The end result of this is networks. If you fast forward a decade, I don't think most things will – I don't know that networks exist, maybe for local news because they're pricing themselves out of the market.
spk19: Just to be clear, no deals have been done at a down level yet, but that's where you think it's going.
spk05: We don't have – well – Tegna is down and there is no deal done there. So Sinclair is still up and obviously we've had several extensions that are public. And beyond that, we just wouldn't talk about a current negotiation where the company is still up. Did you want to say something, Eric?
spk09: No, I mean, Rich, I mean, you're right. I mean, retrans is still going up. Viewership is still declining. So this is, you know, Charlie's spot on there. I mean, generally, I mean, you're looking at retrans as just being a tax on the American consumer right now. You know, what is it, something like, you know, $12 billion or something like that. And viewership continues to decline. And so that obviously puts pressure on our margins, and it puts pressure on, you know, our consumers' willingness to pay. So we've got to be better at customer experience and a bunch of other things in order to, you know, combat the tax.
spk05: But I don't know why you want to drive your customers to watch Netflix and Hulu. And, you know, I don't know why you want to do that, but they're doing it. But, you know, they have their own – I'm not in their shoes, so they have their own – you know, they have reverse retrans and they have their own, you know, I'm somewhat empathetic to their plight because they don't have a real absence of fundamental changes.
spk21: Thank you very much.
spk18: All right. Our next analyst question will come from Rick Prentice with Raymond James.
spk10: Yeah, thanks. Thanks. A couple questions. One on the Las Vegas consumer trial. Do you anticipate having a wholesale enterprise trial strictly to Vegas or do you need more footprint before you could actually do a wholesale enterprise trial?
spk03: Yeah, Rick, it's a very good question. And in fact, we do have both wholesale and enterprise lined up. We're very focused on the consumer trial right now. And at the appropriate time, we'll talk more about what we're doing there on the wholesale side. And what's actually exciting about the wholesale opportunity is A lot of pundits would suspect that you need to have a nationwide footprint to support that segment. There are a lot of opportunities there to serve customers with very niche products and capabilities that are at a local or even a regional level, and we're working with companies to do that. And we will announce at a later date some further details on what we're doing there.
spk10: Makes sense. I think, Stephen, you also talked about satellite companies. We've seen OneWeb with AT&T, Project Kuiper with Verizon. You mentioned sister company, EchoStar. Maybe broadly, Charlie and Stephen, how do you see satellites fitting into unintended space here for you?
spk05: I see satellite as part of connectivity. We're a connectivity company. We are pretty, you know, through our history and through our EchoStar relationship, you know, we're fairly knowledgeable about satellite. And I think you're going to see geos Leos and Meos play a part in the products that you can bring to market and how you can differentiate yourself, whether it be on the enterprise or the consumer basis. And I think we're well positioned in that. In a funny sort of way, video is most of your traffic, and we're pretty good at video. And satellite's a part of your connectivity, and we're pretty good at that. And so I think we're able to to differentiate in ways there. And we'll just, you just have to stay tuned as we move through those issues and see where everything lands. Because a lot of it depends on where the, I mean, ideally there'd be a standard and people would all deal with the standard. It wouldn't be a sandbox, individual sandbox for everybody else. But like most things in wireless, everybody seems to want their own sandbox. And we're probably the only guys that say it might make sense from a CapEx perspective to have a standard and play in the same sandbox, but we'll see.
spk10: That's one quick housekeeping question, if I could. On pay TV, SG&A was somewhat higher than we were expecting in third quarter. Is there anything out of period in there? Is this a good run rate? Or was the first half of this year a better run rate? Anything unusual in pay TV SG&A?
spk15: Yeah, this is Paul. Yeah, there's no one-timers in there this year. However, last year, though, had the benefit of COVID and everyone kind of hunkering down on costs. So going forward, though, I think it is probably a pretty good run rate to look at.
spk09: I think, Rick, you know, this is Eric. I'd also say, look, if there's just, you know, generally you're hearing about inflationary pressures and there's some of that baked into that, we'll see what happens with that on the run rate. And then, obviously, we've had, you know, as Charlie alluded to already on the call, just, you know, with the false January 1st CDMA deadline, we've had some additional expense along with converting customers. So we'll see where that ends up, you know, over the next few quarters soon. But we'll keep you posted on that.
spk21: All right. Stay well. Okay.
spk18: Next question will come from Michael Rollins with Citi.
spk17: Hi. Good morning. Two questions if I could. First, I'm curious with the Vegas launch and the other markets that you're deploying, are those radios capable of using the 800 megahertz spectrum that you have an option to buy from T-Mobile? And just curious what your thoughts are in terms of fully acquiring that spectrum band. And then secondly, you've shared your thoughts in the past about the possibilities of satellite video mergers. Just curious your current thoughts, how the industrial logic for that type of merger is evolving, and is there an urgency to try to get that done?
spk03: So I'll take the first question there, Michael. In terms of the radios that we are deploying, it does support all our current bands and the radios from a hardware perspective and even a software perspective have the ability to turn on the 800 megahertz. So we decided to ensure that as we did the deployment, we would not have to come back and add an additional radio in the event that we decide to exercise that option. So all the plumbing is in place, all the hardware is in place, the software is there, all we have to do is really
spk05: activate those radios and beyond that even all the carrier aggregate aggregation combinations are already being designed in to be able to support that depending on what we do with that option and then on the I think you talked about the industrial logic of putting the two video companies together again I've said it many times inevitable I think that there's been a change of control there in terms of from from AT&T to TPG and and The question is probably, I don't know, I assume that they see the logic there as well, but that's probably a better question for them. I think the big thing would be regulatory, and I think it's prudent for anybody to wait until we have an antitrust team, the government has an antitrust team in place, which could happen maybe in the next month or two, and see kind of how they're looking at mergers and seeing and what they're focused on what they're not focused on but but obviously industrial logic is it's not it there's not three competitors in the video business anymore or competitors there's there's dozens of competitors and all with large-scale and the technology has has changed the economic equation and and you know you run the you if you want consumers to have a choice of satellite television it it will have a much longer runway and choice pattern if there's a combination than if there's not.
spk21: Thank you.
spk18: Okay, we'll move on to our next question from John Hodeluk with UBS.
spk13: Okay, thanks, guys. Maybe back to the wireless network build. Thanks for calling, I guess, 42 markets. I mean, how many markets do you guys expect to – to build into to hit both the 22 and the 23 mandates. And then from a sort of breadth versus depth standpoint, anything you can tell us about the build in each market? Is it just sort of the downtown urban areas or sort of how deep into the suburbs you go? I don't know if you can give us a sort of towers and nodes per market standpoint. And has that view or that balance shifted at all with the AT&T deal? Does it make your build out more efficient or do you, change how you think about deploying infrastructure because of that roaming deal. Thanks.
spk06: Yeah, sure. Thanks, Jonathan. This is Dave. So I'll start off with the AT&T question. What we're doing hasn't changed a bit as a consequence of the AT&T roaming deal. And when I think about what we're building, it's really the metropolitan areas in any of the given markets. I mean, we built and we designed footprint sufficiently large to minimize the handovers to other networks. So the networks were built such that the handover back to T-Mobile would be on an interstate outside of town. So that would imply that all of the key suburban areas and all of the geographies will be covered. If I think about, your question was can you help dimension the 20% and the 70%. And I'd say that with respect to the 70%, you know, that encompasses all of the major metropolitan areas across the country. And if you think about, you know, cities over a half a million, they're going to be, you know, in the continental U.S., if it's over a half a million pops, it's going to be in the footprint. Right? And I'd say if I roll the clock back to the 20%, it'll, you know, similarly, it will be metropolitan areas where they're relatively easy to build. So, for example, California that's intrinsically more difficult is not high on the list in the 20%, nor is the Northeast, although there's some areas in the Northeast that's primarily the middle of the country where co-location is prevalent and we can move very quickly. So, I mean, I think that's probably what we're trying to do in the 2022 timeframe. And we'll attack and address the more difficult areas to meet the 2023 build objective.
spk05: Yeah, this is Troy. I'd say, I just add to it, we're already building for 23, right? It just takes longer because there's more rooftops and more permitting and things like that. Yeah, we're doing the SIDAC and the soft cost work, yeah. And, you know, you think Texas and Ohio and North Carolina and, you know, Dave knows this better than me, Florida. You know, those are the markets that – and we'll give you more color on the markets as we – we have internal competition here, and we don't want to pick sides yet. Nobody's getting the yellow jersey yet, and so we're – We're seeing who kind of gets there. We're having a little bit of fun with that. And then we'll, as we start seeing some of our 36, what do you got, 36?
spk06: Yeah, 36 market organizations.
spk05: Some of those guys are going to get the L jersey, and then we'll be announcing.
spk06: Thanks, guys. Bill's going really well.
spk05: You know, I would say deployment isn't, every day, I think we spend most of the time as a team, other than Dave, Deployment's going, you know, we're on track for the 20%. So it's really the execution of how you get all our vendors and all our software and all our radios to work together. Because it hasn't been done before in the cloud. A little bit easier to make it work traditionally. But we don't need to build, you know, last generation's network. We've got to build where things are going. And it's more difficult. So the execution risk is still there for us. But You know, the teams and the external vendors are putting extraordinary efforts into getting there, and we're excited to finally have Vegas making calls.
spk21: All right. Thank you. Next, we'll go to Kanan Venkat with Barclays.
spk12: Thank you. Charlie, maybe on the... on the retail side, when you think about the go to market strategy, it looks like you're thinking of some kind of a self branded device and that'll obviously help you manage working capital. But is that some kind of a template we should think about as you enter the market more widely as you go into next year? And then just from a working capital perspective, as you head into next year, I mean the current free cash flow run rate of roughly about $2 billion a year, Does that change materially either because of, you know, maybe working capital step ups or, you know, the capital intensity, as you indicated, I guess, it steps up the next couple of quarters and stabilizes. But then you also have PTV costs potentially stepping up post-COVID. So how should we think about the run rate for free cash flow as we head into next year?
spk21: Yeah. You want to take free cash, Paul?
spk15: Yeah, this is Paul. I'll take a free cash flow. Yeah, going forward, you're going to see a drag on free cash flow as it relates to our 5G deployment. As Dave spoke about earlier, that CapEx number will continue to grow, and that'll drag down the historical free cash flow amount that you've seen.
spk05: Yeah, I think the way to really look at it is, absent the CapEx expense, right, we're still in a strong free cash flow perspective, but CapEx will drag it down some.
spk04: Hi, this is John on the handset side. We're working with all major OEMs and partners. It's incumbent upon us to build out the partner ecosystem on the device side for our own network and also to secure devices that are compatible with the T-Mobile and AT&T networks. I think it's been a pretty common theme. There are supply shortages in the low and mid-tier Android space. So we don't really have scale, so we are on allocation with some partners now. which impacted us in the quarter. When you think about going forward, you know, we do want to take a broad approach to, you know, having the right consumer offers in the right segments. And, you know, we did launch the Solero 5G this week, and we think it's going to do well for us. And we're going to focus on bringing in the right products based upon the consumer segment. That's a device that will primarily be distributed through Boost at branded retail, national retail, and digitally. and we've been happy with it so far, and a lot of work next year as we bring in devices for our own network, and certainly with Band 70 support and the like.
spk12: Got it. Can I just follow up on the cash flow question? Broadly, as you go into next year, at some point, I guess, before your revenue starts scaling, this potentially tips into a negative territory. And so is there any thought in terms of, how to finance some of the cash burn initially as your revenues scale, and should we expect that maybe over the course of the next 12 months or so?
spk05: Yeah, I think we always look at the marketplace opportunistically, and it depends on a lot of factors, but we obviously expect we're going to grow our business, particularly in the retail wireless business, and we do think that our spectrum We think we can monetize a little more spectrum, but, yeah, there could be cases where we go to market as well.
spk21: All right. Thank you so much. Next, we'll go to Doug Mitchelson with Credit Suisse.
spk08: Thanks so much. A few clarifications, then a question. I guess the first 300 construction charts this last week, and that's going to ramp. So if you end up doing sort of 5,000 a quarter or so, I thought at some point there was a mention that maybe about 17,000 sites would get you to where you need to be. And it seems like you might be running well ahead of that. So I'll just ask one by one. Any thoughts on that?
spk05: Yeah, I don't think we've disclosed the number of sites that we need. But we have a commitment to the FCC of 15,000 sites. at certain speeds by June of 2023. Now, we believe the number will be higher than that, obviously, but the 20% number doesn't require that kind of scale.
spk08: Okay. Sorry, Charlie. I thought at one point you had told us sort of just over 15, but maybe it's just tied to that FCC commitment. How should we think about the transition to AT&T? I know it was sort of asked earlier, but is there like a percentage of 2022 traffic that we can expect that would be shifted over to AT&T rather than T-Mobile? It's just sort of interesting, I think, for everybody watching DISH, how that relationship with T-Mobile evolves.
spk05: Yeah, I mean, I think a lot depends on T-Mobile. They're not interested in a relationship, but, you know, it's a little bit that they view it as a shotgun marriage by the Justice Department, I guess. I mean, I, you know, and if they're not interested in a relationship that obviously that we see T-Mobile as being very fundamental to what we're doing, but to the extent that they're not interested, more traffic will move to AT&T. So.
spk08: Okay. And then.
spk05: You know, the consumer. You know, our experience has been that the AT&T network is superior from a coverage perspective. I think that when you look at 600 megahertz in 5G, I think T-Mobile has done more in getting a 5G out on their low-band spectrum. Having said that, you know, as a consumer, forget all the marketing. For our consumers, and we've done the test, if you did a blind test, our customers would far – would be a pretty big discrepancy. They would prefer the AT&T network. If you get into the marketing of it and things like that, and you look at 5G and 600, I think T-Mobile has an advantage there. But for our customers, that's a bit more, that side of the marketing is not as important. It's really coverage and dependability and knowing, particularly as you get into rural America where a lot of our customers are on the video side. They think T-Mobile is still building that out.
spk08: Got it. And then last couple, $10 billion of CapEx that was reaffirmed in the 10Q for 5G network build-out. Are you able to give us a sense of timeframe? Is this 2023 timeframe sort of cover that entire $10 billion, or is that over an extended period of time?
spk05: No, that's over an extended period of time. So that goes to at least 2025, where we have continual build-out requirements beyond 2023. but as you get into smaller markets, your costs are higher for POP. Obviously, it's less POP, but that's over an extended period of time through 2025. There is some confusion out there because our commitment number went up this quarter. Those commitments are really OpEx. Our tower leases are over You know, on average, 20 years or greater. We have a commitment now to AT&T, which has been publicly disclosed, $5 billion. That's all OPEX. And obviously, there's revenue associated with, for sure, AT&T, there's offsetting revenue materially higher than that. So that's not in our $10 billion. That's OPEX. But the actual capex, we're still on track to be $10 billion or better over an extended period of time. So not by 2000, be less than that in 2023.
spk08: And last one, your comments on consumer versus wholesale are always interesting and versus enterprise. I was hoping you could help us understand timeframe a little bit for the enterprise opportunity. So you've talked about it being a big opportunity, but it's one that might take a while to emerge. What's a good timeframe for investors to think about when enterprise becomes a really big business for DISH, and I'm just curious the capital intensity of that business versus consumer. Are there big upfront costs to help enterprises activate that service, or is the thought that enterprises will bear those costs? Thanks.
spk03: Yeah, so on the enterprise, we have traction now in the enterprise segment, but the revenue is still fairly small. Obviously, that business scales as we grow the business. We already have some really positive traction right now. That'll grow as we go into 22, but I don't anticipate that to become material until we get into 2023. And so, you know, we'll continue to grow that business scale. We can grow that while Dave is building the network because it's not constrained by geography. And so we can actually, and we are pursuing opportunities that aren't limited by the geography of the footprint we're deploying. But as we build that footprint out, then it expands the market opportunity for us. We'll see that sort of begin to pick up as we go through 22, but really not having a material impact until we get into 23. So that's kind of where we see the enterprise.
spk05: And I don't think we see a lot of CapEx for that business beyond what we do for our macro network.
spk03: And it's very success-driven CapEx. You know, we don't spend the CapEx in anticipation. It's really tied to the opportunity, each one, one by one.
spk18: Great. Thank you for all the questions. All right, your next question comes from the line of Craig Moffitt with Moffitt Nathanson.
spk20: Yes, hi. Two questions, if I could. First, when you talk about the enterprise segment, what are the specific applications, if you could just drill down a bit, that you're targeting? Is it mobile edge compute? Is it more IoT types of things? Is it something where latency is the real advantage? It would seem like all of those things have somewhat different implications for the network. And then if I could just return to the comments you made about financing, Charlie, can you just talk about, as you think about going to the capital markets for financing, how do you prioritize between debt and equity? And if it's debt, would you be willing to secure any new debt against Spectrum, or would you only look at unsecured?
spk05: I'll take the last part, the second part, and then we look at the market. We don't have a religion and we look at the marketplace in terms of where you can get efficient execution and obviously that could be secured, unsecured, could be equity, could be some combination of those kind of things. You've seen we've done virtually everything in the past over time. So we just look at where the marketplace and what's available and where, and what makes sense from our capital structure long-term. So with that, thank you.
spk03: Yeah, and in terms of the question on the enterprise, Craig, it's really all of you, Bob. There isn't a single application one could point to and say that that dictates sort of the enterprise opportunity for us. It really depends on the vertical. And really, I would say that if there's a common theme that runs across each of the verticals, it's really about how do they drive their operating efficiency as a business using the technology to facilitate that. And so depending on what vertical it is, depending on what solutions they're trying to deploy, what systems they have in place, it drives different requirements. There are requirements in some opportunities for very low latency, depending on what they're doing in terms of the control systems, and there are others that don't have that same criteria. So each one of these, and that goes to my earlier comment about degrees of freedom, you have to have the degrees of freedom within the platform and the architecture to support those different solutions based on what that enterprise need is. So there's no silver bullet, and one application isn't going to win the opportunity here. the ability to put it all together on a common platform.
spk21: That's helpful. Thank you.
spk15: We'll take one more analyst call before we go to media.
spk18: All right, certainly. So our final analyst question comes from the line of Ben Swinberg with Morgan Stanley.
spk01: Hi, good morning. One on wireless and one on the video business, please. You know, Charlie, we've heard from lots of companies this quarter. I'm sure you know there's tons of supply chain stress, excuse me, out there. And I'm just wondering if you think there's an opportunity to work with the FCC to get more time. You know, it would seem like that would be a reasonable request, just given all we're hearing on the equipment front. So that's the first one. And then on the video side, you know, churn has been unbelievably strong at DBS since COVID began. It feels like part of that is sort of you know, nobody's moving and there's just sort of depressed activity. I'm wondering if you guys have a view as to when or if and how that normalizes and, you know, what you guys are doing to make sure you keep it, you know, below where it was, you know, kind of pre-COVID. Thank you.
spk09: Hey, Ben, it's Eric. I'll take that second one first and then I'll turn it over to Charlie or John on the supply chain item, I think, Charlie. But look, I mean, we've been talking on the call for quite some time about a bit of a pivot strategy in DBS. And so we have been focused really kind of on acquisition and retention of profitable customers in rural America. There's no doubt I think COVID had a unique inflection point where you're seeing a bit less switching. Some of that is obviously impacting our acquisition and we're managing our spend on acquisition based on kind of response rates we're seeing. And some of it's benefiting, obviously, subscribers on the retention side. But I'll tell you, you know, our strategy of really over the past several years focusing in on, you know, attracting and retaining the right customer is starting to pay dividends. It was starting to pay dividends before COVID. So, I mean, when that changes, I mean, look, there's just a lot of variables, right? You've still got COVID. You've got some of our strongest and longest-term partners now competing on the DTC side. Obviously, there's a piece of, you know, a lot of the customers that we reach are in rural America. And, you know, as broadband densifies, obviously, customers will have more choice. And so, you know, there's a lot of variables to try to forecast what's going to happen. But, you know, we're still focused in on, you know, profitability, providing customers a great customer experience. Our fourth GD Power win last quarter was great for the team in order to celebrate and a great testament to the efforts we put in on the customer experience side. So I'll turn it over to Charlie on supply chain.
spk05: On supply chain, I mean, there's no doubt there are supply chain issues, but there's a lot of issues. COVID, the fact that people have had to work at home and a lot of our vendors work at home and just a lot of disruption out there. But we focus on it every day, which is, You know, you're always going to have challenges, and we just have to overcome those challenges. And we're a company that has been in the office since May of last, of 2020. So we're working as a team and managing through those issues. And Dave and his team have managed through the deployment issues, and we're still on track. And we're not, yes, we, the FCC, in our agreement, you do have supply chain issues as a reason you could be late, but that has to be a real reason. I mean, you wouldn't make that up. And so we're just going to get there. That's just the way we're going to do it. On the handset, there's two other areas, you know, labor's an issue that our team's having to work extraordinarily hard because, you know, people are, there's not enough supply of labor out there today. And the handset issue is probably the biggest because, We had headwinds in this January first shutoff for CDMA, so we had to take handsets and give it to existing customers that would have been a new customer. Right. And so, absence of supply chain issues on the handset side, where we're getting a fraction of what we've ordered, you know, we would have been, we would have had growth, we had a lot more growth there. So, and we don't have the scale that the incumbents have with the vendors. I don't know that we get our fair share of handsets. We work extraordinarily hard to make sure that we're on people's radar screen. Our customers primarily aren't buying the $1,000 phones. They're more economically challenged, but as we get into postpaid and as we get into owner economics, that changes for us in a very positive way. John, do you want to talk about retail? Retail is important because it's a really positive story for us, and maybe John can talk about it in a second.
spk04: Yeah, of course. Thanks, Charlie. We're definitely building capabilities to return the business to profitable growth. We see it as a situation where we would have grown in the third quarter if not for some of the supply chain issues as well as some of the headwinds from CDMA that have been covered. we're definitely ramping up our team across retail national retail and digital take the business to growth we're taking a segmented approach to the different opportunities we see and access to handsets is is a key thing going forward and as Charlie said we're definitely focused there and we would anticipate seeing these situations clean up for us sometime late next year. We're not quite sure about Q1, Q2 yet, but we're focused on supply and also making sure that the devices that we do have go towards the most profitable activities. And, you know, we talked about it earlier with respect to CDMA. We see there being over a million customers still on the CDMA network if the network were to shut off on March 31st. So additional handsets is something that we're definitely focused on. And we'd love to be able to partner with T-Mobile on that, as Charlie alluded to earlier. And it's a daily focus here to make sure that we can keep our partners supplied and move the business forward.
spk21: Got it. Thank you. Operator, we're ready for a few calls from the media now.
spk18: Thank you, sir. And again, we will now take questions from members of the media. If you're a member of the media and you'd like to ask questions, just as a reminder, that is star 1 to enter the queue to ask a question. Once again, please make sure that your mute function is turned off so that your signal reaches our equipment. We'll pause for just a moment to allow the queue to queue up. Again, that is star 1 if you'd like to ask a question as a member of the media. We'll pause for just a moment.
spk21: And once again, everyone, that is star one. If you'd like to ask a question, we'll pause for just another moment.
spk18: All right, we'll take our first question from Scott Mertz with Bloomberg.
spk22: Great, thanks. Charlie, the stock's taken a big hit today. I think people are hearing from all this that the 5G network costs are creeping up, that the commercial launch might be slipping out a little further. You know, doubters are probably saying, I told you so.
spk21: How would you address these concerns?
spk05: Well, I don't think, it shouldn't be a surprise that the capital expenditures are where they are since we, you know, that's what it takes to build a network and we're doing it infinitely less expensive than anybody's ever done it before. So, and obviously the, you know, I think we're doing, I think we should have been a little faster on rollout in Las Vegas. I mean, I think that's fair, but I think other than that, Most everything else we're doing is, we're doing probably better than we anticipated on. And we're not, you know, we're not exactly understood by the industry that much. And part of it's because we don't spend a lot of time going through strategically what we're doing. And we spend a little bit more time on just, it's a complicated story. And it's a little bit easier for us just to do it and then show people. and as opposed to try to explain it and you know it's just a simple example is we're about more than just a handset business yet the people who follow us and stuff are in that and that and you know we're we're basically a cloud IT network that we're building and it's a little bit different thought process on what that looks like than traditional traditional networks and so You know, we have to do a better job of explaining our story, and we have to execute it in our markets between now and June of 2022. So I think that's the stuff we'll focus on. The marketplace, they don't always get it right in the short term, but they'll get it right in the long term. And we're one of the few companies that has the ability to be able to think long term. If we had thought short term, we would be trying to get DBS subs. five years ago because that's what people wanted us to do. And so I think we know where it's going. We know the power of this network. We know how special this network is going to be. And we know the opportunity. So it's on us to execute and then give people the roadmap to see why their investment in DISH is a smart investment. And we have certainly work to do there. But we're focused on making sure we get our network up and operating, and then we'll talk about it. And there'll be a little bit in AWS. I think there'll be a little bit in Las Vegas and at AWS at reInvent stuff. I think people will start to see it there and start to understand a little bit better because those are the people that actually, the developers and the people in the cloud, they'll have a better feel for it. I mean, last year, this time, people didn't, said we weren't going to build the network. Now, I think it's shifted to, okay, we get it. I think most people believe we're building the network. Now it's, you know, can you make it, can you stay under your, $10 billion long-term, and can you make it profitable? That we have to show.
spk09: Okay, operator, we'll take one more from the media.
spk18: All right, certainly, sir. We'll take our last question from Amy McLean with Cablefax.
spk16: Hi there. Thanks for taking my question. I just wanted to check in. Your comment earlier about TechMed did not sound very optimistic, and I know you filed a good faith complaint. Are there negotiations going on still between the two of you? Ms.
spk05: Charlie, I don't think there's serious negotiation going on, really. I mean, I think we remain far apart. We got eight weeks of football left and then we'll have lost the customers who can't find football somewhere else. And it remains such a huge tax that we know where that ends up. So having said that, we remain available to have an honest conversation about where things go. We know what the prices we pay everybody else is. We know the prices of the marketplace. We know the ratings. The economic value, we always pay more than the economic value because we have to factor in the customers that we lose. But the economic value to us is going down, not up right now because we've probably lost, you know, and it's not a tidal wave by any means in terms of customer. So they find another place to watch the news, and they find another place to watch football. So, and they can save money. We give them a credit. when they don't have Tegna. So we give them credit so they save money. So it's a bit of a balance. But we prefer to be up. Tegna's been a good partner. We prefer to have it up. We prefer to have an honest negotiation.
spk21: But we're just a part. Thanks. All right, operator and everyone, thank you.
spk09: We'll talk to you next quarter.
spk18: And that does conclude today's conference. We thank everyone again for their participation. You may now disconnect.
Disclaimer