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8 November 2018

Dish and Liberty both suffer cord cutting, but broadband remains king

Both Dish Network in the US and Liberty Global in Europe reported this week, strong pay TV providers from each side of the Atlantic – both showing the presence of cord cutting among subscribers – the difference being that Liberty Global has significant and growing broadband connections to make up the difference.

Dish at least made more money this quarter, rising to $432 million net income in Q3, compared to $297 million in the same quarter last year, although some of that relates to adopting a new accounting standard, the ASC 606 revenue recognition standard – but not all of it.

We wrote in 2016 that Dish was on its way to become an OTT business and it would take 15 years of attrition to end up with revenues of just $5 billion from being a much larger classic DTH player with over 14 million customers. There is plenty to confirm that particular assessment in these figures, with Dish ending the quarter with 10.3 million DTH TV subscribers and 2.4 million OTT Sling TV subscribers, in all some 12.7 million paying video subscribers down from 13 million a year ago, 13.6 million a year before that and over 14 million before that.

We repeat our assessment today that we made then – the Dish management has to find an answer to this erosion, or face the consequences – so far it hasn’t.

Net subscribers declined by 341,000 in Q3, compared with an increase of 16,000 in Q3 2017. Of course when each Sling TV customer brings in closer to $20, compared to DTH ARPU of around $85, then the quarters when it quoted that 16,000 only loss included perhaps a further 150,000 subscribers that shifted from DTH to OTT. It has lost 3.7 million DTH subscribers, give or take, since 2013.  This is why it has seen such attrition in its value, holding at $14.6 billion, but once having escalated to the lofty heights of over $30 billion.

In the quarter net Dish TV subscribers declined 367,000 and Sling TV subscribers increased only 26,000 and churn has risen from 1.82% a month to 2.11%. ARPU is down, because of the constant shift of subscribers to Sling TV from DTH.

Year to date revenue for Dish is $10.31 billion, down $600,000 from the $10.91 billion it did in the same period last year. It may look like Dish has made progress on the net income front, with the 9 month net income up at $1.24 billion, from $713 million but this is partly because it spent $280 million in legal actions last year, add that to the new revenue recognition formula and you have most of the difference.

As usual Dish tried to kill the bad news with some good, pointing out that it had contracted with Ericsson to build a national NB-IoT network, which is purely for IoT transactions – low data rate sensor updates and the like, which gets Dish into the cellular market via the back door – satisfying build out regulations on spectrum it has cobbled together over the years through taking stakes in semi-bankrupt companies and then buying the spectrum rights from a privileged position of creditor.

The message is “Don’t look at my actual business, look at what I am planning,” and this has been much of the message that has kept up the value on Dish over the years that it has been offering this spectrum unsuccessfully to potential buyers.

Dish has signed lease agreements with tower companies to kick this off and a total spend on wireless between now and the end of 2020 will be between $500 million and $1 billion. And in 2021 through 2023 it will then have to muster $10 billion to build the rest of its network, and the company talked a lot about many sources of cash, but never specified where that would come from.

But achieving just 26,000 additions to Sling caused some concern among financial analysts, who are more used to 150,000 a quarter, but the lack of a firm contract means that some customers are churning in and out of the service.

If this is all pretty bad news for Dish, the numbers at Liberty Global across the pond show the same cord cutting that is going on everywhere.

First looking at VodafoneZiggo which Liberty Global owns just half off, we see revenues up fractionally, but €5 million down on the fixed network side, with cellular over balancing that; and fixed RGUs falling 26,000. In the past it tended to be a loss of video subscribers and telephony and a gain in broadband, but under Vodafone it is perhaps chasing different priorities, trying to turn Ziggo customers into Vodafone mobile customers, and so that’s where its results are seen.

At Liberty Global proper it has broken out those territories it plans to sell to Vodafone into discontinued European operations including Germany, Romania, Hungary and the Czech Republic – and continuing operations in the UK, Belgium, Switzerland, Poland and Slovakia.

There were subscriber losses right across the board in Belgium and Switzerland – in video, broadband and telephony, which we put down to management being busy elsewhere and not paying sufficient attention to broadband growth. Virgin in the UK made up for these falls entirely on its own with 13,000 additional video subs, 36,400 broadband and a massive 54,600 on telephony to add 104,000 RGUs in the UK alone. The other retained territories were flat. Q3 revenues were up 1.9% to $3 billion.

In the discontinued territories, which are in the process of being sold to Vodafone, Germany made significant gains in broadband and telephony against a small fall in video subs, and the Central European businesses were more or less flat. You very much get the feeling that Liberty Global has begun to think about Latin America and the Caribbean, rather than Europe.

Dish Network lost around 18% of its value during the day but recovered, with comments suggesting that the smart money has lost faith with Dish, and Liberty Global, with the perennial problem of reporting in dollars but which conducts its business in Euros and British Pounds, actually climbed 4% on its numbers.