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1 August 2019

Dish pay TV exodus slows, sees 5G-TV synergy on horizon

After smearing Dish Network’s pay TV business with the brush of disappointment last week following the agreement of an asset deal with T-Mobile and Sprint, the satellite TV operator filed its second quarter results which paint a slightly clearer picture of how future Dish will look.

But first and foremost, Dish Network lost 79,000 pay TV subscribers in Q2 which the operator is lauding as an aggressive slowdown from the 151,000 cord cutters in the year ago period. It leaves Dish dwindling on 12 million total video subscribers, covering 9.5 million Dish TV subs and 2.5 million on Sling TV, which gained 48,000 subscribers to offset satellite losses – making it a net decline of 31,000 video subs.

As a reminder, Dish has agreed to pay $3.5 billion for spectrum and $1.5 billion for Sprint’s pre-paid Boost mobile businesses, and new news this week shows that once the deal closes, the new company will essentially be a holding company with a video distribution business and a wireless services business. But the big question is whether the two will be complementary and if there is scope for synergy?

Dish says its current footprint of 12 million TV homes represents about 30 million handsets. There we have Dish’s initial pool of target customers, many of which Dish claims are disappointed with their existing mobile service, although we’re not sure how it got hold of such information. We suspect it will attract customers with a marketing campaign offering discounted deals for Sling TV.

Further down the line and potentially more disruptive to the market, Dish plans to enter the market as a facilities-based 5G broadband wireless provider by June 2023, by which time it aims to provide 70% of the US population with access to its 5G broadband network. However, as we have highlighted in previous coverage, the fear is that Dish will struggle to finance its 5G network build out without assistance from a partner company following its $5 billion wireless splurge, let alone compete in the OTT video market while supporting a shrinking satellite TV business.

When Dish first invested in spectrum, it was assumed that, if the firm built a 4G network, it would be initially to add new services, and multiplay options, for its TV subscribers, allowing it to raise ARPU and secure a larger part of each household’s spending.

But in the eight years since Dish acquired two bankrupt mobile satellite players – Terrestar and DBSD – for their spectrum assets, the 4G network has not been built, and the focus for 5G has shifted well beyond Dish’s own dwindling TV base. Now it has a seed user base thanks to acquiring Sprint’s Boost Mobile subscribers, it does not need its own TV customers to fulfil the role of the foundation stone for its mobile business.

“Dish is prepared to support the Boost and Virgin subscribers with excellent service, excellent technology and excellent value. And we are well-positioned to develop the market, based on the nation’s first 5G standalone broadband network,” said a Dish statement.

Interestingly, Dish TV SAC (subscriber acquisition cost) increased by $786 per activation, up from $763 last year. The increase in Dish TV SAC was due to higher hardware and advertising costs per activation. As for call center costs, the company simply plans to retrain employees on wireless troubleshooting instead of breaking the bank by building new dedicated call centers for its Boost wireless business.

All of this took first half 2019 revenue down to $6.4 billion, from $6.9 billion in the same period last year. Net income took an 18% hit to $657 million.

Dish also took the opportunity to take a jibe at networks which have been threatening and carrying out blackouts in heated negotiations with service providers. Charlie Ergen said people are watching channels less but those same channels are demanding more money. “We’re the first company to talk about that in a conference call, and we’re probably three years ahead of anybody else talking about this,” boasted Ergen.

Ergen also addressed any doubts about Dish’s credibility as a fourth player, as we assessed last week, saying frankly he is insulted by such conversations. “By the way, Dish has become the third largest MVNO – bigger than Cox, bigger than Charter, bigger than Cablevision. We didn’t become bigger than Comcast or DirecTV – so we’ve still got room to go,” commented Ergen. He waxed lyrical about how every man and his dog doubted digital compression in the 90s, claiming Dish was a trailblazer for the new architecture for how video would be delivered. He sees similar synergies between 5G and Dish’s future video strategy but has his work cut out convincing us.