Dish Network (NASDAQ: DISH) sees video as the killer app for the wireless business, an industry it has every intention of entering, and it will not sell its accrued spectrum unless it fails to gain a toehold.
Ergen (Source: Dish Network)
During his company's second-quarter earnings call Wednesday, just hours after it was revealed that a merger between the Nos. 3 and 4 wireless services in the U.S. was off, Dish chairman Charlie Ergen spoke at length with investors and media about Dish's wireless plans.
"Our dream would be to compete in the [wireless] marketplace, bring a better product to consumers, be disruptive, be innovative and enhance video business we're in today," Ergen said.
He agreed that the scuttled Sprint/T-Mobile merger "increases" Dish's options for entering the wireless market--a gambit he described as being bookended by two unlikely extreme scenarios: Dish continues to acquire spectrum and builds a network infrastructure all on its own; or Dish gives up and sells its spectrum.
The more likely scenario would be a partnership. "We're always looking for people who can help us," Ergen explained.
So who in the wireless world might Dish partner with? Asked about reports that the company was discussing a joint bid for T-Mobile (NYSE:TMUS) with French telecom operator Iliad, the chairman was coy, noting, "We're in a relatively small industry, and you can assume that everybody is talking to everybody."
He did say the termination of the Sprint/T-Mobile talks was a topic Dish executives had not had a chance to "internally digest." He also said the upcoming Federal Communications Commission spectrum auction will go a long way towards clarifying his company's next move.
The auction, Ergen believes, will determine how much Dish's spectrum--which includes two substantial 20 MHz pieces--is worth in the market.
"If the auction goes for low price, we'll probably end up with a lot more spectrum," he said. "If it goes for high price, we won't end up with a lot, but the high price will end up enhancing our balance sheet."
As of right now, Ergen said Dish's spectrum is significantly undervalued by investors. "Facebook went from zero [mobile advertising as a percent of total revenue] to 62 percent mobile in two years," he explained. "Data is not going to be in voice call and text, it's going to be video. That's why virgin spectrum in 20 megabit chunks is so valuable."
Indeed, Ergen said the fast-evolving video marketplace is Dish's primary driver as it seeks to enter the wireless industry. In that regard, he praised the management for Dish's key rival, DirecTV (NASDAQ: DTV), in positioning the company to be acquired, pending regulatory approval, by wireless giant AT&T (NYSE: T) at such a high price (nearly $50 million). Ergen also praised AT&T as being "smart to think video is strategically important to the wireless world," adding, "I think those things go hand in hand."
The pay TV marketplace will be totally transformed in five years, Ergen believes, with most video consumption occurring over wireless networks.
"If you had your own wireless network that delivered a consistent quality experience, and you took consumers' home experience and made it available to all their devices no matter where they are, at the same time took your advertising mobile, that changes the dynamics for ecosystem for what Dish and our content providers could get," he explained.
"Five years from now, you're not going to see an ad saying fly the friendly skies," he added. "Those ads are going to say push the button and buy a ticket … and those ads are going to be worth more."
Separately, Ergen offered slightly more insight on the over-the-top service Dish is developing.
"I think our vision is to try to get incremental customers who aren't pay-TV customers today," he said. "I'd like to get them at a young age--those kids who probably didn't pay for TV in college except for Netflix," Ergen said. "We'd like to get them started on pay-TV. We'd like to get them started on ESPN. My concern is that we're missing a while generation of customers."
Dish is still working out the model with content partners including Disney, he said. But the plan is for the offering to provide a "single stream," whereby households can only consume one program at a time.
- listen to this Dish Network earnings call
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