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13 November 2019

Dish insists its cloud-native network budget is feasible, with “no plan B”

Dish Network is the latest in a series of new entrants that are gearing up for 5G as a result of other operators’ M&A. Like Iliad in Italy, Drillisch in Germany and others, Dish will gain network assets as a regulatory condition of a merger, in this case between T-Mobile USA and Sprint. Dish already owns significant tranches of spectrum, and has been promising to deploy a mobile network for some years, but gaining more spectrum, plus sites and Sprint’s Boost customer base, as a condition of the TMO purchase, will give it greater scale to mount a viable challenge to Verizon and AT&T.

But it still has a considerable challenge on its hands to provide a true alternative to the national US players. When it first acquired spectrum, initially from bankrupt mobile satellite providers, it was thinking in terms of adding mobile services to its pay-TV business to move towards a quad play for its own customer base. Now it is planning to target a far wider base, as a way to offset decline in its satellite TV business and become a full retail and wholesale mobile operator.

That will entail huge cost in building the network and marketing its services. For the network, Dish chairman Charlie Ergen aims to be cloud-native from day one, taking advantage of the lack of legacy network, and of the economics of open, programmable and automated platforms. He has put a capex budget of $10bn on a national network, a figure some commentators have dismissed, pointing to capex figures of $18bn and over $20bn a year for Verizon and AT&T (though not all for mobile).

Dish, like Rakuten – whose capex budgets have also been questioned by rivals – and Reliance Jio, believes capital and operations costs really can be transformed by a combination of cloud economics and extensive use of shared or third party infrastructure. (In Japan, NTT Docomo expects to spend about $7.1bn on 5G, with KDDI planning $4.16bn, SoftBank $1.84bn, and Rakuten $1.73bn.)

“Because we’ll be cloud-native in that network we can just do things faster, better cheaper,” Ergen said Dish’s recent third quarter earnings call. “We don’t have the legacy of 2G, 3G and 4G. The cost structure goes down across the board.” He added: “The vast majority of capex for the incumbents is not for 5G, it’s to maintain the legacy. We don’t have that cost going forward.”

In the first phase, Dish aims to keep the network asset-light, saying that, since it would not have large numbers of customers on day one, as a new entrant, small cells will be a second-phase priority. It will look to minimize equipment on macro towers – and therefore costs – by moving a substantial proportion of baseband processing to the cloud and stealing a march on rivals by creating a cloud-centric, highly virtualized platform that can behave in an agile manner. The company has strongly hinted that it will improve its costs further by using some non-traditional suppliers, again referencing the Rakuten deal.

Ergen has said Dish will need to raise capital to afford the $10bn price tag he has put on the 5G roll-out, but he will be looking for infrastructure partners to reduce the capex cost. “We’re probably not going to build towers and we’re probably not going to lay a bunch of fiber,” he has said in the past, nor does he expect Dish to build its own cloud and edge compute capability.

To help fund its network, Dish is proposing a rights offering of $1bn.

Craig Moffett, analyst with MoffettNathanson, is one Wall Street analyst who believes that the costs of Dish’s 5G network will be far higher than $10bn despite the extensive use of cloud-native technology and the lack of legacy. Dish has already been building some mobile networks, to satisfy FCC mandates on some of its existing spectrum bands, and though has just been deploying NB-IoT – which requires limited bandwidth and site numbers – it spent $189.9m on sites and equipment in the third quarter, up from $59.2m in Q2. “That’s still only a trickle compared to what will soon be required,” Moffett noted. (Dish has now suspended its NB-IoT build-out pending the result of the Sprint/TMO deal, and will migrate to all-5G should the deal be green-lighted.)

Rakuten has said it can build its network with a capex bill that will be 40% lower than for a traditional, non-cloud network of the same scale. But analyst Roger Entner of Recon Analytics told FierceWireless that Dish’s estimates are still over-optimistic. “By doing a virtualized network based on open RAN, Ergen can realize massive 40-60% reductions, but not 100% reductions,” he said. “It’s not a free network. You’re not repealing the laws of gravity.”

Even Ergen, despite Dish’s bullish comments about low capex, seems prepared to go higher. “Any good business plan today can raise way, way more than $10bn,” he said. He even hinted that he might invest personal money, when asked that question by an analyst on the earnings call. He said he could not comment for legal reasons, but added: “I have liquidity.”

Of course, the first challenge is to see the merger of T-Mobile and Sprint completed. Although it appears to be close to the finishing line, having jumped most regulatory hurdles, there are still some state-level legal cases to be heard.

Ergen insists Dish is “not working a plan B” and making full-scale preparations on the assumption that the merger will eventually be approved, triggering the divestment of the Sprint assets to his company. He said on Dish’s earnings call: “Everything we’re doing here is assuming this merger’s gonna go through.”

Dish has already issued three RFPs for its planned network, covering equipment, software and roll-out services. Tom Cullen, Dish’s EVP of corporate development, said the firm had received “dozens and dozens” of responses to its three RFPs, but has not finalized any deals yet.

And last week, Dish announced two new senior hires for its mobile team. Marc Rouanne, formerly head of networks at Nokia and chairman of the board at Alcatel-Lucent, joins as chief network officer; while Stephen Bye, formerly president of regional US operator C Spire, and CTO of Sprint, comes on-board as chief commercial officer. “Marc will architect the network and Stephen will commercialize it,” Erik Carlson, Dish’s president and CEO, said.

“A visionary and advocate for software-defined and natively automated networks, Marc will be the ideal partner and leader as we design and build the nation’s first cloud-native 5G broadband network,” said Ergen, in a statement. Rouanne was pivotal in ensuring that Nokia became software-driven at an earlier stage than its rivals, introducing architectures such as Liquid Net before the industry was widely talking about open, virtualized platforms.

Interestingly, Bye also headed up cableco Cox Communications’ development of its mobile platform and services in the early years of the century. Cox exited that business in 2011, after grand plans by the four leading cable operators of the time, to partner with Sprint and build a near-national broadband wireless network between them, fell apart. However, several of those cablecos are now re-entering the mobile market with better technical enablers and partnerships under their belt, and the likes of Comcast and Charter have acknowledged the valuable lessons learned from that earlier experiment. With Dish trying to pull of the same trick of transforming from a video-centric business to a mobile and quad play model, Bye will bring important insights – Dish, after all, has better tools than Comcast, Charter and Altice, thanks to its extensive spectrum, but it lacks real world experience in cellular services, and its core service and brand are suffering more than those of the leading cablecos.

But Dish is certainly entering the market at a time of change and of rising competition (including from the cablecos). “The United States has the highest prices in the world for mobile services,” Ergen said. “It’s ripe for disruption.” Dish may find itself helping to bring down those prices rapidly in the 5G era if it responds directly to T-Mobile’s promised entry level tariff of just $15 a month (if the Sprint deal is permitted). One of the assets Dish will buy in the event of that merger is Sprint’s Boost brand and customers, which has targeted the lower end and youth consumer market which has also been most susceptible to TMO’s disruptive Uncarrier pricing.

Some analysts still believe Dish should back away from building a network and sell its spectrum instead. Moffett still believes that, if the Sprint/TMO merger is rejected, and the Dish deal killed, that would be the “best scenario” for the satellite firm. Dish would “then be more likely to be spectrum sellers rather than network builders (yes, that’s still the best case scenario for most people, at least judging from the conversations we’ve had with current and would-be shareholders),” he wrote in a research note.