DISH Network - Q3 2021

Transcript

Operator (participant)

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 Ehrhart. Please go ahead, sir.

Brandon Ehrhart (General Counsel of DISH Wireless and SVP and Corporate Secretary)

Thanks, Alan. Good morning, everyone. Thanks for joining us. We're joined on the call today by Charlie Ergen, our Chairman, Erik Carlson, our CEO, Brian Neylon, our EVP and Group President, Pay TV, Michael Schwimmer, our EVP and Group President of Sling TV, and Paul Orban, our CFO. On the Wireless side, we've got Stephen Bye, our Chief Commercial Officer, Dave Mayo, our EVP of Network Deployment, and John Swieringa, our EVP and Group President, Retail Wireless, and the DISH COO. We're not gonna 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 SEC filings. 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. With that, Alan, let's open it up to questions, and let's start with the analysts first.

Operator (participant)

Thank you, sir. If you'd like to ask a question, please signal by pressing star one 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. Again, for analysts, star one 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.

David Barden (Managing Director)

Hey, guys. Thanks so much for taking the questions. I appreciate it. So I guess, you know, 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? 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 kinda elaborate a little bit on where that's going?

Is that run rate gonna persist? Anything you can tell us about what's happening in Wireless would be great. Thank you.

Dave Mayo (EVP of Network Deployment)

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 working and helping us test the network. We were a little delayed as a consequence of, frankly, the Vegas network. I think about it as a pre-production environment or a development environment until fairly recently. This 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. 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. As it relates to the 20% threshold or POP requirement for 2022, as you probably saw, we've, in the queue, started 35 markets when we filed or at the end of the quarter. We're now up to 42 markets that have construction activity.

As it relates to the sites that are required to meet the 2022 obligation, we have building permits on 2/3 of them, which I feel really good about that. We're you know months away from the deadline, and we've got building permits on 2/3. We've started construction on well over 30% of the sites required for 2022. The build's very focused. I mean, 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.

Charlie Ergen (Chairman)

The dollars.

Dave Mayo (EVP of Network Deployment)

Oh, yeah. From a dollars perspective, you're right. The CapEx is ramped up and, you know, as you would expect, it's gonna 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 just because from a build perspective

We've tried to level the load 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 the GCs. It's just difficult to manage. We're on a ramp. I'll give you some color. We had last week almost 300 construction starts, and that number will continue to grow as we move into the first quarter, and then we'll stabilize that midway through the first quarter, and it'll run you know throughout the balance of 2022 at that level.

David Barden (Managing Director)

Perfect. Thank you so much for that color. If I could just ask one follow-up. The big debate has been, Charlie, maybe how you wanna come to market. You know, does DISH wanna be the last to market consumer smartphone broadband player, or does it, you know, wanna 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.

Charlie Ergen (Chairman)

Yeah. No, I think we're gonna do both. I mean, as a fourth player, we're not gonna dominate the retail handset business, and I know a lot of analysts are gonna look at us as this retail handset, but we'll get our fair share of that business. That'll be a very profitable business for us. 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 gonna do well in enterprise. It's a new market segment.

It's a market segment that can rival the kind of demand you see for consumers because on the enterprise side, when they can have their own private network, so to speak, a slice of a network, they're gonna be able to build their product safer, cheaper, better, and gain on the competition. It's gonna be a big market. We're well positioned for that because our opinion is that you need to be cloud-based and you need to be automated to do it, to slice your network. We're gonna have an advantage there, but the incumbents have an advantage of incumbency and brand recognition and that kind of stuff.

I think everybody's gonna 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. Stephen, you know, runs that side of it for us.

Stephen Bye (Chief Commercial Officer)

No, I think, Charlie, you characterized it very well. I think what's interesting in sort of the enterprise space is sort of the move to, you know, sort of Industry 4.0, and sort of the opportunity that that presents for enterprise customers to build a more efficient operating model. You know, with our platform, you know, 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. We do think we have some inherent advantages there, but, yeah, it's certainly gonna be a good business for everybody.

David Barden (Managing Director)

Thank you guys so much.

Operator (participant)

All right, next question will be from Jonathan Chaplin with New Street Research.

Jonathan Chaplin (Managing Partner)

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've still got left on the T-Mobile network. If you had your choice, how much time you would need in order to switch those over. 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 split 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?

Charlie Ergen (Chairman)

This is Charlie. I'll take the first part about CDMA and stuff, and Stephen maybe take the business side of the question. The CDMA shutdown, you know, obviously, since it's now extended to March 31st, we'll still have well over 1 million customers on the CDMA network. If T-Mobile has their way, those customers will lose service on March 31st. In fact, based on T-Mobile's testimony in California, many won't be able to make nine one one calls. We look at it a little bit different than T-Mobile. We look at it consumer first and say, "Why in the world do you want to disenfranchise 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. Despite our best efforts and aggressive efforts, we know that too many people will be disenfranchised. These are more economically challenged customers for the most part, which is why we're not able to convert them. It just seems like the wrong thing to do. I get that, and despite, there's other headwinds such as supply chain, and they haven't had enough units to do it. I would have preferred to work with T-Mobile, and we're there for them.

You know, if they wanna work with us and work together so that we can make sure we have enough units for customers and a better way is to work together to convert the customers. 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 it behind the backs of customers. That's something they'll have to live with their whole life. They're gonna have to live with the fact that they're anti-consumer and at the expense of profits. That's something that they're gonna 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, you know, deadline there. We'll continue to go as fast as we can. 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. We're here to work with them to make sure the consumers aren't disenfranchised. With that, turn it over to Stephen.

Stephen Bye (Chief Commercial Officer)

Yeah. Just on the question as it relates to AWS. Yeah, 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 with and different partnerships with other cloud providers as well. 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.

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. Just as an example, you know, in some opportunities, we're partnering with our sister company, EchoStar and Hughes, on certain opportunities that they're in segments that complement what we're doing on the terrestrial side as well. 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.

Charlie Ergen (Chairman)

Yeah, this is Charlie. Let me jump in. When you look at it from a big picture perspective, this is, you know, it's hard to model now 'cause we're certainly in the infancy of this, but we the way we look at it from a network perspective, where do we get the highest profitability per bit, right? We don't, you know, 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 cost you bring out of that. 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 on the enterprise business where we can say we're in the cloud. I don't think a business survives the next decade if you don't have automation, and you're not using artificial intelligence and you're not cloud-based. I just don't think you survive, with a rare exception, some old school industries maybe do, but you're just not gonna survive. We're on the leading edge of that.

We think that we move people there 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.

Jonathan Chaplin (Managing Partner)

Got it. Thanks, guys.

Operator (participant)

All right, next question will come from Walter Piecyk with LightShed.

Walter Piecyk (Partner and TMT Analyst)

Thanks. Charlie, can you tell us what exactly does consumer beta service mean? Like, what does that look like? 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. I'm just curious where you are with AT&T.

Charlie Ergen (Chairman)

We don't have roaming with AT&T yet, and T-Mobile's 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. You know, if you can't, I don't think you have a commercial service if you drive outside Las Vegas, and you don't have any service. We have to get that done. We're working through those issues. You know, it's not a secret that our relationship is not the greatest. That's difficult, but they've made commitments to-

Walter Piecyk (Partner and TMT Analyst)

Why not prioritize AT&T and just use them instead?

Charlie Ergen (Chairman)

They made commitments to the regulators and we've.

Walter Piecyk (Partner and TMT Analyst)

Okay.

Charlie Ergen (Chairman)

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. In terms of what our beta test today looks like, it looks like our employees, some people who've signed up on our system, are signed up to be a beta tester and then required to give us information. 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.

You know, but Walt, if you come to Vegas and you wanna go test it out, we'll, you know, we'll be able to do that for you. You know, the next kind of big thing for us is end of November when AWS has their re:Invent conference. It's around the 1st of December or something like that, and I think, you know, people will probably try to get to experience a part of our network then.

Walter Piecyk (Partner and TMT Analyst)

Okay. Maybe I'll come out for that. On a second topic, there's been some breaking news. Apparently, the FCC is backing down to the FAA, and C-band is now delayed. They're claiming a month, but obviously, we've seen with Ligado that these things can drag on much longer than that. You know, 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 gonna hold all that spectrum back? Because, you know, it's gonna 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. Is that an option that you'd consider?

Charlie Ergen (Chairman)

Answer is yes. We're a wholesale, and so we know it's public that we are leasing capacity to T-Mobile today. We do think there are other interested parties in leasing capacity. You know, I'm looking at Dave here because Dave is in a situation as he looks at his build-out, where does he have pockets? I think 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. Obviously, if 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 spend a lot of money on it, would be positive for T-Mobile probably, but not positive for the other guys.

Rich Greenfield (Partner and Media and Technology Analyst)

Charlie, it's Rich Greenfield. Just wanted to jump in and, just, you know, you're always so thoughtful on sort of the big picture of the video industry. I know you're sort of now in 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, every media company I've just listened to over the last week, all they talk about is their streaming services and not their 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, as viewership goes down, and they don't even care about the assets versus their streaming services? How does that affect how you negotiate retrans programming, et cetera?

Charlie Ergen (Chairman)

Yeah, I mean, I don't think it. It doesn't really change anything. I mean, it does change stuff because 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 viewership 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. Once you're through football season and once people find a way to get football next year, that's gonna be a permanent loss of viewers for TEGNA. Of course, people also can go get it from the networks. They can get Peacock from NBC directly. Maybe TEGNA gets revenue from that. Maybe they get more revenue than they do from us, and maybe that makes sense for them. We look at it economically.

You know, Sinclair is bigger than TEGNA, and we've had a long-term relationship there, and 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. You know, I said it last time, I think the moves in retrans are down, not up. I don't know what that does to valuations of. You know, you know, I saw, you know, Gray publicly said 50% of their revenues are retrans, and I think that's gonna come under pressure.

Rich Greenfield (Partner and Media and Technology Analyst)

Just to be clear, there hasn't been a deal signed yet from anyone.

Charlie Ergen (Chairman)

The end result of this is networks. You know, if you fast-forward a decade, I don't know that networks exist maybe for local news because they're pricing themselves out of the market.

Rich Greenfield (Partner and Media and Technology Analyst)

Just to be clear, no deals have been done at a down level yet, but that's where you think it's going.

Charlie Ergen (Chairman)

Well, TEGNA is down, and there is no deal done there. Sinclair is still up and obviously, we've had several extensions that are public. Beyond that, we just wouldn't talk about a current negotiation that we're where the company's still up. Did you wanna say something, Erik?

Erik Carlson (CEO)

No, I mean, Rich, I mean, you're right. I mean, retrans is still going up. Viewership is still declining. 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. Viewership continues to decline. That obviously puts pressure on our margins, and it puts pressure on, you know, our consumers' willingness to pay. We've got to be better at customer experience and a bunch of other things in order to, you know, combat the tax.

Charlie Ergen (Chairman)

I don't know why you wanna drive your customers to watch Netflix and Hulu, and you know, I don't know why you wanna do that, but they're doing it. You know, they have their own. I'm not in their shoes, and 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 place to go, absent some fundamental changes.

Rich Greenfield (Partner and Media and Technology Analyst)

Thank you very much.

Operator (participant)

All right, our next analyst question will come from Ric Prentiss with Raymond James.

Ric Prentiss (Managing Director and Head of Telecommunication Services and Media Equity Research)

Yes, thanks. Thanks. 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?

Stephen Bye (Chief Commercial Officer)

Yeah, Ric, it's a very good question. In fact, we do have both wholesale and enterprise lined up. We're very focused on the consumer trial right now. At the appropriate time, we'll talk more about what we're doing there on the wholesale side. What's actually exciting about the wholesale opportunity is, you know, 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. We will announce at a later date some further details on what we're doing there.

Ric Prentiss (Managing Director and Head of Telecommunication Services and Media Equity Research)

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 the intended space here for you?

Charlie Ergen (Chairman)

Yeah. 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. I think you're gonna 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 consumer basis. I think we're well positioned in that. You know, in a funny sort of way, video is most of your traffic, and we're pretty good at video. Satellite's a part of your connectivity, and we're pretty good at that.

I think we're able to differentiate in ways there, and you just have to stay tuned as we move through those issues and see where everything lands. 'Cause a lot of it depends on where the I mean, ideally, there'd be a standard and people would all deal with the standard, and it wouldn't be a sandbox, individual sandbox for everybody else. 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.

Ric Prentiss (Managing Director and Head of Telecommunication Services and Media Equity Research)

Makes sense. 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, or is this a good run rate, or was first half of this year a better run rate? Anything unusual in Pay TV SG&A?

Paul Orban (CFO)

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. Going forward, though, I think it is probably a pretty good run rate to look at.

Erik Carlson (CEO)

I think, Rick, I'd. You know, this is Erik. 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. 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. We'll see where that ends up, you know, over the next few quarters. We'll keep you posted on that.

Ric Prentiss (Managing Director and Head of Telecommunication Services and Media Equity Research)

Okay. All right. Stay well.

Operator (participant)

Okay. Next question will come from Michael Rollins with Citi.

Michael Rollins (Managing Director and Head of Telecommunications Research)

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 MHz spectrum that you have an option to buy from T-Mobile? Just curious what your thoughts are in terms of fully acquiring that spectrum band? Secondly, you've shared your thoughts in the past about the possibilities of satellite video mergers. Just curious your current thoughts, how the industry logic for that type of merger is evolving, and is there an urgency to try to get that done?

Stephen Bye (Chief Commercial Officer)

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 MHz. We decided to ensure that as we did the deployment, we would, you know, not have to come back and add an additional radio in the event that we decide to exercise that option. All the plumbing is in place, all the hardware is in place, the software is there. All we have to do is really activate those radios. And beyond that, even all the carrier aggregation combinations are already being designed in to be able to support that, depending on what we do with that option.

Charlie Ergen (Chairman)

Yeah. 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 AT&T to TPG and the question's probably 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 then, you know, I think it's prudent for anybody to wait till we have this, you know, our antitrust team. The government has the antitrust team in place, which could happen as, you know, maybe in the next month or two. See kind of how they're looking at mergers and seeing kinda what they're focused on and what they're not focused on. Obviously industrial logic is it's not there's not three competitors in the video business anymore, or four competitors. There's dozens of competitors and all with large scale.

The technology has changed the economic equation and, you know, if there's a combination than if there's not.

Michael Rollins (Managing Director and Head of Telecommunications Research)

Thank you.

Operator (participant)

Okay, we'll move on to our next question from John Hodulik with UBS.

John Hodulik (Telecom and Cable Analyst)

Great. Thanks, guys. Maybe back to the wireless network build. Thanks for the color on the, I guess, 42 markets. I mean, how many markets do you guys expect to build into to hit both the 2022 and the 2023 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 do you go? I don't know if you can give us a sort of towers or 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?

Do you change how you think about deploying infrastructure because of that roaming deal?

Dave Mayo (EVP of Network Deployment)

Yeah.

John Hodulik (Telecom and Cable Analyst)

Thanks.

Dave Mayo (EVP of Network Deployment)

Yeah, sure. Thanks, John. This is Dave. 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. When I think about what we're building, it's really the metropolitan areas in any of the given markets. I mean, we designed the footprint sufficiently large to minimize the handovers to other networks. The networks were built such that the handover back to T-Mobile would be on an interstate outside of town. That would imply that all of the key suburban areas and all of the geographies will be covered. Your question was, can you help dimension the 20% and the 70%?

I'd say that with respect to the 70%, that encompasses all of the major metropolitan areas across the country. If you think about, you know, cities over 500,000, they're gonna be, you know, in the continental U.S., if it's over 500,000 POPs, it's gonna be in the footprint, right? 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. 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.

It's primarily the middle of the country, where co-location is prevalent, and we can move very quickly. 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.

Charlie Ergen (Chairman)

Yeah. This is Charlie Ergen. I'd say, can I just add to it? We're already building for 2023, right? It just takes longer 'cause there's more rooftops and more permitting and things like that.

Dave Mayo (EVP of Network Deployment)

Yeah. Doing the site and the soft cost work, yeah.

Charlie Ergen (Chairman)

You know, you think Texas and Ohio and North Carolina and, you know, Dave knows this better than me, Florida. I think, you know, those are the markets that we'll give you more color on as we have internal competition here, and we don't wanna pick sides yet. Nobody's winning, nobody's getting the yellow jersey yet, and so we're seeing who kinda gets there, and we're having a little bit of fun with that and then we'll as we start seeing some of our 36 re-- what do you got, 36?

Dave Mayo (EVP of Network Deployment)

Yeah. 36 market organizations.

Charlie Ergen (Chairman)

Some of those guys are gonna get the yellow jersey, and then we'll be announcing.

John Hodulik (Telecom and Cable Analyst)

Thanks, guys.

Dave Mayo (EVP of Network Deployment)

The build's going really, really well.

Charlie Ergen (Chairman)

You know, I would say deployment isn't. I think every day we spend most of the time as a team, other than Dave, deployment's going, you know, we're on track for the 20%. It's really the execution of how you get all our vendors and all our software and all our radios to work together, 'cause it hasn't been done before anywhere and we're in the cloud. It's a little bit easier to make it work than traditionally. We don't need to build, you know, last generation's network. We gotta build where things are going, and it's more difficult, so the execution risk is still there for us.

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.

John Hodulik (Telecom and Cable Analyst)

All right, thank you.

Operator (participant)

Next, we'll go to Kannan Venkat with Barclays.

Kannan Venkat (Managing Director of US Media, Cable, and Telecom Equity Research)

Thank you. Charlie, maybe 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. Then just from a working capital perspective, as you head into next year, I mean, the current free cash flow run rate of roughly $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 PPV costs potentially stepping up post-COVID.

How should we think about the run rate for free cash flow, as we head into next year?

Charlie Ergen (Chairman)

Yeah. You want to take free cash, Paul? Because then John will take retail.

Paul Orban (CFO)

This is Paul. I'll take 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 amounts that you've seen.

Charlie Ergen (Chairman)

Yeah, I think the way to really look at it is absent the CapEx expense, right, is we're still in a strong free cash flow perspective, but CapEx will drag it down some.

John Swieringa (EVP and Group President of Retail Wireless and COO)

Kannan, 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.

You know, we did launch the Celero 5G this week, and we think it's going to do well for us. 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. We've been happy with it so far. A lot of work next year as we bring in devices for our own network, and certainly with Band 70 support and the like.

Kannan Venkat (Managing Director of US Media, Cable, and Telecom Equity Research)

Got it. Can I just follow up on the cash flow question? Broadly, as you go into next year, at some point, I guess, when, you know, before your revenue starts scaling, this potentially dips into a negative territory. Is there any thought in terms of how to finance some of the cash burn initially as your revenues scale? You know, should we expect that maybe over the course of the next 12 months or so?

Charlie Ergen (Chairman)

Yeah, I think we always look at the marketplace opportunistically, and if there's, you know, 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. Yeah, there could be cases where we go to market as well.

Kannan Venkat (Managing Director of US Media, Cable, and Telecom Equity Research)

All right. Thank you so much.

Operator (participant)

Next, we'll go to Doug Mitchelson with Credit Suisse.

Doug Mitchelson (Managing Director of Equity Research)

Thanks so much. A few clarifications, then a question. I guess the first 300 construction starts and that this last week, and that's going to ramp. 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, you know, well ahead of that. I'll just ask them one by one. Any thoughts on that?

Charlie Ergen (Chairman)

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.

Doug Mitchelson (Managing Director of Equity Research)

Okay. Sorry, Charlie, I thought at one point you had told us sort of just over 15,000, but maybe it's just tied to that FCC commitment. How should we think about the transition to AT&T on MVNO? I know it was sort of asked earlier, but is there like a percentage of 2022 traffic that, you know, 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.

Charlie Ergen (Chairman)

Yeah, I mean, I think a lot depends on T-Mobile. If they're not interested in a relationship, you know, they view it as a shotgun marriage by the Justice Department, I guess. I mean, you know, if they're not interested in a relationship, that obviously 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.

Doug Mitchelson (Managing Director of Equity Research)

Okay. I think.

Charlie Ergen (Chairman)

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 MHz and 5G, T-Mobile has done more in getting the 5G out, but on their low-band spectrum. Having said that, you don't, 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 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 MHz, I think T-Mobile has an advantage there. That's 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. The T-Mobile's still, you know, building that out.

Doug Mitchelson (Managing Director of Equity Research)

Yeah, got it. Last couple. The $10 billion of CapEx that was reaffirmed in the 10-Q 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?

Charlie Ergen (Chairman)

No, that's over an extended period of time. That goes to at least 2025, where we have continual build-out requirements beyond 2023. Dave can speak, but as you get into smaller markets, your costs are higher, or per POP, you know, obviously it's less POP. That's over an extended period of time through 2025. There is some confusion out there because our commitment number went up this quarter, right? Those commitments are really OpEx, right? 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, you know, $5 billion. That's all OpEx.

Obviously, there's revenue associated with, for sure, AT&T, there's offsetting revenue materially higher than that. That's not in our $10 billion. That's OpEx. The actual CapEx, you know, we're still on track to be $10 billion or better over an extended period of time. Not by 2023. It'll be less than that in 2023.

Doug Mitchelson (Managing Director of Equity Research)

Last one. You know, 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. Like, what's a good timeframe for investors to think about when enterprise becomes a really big business for DISH? 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.

Stephen Bye (Chief Commercial Officer)

Yes. On the enterprise, we have traction now in the enterprise segment. You know, the revenue is still fairly small. You know, 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 2022. I don't anticipate that to become material until we get into 2023. You know, we'll continue to grow that business scale out. We can grow that while Dave's building the network, because it's not constrained by geography. We can actually, and we are pursuing opportunities that aren't limited by the geography of the footprint we're deploying. 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 2022, but really not having a material impact until we get into 2023. That's kind of where we see the enterprise.

Charlie Ergen (Chairman)

I don't think we see a lot of CapEx for that business beyond what we do for our micro network.

Stephen Bye (Chief Commercial Officer)

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 by one.

Doug Mitchelson (Managing Director of Equity Research)

Great. Thank you for all the questions.

Operator (participant)

All right, your next line, question comes from the line of Craig Moffett with MoffettNathanson.

Craig Moffett (Partner and Senior Analyst of Telecommunications)

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? Because it would seem like all of those things have somewhat different implications for the network. 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?

Charlie Ergen (Chairman)

Craig, I'll take the last part, second part. We don't have a religion, and we look at the marketplace in terms of, you know, where you can get efficient execution. 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. We just look at where the marketplace and what's available and what makes sense from our capital structure long term. Good with that?

Stephen Bye (Chief Commercial Officer)

Yeah. In terms of the question on the enterprise, Craig, you know, it's really all of the above. There isn't any single application that, you know, 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. Depending on what vertical it is, depending on what, you know, 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.

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. There's no silver bullet and, you know, one application isn't gonna win the opportunity here. It's the ability to put it all together on a common platform.

Craig Moffett (Partner and Senior Analyst of Telecommunications)

That's helpful. Thank you.

Erik Carlson (CEO)

We'll take one more analyst call before we go to media.

Operator (participant)

All right, certainly, sir. Our final analyst question comes from the line of Ben Swinburne with Morgan Stanley.

Ben Swinburne (Managing Director and Head of US Media Research)

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. 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. 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 what, 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.

Charlie Ergen (Chairman)

Okay, fine.

Erik Carlson (CEO)

Hey, Ben, it's Erik. 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. Look, I mean, we've been talking on the call for quite some time about you know, a bit of a pivot strategy in DBS. 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 you know, inflection point where you're seeing a bit less switching. Some of that is obviously impacting our acquisition, and we're you know managing our spend on acquisition based on kind of response rates we're seeing. Some of it's benefiting, obviously, subscribers on the retention side.

I'll tell 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.

Charlie Ergen (Chairman)

Yeah.

Erik Carlson (CEO)

I mean, when that changes. I mean, look, there's just a lot of variables, right? You've still got COVID.

Charlie Ergen (Chairman)

Yeah.

Erik Carlson (CEO)

You've got some of our strongest and longest term partners now competing on the DTC, D2C 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. You know, there's a lot of variables to try to forecast what's gonna happen. You know, we're still focused in on, you know, profitability, providing customers a great customer experience. Our fourth J.D. Power win last quarter was, you know, great for the team, in order to celebrate, and a great testament to the efforts we put in on the customer experience side. I'll turn it over to Charlie on-

Charlie Ergen (Chairman)

Yeah

Erik Carlson (CEO)

On supply chain.

Charlie Ergen (Chairman)

On supply chain, I mean, there's no doubt there are supply chain issues, but there's a lot of issues. COVID, just 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. You know, we focus on it every day. You know, you're always gonna have challenges, and we just have to overcome those challenges. We're a company that has been in the office since May of 2020. We're working as a team and managing through those issues. Dave and his team have managed through the deployment issues, and we're still on track and we're not.

Yes, the FCC in our agreement, you do have supply chain issues as a reason you could be late, but that had to be a real reason. I mean, you wouldn't make that up. So we're just gonna get there. That's just the way we're gonna do it. On the handset, there's two other areas. You know, labor's an issue that our teams having to work extraordinarily hard because you know, there's not enough supply of labor out there today.

The handset issue is probably the biggest because we had headwinds in this January 1st shut off for CDMA, so we had to take handsets and give it to existing customers that would've been a new customer.

Ben Swinburne (Managing Director and Head of US Media Research)

Right

Charlie Ergen (Chairman)

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 had a lot more growth there. We don't have the scale that the incumbents have with the vendors, so I don't know that we get our fair share of handsets. We work extraordinarily hard to make sure that we're on their radar, 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 our own economics, that changes for us in a very positive way. John, do you want to talk about if we really haven't.

Retail is important 'cause a really positive story for us and maybe John can talk about in a second.

John Swieringa (EVP and Group President of Retail Wireless and COO)

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 to take the business to growth. We're taking a segmented approach.

To the different opportunities we see. Access to handsets is a key thing going forward. As Charlie said, we're definitely focused there. 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. 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. Additional handsets is something that we're definitely focused on. We'd love to be able to partner with T-Mobile on that, as Charlie alluded to earlier.

It's a daily focus here to make sure that we can keep our partners supplied and move the business forward.

Ben Swinburne (Managing Director and Head of US Media Research)

Got it. Thank you.

Erik Carlson (CEO)

Yeah. Operator, we're ready for a few calls from the media now.

Operator (participant)

Thank you, sir. 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 one 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 one if you'd like to ask a question as a member of the media. We'll pause for just a moment. Once again, everyone, that is star one if you'd like to ask a question. We'll pause for just another moment. All right, we'll take our first question from Scott Moritz with Bloomberg.

Scott Moritz (Reporter)

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." How would you address these concerns?

Charlie Ergen (Chairman)

Well, I don't think it should be a surprise that the capital expenditures are where they are, since we've, 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. I think we should have, you know, been a little faster on rollout in Las Vegas. I mean, I think that's fair. I think other than that, most everything else we're doing is probably better than we anticipated on. We're not, you know, exactly understood by the industry that much.

Part of it's 'cause we don't spend a lot of time going through strategically what we're doing, and we spend a little bit more time. It's a complicated story, and it's a little bit easier for us just to do it and then show people, as opposed to try to explain it. 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. You know, 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 networks.

You know, we have to do a better job of explaining our story, and we have to execute in our markets between now and June of 2022. 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. We're one of the few companies that has the ability to be able to think long term. If we just thought short term, we would be trying to get DBS subs five years ago, 'cause that's what people wanted us to do. I think we know where it's going.

We know the power of this network, we know how special this network's gonna be, and we know the opportunity. It's on us to execute and then give people the roadmap to see why their investment in DISH is a smart investment. You know, we have certainly work to do there, but you know, we're focused on making sure we get our network up and operating, and then we'll talk about it. There'll be a little bit in AWS. I think there'll be a little bit in Las Vegas and at AWS, at re:Invent 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 said we weren't gonna build the network. Now I think it's shifted to, okay, we get it that you're. I think most people believe we're building the network. Now it's, you know, can you stay under your $10 billion long term, and can you make it profitable? That we have to show.

Erik Carlson (CEO)

Okay. Operator, we'll take one more from the media.

Operator (participant)

All right. Certainly, sir. We'll take our last question from Amy Maclean with Cablefax.

Amy Maclean (Editorial Director)

Hi there. Thanks for taking my question. I just wanted to check in. Your comment earlier about TEGNA 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?

Charlie Ergen (Chairman)

It's Charlie. I don't think there's serious negotiation going on, really. I mean, I think we remain far apart. You know, we've got eight weeks of football left and, you know, then it's. We'll have lost the customers who can't find football somewhere else, and it remains such a huge tax that, you know, we know where that ends up. 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, so we know the economic value. We always pay more than the economic value because we have to factor in the customers that we lose.

The economic value to us is going down, not up right now, because we've probably lost you know. It's not a tidal wave by any means in terms of customer. They find another place to watch the news, and they find another place to watch football. They can save money. We give them a credit when they don't have TEGNA, so we give them a credit, so they save money. 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, but we're just apart.

Amy Maclean (Editorial Director)

Thanks.

Erik Carlson (CEO)

All right. Operator and everyone, thank you. We'll talk to you next quarter.

Operator (participant)

That does conclude today's conference. We thank everyone again for their participation. You may now disconnect.