DISH Network - Q4 2021

Transcript

Operator (participant)

Good day, and welcome to the DISH Network Corporation Q4 and year-end 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Tim Messner. Please go ahead, sir.

Tim Messner (Executive VP and General Counsel)

Thanks, John. Good morning, everyone. Thanks for joining us. We are joined on the call today by Charlie Ergen, our chairman, Erik Carlson, our CEO, Brian Neylon, EVP and Group President of DISH TV, Paul Orban, our CFO, and on the Wireless side, we've got Tom Cullen, EVP of Corporate Development, Stephen Bye, our Chief Commercial Officer, Dave Mayo, our EVP of Network Development, John Swieringa, President and COO of Wireless, and Marc Rouanne, our Chief Network Officer. Before we start, I need to remind you of our safe harbors. During this call, we may make forward-looking statements which are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from historical results or from our forecasts. We assume no responsibility for updating forward-looking statements. For more information, please refer to our SEC filings.

With that, I'd like to turn it over to our CEO, Erik Carlson, for opening remarks. Erik?

Erik Carlson (President and CEO)

Well, thank you, Tim, and welcome everyone. Thanks for being here today. I'm going to start off with a few brief comments and then turn it over to Charlie for a few additional remarks. When Charlie's done, we'll open it up to your questions. During the call today, we have a few slides that are available that we'll refer to on our investor site at ir.dish.com. Before I dive in, I want to start with saying that our thoughts are with the people of Ukraine and our team members. We have a small development shop there, and so this really hits close to home, and we wish them obviously safety and good health. Getting into details. On the whole, we executed with financial discipline and reported strong revenue and free cash flow numbers for the year.

Look, we need to do a better job with our subscriber targets for DISH, Sling, and Retail Wireless, and we've removed some headwinds in order to execute this year. Now in addition, we have accelerated our wireless network build and are excited to share more about this in a few minutes. With regard to the fourth quarter, DISH lost roughly 200,000 subscribers, and this was driven by several factors, the most significant being our local programming dispute with TEGNA for the majority of the football season. Now I'm pleased to report that we were able to come to terms and sign a new agreement with them earlier this month. In addition, we had a price increase in November that did have an impact on our subscriber numbers that will make a positive impact on the bottom line this year.

We kept DISH TV very profitable with a discipline in smart marketing expenditures. We managed to focus on acquiring and retaining long-term profitable customers. Look, we played where we're strongest, in rural America with higher credit quality customers. Turning to Sling TV, in the quarter, we lost approximately 70,000 subscribers. Simply put, we didn't execute operationally in the fourth quarter to the level that we expect of ourselves. As we talked about before, we needed to reengineer the platform as well as the user interface. We focused on that work last year and completed the majority of the effort in Q4. Overall, the feedback has been tremendous from our customers and validated by other third parties. Sling is a profitable business that will grow.

It's gonna require a little patience, but with the platform overhaul last year, we're now positioned to be able to innovate and enhance the customer experience with new features and differentiated offerings. Sling is still the best overall value in regard to other OTT services due to the service, reliability, live TV offerings, watch party capabilities, and its value price position. It's imperative that we execute on our plans on time and as intended. On Pay TV, we remain focused on acquiring and retaining profitable customers and delivering a great experience for both DISH and Sling. Switching gears a bit, our Wireless business is poised to take off in 2022.

Our Retail Wireless business is set to chart a new course, and while we lost approximately 245,000 subs in the quarter, our disciplined operational approach continues to pay off as we've driven profitability into that business. We build an operational foundation upon which to grow our Retail Wireless business. We had headwinds that impacted us, such as supply chain disruptions, specifically significant cell phone shortages and the burden of the CDMA shutdown. We've worked with our vendors to mitigate many of these issues, and we'll continue to make progress that we'll build upon in 2022. Our wireless network team has made significant progress over the past quarter and recent weeks. We'll begin opening up access to customers in numerous markets over the coming months. At a high level, we'll hit our June milestone with 20% of the population covered.

We currently have over 25 major metro markets ready to be deployed before the deadline, including around 100 smaller cities across the country. Look, we're excited about the coming months and the deployment plan for the rest of 2022, and we have the necessary capital to execute our plans this year. Las Vegas is already up and running. We've had friends and families using the network. We're about to expand it to additional customers in the coming weeks through Project Genesis. In addition, we're pleased with our results from the Auction 110 Spectrum auction, where we acquired bands that align well with our current C-band and CBRS holdings, and we're gonna tell you more about that in just a minute. We'll bring it all together in 2022. It's shaping up to be just a remarkable year for DISH.

We've got a lot to share as we evolve our business operations and our products and services and make deep inroads in the wireless space. It's gonna be a year of execution, and I'm excited about our opportunities. Our best days here are truly ahead of us. Now I'd like to turn it over to Charlie for some opening remarks.

Charlie Ergen (Chairman)

Yeah. Thank you, Erik. Just a couple things to maybe frame some of the questions that we may have time to get to today. Two big developments really since last quarter's call and one potentially very positive development. First, the auction results, one analyst kind of figured it out to some degree. Strategically, we were able to to win Spectrum in CBRS and then ultimately win in high-power C-band frequencies that are together that actually are adjacent to each other. That's important because of where we think not only our consumer network is going, but also where we think the private network enterprise business is going.

That was kind of a double bank shot. We had assignment rounds in both of those auctions, so we weren't sure that we could be adjacent to each other, but it was critical that we were, that we could do that, and we were able to do that. That was a big positive.

The second positive is that our network in Vegas, we actually have operational now a 5G standalone network that operates in O-RAN with O-RAN principles. It's cloud native in the AWS cloud with Vonage Voice. That is the most advanced network in the world. There we probably ended up doing a lot more development than we thought in some of the technologies with our vendors. But that is up and operational when it works, it works pretty well. Doesn't always. We still have work to do, we're not ready to spike the football. We have work to do to develop it through all the cities and to optimize the network.

The technical challenge has been resolved for some of the core things that we needed to do. The final potential positive is that we have reached an agreement with T-Mobile that resolves all the disputes that we have together today that have taken up an inordinate amount of their time and our time. We have an agreement that's in front of the FCC and the DOJ, so we won't be able to go into any great detail about that because they have to approve that.

The one thing that we can talk about that we've agreed is that we will support the March 31 CDMA shutoff, that we're working together both on communications, on handset supplies, on incentives, to get that done. There's some short-term pain for us, but we've already experienced a lot of pain with that with the uncertainty and the changing dates. Long term, our relationship will be able to be much broader and positive for both companies. Having said that, AT&T will still remain our primary vendor and the one that we work with on a day-to-day basis. With that, maybe we open it up to questions.

Operator (participant)

Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star followed by 1. Star 1 if you wish to queue for a question. We'll take our first question from Doug Mitchelson of Credit Suisse. Please go ahead, your line is open.

Doug Mitchelson (Managing Director and Equity Research Analyst)

Oh, thanks so much. I guess really just two questions. Charlie, you already started down this path, but when you cycle back to last summer when I think you were optimistic you could have a you know a market launch in Las Vegas in December. I know you've gone through the technical challenges, but I'm just curious sort of what have you learned over the last you know six, seven months what needed to be accomplished that was a little bit harder than you thought, and what's going better than you thought? Separately, you've talked about this $10 billion number for a few years now and sort of pleasantly surprised by the $2.5 billion CapEx number for this year and the $1 billion last year.

That means you're sort of $3.5 billion in plus a little bit of OpEx and some previous year development costs, but you know, you're trending pretty far below the $10 billion. I'm just curious sort of what's getting built to get to this 20% in all these markets relative to ultimately your 70% target. Is this just a thin layer of cell sites to start? Or when you built out Vegas, did you build out Vegas as you would to get to 70% and there's just, you know, some other spending that has to come down the line? Anything on that would be helpful. Thank you.

Charlie Ergen (Chairman)

Yeah, Doug, thanks. First of all, we're six months behind, and we're where we thought we'd be. It's my fault. We just didn't maybe anticipate that we would have to do as much on the technical side. The Voice, the Vonage Voice, other people around the world, China already has it. Other people are working on it. They've had issues too. We had hoped to ride a little bit more on their back and we're actually a part of the development. They're in a place maybe we didn't think we were gonna have to be.

Second thing is, within the company, just the management company, John, you know, Swieringa, you saw, is now the President and COO, and really a lot of what we're doing, we're building more of an IT network. Our wireless network looks more like an IT network than a traditional wireless network with cloud principles and O-RAN principles. John has worked his way over the last 14 years in our organization up to and been our CIO at one time and our COO for the company, and is the right guy day to day to drive that process. We've you know made improvements in terms of how we're structured.

We probably, you know, I think that ultimately we found that we had to become the system integrator. It wasn't a role that we thought we were gonna take on, but with all the vendors, somebody's got to be the middleman between there and the glue that holds them together, and we're much more involved in that than maybe we thought we were gonna be. A lot of lessons learned there, but we're certainly moving at a very fast pace now. We probably squandered some time, but that's my fault. The CapEx, a lot of reasons why that $10 billion number is a real number. First of all, our network build is very simple compared to our competitors.

Because it's a greenfield, we're able to go in and we're able to RFP, for example, the tower leases. We got real competition on tower leases. Because obviously, the numbers were gonna be great for us. The second, you know, it's one set of antennas, one low-band radio, one high-band radio, and then most of our cost is in the cloud. It's not at the base of the tower, where we really just have a server and a, you know, some batteries. That gives you a feel for 20%. By the way, that at the end of this year, through $3.5 billion of CapEx, will obviously be way more than 20% of the population. It gives you a feel for how we're able to do that.

Because we're in the cloud, we can automate and do things with provision and other things that people can't do, so our labor cost is less, and there's just a lot of reasons why we can do that. The second thing is probably not quite as well known, but in the auction, while we spent CapEx for our investment in the C-band and CBRS, where we are able to use C-band and CBRS for some fill-in, where we will have some gaps in coverage.

We know when we build Denver, we're gonna have some shadowing in some part of Denver that to build a micro tower to try to it'd be very expensive or expensive rooftop to try to get the coverage there. Obviously, with a new set of frequencies and we're able to do that actually save us money in a funny sort of way. Part of our investment in C-band and CBRS actually pays dividends for us in saving build-out costs for us on the back end. I hope that answered the question.

Doug Mitchelson (Managing Director and Equity Research Analyst)

Yeah. Thank you. Just to be clear, Charlie, sort of it's strange asking the question this way, but it was actually the other way. It's like the $10 billion is looking low given you only have $2.5 billion in CapEx this year and $1 billion last year. So I'm wondering when the, you know, the bulk of that $10 billion hits.

Charlie Ergen (Chairman)

Yeah. It goes out through 2025, right? Where we will have 75% of every county in the United States. I forget the exact, maybe CDMA. I don't remember exactly what it is in terms of the geographic region. We're on a cadence. Dave can speak to this a bit more, but we're on a cadence of so many towers per month, and that's just gonna go on for the next three years. And that-

Doug Mitchelson (Managing Director and Equity Research Analyst)

Got it.

Charlie Ergen (Chairman)

-we, you know, inflation's gonna probably be a factor in there, and then we got some unknowns that we don't know, and then we got some of the small cells that we don't know about. I think there's a lot of skepticism around the $10 billion, and I think that disclosure should give you some confidence. I think we're gonna spend the $10 billion at the end of the day. We'll come pretty close to it.

Dave Mayo (Executive VP of Network Development)

This is Dave Mayo. It's not only the progress relative to the 20% that'll hit this year's CapEx, but will also be advanced spending on markets to hit the 70% next year, which is probably the gap.

Doug Mitchelson (Managing Director and Equity Research Analyst)

Right. All right. Thank you all.

Operator (participant)

We will now move to our next question from Ric Prentiss of Raymond James. Please go ahead. Your line is open.

Ric Prentiss (Managing Director and Global Head of Telecommunications Services Research)

Thanks. Question on fixed wireless access. Some of the other operators in the wireless world have seen that as an interesting opportunity. How do you guys view your full spectrum position being put to work as far as, is that an interesting business case to y'all to go after not just mobility, but a fixed wireless access product?

Charlie Ergen (Chairman)

The answer is potentially in fact. First of all, it makes sense for them to do it, right? One of the things that all the wireless providers, but some that we've architected in is, that the real key to economics in this business is to use all your bandwidth, you know, to use your bandwidth, use the capacity that you actually have more, you know, use a bigger percentage of that. So while and you see both Verizon and T-Mobile, you know, do that. They get an extra $50. They use an inordinate amount of their capacity to do it, to get $50, but it's $50 that they get for capacity that otherwise would lie fallow.

It makes sense to us and so that's kinda point A. Point B is the other way to do fixed wireless is actually to not have a mobility portion of it and actually just do fixed wireless. You can propagate a lot farther, you can build it a lot cheaper, and that's also a place to use your frequency, but you don't have the mobility. You don't have mobility, you just have fixed when you use your frequency. That's another way that, at least in some portions of the United States, I think that might be a better way to go. The third factor is we see probably a better use case and from an economic point of view is private networks.

Utilizing people, giving people the ability to run their business in their cloud or a public cloud if they want to and actually use some of our frequencies in a private way and make sure that they have access to the data. That way, they actually can build a cheaper product. They can build a more safer product. They can monetize their data. We think that's gonna be another place. Private networks may use the data 24 hours a day as opposed to consumers. That's another way to get your capacity and usage up on a network.

The math, you know, when you start running the math on your economic models of networks that maybe are using 25% of their available capacity today, and you start moving that to 26% or 27%, maybe get to 33%, 34%, 35%, for all the wireless providers, that is huge incremental revenue potential.

Ric Prentiss (Managing Director and Global Head of Telecommunications Services Research)

Makes sense. A couple follow-ups on that then. The fixed wireless where you maybe don't need mobility, would that be more the rural areas?

Charlie Ergen (Chairman)

Well, it remains to be seen. I think the rural areas is a more logical place to start. You see some people doing that with some of the government money and things like that. You know, we've looked at it technically both ways. It's not clear exactly to me yet which is the right way to go. We're pretty well positioned. We have installation and service network around the country. We know you certainly improve your fixed wireless access to the extent you could put something on the outside of the house, which is something that the guys today are not doing.

You need to be able to go on a rooftop or have a ladder or have safety precautions or, you know, a dispatch system, which we have in place today. You know, I think it's a place to play, and I think that there's an opportunity to share spectrum there, where if you become successful, then you're gonna run out. You have limitations on how many fixed wireless customers you can get. You can see there could be economies of scale there, where you're going into a new market, where you're not competing in traditional handsets, but you're competing against cable for fixed wireless. I think that's a place where our industry might see some sharing agreements in the future.

Ric Prentiss (Managing Director and Global Head of Telecommunications Services Research)

Makes sense. On the private network side, do we expect to have some trials and maybe even usage announcements this year then with the network launching?

Stephen Bye (Executive VP and Chief Commercial Officer)

Yeah. Ric, this is Stephen Bye. Yeah, we're already active in that space. You may have seen one announcement with Lockheed Martin, that we're partnering on a project with them, with the DoD at Camp Pendleton. We have other projects that are currently underway, and we expect more announcements coming in the future on this space. It's an exciting space, and we're seeing momentum pick up. It's not gonna be material in 2022. We see that coming in, as we pick up momentum into 2023.

Ric Prentiss (Managing Director and Global Head of Telecommunications Services Research)

Great. Makes sense.

Charlie Ergen (Chairman)

The private networks is an interesting spot because some of our providers are very big in that space today, whether it be Amazon or Cisco or Dell, those are three of the bigger players in potentially there. You know, hopefully, we'll be working with one or more of those folks to make sure that we have the right product at the right time.

Ric Prentiss (Managing Director and Global Head of Telecommunications Services Research)

Makes sense. Thanks.

Operator (participant)

We will now move to our next question from Philip Cusick of J.P. Morgan. Please go ahead. Your line is open.

Philip Cusick (Managing Director and Senior Equity Research Analyst)

Hi. Thank you. It's great that Vegas is working. Charlie, can you give us some insight into what else has to happen before you can do a commercial launch and what that might look like?

Charlie Ergen (Chairman)

Well, first of all, we've got to optimize the network. Once you build the network, then you gotta optimize it. We're in the process of doing that today. That's one thing. We have some regulatory issues such as E911, which we have to be able to overcome, which we have not yet before we can launch commercial service, but we're certainly well down that path. We do use third party for that, so we don't quite control that as much as we'd like to do. We've got to work with the handset manufacturers to make sure that our band works and our frequencies are in the handset. Those are all the three things.

Then we have to have a marketing plan, right? In terms of how we approach the market. None of these things are in and by themselves difficult, but you have to do them all kind of come together at the same time.

Philip Cusick (Managing Director and Senior Equity Research Analyst)

Maybe to that point, post the Q4 debt raise and the spectrum auction, where are you on funding for wireless? You've outlined the cost of the network, but should we look for a big subscriber acquisition cost component as well? Thank you.

Charlie Ergen (Chairman)

Well, I think obviously we would think that from a retail wireless perspective, you certainly have SAC, right? But it's not nothing like it is in the satellite television business. We have ways to dial that up and down, and obviously, there's many ways to attack that side of the market. You know, from a funding point of view, we're funded through, you know, the next year at this point in time. I will say that obviously, you know, we certainly would, we'll probably need to raise capital sometime next year, right? We think there's a number of ways that we can do that. We think that's better to come to market when everything's working than us saying, "Well, we're gonna do it." It's better to say we did it.

Philip Cusick (Managing Director and Senior Equity Research Analyst)

Thanks, Charlie.

Operator (participant)

We will now move on to our next question from Walter Piecyk of LightShed. Please go ahead. Your line is open.

Rich Greenfield (Partner and Media and Technology Analyst)

Hey, Charlie. You've got Rich Greenfield because Walt is somewhere in Rome right now. The question Walt wanted to ask was whether the new T-Mobile deal substantially replicates the technical and pricing terms that you signed with AT&T, and then I've got a follow-up on retrans.

Charlie Ergen (Chairman)

I would say that the... I guess I wouldn't answer it quite that way. I would say it certainly improved economics. It certainly settled disputes that have been out there and involving the government, you know. It is not, in my experience, it's better to resolve things between companies rather than look at regulators to do it. I am really pleased that the companies are working together, really well, and there's adults in the room to make sure those things happen. That it's improved economics from a business perspective for us, that it's improved integration into how the networks work together. And there's a good spirit cooperation between the teams. That's a win-win for both companies.

Although it's a short term, we'll have, you know, increased churn and as we turn the network off, as they turn the network off, those people have to go somewhere. We just can't reach them all. We have to be prepared for them to prepare for some people who don't reach out to us and go someplace else. John, you may wanna talk about that.

John Swieringa (President and COO)

Yeah. Thanks, Charlie. It's John. We've been working through this really since we bought Boost, right? This has been a situation where we've been on defense. We've got the first half of this year in front of us to get through, and then we can shift to offense. Strong cooperation with us and T-Mobile to move the remaining subscribers. It'll be a busy quarter, but as Charlie pointed out, you know, we're able to sort of close this chapter and move forward and get to growth.

Charlie Ergen (Chairman)

You know, the strategic thing is DISH has its own owner economics as we build out our network city by city. We have the ability to use both the AT&T network as our primary network and to supplement that with T-Mobile's network, where we have a lot of customers already on T-Mobile that we don't have to move off in the short term. That's a pretty good place to be. You know, obviously we can't share the economics of that with you per se, but that model's I think you could figure that out.

Rich Greenfield (Partner and Media and Technology Analyst)

The follow-up, Charlie, you've obviously been very outspoken about retrans and sort of the shift of content off of linear broadcast TV and how it's less and less important as ratings have declined. Obviously, not having stations up was problematic for your subscriber numbers. You know, was this a win-win? I mean, I'm sorry, was this a win for DISH, a loss for DISH? Like, how do you, how do you think about how you fight the rising tide of retrans costs against the, you know, dramatically falling ratings and viewership of broadcast TV? It seems like a very challenging quandary for you.

Charlie Ergen (Chairman)

Well, I mean, I assume you're talking about TEGNA. I've always felt that anytime you get to a program dispute, it's a lose-lose situation. It's never a win situation for one guy or the other. It's always a lose-lose situation. TEGNA lost a fair amount of capital from us. They probably sold their company a little bit cheaper than they otherwise would have. We obviously lost customers. I mean, obviously, we proved that you can go through a football season without the network. As the NFL is more widely available other places. We did lose some customers who occasionally, you know, who watched the networks and felt they were important.

I've said this before, the value of retrans is going down, not up, for all the reasons you just stated. The place you could fight it is. I mean, one place is consolidation in the industry because then it gets to be a little bit fairer fight. Today the broadcasters are monopolies, yet nobody in the video business is anywhere close to that. That's one place you'll fight it. The second place is it'll die a death on its own if people try to overcharge for the product. You know, we've seen that with other programmers who just refused to see where things were going, and at some point, they self-destruct.

Rich Greenfield (Partner and Media and Technology Analyst)

Has it fundamentally changed your approach to retrans going forward?

Charlie Ergen (Chairman)

Well, I mean, again, I'll say this about the 100th time. We're unique maybe as a company, but we do look at the value of the programming to our customers. We have real-time data. We know how many people watch it. We know how long they watch it. We can use an algorithm to come up with a pretty good range of where we think the value of the programming is. We always then will overpay. We always will overpay because we have to value the customers that we lose, right? And then we have a number. And if we're at X and somebody is at 2X, we're not gonna carry it because it's more beneficial for us not to pay the money.

If they get to X, we'll do a deal. If they're X plus one, we won't do a deal. TEGNA was 2X. Didn't happen, right? We lost subs. They lost revenue. You know, by when football season was over, you know, where was the leverage, right? So, I mean, that's just the way it goes, unfortunately. It's true, you know, our customers like us. We get high scores in our industry. They hung in there with us. More than you would think of our customers agree that they don't want their costs going up, and they appreciate the fact that we're willing to not roll over and play dead in negotiations.

You know, at the end of the day, we got to a fair deal with TEGNA that's beneficial to both parties. Beneficial to our consumers, so we don't have to raise the price as much as everybody else is gonna have to raise prices.

Rich Greenfield (Partner and Media and Technology Analyst)

Thank you very much, Charlie.

John Swieringa (President and COO)

We will now take our next question from John Hodulik of UBS. Please go ahead. Your line is open.

John Hodulik (Managing Director and Sector Head of US Communications Group)

Great. Thank you. Maybe for Charlie, are there any early indications of how the network in Las Vegas is performing in terms of signal quality or speeds or capacity? You mentioned that you said it's performing well when it's working. I mean, I guess without getting too technical, can you explain sort of why it doesn't work when it doesn't and, you know, your efforts to overcome those roadblocks? Then secondly, you mentioned the wholesale agreement with AT&T. Are you guys loading traffic onto the AT&T network now? Is it sort of like all new gross adds on the prepaid side are going onto the AT&T network? Is there any room, you know, beyond what you guys have announced, to cooperate on the network deployment side sort of more holistically with AT&T? Thanks.

Charlie Ergen (Chairman)

Yeah, I'll let John take the second part. I was in Las Vegas. I go to Las Vegas every month, so I get to kind of see the progress. But I was there yesterday and so where we've optimized the network, the speeds are good and it works well. We haven't optimized the whole city. So just fun fact just for you guys, but you know, obviously, your team takes you to the places where they've optimized the network. But obviously, before we left, you know, we decided to go to the rest of the places where they hadn't optimized, and you know, we had some issues there.

The good news is we know when we get to optimize, and we make it work. Again, for me, personally, it's one of the greatest achievements this company's ever had. I can't tell you how important a network running, truly running in the cloud and O-RAN principles. I can't tell you how important that's gonna be and where this industry's gonna go, and how the United States can suddenly get some leadership back that they gave away years ago, and how it brings a whole set of people into that are creative.

It's like developers come in, you know, we get a whole lot of people creative who've been locked out because today networks are really primarily Nokia and Ericsson, and there's a whole set of people that like to come into the network and have things to offer and techniques and technology to do. It was beyond impressive to me to see it work. Having said that, we have. I'd only caution you that, that we have a lot of work to do to make it work everywhere and to light up, you know, 25 cities in the next 100 days, majors. You know, that's a lot of work. The good news is we're gonna get there. The bad news is we're not there yet.

John Hodulik (Managing Director and Sector Head of US Communications Group)

Got it.

John Swieringa (President and COO)

This is John, on the second half of the question regarding AT&T. This quarter, we are loading a substantial portion of our Boost Mobile customers onto the AT&T network. We've been working closely with AT&T to flow water through the pipes and make sure that everything's working well, so that we can provide a great customer experience. We're also enabling Republic Wireless and some of our other brands to load onto AT&T. You'll see us pick up our activities and our efforts there. It is on a new technology stack. We're building new technology not only for the network, but for our retail business, and we're pleased with our progress there, and will be great capabilities as we turn to growth.

Charlie Ergen (Chairman)

Yeah. You had a question about network sharing. I apologize, I didn't answer.

John Hodulik (Managing Director and Sector Head of US Communications Group)

Yeah.

Charlie Ergen (Chairman)

There's lots of potential for that, is what I would say with any of the vendors, any between any of the incumbents in the industry. You saw some network sharing announcements in Australia between, I think, Telstra and TPG Telecom. I think you have network sharing in Canada today. You got some in the U.K. It only, you know, given the new builds that people are doing, given maybe where people have adjacent spectrum, you could see where that could make some sense, right? Certainly I think all the operators will probably look at that. We probably look at it more than anybody else because we haven't built out our network yet everywhere.

You know, we're a little bit cleaner sheet of paper, but we also have a different technology. We don't wanna go back to last decade's network. We wanna go where things are going and make sure that we don't have to carry a bunch of legacy around.

John Hodulik (Managing Director and Sector Head of US Communications Group)

Got it. Thanks, guys.

Operator (participant)

We will now move on to our next question from Jonathan Chaplin of New Street Research. Please go ahead, sir. Your line is open.

Jonathan Chaplin (Managing Partner and Head of the U.S. Communications Services)

Thanks. Two quick questions, if I may. Actually, I've got nine questions, but I'm gonna narrow it down to two important ones. On the CBRS and the 3.45 GHz spectrum, as you mentioned at the beginning, Charlie, a really nice 50 MHz block of spectrum. What needs to happen for you to be able to use that as a 50 MHz channel? Do you need power limits between the two bands to be normalized by the FCC? Do the bands need to be consolidated into a single 3GPP band, or can you use it as is, as a single channel?

Then just following up on the last question, you've got 50 MHz that's contiguous. AT&T is right next to you with another 40 MHz in the 3.45 band. Neither of you have deployed that band yet. Is that a band, you know, is that an example of a situation where it might make sense for you guys to deploy the band together, and share equipment and deployment costs on that band specifically?

Charlie Ergen (Chairman)

Yeah, Jonathan, you're always ahead of your time. You should come do strategic planning for us. The first question is that if you look at page 4, if people who have access maybe look at page 4. It's a very simple chart that kind of shows you that we think CBRS band is gonna be the primary band for private networks, primarily because a lot of it's free and there's equipment available today and it's in phones today, so you can start deploying CBRS. It's kind of licensed because of SAS. It's kind of not quite, but it's kind of licensed unlicensed spectrum. But as you deploy it, you're always gonna wanna have some priorities, and that's why we're the only company with priority licenses across the country.

Then you're also gonna want super licensed spectrum, which is C-band. Of course, in this case, it has the added advantage of being full power. If I were in charge of spectrum policy in the United States, I would, without doubt, take a real hard look at increasing the power levels in CBRS. The C-band spectrum across the world is. Everybody in the world is at high power. We have to compete against other countries, and they don't have this band in the middle that's lower power, which, you know, has good news, bad news, but it's more bad news than good news, I guess is what I'd say.

I think there's a realistic chance that regulators will at least look at it to say, can we, if we're gonna compete against the world, should we rethink that? We've done analyses to say that you can have your cake and eat it too, that mid-power CBRS and high-power CBRS can coexist. We're unique in that we're in both bands, and so maybe Stephen, you wanna take this because I'm not maybe technical enough to explain it. But to make the. There's interference between the C-band and CBRS, but because we're adjacent to each other, there's some advantages there, but I'll let Stephen maybe give you a brief tutorial.

Stephen Bye (Executive VP and Chief Commercial Officer)

Yeah. Thanks, Charlie. Charlie's right. You know, we definitely are looking at how do we find a path to increase the power level on CBRS, but notwithstanding that, we can still operate given the current standards on CBRS and the adjacency with the C-band spectrum. There are technologies that allow us to be able to manage that interference between the two different bands to be able to leverage that spectrum in a common deployment model. We have the ability to do that because of the adjacency. We can coordinate that in a way that allows us to maximize the utilization of that spectrum.

Charlie Ergen (Chairman)

Jonathan, as you correctly point out, we paid over $400 million to get adjacent, right? That was a bigger percentage than historically has been done, but it certainly puts us in a better strategic position. Then the last part of your question was about AT&T. For the vast majority of the country is adjacent to us in C-band with 40 MHz. Obviously, given that our relationship is. They're a partner to us in terms of their network today from a roaming perspective. They're certainly, we are open to. They may know everything they need to do, and they may have no interest, but certainly, from an economic point of view, we think there may be things that you could do together there between C-band and/or CBRS, given our position there.

Jonathan Chaplin (Managing Partner and Head of the U.S. Communications Services)

Awesome. Thanks, Charlie. Thanks, Stephen.

Operator (participant)

We'll now move on to our next question from Brett Feldman of Goldman Sachs. Please go ahead. Your line is open.

Brett Feldman (Managing Director and Equity Research Analyst)

Yeah, thanks for taking the question. You know, you guys for a long time have said that as you build out a wireless network built on cloud technology, that you'll inevitably have a cost advantage. I think conceptually that's always made sense. As you've noted, you are now actually operating a network on this technology that sometimes works the way you want it to. You haven't scaled it yet, but can you start to maybe give us some insight as to what you think that sustainable operating cost advantage is gonna be now that you have some evidence as to what you've been able to do in the field?

Just as a follow-up to that, you know, I think we all anticipate that when you launch and go to market, you're gonna be offering consumers a really great value for the quality of service that you're delivering as you sort of flow through some of those cost savings to the consumer. I'm wondering if the architecture that you've chosen is also gonna allow you to deliver features and functionalities that might be a competitive advantage we're not putting enough thought into. Thank you.

Marc Rouanne (Executive VP and Chief Network Officer)

Yeah, this is Marc Rouanne. Yeah, we're starting to see benefits. We're certainly seeing benefits in the cloud now of something that is pretty costly for existing operators, which is to test new software and to embark on a new innovation. We have a speed and capability to do that that is truly comparable to the cloud and with much more automation. We require much smaller people and when we scale we think that will give us both benefit of speed and innovation, but also of costs.

We are also seeing with the Open RAN, you know, the Open RAN today is working in Vegas and in other markets, but we are starting to see a lot of new ideas and benefits from the Open RAN, observability, which means you can see things. You can see how the quality of service evolving. You can see how the benefits of your footprint, you know. You can see if you need new small cells or not in a way that was hidden inside Nokia and Ericsson in the past. That gives us a huge benefit over time to optimize the network and the return on the network in a way that nobody has done. We're starting to capture the data, and for engineers like me, it's pretty much incredible what we can see.

Yeah, we're starting to see the benefits. It's going to be a journey. I think we have the baseline now, and we're going to explore that in the coming quarters.

Charlie Ergen (Chairman)

Yeah. The other thing is on the private networks. I can't imagine an omniscient private network operator or somebody who wants to do it not going with O-RAN principles, right? I think, because you just gotta get the cost down, and you don't need as sophisticated a core. You don't need some sophistication in private networks that you kinda get and pay for, you know, given where the incumbents are. I think that's another place that we have, you know, huge advantage. Then into the features that the cloud and our architecture will give you, the answer is yes, there are some. There are any number of them.

We can't even predict probably some of them that will be there, but there are certain things that we'll be able to do in our network for consumers that I think may be more difficult or we can do more efficiently for our consumers than others, and we're looking at a number of those things. As we're able to go on offense, you know, we'll maybe perhaps be able to roll some of those things out. Maybe it's a 2023 event, but it's. I only gave you history. In DBS, the main architecture development was digital. The first thing we rolled out was interactive guide. That was a big difference in a scrolling guide in the analog world.

We gave a better picture, right? Because we're digital, we could do the DVR. You know, we don't quite get the credit for helping to invent the DVR, but we were the key player with the DVR. Once you had a DVR, of course you could skip commercials, which, you know, I don't know that I could watch TV if I had to watch all the commercials. You know, one innovation leads to another, and I think that's gonna happen here too.

Brett Feldman (Managing Director and Equity Research Analyst)

Thank you.

Operator (participant)

We'll move on to our next question from Bryan Kraft of Deutsche Bank. Please go ahead. Your line is now open.

Bryan Kraft (Senior Analyst, Media and Telecommunications)

Oh, hi. Thanks for taking the question. Just had two quick ones. First, can you just give us a sense for the timing of the $250 million that you've incurred related to the CDMA shutdown and how much more you might be committing to that effort, just as we build our models? Then secondly, any update on the supply chain issues and/or labor constraints as it relates to your ability to construct the network? It sounds like you've accelerated the plan, which is great, despite those issues. Would just love to understand, you know, how you've been able to do that and how much of a concern supply chain is at this point going forward. Thanks.

Paul W. Orban (EVP and CFO)

Hey, this is Paul. I'll take the first part of that question. Yeah, the $250 million, the majority of that happened the second half of the year as we were trying to meet the 12/31 deadline. Then John, do you wanna talk about the future?

John Swieringa (President and COO)

Yeah. We're in a similar situation, sort of as we work through the first half of this year, with respect to, customers that, we're serving, we sort of need to re-SIM them, right? There's a step to put new handsets in their hands to swap SIM cards and to incentivize them to come into our locations and work with us. We'll be continuing to see that through the first half of this year, as a headwind, but then we'll work through that. As we get into the second half of the year, as Charlie said earlier, we'll have two competitive networks as well as our own coming online. As we are able to bring in more handsets to compete and to grow our business, we'll be more competitive with the CDMA shutdown behind us.

Charlie Ergen (Chairman)

You know, as far as, you know. You never know where supply stuff, but certainly labor is an issue. There's certainly inflation in wages. There's certainly a fight for talent and some of the key talent we need and some of the technologies. You know, there's big companies that scoop up a lot of that, but a lot of people wanna come to work here. You know, we're doing something very interesting, and particularly from an engineering perspective to build the kind of network we're building is very attractive to people. Supply chain, you know, we certainly keep our eye on it because it's worrisome.

We're not far enough along in the next development to know whether it's gonna, you know, come up and bite us. To the credit of the team, we managed through some incredibly difficult times to get to the first milestone. We battled through incredibly tough times to build a network when people weren't coming to work. At DISH, they were coming to work, but a lot of our vendors' people were in Zoom calls, and you just don't solve problems on Zoom calls at the speed that you do, you know, when you got a whiteboard and you're all together. We don't have a lot of excuses here, so we're just gonna make it, I guess. I don't know how to say any other way.

I mean, we internally, you know, sometimes crying in our beer about something not going right for us, but at least externally, we don't have excuses. We're just gonna make it.

Tim Messner (Executive VP and General Counsel)

Operator, we have time for one more from the analyst community.

Operator (participant)

We will now take our final question from the analyst community. Members on the media call, please press star 1 now to enter the queue to ask the question. We'll begin the media portion of this call following the answer to this final analyst question. Our final analyst question comes from Craig Moffett of MoffettNathanson. Please go ahead. Your line is open.

Craig Moffett (Co-Founder and Senior Research Analyst)

Thank you. Two questions if I could squeeze in at the end here. One is that Charlie, at the NATE Conference, you talked about a bid that you got for your spectrum. I'm wondering if you could just put any meat on the bones about that. Then separately, this past quarter, there were renewed reports of the prospects of a merger with DIRECTV. I'm wondering if you could provide your latest thinking on the prospects for that actually happening regulatorily and in terms of being able to strike a reasonable deal.

Charlie Ergen (Chairman)

To answer your first question, you know, obviously we didn't own the last $7 billion of spectrum, so let me just put that aside. From time to time, we certainly have seen interest and bids from people, you know, for the company, you know, and we certainly had from time to time interest in a particular piece of spectrum. History will show whether we're right or wrong, but we've always felt like the best use was to build a new company and was to build a company around it and that the best use of it was for us to manage that. We have a long-term view. We realize everybody in this call does not, but we had a long-term view.

It's certainly taken longer than we thought, because we weren't able to get going in LTE 4G, so we had to wait for the next paradigm shift. Obviously, I've said it's, I think it's inevitable that DISH and DIRECTV go together. Otherwise, both companies will just melt away and there'll be no service for customers. The regulatory reasons to not allow it don't exist anymore. So, you know, and I can't. You know, from a timing perspective, I think it's inevitable. I don't know the timing of it, I guess, is what I'd say. You know what?

This is a little bit off subject 'cause this was the last question, but for the analysts on the call, I realize that we haven't been a company that talks a lot to analysts and we don't always share our strategies. In part because we don't want our competition to know our strategies. Our strategy is pretty well in place now. We had to get through this kind of double bank shot in the last two auctions, and we didn't really wanna talk about where that might lead. Now we have in place all the strategic things that we need to be a very big, successful company. We are gonna do an Analyst Day. I don't think we've done one in 15 years. Right?

We are gonna do an Analyst Day in Las Vegas on May 10. Put that on your calendars. You can come out and experience the network. But we're also gonna share a lot more with you in terms of where we're trying to go, and I hope that we'll be able to give you enough information to improve your models. I think you're gonna see the company be a lot more responsive in terms of letting you know a little bit about where we're gonna be going, 'cause we're excited about the fact that we got the pieces in place now. Mark that in your calendar. We look forward to seeing people there and getting feedback on that. With that, maybe we take media calls.

Operator (participant)

We'll now take questions from the members of the media. Again, if you're a member of the media and would like to ask a question, please press star followed by 1 now to enter the queue to ask a question. Our first question from the media comes from Scott Moritz of Bloomberg. Please go ahead. Your line is open.

Scott Moritz (Telecommunications Reporter)

Great. Thanks. Hey, Charlie. You mentioned private networks. Seems to be a pretty hot topic, especially this week, among many looking for an opportunity in 5G. I wonder if you could help me, and I hate to put you on the spot to explain it to the entire industry, but how would you describe the revenue model, the business model, the business case for private networks in 5G?

Charlie Ergen (Chairman)

This is a broad question. The biggest revenue model is, I think, pretty good for a lot of the people we're working with today. If you're a company and you had a private network, the reason you'd wanna do that is because you want. It's very similar to why ESPN wants to go direct to consumer. You don't want a middleman in the middle, and you want the data so you can make your product better and you don't need a middleman in the middle.

For companies that have a campus or manufacturing or a city or a fleet of vehicles or you name it, if you have a private network, you now can get the data on. If you're John Deere, you get the data on all your tractors, you make a better product and you can be having a more efficient product. You also know mechanically when you have a problem before you have a problem. Your customers love it 'cause you have a better product and it's less expensive and it's better and safer. The CIOs of the companies are immediately gonna see. They understand. They kinda figured that out. The revenue model then is for the things they need for private networks, they need Wi-Fi, right?

Think Cisco. In my head, I think Cisco, right? They need cloud. Think Microsoft, Amazon, Google, and others, right? They need unlicensed spectrum. Think CBRS, but they need licensed spectrum. Think one of the four incumbents, particularly DISH. They need core. Think people like Nokia, or think about people who build smaller cores, right? Or open cores that people can add on to, right? You think transport, you know? Think about towers and tower builders and the people that I saw with Nate yesterday, right? All those things kinda come together and how do you do that and who puts that together?

For us, the revenue model is kinda the goalpost or kind of, on the one end, what I would call CapEx light, where somebody just leases our capacity. That's really all they do. We don't spend any capital. They lease capacity. They're just a really big customer. They're like, you know, thousands of handset customers, right? But there's just one customer. Then or tens of thousands or hundreds of thousands of customers. On the other side, somebody may want a private network and they may get a contract, then you have a long-term contract, but you spend the money to build it out or your partners do, or you some combination of that. That's the revenue model. I'd be shocked if the Fortune 500 companies, if we sat here five years from now, the majority of the Fortune 500 companies didn't have private networks.

Scott Moritz (Telecommunications Reporter)

That's very helpful. Thanks.

Operator (participant)

It appears we have no further questions over the audio. I'd like to turn the conference back for any additional remarks.

Charlie Ergen (Chairman)

I think May 10. We might even do our earnings call on May 10, but we certainly will. We'll hopefully see a lot of folks on the call in Las Vegas.

Tim Messner (Executive VP and General Counsel)

Thanks for your time. Thank you, operator.

Operator (participant)

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.