Dish In No Hurry to Tip Wireless Buildout Hand, Ergen Says

On finding a partner, Dish “put our first preference on the table” in its “actionable offer” early January to the Clearwire board to buy at least 25 percent of Clearwire stock at $3.30 a share (CD Jan 10 p1), Ergen said. “It’s a pretty good deal for Clearwire shareholders. It’s clearly a better deal than what Sprint is offering.” If the deal goes through, “Sprint’s our most likely partner,” since Sprint is Clearwire’s 51 percent majority owner, he said. If Dish’s deal isn’t accepted, “then Sprint’s not our likely partner,” he said. “So we kind of have to wait and see how that plays out. That’s strategically the first kind of place we have shown a direction we'd like to go.” Dish thinks “we have other alternatives” if the Clearwire bid doesn’t pan out, he said.

Dish’s offer to Clearwire and indirectly its Sprint parent solves “a lot of problems for both those companies,” Ergen said. “We have a superior offer in terms of the shareholders and we offload a lot of their buildout costs by acquiring spectrum that may have to be jettisoned by the FCC anyway.” Dish and Sprint also “match up pretty well in terms of where our spectrum is,” he said.

The next moves are up to Clearwire and Sprint, Ergen said. “That’s the way it goes in life. You get to the fork in the road, or you're going to wait for the sign to change to tell you which way to go. Dish is at that fork in the road. We have multiple paths to go, depending on decisions other people make."

Ultimately, the FCC will “signal to us” that either it wants Dish in the wireless business or that it doesn’t care, Ergen said. “If they signal to us that they don’t care if we're in the business or not, then obviously selling the spectrum becomes more of a reality. If the FCC signals to us that they want us in the business, then nobody will try harder to get in this business than we will."

In his experience, Ergen said, there have been deals “I wish we could've gotten, and they didn’t happen, but three years later I'm sitting here saying I'm glad that deal didn’t happen.” Ergen today wishes “we had gotten Sirius radio,” he said. “Three years later, I wish that deal would've happened. Sometimes you lose. One thing I'm sure of, you can’t win unless you get in the arena. We're a company that gets in the arena, rightly or wrongly. Sometimes we lose."

Meanwhile, Dish thinks “we're a bit misunderstood” on its AutoHop commercial-skipping feature, Ergen said. “We see the advertising model changing. We see with the advent of the Internet and ways you can target commercials, we think we can’t as an industry put our heads in the sand to that. All models of DVRs skip commercials. All consumers skip commercials. We can’t ignore that fact.” Ergen thinks the advertising model will change “with or without the Hopper,” he said. Ergen wants broadcasters to know Dish is their “friend,” not “foe,” and can work with the major networks developing alternative ad models, including targeted commercials, he said.

Other disclosures: (1) Dish doesn’t fear that its looming retransmission consent renewal with Disney/ABC will be doomed over the AutoHop litigation, CEO Joe Clayton said. “We are a big customer of Disney’s,” Clayton said. “I do not expect them to take it down, with the AutoHop as the reason. That being said, anything can happen, but normally greed prevails, and there'll be a discussion and a win-win for both companies.” (2) Dish has no inside knowledge when an H-block auction might happen at the FCC, which has said publicly it wants to hold one this year, Ergen said. “I think the H-block auction will be the next auction to happen.” (3) Cord-cutting in the pay-TV industry “is here to stay and will accelerate over time,” Ergen said. “Our core business is a mature business. That’s why four years ago we decided to transform and take advantage of some of the trends we saw happening."

Also Wednesday, EchoStar reported revenue of $786 million for Q4, compared to $834 million for the same period in 2011. Total revenue for 2012 reached $3.122 billion, up from $2.761 billion, said Chief Financial Officer David Rayner. A key driver in the Q4 revenue dip was lower set-top box revenue from international customers, he said Wednesday during EchoStar’s earnings call. “We're aware of consumers’ growing desire to access the content that the consumers paid for and have it accessible to the consumer on any device that he or she owns,” said CEO Michael Dugan. EchoStar’s Sling Media is actively marketing to the pay TV operators directly and through set-top box original equipment manufacturer suppliers, he said. Dish’s introduction of Hopper with Sling, which advances the concept of whole-home DVR and adds TV Anywhere capabilities built into the set-top box, is expected to enhance the consumer experience, he said. EchoStar also developed technology that allows the transfer of recorded content to mobile devices for viewing when the consumer isn’t connected to the Internet, he said.

EchoStar is continuing to hold discussions with potential partners in Brazil to provide a direct-to-home (DTH) service, Dugan said. The company also is exploring other international opportunities to “leverage our expertise in DTH and broadband platform design and operations,” he said.

Testing on EchoStar’s Jupiter/EchoStar 17 satellite began last year and EchoStar is exploring wholesale partnerships for its services, Dugan said. “We're constantly ensuring that we have the right financials involved with the wholesale partners as well as the right offers at the retail level,” he said. “Our objective is to build the satellite as quickly as we can and the quicker it builds, the better cash flow we have,” he said. Dugan said EchoStar will continue to explore additional wholesale partnerships and “get every subscriber we can onto Jupiter/Echostar 17 as quickly as possible.”

EchoStar is in the early stages of its 10Q contract with Dish Network as the DBS company thinks about its wireless plans, Rayner said. He said he wouldn’t speculate on where Dish is going with the 10Q. EchoStar also wants to refresh Dish set-top boxes with the MPEG-2 and MPEG-4 technologies, Dugan said. There are some “hard stops due to the way the network is being configured,” he said. Most customers will have to be MPEG-4-equipped by a specific point in time, he said. “We're optimistic with the success of Hoppers and Joeys and the new products we're developing for them.” Dish is trying to upgrade its non-DVR customers, he said.

EchoStar 16 was designed to replace EchoStar 12, which isn’t fully functional, Dugan said. Traffic on EchoStar 12 was moved to EchoStar 16, he said. “The abnormalities on 12 are relatively minor.” EchoStar 16 has significant power improvement into a number of spot beams, he said. Rayner said an increase in EchoStar Satellite Services revenue is expected when EchoStar 16 goes into service.