COVID-19 is wreaking havoc on Dish Network’s existing business, but it’s not backing off plans to build a greenfield 5G network that it intends to make the envy of the world.
Dish’s access to the financial markets has been a big question mark as the COVID-19 crisis took hold and sent financial markets into a tizzy. But Dish indicated on the company’s quarterly conference call on Thursday that over the past 13 months, it has paid down $2.5 billion in debt and raised $1 billion in equity, and it continues to generate a fair amount of cash flow.
“The funding part is not the thing that’s keeping us up at night,” said Dish Chairman and co-founder Charlie Ergen during the call.
Dish has $2.3 billion on hand to fund its $1.4 billion acquisition of Boost Mobile and its other wireless initiatives in 2020. It still expects its 2020 wireless expenditures to be between $250 million to $500 million, although COVID-19 may cause it to be closer to the low end of that range.
A year ago, Dish was looking to build a Narrowband IoT (NB-IoT) network, and that wasn’t what it really wanted nor what the FCC wanted. Initially, it made sense, but it wasn’t going to move the needle in how people communicate in the U.S., Ergen said.
Dish is scrapping that NB-IoT network and is now building a 5G broadband network “that will be the envy of the world,” he said. That broadband network will use an open architecture, be cloud-based and align with Open RAN. It also has a 7-year MVNO agreement teed up with T-Mobile where it can start generating revenue with the purchase of Boost.
Dish is in the RF planning stage for its 5G network and is "far down the road" in tower discussions, according to EVP of Corporate Development Tom Cullen. Decisions about decommissioning Sprint sites can't happen until the acquisition of Boost closes, which could be June 1 or get pushed back to July.
Dish also said it will build its 5G network on a city-by-city basis and it is aiming for a core and 5G trial service in one market by the end of 2020.
As for the “mystery partner” that has been the subject of much speculation, Ergen said there’s a lot of third-party interest, without naming names. Particularly over the last six months, the momentum for the kinds of things it’s trying to do are clearly recognized by the people who know what a modern network should look like, he said.
“There’s no question in our mind that we are going to build a better network that’s less expensive and less expensive to operate and more flexible,” he said. “It’s Netflix versus Blockbuster.”
Dish has estimated it will need $10 billion to build its nationwide network that can be competitive and executives clarified that’s not just to meet the FCC requirements but to go beyond that.
Dish has always focused on a wholesale model and it’s entering the wireless retail business first with Boost, so it’s going to need to learn how to manage that. Boost’s stores are operated by independent dealers, and it’s heavily dependent on small business owners for sales and service functions.
Still, there are indirect costs, and “we’re looking forward to building those relationships with the independent dealers,” Ergen said.
Skeptics & believers
MoffettNathanson analyst Craig Moffett, who has a $15 price target on Dish shares, isn’t optimistic about Dish’s prospects, especially as COVID-19 wiped sports off the air for its satellite TV business and customers are hurting financially.
“It would be nice to imagine that the satellite TV business won’t matter for Dish’s wireless business. But Dish’s cash flows are supposed to be an important source of funding. If our calm before-the-storm interpretation is right, then Dish’s free cash flow from satellite TV will fall to almost zero within the next few years,” Moffett wrote in a note for investors Thursday. “History tells us that it is difficult, and rarely advisable, to fight a war on multiple fronts. Dish is fighting a multiple-front war.”
On the flip side, the New Street analysts say Dish truly has the potential to disrupt the U.S. wireless market. “We believe their all-5G network could drive a cost/GB that is ~35- 50% lower than the wireless incumbents, which should enable DISH to take meaningful share in wireless, creating significant upside for the equity. Most of the value we see in DISH still lies 5-10 years away, however, so the investment will require patience,” wrote New Street’s Jonathan Chaplin.
Ergen acknowledged during the earnings call that Dish, which accumulated spectrum over the years that it didn’t use until the NB-IoT came into play, has seen its fair share of skeptics. Just based on its stock price, it’s clear that people are skeptical of its ability to compete and build a network.
“We're not skeptical and we're just going to go do it. We're just going to go build it,” he said. “And you'll see… it's not the first time we've been in this situation.”