Dish Network (NASDAQ: DISH) wants to use its wireless spectrum to launch an innovative mobile video service, and is willing to partner with companies both in and out of the wireless industry to do so, according to Dish Chairman Charlie Ergen. The key to any teaming would be that Dish and its partner should be able to accomplish more together than they could apart, he said.
Speaking to investors and reporters on Dish's fourth-quarter earnings conference call, Ergen also said Dish might be willing to purchase 2.5 GHz spectrum; Sprint (NYSE: S) has said it might sell some of its unused 2.5 GHz spectrum.
Dish already controls 40 MHz of mid-band AWS-4 spectrum, 10 MHz of 1900 PCS H Block spectrum, and its designated entity partners won 25 MHz of spectrum in the FCC's recent AWS-3 auction. Ergen said Dish is open to working with a company like T-Mobile US (NYSE:TMUS) or even a company outside of the wireless industry. The first step, he said, will be to ensure that Dish's designated entities, Northstar Wireless and SNR Wireless, gain control of the spectrum licenses they won in the auction. Ergen said he expects the next few months to be filled with conversations with potential partners.
"We are going to entertain those things that will provide competition to this market place. We will entertain those things that are good for our shareholders," he said. Ergen said that Dish does not have any "pre-determined" outcomes of how it will proceed in wireless before it has those conversations--meaning, Ergen wouldn't hint at what Dish might do.
Ergen said that Dish's Sling TV over-the-top video service is part of a strategy to take video into the mobile realm because that is how "the next generation is going to watch television." Ergen said any Dish wireless offering will include video "at its core."
"And if that's going to happen then we have to have the infrastructure to do that," he said, according to a Seeking Alpha transcript of his remarks. "And so part of that foundation for any wireless project that we would do that we can envision that we would do are in partnership with somebody would involve a...heavy dose of video and content and we believe we've developed a platform that's precursor to do that on a wireless network."
T-Mobile CEO John Legere praised Dish last week during the carrier's quarterly conference call with investors, and hinted he would be open to working with Ergen. "I think Dish is a great opportunity, both for the country and for possibly T-Mobile," he said, according to a Seeking Alpha transcript of his remarks.
Ergen returned the compliment. He said T-Mobile "is a company we think highly [of]. I mean it's hard not to be impressed with what they've been able to accomplish in the last couple of years." However, while he praised T-Mobile's focus on the needs of consumers, Ergen made clear Dish is not wedded to working with any one company right now.
"Ultimately, companies get strategically aligned and there becomes a will to do something together better than what they can do individually," he said.
Ergen said that Dish is going to push the FCC to ensure that the AWS-3 band is interoperable with Dish's AWS-4 spectrum, but that Dish does not feel pressured to "do something tomorrow" in wireless. He noted that the company's spectrum licenses require that it build out a network covering 40 percent of the population served by its nationwide AWS-4 holdings by 2017. Dish has until the end of 2020 to cover 70 percent of the population.
Jefferies analysts Jefferies analysts Mike McCormack, Scott Goldman and Tudor Mustata wrote in a research note that Ergen "specifically pointed out that buildout requirements can be extended to 2020, giving the company plenty of time to find the most value maximizing opportunity. We continue to think retention of ownership through leasing is the most ideal outcome given the difficulty in earning proper returns in the currently unsustainably competitive wireless industry."
They added that "even if a decision is not reached by the mid-2017 initial AWS-4 buildout requirement, meeting the 2020 deadline would still be easily achievable through a lease, sale or wholesale agreement with any of national carriers (especially if AWS-1/3/4 interoperability is standardized)."
Ergen said getting that network built will depend on technology and how much resistance Dish faces within the 3GPP to certify its bands and make them suitable for use in mobile devices. Ergen said he imagined that "big guys" in the wireless industry, potentially a reference to AT&T Mobility (NYSE:T) and Verizon Wireless (NYSE: VZ), might throw up roadblocks in Dish's way. "We'll have lots of battles ahead of us," he said.
Additionally, Ergen and Dish defended the company's use of designated entities as partners to win spectrum in the AWS-3 auction. T-Mobile US (NYSE:TMUS) and AT&T Mobility (NYSE:T) have criticized Dish's bidding strategy, saying that Dish had manipulated rules designed to benefit small businesses in order to get $3.3 billion in discounts in the auction. (Dish's designated entities bid $13.3 billion and won 25 MHz of spectrum but qualified for a 25 percent discount.)
Ergen noted that Dish followed rules for the auction that were approved unanimously by the FCC. Ergen also dismissed as unfounded the criticism that Dish and its designated entities, Northstar Wireless and SNR Wireless, had created artificial demand in the auction. He said Dish bid "economically and every license that we bid on and we wanted to win and there was nothing artificial about it." He said that in an auction if a bidder wants to win something they just need to be a dollar more.
Dish made similar claims in a formal filing to the FCC. "And, contrary to the claims of some who have not analyzed the actual AWS-3 facts, increased auction participation and the availability of bidding credits to the DEs netted greater proceeds for the U.S. Treasury compared to an auction with no Des," Dish wrote. "Given the vast capital resources of the two largest wireless incumbents, it would have been difficult for any other entity to stay in the auction long enough to raise spectrum prices to their true market values. The greater chance for mischief happens when there are too few bidders, not too many. As a direct result of strong DE participation in AWS-3, American taxpayers gained billions of additional dollars."
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