Dish continued to lose wireless subscribers for its Boost Mobile MVNO business in Q4, and warned of potential negative impacts ahead as T-Mobile plans to shut down its 3G CMDA network in early 2022.
Fourth quarter results released Monday show Dish lost 363,000 net retail wireless subscribers. That follows third quarter losses of 212,000. In Q4 churn climbed to 4.88%.
Dish is currently operating Boost as an MVNO, with subscribers riding on T-Mobile’s network while the satellite TV provider works to build out its own 5G network. Dish purchased prepaid Boost Mobile for $1.4 billion as part of agreements related to approval of the T-Mobile/Sprint merger, and started offering service last July.
The company also acquired around 200,000 wireless subs from Ting Mobile in August. Overall, Dish ended 2020 with 9.055 million wireless subscribers.
In its 10-K filing, Dish said it's working to make sure the subscribers it acquires and retains are profitable under MVNO economics, but those are different than for a facilities-based network operator and hurt net retail wireless customer additions. For example, customers that are high data users “may be profitable for an MNO, but are not profitable under an MVNO,” wrote Dish. To that point, in October, Dish introduced a new $10 Boost Mobile plan targeting subscribers that don't use a lot of data.
MoffettNathanson analysts noted that there are few year-over-year comparisons for Boost Mobile metrics, but that Dish looks focused on generating cash short-term by cutting costs and pulling back on subscriber acquisition while taking hits to its subscriber base – the same approach for its pay TV business.
“It is perhaps the best available strategy for businesses that are in inevitable decline, and it certainly maximizes short term cash generation… but it obviously isn’t sustainable for long,” wrote analysts led by Craig Moffett in a Monday note to investors.
Dish’s Q4 losses represent about 3.9% of its total subscriber base, according to MoffettNathanson, and “means that they now have lost 6.1% of their subscribers in just six months; their annualized rate of decline is in the mid-teens. No consensus was available.”
And it looks like there could be further trouble ahead. Disclosures in Dish’s 10-K filing, flagged by the investment research firm, show that T-Mobile notified about plans to shut down its legacy 3G CDMA network around January 1, 2022.
Dish wrote that a majority of its retail wireless customers use T-Mobile’s 3G CDMA service, and that means they would have to get a new device, new SIM card, or software download to continue service.
“These required measures would cause a significant disruption to our Retail Wireless subscriber base which could result in, among other things, a significant increase in our churn rate,” Dish stated in the filing. “Additionally, we would expect to incur substantial costs to implement these measures, and we may be unable to effectively implement them, such as the procurement of an adequate number of replacement devices in a timely fashion. As a result, there can be no assurance that these measures would be successful in reducing or controlling subscriber churn.”
Dish also said if it takes steps to mitigate and then T-Mobile delays the 3G shutdown, it could cause confusion and dissatisfaction among the subscriber base.
“The business is already shrinking, and quite rapidly so,” wrote Moffett.
The firm said that margin results were much better than Q3, with Dish’s retail wireless segment at 16.3% in Q4. MoffettNathanson noted earlier comments around the MVNO agreement that indicated Dish was getting a favorable wholesale deal from T-Mobile, and wrote that a well-run MVNO like TracFone (that Verizon’s acquiring) usually has margins around 10%.
“Unfortunately, the revelation about having to migrate its customers off CDMA so quickly suggests a very challenging year ahead, both for subscribership and for costs,” wrote Moffett.
For the full year 2020, Dish reported retail wireless service revenue of $2.14 billion and operating income of $162.74 million.
Dish on Monday also announced signing a Master Lease Agreement with SBA Communications, its second long-term deal with one of the big three tower companies. Crown Castle was the first, with a November deal covering up to 20,000 macro towers, as well as fiber services.
Dish’s fourth quarter earnings call is scheduled for later today.