Dish Network and former parent company EchoStar have maintained a rather convoluted relationship since Dish was spun out a decade ago; waters which were muddied further this week with the acquisition of EchoStar’s Broadcast Satellite Services (BSS) segment by Dish for around $800 million.
The transaction is significant on a number of levels, not least because Dish Network’s satellite business has suffered substantial subscriber losses. Yet the operator has spent a significant sum, including 22.9 million shares of Dish stock to EchoStar shareholders, on buying nine direct broadcast satellites two years on from inheriting a number of EchoStar assets.
But while the batch of EchoStar assets cherry-picked by Dish in early 2017 were key enablers for Dish’s TV services, both satellite and OTT, the latest could be geared more towards fixed wireless access (FWA) services in the US, a bandwagon Dish jumped aboard via the investment in Tarana Wireless, which makes advanced equipment for FWA and also has funding from EchoStar. Of course, FWA could fit well with Dish’s pay TV business to help bring multiplay bundles to rural areas, or to bypass the cable and fiber providers to offer cut-price packages in towns, though Chairman Charlie Ergen said his initial focus is rural, since other providers like Starry are targeting urban dwellers.
Interestingly, Ergen has also highlighted Japan’s new mobile entrant, ecommerce and content company Rakuten, as his technology role model. Rakuten is deploying a fully virtualized, cloud-native network, initially for 4G and later 5G.
So, with Dish’s subscriber-related revenue falling fast, seeing a decline of $275 million in Q1 2019 to $3.15 billion, taking control of EchoStar satellites which serve and manage DBS services in the US and Mexico, will cancel out recurring fees and will ultimately allow Dish to reduce costs. Getting EBITDA back to healthy levels is essential after taking a 10.9% hit in the last quarter to slip under $600 million.
By inheriting EchoStar’s BSS business, a transaction expected to close in the second half of this year, Dish Network will have access to telemetry, tracking and control services relating to Dish satellites. It includes products, assets, licenses and technology, and the business operations, revenues, billings, liabilities and operating activities, primarily related to those businesses.
“In 2017, when Dish acquired the EchoStar assets that we needed to deliver the Dish TV and Sling TV customer experiences, key broadcast satellite operations and services remained with EchoStar,” said Dish President and CEO Erik Carlson. “This transaction brings those operations, including the BSS satellites, associated assets and key team members, in-house, and we expect those additions will create operational efficiencies and improve both free cash flow and EBITDA.”
He is referring of course to the purchase of a group of OTT software and hardware developers from EchoStar Technologies, plus its managed fiber backhaul network, wireless spectrum licenses, its national and regional uplink business, as well as EchoStar’s 10% stake in the Sling TV – giving Dish a 100% holding in the OTT video service.
DBS spacecraft involved in the transaction will include EchoStar VII, EchoStar X, EchoStar XI, EchoStar XII, EchoStar XIV, EchoStar XVI, EchoStar XXIII, Nimiq 5 and QuetzSat-1.
With Dish TV now on 9.64 million subscribers and regularly clocking in a subscriber churn rate of over 200,000 a quarter (albeit a slowdown from 334,000 in Q2 2018 and 341,000 in Q3 2018), the business is on track to slide under 9 million satellite TV subscribers by year end. Dish cited the removal of HBO from its service by AT&T as a chief mitigating factor. Sling TV, meanwhile, made a slight recovery with 7,000 net additions in Q1, meaning the real damage to the Dish TV satellite business was actually 266,000 cord cutters. Who can blame Dish for trying to diversify its satellite business, particularly with fleet operators picking up lucrative government and communications contracts? But the deal won’t rescue the satellite TV business – that damage is done.